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Morning Scan: Fang Fang 'Retirement' Proves JPM Bribery Investigation Has Teeth

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Fang Fang 'Retirement' Shows JPMorgan Bribery Probe Has Teeth: JPMorgan's Sons and Daughters program, which you'll recall was allegedly set up to prevent the bank from inappropriately hiring the progeny of high-ranking Chinese government and business officials and ended up fostering the questionable hiring of such elite youngsters, burst back into the news Monday with the announced departure of Fang Fang, J.P. Morgan's chief executive for China investment banking and vice chairman of investment banking in Asia. Fang has officially said he wants to spend more time with family and pursue new opportunities. "'The decision was made by him,' one person said," the Journal reports. Not likely. Even well-heeled JPMorgan bankers don't retire at 47. Fang has emerged as a key figure for the Securities and Exchange Commission and Justice Department as they examine whether JPMorgan Chase or any of its employees violated the Foreign Corrupt Practices Act, which bars U.S. companies from giving money or other items of value to foreign officials to win business. JPMorgan has provided U.S. prosecutors with emails from Fang discussing the hiring of the son of China Everbright Group Chairman Tang Shuangning. After the hire, the bank suddenly received a steady flow of business from China Everbright, a state-controlled financial conglomerate, Dealbook reported back in August. In one memo, the New York Times reports, Fang wrote, "'You all know I have always been a big believer of the Sons and Daughters program — it almost has a linear relationship' with winning assignments to advise Chinese companies." The probe into the bank's hiring practices has hurt JPMorgan's business in Asia, according to the Financial Times, causing the bank to pull out of two high-profile initial public offerings — Tianhe Chemicals and Everbright Bank.

Wall Street Journal

Janet Yellen's suggestion last week that the central bank might start raising short-term interest rates earlier than investors expect was just a tease, according to the Wall Street Journal, which ferreted out what it believes is a golden nugget of truth in the Fed's latest policy statement. The document says the Fed plans to keep short-term rates below what it sees as appropriate for a normal economy even after the unemployment rate and inflation revert to typical levels.

Financial Times

Say it ain't so. The head of France's largest bank, BNP Paribas, laments that European banks' profit margins are falling due to higher capital requirements, and therefore their top executives will be paid poorly this year. Jean-Laurent Bonnafé, BNP's CEO, said he will make only about $4 million this year. BNP Paribas is also rethinking its retail branch strategy, the FT reports, since the number of customers using its costly network has fallen dramatically in the past decade. "Physical visits by customers went down by 80 per cent over 10 years," Bonnafé told the paper. The bank has launched a separate brand, Hello Bank, meant to attract smartphone and tablet users.

New York Times

Gretchen Morgenson turned her critical eye on the credit rating agencies in the Sunday Times. "Why have regulators done so little to rein in the credit rating agencies?" she asks. "Other institutions that contributed to the mortgage debacle have submitted to new rules and compliance requirements, but Moody's Investors Service and Standard & Poor's and their peers remained relatively untouched." Dodd-Frank directed the SEC to regulate these firms more closely, but the agency has done nothing but float a vague proposal. Everyone remembers the ratings agencies rated highly risky collateralized debt obligations ridiculously high while privately emailing each other about what they really thought of those securities. The reason the agencies haven't been curtailed, Morgenson suggests, is apathy. The crisis is over, and so is the fervor for reform. She concisely sums up why this matters so much: "The root of the rating-agency problem, of course, is an overreliance on these grades throughout the financial system. Institutional investors who are too lazy to assess a security lean on ratings, and financial regulators rely on them when writing their rules."

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Comments (1)
The news from China appears to indicate that Chase may finally have committed a regulatory violation that it cannot finesse with its checkbook. Hopefully the regulatory enforcement process will follow the email trail through the bank's senior management and not be diverted by Mr. Fang's "voluntary retirement."
Posted by jim_wells | Monday, March 24 2014 at 10:22AM ET
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