By David Henry
NEW YORK, Aug 19 (Reuters) - A federal bribery investigation
into whether JPMorgan Chase & Co. hired the children of
key Chinese officials to help it win business is just the latest
in a series of legal and regulatory headaches for Chief
Executive Jamie Dimon.
Dimon piloted the bank through the financial crisis, but it
is now facing at least a dozen investigations from federal
agencies and state and foreign governments, including over the
"London Whale" trading scandal that cost it more than $6.2
In the latest probe, the Securities and Exchange Commission
(SEC) is looking at whether the bank's Hong Kong office hired
the children of powerful heads of state-owned companies in China
with the express purpose of winning underwriting business and
other contracts, a person familiar with the matter said.
The SEC is questioning JPMorgan's relationships with at
least two families in China that may have legitimate
explanations, the source said.
U.S. law does not stop companies from hiring politically
well-connected executives. But hiring people in order to win
business from relatives can be bribery, and the SEC is
investigating JPMorgan's actions under the U.S. Foreign Corrupt
SEC spokeswoman Florence Harmon declined to comment on the
investigation. A Hong Kong-based spokeswoman for the bank
declined to comment beyond what was in the bank's regulatory
filings and said the bank was cooperating with probes.
Whatever the outcome of the latest investigation, Dimon's
time is increasingly being consumed by legal and regulatory
The Department of Justice is investigating whether the bank
manipulated U.S. energy markets, the Wall Street Journal
reported on Monday. Last month, the bank agreed
to pay a $285 million penalty and give back $125 million of
trading profits in a settlement with the Federal Energy
Regulatory Commission for alleged power market manipulation.
JPMorgan neither admitted nor denied violations.
Federal prosecutors last week brought criminal charges
against two former JPMorgan traders, accusing the pair of
deliberately understating losses in the "Whale" scandal. The SEC
is seeking an admission of wrongdoing from the bank in a
parallel civil action, a rare step for the government agency.
Earlier this month, the bank revealed that it was facing
parallel criminal and civil probes by the U.S. Department of
Justice in California into mortgage bonds that it sold before
the financial crisis.
Since 2011, the bank has been writing in its quarterly
filings with regulators that it "is currently experiencing an
unprecedented increase in regulation and supervision, and such
changes could have a significant impact on how the firm conducts
business." In its last quarter, JPMorgan estimated that it could
have legal losses that are $6.8 billion beyond an undisclosed
sum that it has already set aside to cover those charges.
Wall Street analysts may be understating the extent of the
bank's future litigation expenses, said independent analyst
Charlie Peabody of Portales Partners.
JPMorgan's annual litigation costs have been around $4.9
billion for each of the last two years, and Peabody expects the
cost will be $1.5 billion to $2 billion over each of the next
two quarters. On average Wall Street expects roughly $300
million to $500 million per quarter, he added.
While major U.S. banks have faced a litany of probes since
the financial crisis, Dimon has repeatedly griped in public
about how regulations designed to prevent the next financial
crisis are stifling banking and its ability to help the economy.
A report from a U.S. Senate subcommittee described an
episode where Dimon shouted at his then-chief financial officer
for giving information to a regulator. The bank's board of
directors has made it clear to the chairman and chief executive
that he must improve his relationship with regulators, a source
familiar with the matter told Reuters earlier this year.
Even with heavy litigation costs, JPMorgan posted $21.28
billion of net income last year, its highest level ever even
after it suffered from $6.2 billion of trading losses from the
bad derivatives bets made by Bruno Iksil, the trader nicknamed
the "London Whale".
In the China case, the New York Times said that JPMorgan at
one point hired Tang Xiaoning, the son of Tang Shuangning,
chairman of the China Everbright Group, a state-controlled
financial conglomerate. He also had been a Chinese banking
regulator, the Times reported.
After the younger Tang joined JPMorgan, the bank secured
several important assignments from the Chinese conglomerate,
including advising a subsidiary on a stock offering, according
to the newspaper.
Another matter the SEC is investigating is JPMorgan's hiring
of Zhang Xixi, the daughter of a now-disgraced Chinese railway
official. The bank went on to help advise the official's
company, which builds railways for the Chinese government, on
its plans to go public, the Times said.
The bank has not been accused of wrongdoing, the New York
Times said, citing a government document. There is no
documentary evidence that Zhang Xixi or Tang Xiaoning were
unqualified, but the SEC is checking whether the bank's Hong
Kong office routinely won business from companies connected to
its employees, the newspaper reported.
Marie Cheung, a Hong Kong-based spokeswoman for the bank,
said on Sunday that the bank had publicly disclosed the
investigation in its quarterly regulatory filing earlier this
month and was cooperating with regulators.
The quarterly filing said that the SEC's enforcement
division had requested "information and documents relating to,
among other matters, the firm's employment of certain former
employees in Hong Kong and its business relationships with
The practice of hiring politically connected bankers in
China was widespread in the early to mid-2000s, when Wall Street
firms engaged in so-called 'elephant hunting', a term used to
describe the chasing of mandates to manage the multi-billion
dollar stock offerings of the country's big state-owned
One of the more well-known China bankers from that era is
Margaret Ren, the daughter-in-law of former Chinese Premier Zhao
Ziyang, who has worked at several banks. Most major investment
banks have employed a politically connected Chinese banker,
whether a high level professional such as Ren or a college age
associate, at some stage in the last decade.
Many senior investment bankers in China now feel that the
heyday for such underwriting contracts has passed, with far
fewer jumbo state-owned company listings happening. But banks
and private equity firms alike still prize connections to top