By Ned Levin
For seven years, Taikang Life Insurance Co., one of China's biggest insurers, tantalized J.P. Morgan Chase & Co. with talk of going public.
Capitalizing on the bank's eagerness to win the business, Taikang asked the bank to hire, one by one, various family and friends of its executives, internal J.P. Morgan emails show.
J.P. Morgan eventually took on a total of eight interns and full-time employees it believed Taikang had referred. That was twice the number of any other company linked to a bank program called "Sons and Daughters," which was aimed at winning business in China.
In total, J. P. Morgan brought in as many as 222 friends and relatives of influential Asian executives and officials between 2004 and 2013, according to bank records seen by The Wall Street Journal.
The broader program landed J. P. Morgan in the middle of a federal anti-corruption probe, which it resolved Thursday. Under a settlement with U.S. authorities, the bank will pay $264 million to resolve civil and criminal charges stemming from its hiring practices in Asia.
Taikang is not owned by the Chinese government, so the J.P Morgan hires would not be considered bribery under the Foreign Corrupt Practices Act. Rather, the story of the relationship between the bank and the insurer, pieced together through a Journal examination of hundreds of pages of emails and documents, shows that as much as J. P. Morgan was trying to win business, its potential clients were also fully taking advantage.
"This is the 4th referral that is associated with Taikang, a deal which has been on the horizon for a couple of years," wrote a J.P. Morgan executive in a 2010 email about one candidate. "How many more people will we need to hire?"
J.P. Morgan spokesman Brian Marchiony said the bank was "pleased that our cooperation was acknowledged in resolving these investigations" and that the conduct was "unacceptable."
Representatives for Taikang, which has not been accused of any wrongdoing, did not respond to requests for comment.
Several other large banks, including Citigroup Inc., Credit Suisse Group AG and Goldman Sachs Group Inc. are still under government scrutiny for similar hiring programs, according to regulatory filings. The banks declined to comment.
Taikang, China's ninth-largest life insurer by premium income, was founded by Chen Dongsheng, its charismatic and politically connected chairman. It looked like a good catch for any Western investment bank.
Mr. Chen also started China's largest domestic auction house and one of its biggest courier companies. His wife, Kong Dongmei, is a longtime Taikang employee and granddaughter of Mao Zedong, founding father of the People's Republic of China. Ms. Kong could not be reached for comment.
Mr. Chen, who was recently in the news for his company's investment in auction house Sotheby's, did not respond to requests for comment.
Goldman Sachs cemented a relationship with Taikang in 2009 by buying a 12% stake from French insurer AXA SA. J.P. Morgan agreed to advise Taikang on that transaction for free to build its relationship with the insurer, according to documents compiled for the investigation.
Mr. Chen's son, a graduate of Harvard College, also worked for Goldman after his father recommended him to the bank, a person familiar with the matter said. Investment banks from Credit Suisse to Morgan Stanley were also vying for a piece of the potential IPO listing, according to the J.P. Morgan emails. Spokespeople for the banks declined to comment.
First, J.P. Morgan hired Mr. Chen's son as an intern in 2006, the year the bank started discussions on "Project Titan," as Taikang's proposed IPO was dubbed internally, emails show.
By 2007, Mr. Chen was pushing another hire: the daughter of Taikang's chief compliance officer. According to an email written by Charles Li, chairman of J.P. Morgan China from 2003 to 2009 and current head of Hong Kong's stock exchange, hiring the daughter, who was studying at the London School of Economics, was important.
"Chen subsequently called twice pleading for help," wrote Mr. Li to colleagues. "He made it very clear that this favor will not be forgotten."
Colleagues who interviewed the candidate found her "not up to"the standards of a Hong Kong-based global analyst, but "adequately qualified" for a job in Beijing, Mr. Li wrote. "Turning this down would not go well with this relationship." The bank hired the woman, who left in 2013 after mixed performance reviews, according to internal documents.
Representatives for Mr. Li declined to make him available for an interview. Last year, Mr. Li said in a statement that he followed the bank's formal process for making relationship hires.
