Everbright Bank IPO odds dented by trading mishaps, US regulator's probe

Investigation by US authorities into JP Morgan's hiring, trading mishaps at group's securities unit could undermine lender's listing chances

PUBLISHED : Tuesday, 20 August, 2013, 12:00am
UPDATED : Tuesday, 20 August, 2013, 4:35am

Clouds are gathering over China Everbright Bank's third attempt to list in Hong Kong amid investigations by regulators in mainland China and the United States.

Beijing has launched a probe into one of its sister firms, Everbright Securities, after a glitch in its automated trading system sparked a mini-rally in Shanghai on Friday.

In addition, US authorities are investigating the hiring activities of JP Morgan, the investment bank Everbright Bank has tapped to manage its share offering.

Compounding matters, the Shanghai-listed broker involved in the "fat finger" trading error on Friday suffered a similar glitch in the bond market yesterday.

That was after the broker had said its proprietary stock trading platform was suspended for three months, until November 18, pending the investigation by the China Securities Regulatory Commission into last week's erroneous 23.4 billion yuan (HK$30 billion) buy order.

In yesterday's incident, the brokerage gave the wrong price information when it traded 10 million yuan of government bonds. It sold the fixed-income securities at a yield of 4.2 per cent - 25 basis points higher than the previous trading day. Normally, bond yields fluctuate in a range of 5 basis points.

The brokerage said it was talking to the trade's counterparty to sort out the error.

Everbright Securities, one of the largest brokerage firms on the mainland and part of the China Everbright Group, warned in a statement to the Shanghai exchange about "over-investment risks".

It requested trading in its shares be suspended yesterday. Trading will resume today.

Meanwhile, Tang Shuangning, the chairman of Everbright Bank, is in the spotlight after a report said the US Securities and Exchange Commission had opened an investigation into JP Morgan's hiring of his son.

Tang's son no longer works for the US bank but the commission is probing whether the hiring of children of China's politically connected helped JP Morgan win business in China.

In response to the probe, Everbright Bank said in a statement on Sunday that it had shortlisted JP Morgan as one of the sponsors of its Hong Kong float because of its expertise.

The Hong Kong market had been looking forward to Everbright Bank's float. It had been expected to raise between US$3 billion and US$4 billion from the sale of 12 billion shares.

Analysts say the bank needs the listing to replenish its capital base.

The bank's capital adequacy ratio stood at 9.9 per cent as of March and its core tier-1 capital adequacy ratio was 7.5 per cent - low compared with other banks.