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China halts record Ant Group IPO; JPMorgan unit faces potential fine

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In a stunning announcement, “China called a sudden halt to the world’s biggest initial public offering, casting uncertainty over the future of financial-technology giant Ant Group and delivering an extraordinary rebuke to its controlling shareholder, Jack Ma,” the Wall Street Journal reported. The record $34 billion deal, which was supposed to be conducted in both Shanghai and Hong Kong, was suspended “a day after four regulatory agencies summoned Mr. Ma and the company’s top two executives to a closed-door meeting.”

“The development marks a stunning turnaround for Ant, the world’s most valuable technology startup, and Mr. Ma, its 56-year-old billionaire co-founder. The owner of the popular Chinese mobile-payments network Alipay had been going full steam ahead for months in preparation for the IPO.” Wall Street Journal, Financial Times

Ma may have brought the trouble on himself when he criticized China’s state-owned banks on October 24 for their “pawnshop mentality,” the Financial Times said. “What the world’s second-largest economy really needed, he said, were bold new players such as Ant that could extend credit to the innovative but collateral-poor companies and individuals usually shunned by China’s big financial groups.”

“The dramatic turn of events is a reminder to Chinese businesses and their investors that they still answer to the Communist party — no matter their pedigree.”

“The extraordinary regulatory action, according to Chinese officials and others with knowledge of the process, caps a months-long tug of war between Mr. Ma and top regulators led by Vice Premier Liu He, President Xi Jinping’s point man on economic and financial policies,” the Journal said.

Competing against China’s politically connected financial institutions always came with risks,” the New York Times noted. “Regulators have looked warily upon Ant’s fast growth in certain areas, fearful it might become too big to rescue in the event of a meltdown. Ant’s future remains at the mercy of Chinese regulators, whose views on the melding of tech and finance are still evolving.”

Could it be that Ant is too profitable and is now being targeted?,” a Bloomberg op-ed asked. “Ant is raising at least $34.5 billion in an IPO that attracted more than $3 trillion of retail orders. Meanwhile, regional banks are still in the doghouse, struggling and sometimes being restructured because they lack capital buffers.”

Watchdog rebuked

The European Securities and Markets Authority came down on German regulators Tuesday over their failure to uncover the fraud at Wirecard. ESMA said BaFin, Germany’s financial and markets supervisor, “might lack independence from the German government and proper internal controls. It pointed to key staff trading Wirecard shares, including during periods when it was investigating the company.”

“ESMA said both BaFin and another body, the Financial Reporting Enforcement Panel, or FREP, missed warnings raised by the press about Wirecard. The two bodies also had trouble exchanging information with each other because of stiff rules, including over confidentiality, ESMA said.”

ESMA said BaFin and FREP “ignored red flags over Wirecard’s financial reporting for years,” the FT said.

“Germany’s small shareholder lobby group, SdK, said on Tuesday it was planning to sue the German government for damages for losses incurred by Wirecard shareholders.”

Wall Street Journal

Pending fine

A JPMorgan Chase subsidiary “is facing a potential regulatory fine over internal controls that would address historical deficiencies it has already taken steps to fix,” the bank said. It said “it was in discussions with an unnamed U.S. regulator to resolve the matter. The subsidiary facing the fine, JPMorgan Chase Bank NA, is primarily regulated by the Office of the Comptroller of the Currency.”

“The fresh legal trouble comes a little over a month after JPMorgan agreed to pay a $920 million fine for manipulating the markets for precious metals and Treasury securities,” American Banker’s Jon Prior reports. “Financial institutions are said to be rushing to take fines and settle outstanding issues with authorities in case President Trump loses the election and his opponent Joe Biden appoints more aggressive regulators who might take tougher stances on the matters.”

Profit beats growth

PayPal shareholders appeared to take some profits Tuesday after the payments company reported strong third quarter earnings, sending the stock down by more than 4%. “The driver appears to be a potential crest of its explosive volume growth,” the Journal said. “But they shouldn’t jump off the PayPal bandwagon” just yet.

“Investors should pay attention to the increasing suite of inducements it now offers consumers, such as a brand-new cryptocurrency capability; syncing up Venmo’s wallet and peer-to-peer payments with shopping; discounts via Honey, which helps find coupons for online shopping; online bill payments using digital wallets; and buy-now-pay-later installment offerings.” Those products “can be more profitable to the bottom line. PayPal may be exiting this unique phase of volume hypergrowth. But the end result is that it has put the company in a strong position to compete for even more valuable business.”

Quotable

“This material event may cause your company to fail to meet the issuance and listing conditions or information disclosure requirements. Our exchange has decided to postpone the listing of your company.” — The Shanghai Stock Exchange telling Ant Group founder Jack Ma that it was calling a halt to the company’s record IPO.

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