The US Justice Department and the SEC are investigating the hiring practices of Wall Street banks – in particular JPMorgan in Hong Kong. The nagging question is: why?
The probe focused initially on hires that might or might not have helped JPMorgan win investment banking deals from China Everbright, a state-owned financial services company. It is now thought to have widened to include other banks, but JPMorgan has become the lightning rod for all issues involving so-called princelings.
These relatives of high-ranking Chinese government figures have long been a fixture in Hong Kong. They tend to be well educated and their connections inside China are valuable to banks seeking to do business there. US regulators are trying to determine if certain hires that worked on certain Chinese IPOs violated US laws against paying bribes beyond US borders.
It smacks of the US picking on a practice that is well entrenched in Hong Kong and that is probably necessary to get things done in China under its present governance structure. For US regulators to try to clamp down on such practices suggests they are out of touch with the realities of doing business in countries, such as China, that are increasingly important not only to US banks, but those from across the world.
With competition from local Chinese firms and those from elsewhere in Asia on the rise, US regulators will do well to accept that things are done differently out east and that suggesting that a practice that is widely accepted and known in its home market is inherently murky or automatically wrong will serve only to blunt the ability of US banks to compete for business in China.
It is also worth remembering that nepotism is alive and well in the US and that the City of London’s old boys’ network is just as effective as ever. Almost every US and European bank active in the Chinese IPO market in the past few years has hired princelings at some stage. If that is a shock to US regulators, they should go back and do their homework before launching ill-founded investigations.