Why is JPMorgan Chase being so heavily investigated?
Poor JPMorgan Chase. Its businesses in the last few quarters have been described as firing on all cylinders. But it keeps running into trouble with US regulators. The latest is a probe into its Hong Kong branch's hiring practices, which reportedly involved its previous employment of two children of senior mainland Chinese officials. Many people in the global financial world are scratching their heads.
The hiring of so-called princelings has been practically de rigueur for major foreign banks and financial institutions with large operations in China. But exploiting guanxi, or personal connections, is hardly peculiar to China. The hiring of important officials and businesspeople to secure new business or gain a commercial advantage happens everywhere.
JPMorgan and other people involved deserve the benefit of the doubt before any regulatory findings. But why single out JPMorgan when everyone is doing it? For a start, it's a welcome signal that US regulators don't just go after foreign banks while taking a softly-softly approach in their own dealings with US banks, as has been the perception of many around the world since the onset of the financial crisis.
If it is the start of a process that will show US regulators are willing to exercise the same regulatory scrutiny with domestic banks as they do with foreign banks with operations in the US, this will certainly be a positive development. JPMorgan faces a string of regulatory probes. Two traders involved in the US$6 billion "London Whale" derivatives trading loss have been charged. It has also been heavily fined for market manipulations in its energy business in the US. As a result, its share price has dropped, but it was nothing like the plunge when the London Whale trade was first disclosed.
It may be too much of a stretch to claim the regulators are going after JPMorgan because its CEO, Jamie Dimon, has been the most vocal US banker speaking out against financial reforms. It is interesting, though, that after all the bank's regulatory woes he has pretty much shut up.