Mr. Chen soon had another request -- that J.P. Morgan hire the wife of a friend. The candidate was working on an economics Ph.D at Hong Kong University and was looking to change careers.
"We have the soft mandate to do the IPO next year," Mr. Li reminded colleagues in a November 2007 email, adding that the new candidate "will be difficult to completely ignor [sic]."
In a separate email, Mr. Li noted the candidate "will be informed clearly that she is not onthe same track with the global hires and there is no prospect of promotion."
The woman worked in J.P. Morgan's Beijing office for a year and left in early 2009 after unspecified performance problems, bank emails show.
J.P. Morgan took on a fourth Taikang referral -- the daughter of a founding shareholder -- for a summer 2008 internship, according to a list of referral hires the bank later compiled.
In the spring of 2009, Mr. Li introduced Sean Du to the bank for a position in Hong Kong. An internal compliance questionnaire dated May 2009 identifies Mr. Du as a referral of Taikang's Mr. Chen, noting that "Taikang is highly likely to be a J.P. Morgan client."
Emails from Olivier de Grivel, the head of J.P. Morgan's Financial Institutions Group in Asia, described Mr. Du as a "nice guy" but "not a natural hire" because of weakness in accounting, modeling and "interpersonal skills."
Mr. de Grivel later told J.P. Morganlawyers that while Charles Li assigned Sean Du as a Taikang referral, he in fact was not connected to the insurer. According to a document compiled for the investigation, Mr. de Grivel recalled that Mr. Li told him that the bank needed to hire Mr. Du because of his relationship to Wang Qishan, who was then China's vice premier in charge of financial affairs.
Mr. Wang is one of China's most powerful officials and the country's current anticorruption czar. Last year, as part of its probe, the U.S. government requested all of J.P. Morgan's communications related to Mr. Wang and other high-ranking Chinese officials. Messrs. Wang and Du did not respond to requests for comment.
J.P. Morgan offered Mr. Du a job anyway, but emails indicate bankers were unsure how to use him.
"Sean is on for client goodwill," wrote one manager in April 2010, denying a colleague's request for Mr. Du's help on an IPO. "Do not expect him to do much."In March 2010, following Mr. Chen's referral, J.P. Morgan brought on Mr. Chen's niece -- the daughter of the chief executive of ZJS Express, the courier company Mr. Chen founded.
In July, J.P. Morgan banker Betty Zhao wrote colleagues that Mr. Chen was urging the bank to hire the son of a Taikang co-founder.
"He also mentioned competitors like [Credit Suisse], UBS and [Morgan Stanley] are all willing to give him a job, but he thinks it will be good for [J.P. Morgan] to have him, because he does not want competitors will use him to push for ipo role," Ms. Zhao wrote to an executive in an email explaining the hire. "[Mr. Chen] said helping Taikang's 'second generation' gains the highest points. Hope there will not be more!"
Spokespeople for the banks declined to comment. Ms. Zhao left J.P. Morgan and a spokeswoman for her current employer said she was not available to comment.
J.P. Morgan hired the son of Taikang's co-founder's as an analyst in Hong Kong in October 2010. During the summer of 2012, the bank hired one more Taikang referral -- the daughter of Taikang's vice president and board secretary, Qiu Xichun -- for an internship in Hong Kong.
The banker who interviewed her said she was "not familiar with Investment Banking at all. With her background in Psychology, she could not explain why she wanted to make a switch."
Taikang representatives did not respond to requests for comment directed to Mr. Qiu.
Around the same time, bankers requested an internal accounting of expenditures on the Taikang hires "so that we can bear in mind when discuss with Taikang about fees/economics for J.P. Morgan," one explained. The audit found that the bank had spent more than $800,000.
"Let's get money back then :)" quipped one banker in an email.
Taikang has continued to talk about an IPO, but J.P. Morgan decided not to participate after the U.S.began its probe.
Write to Ned Levin at email@example.com
(END) Dow Jones Newswires
November 19, 2016 02:47 ET (07:47 GMT)
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