JPMorgan Chase

JPMorgan pulls out of China Everbright Bank's Hong Kong share sale

Exit follows move by US authorities to look into reports the bank hired party leaders' offspring

PUBLISHED : Wednesday, 20 November, 2013, 2:55am
UPDATED : Wednesday, 20 November, 2013, 2:55am

JPMorgan Chase has pulled out of a syndicate of banks working on China Everbright Bank's US$2 billion share sale in Hong Kong, two people familiar with the matter said.

The United States bank's abrupt withdrawal from the syndicate is a rare event. The Beijing-based lender is expected to decide today whether to proceed with the bookbuilding process to complete its long-awaited H-share listing this year.

The US authorities are looking into allegations that JPMorgan hired the offspring of Communist Party and business leaders on the mainland in order to win new business and contracts.

Coincidentally, the New York-based bank at one point hired Tang Xiaoning, the son of China Everbright Group chairman Tang Shuangning, who has been at the helm of the financial group since 2007. The senior Tang was a vice-chairman of the mainland's banking regulator before his appointment to Everbright Group, a state-controlled financial conglomerate.

It is very unusual … for one of the key joint bookrunners to exit

The US authorities also have questions about JPMorgan's hiring of Zhang Xixi, the Stanford-educated daughter of one of the mainland's most powerful railway officials, Zhang Shuguang.

And The New York Times revealed last week that Wen Ruchun, the only daughter of former premier Wen Jiabao, had received a US$75,000-a-month contract from JPMorgan, offering fresh evidence that the bank offered employment or contracts in exchange for business with state-owned companies.

The bank, which is co-operating with the US authorities and conducting its own internal scrutiny, has not been accused of any wrongdoing.

Separately, JPMorgan and the US Justice Department yesterday agreed on a US$13 billion settlement of civil charges concerning the bank's sale of mortgage-backed securities that were partly bought through the acquisitions of Washington Mutual and Bear Sterns.

A Hong Kong-based JPMorgan spokeswoman and China Everbright Bank declined to comment on the US bank's withdrawal from the listing syndicate.

In the absence of any official explanation of JPMorgan's withdrawal from Everbright Bank's Hong Kong float, which was originally planned to follow Agricultural Bank of China's US$22 billion dual listing in Shanghai and Hong Kong in mid-2010, bankers involved with initial public offerings suggested that mounting regulatory pressures from US agencies had forced JPMorgan to drop out of the syndicate at the last minute.

"It is a very unusual circumstance for one of the key joint bookrunners to exit from a long-planned transaction," a senior European banker said.

Under the latest plan, Everbright Bank plans to offer its H shares at a marginal premium to its Shanghai-traded shares, with a total offering size of about US$1.6 billion, according to bankers from two syndicate banks.

Shares of Shanghai-listed Everbright Bank fell 6.2 per cent this year, with a current price-book ratio of 0.88 per cent.