Before 2007 all the major American investment banks had Chinese-born stars. Goldman Sachs had Fang Fenglei and Morgan Stanley had Jonathan Zhu, for instance. These rainmakers grew up during the Cultural Revolution, (mostly) honed their English studying in the United States, and returned home to China to play crucial roles in the cross-border megadeals that transformed some of the biggest state firms.
After years of success at the banks, many of the high-fliers then switched to private equity. Jonathan Zhu left Morgan Stanley to join Bain Capital in 2006 and a year later Fang founded the private equity firm Hopu Investment. Both picked a good time to change track. The bull run in Chinese stocks was running out of steam and the jumbo deals were drying up as most of the leading state firms had gone public.
Similar trends saw Morgan Stanley unload its stake in China International Capital Corp (CICC), the investment bank it had co-founded with China Construction Bank in 1995.
Levin Zhu, chief executive of CICC since 2004, was another of the dealmaking elite. But as the eldest son of former Premier Zhu Rongji, Zhu junior hasn’t always been free to follow the money. A People’s Daily article from 2006 revealed that Zhu senior didn’t want his children to start their own businesses, for instance, and asked them to duck unnecessary publicity.
Perhaps that’s why after joining CICC in 1998 – the year that his father became Chinese prime minister – Zhu junior stuck around, even after the boom era of multi-billion state sector IPOs had dried up. And ironically it is as CICC readies for its own listing that his 16-year stint finally came to an end this week.
CICC confirmed Zhu’s departure in a statement on Tuesday. It gave no reasons for why he is leaving. In a farewell email seen by China Business News the 57-year-old simply said the decision was taken to foster “a healthy management and succession mechanism”. Others wonder whether the low-profile banker wanted to avoid the limelight that the IPO will inevitably bring.
But according to FinanceAsia, Zhu’s departure will put “further pressure on CICC’s proposed Hong Kong listing with market concerns about its management restructuring”.
Also last week, Peng Wensheng resigned as CICC’s chief economist. And in a further sign of major change at the bank, CICC likewise announced late this week that its chairman has left too. Jin Liqun, who only joined in May 2013, has resigned, reports the Wall Street Journal. He has been replaced by Ding Xuedong, former chairman and CEO of CIC, the sovereign wealth fund.
CICC originally planned to complete a $600 million IPO by year-end but Securities Times reckons that timeframe now looks less plausible. The rationale for investing in the IPO has also been questioned. Under Zhu’s tenure CICC focused on the blockbuster deals, serving as a global coordinator on practically every blue chip SOE listing from China’s telecoms, oil and banking sectors. But as the IPO pipeline for big state-owned enterprises dried up, CICC’s heavyweight positioning may have become more of a hindrance than a help. According to CBN, the firm made only Rmb215 million ($35 million) in net profit in 2013. This ranked it a lowly 49th among peers. In comparison, leading brokerage Citic Securities earned Rmb5.2 billion in 2013.
“The epic era of privatising the state sector has long gone. The A-share market is now all about smaller firms and growth enterprises. CICC no longer has the competitive advantage and it must adjust its strategy,” Securities Times agrees.
Perhaps the changing circumstances contributed to Zhu’s decision to go. To prevent further decline, CICC might have to ditch its blue-blood mentality and chase higher-risk business. “The first step will be about setting up an incentive scheme for senior bankers, to stabilise the core management and to keep the best talent,” Securities Times suggests.
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