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Daily Dispatches – Guanxi falls out of favour

Keep your distance

Keep your distance

The current probe into JPMorgan Chase’s hiring strategies in Hong Kong will force other investment banks to ensure they don’t suffer the same fate.

The US bank is under scrutiny from regulators in the US, which are looking into whether JPMorgan’s Hong Kong office hired the children of China’s state-owned company executives with the express purpose of winning underwriting business and other contracts, Reuters reports.

This is part of a tried and tested custom in Asia, known in China as ‘guanxi’, or a system of social networks and influential relationships that facilitate business and other dealings. JPMorgan’s uncomfortable position now – when before it would have used its connections as part of its marketing – is likely to send every other major investment bank scrambling to do head off similar enquiries.

Banks around the world commonly hire people with government connections, but this is especially prevalent in China due to the role the ruling Communist Party plays in the country’s business.

Reuters says that ‘offering a job to one of China’s so-called princelings – the offspring of China’s political elite – is now a potential liability, with the US Securities and Exchange Commission (SEC) investigating. US law does not stop companies from hiring politically 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 US Foreign Corrupt Practices Act (FCPA).

More drama for India’s financial services industry

The Financial Times reports that the closure of a commodities exchange that has left prominent domestic brokerages facing potentially heavy losses and has led to broker demands for a government rescue package for the bourse.

The National Spot Exchange Limited (NSEL) suspended trading earlier this month after a government investigation over alleged trading violations, which prompted investors to pull out funds, leaving Rs55bn (US$868m) in unpaid liabilities.

The ensuing row has gripped India’s domestic financial community, pitting aggrieved brokers and their clients against NSEL’s owners – bourse operator Financial Technologies and its backer Jignesh Shah.

ANZ taps Lloyds banker for Asia push

ANZ Bank has picked an American banker from Lloyds, Andrew Géczy, to lead its push to become a ‘‘super-regional’’ lender by expanding further into Asia, reports the Sydney Morning Herald.

Unlike the Commonwealth Bank, Westpac and NAB, ANZ has an explicit goal of obtaining 25 to 30% of income from the Asia-Pacific region, Europe and America by 2017.

China offshore loans rising

Finance Asia reports that more robust mergers and acquisitions activity and tight onshore liquidity has prompted Chinese firms to move into the offshore loan market. Dealogic says that borrowers from Asia excluding Japan raised US$85.5 billion in dollar loans in the year to date, some 50% higher than in the same period last year.

Singapore share move

The Straits Times reports that shares could soon be traded in board lots of 100 shares under a proposal from the Singapore Exchange (SGX) in a move that would bring many more retail investors into the market.

Pricey blue chips, which are out of reach for many smaller investors given they now have to buy at least 1,000 shares at a time, would suddenly be affordable.

The move to reduce the lot size from 1,000 now to 100 shares could occur by as early as the first quarter of next year.

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