China "Disappears" More Bank Executives As Witch Hunt Intensifies

“Chairman of Guotai Junan Int'l, 1 of China's largest brokerages, is "missing"; company said can't find him”

Regular readers are likely familiar with the quote excerpted above, but for anyone who might have missed the original story, that’s from George Chen and when it hit Twitter late last month we couldn’t help but laugh because after all, it’s not every day that a publicly traded company comes out and says they can’t find their CEO. 

As strange as the statement might have seemed to the uninitiated, for those who’ve followed China’s equity markets this year it wasn’t hard to imagine what might have happened to Yim Fung. 

Beijing is the midst of a truly epic witch hunt aimed at tracking down and detaining what officials say are “malicious” short sellers and market manipulators who allegedly played a part in the meltdown the hit Chinese stocks at the end of the summer. The campaign - dubbed “kill the chicken to scare the monkey” after a Chinese proverb - is really nothing more than an attempt to coerce market participants into acting in a way that’s conducive to stock charts that go “up and to the right.”

As it turns out, Yim was indeed ensnared by authorities in connection with the arrest of CRSC vice chairman Yao Gang. Well, less than a week later, a number of media outlets reported that Beijing had launched a new round of investigations into at least three brokerages. Here’s what we said at the time

It appears that after a period of relative calm, the Politburo is set to once again crackdown on any type of "malicious" behavior that Beijing thinks contributed to declining stock prices (remember, China isn't a big fan of the whole "stocks can go down as well as up" thing, which means arresting anyone suspected of selling or, in extreme cases, halting the entire market). On Friday, the SHCOMP plunged nearly 6% after Citic Securities and Guosen Securities disclosed regulatory probes. Shares in both brokerages traded limit down on the news. Haitong Securities', which is also facing an investigation, had its shares suspended. 

 

Both Citic and Guosen said the new probes centered on alleged "rule violations." "The finance crackdown has intensified in recent weeks and ensnared a prominent hedge-fund manager and a CSRC vice chairman," Bloomberg notes, adding that "Citic Securities President Cheng Boming is among seven of the company’s executives named by Xinhua News Agency as being under investigation."

That was on November 27. Over the weekend (so just over a week later), two Citic executives apparently suffered the same fate as Yim Fung because as Reuters reports, the broker can’t find two of its top bankers. 

“CITIC Securities is not able to contact two of its top executives, China's biggest brokerage said on Sunday, following media reports that they had been asked by authorities to assist in an investigation,” Reuters says, adding that Jun Chen - Citic’s head of investment banking - and Jianlin Yan - who runs investment banking at the company's overseas unit - have been unreachable since at least Friday. 

As is usually the case when Beijing "disappears" some folks, no one is sure whether Jianlin and Jun are implicated in the probe or whether they are merely "assisting" authorities. Here's Reuters again: "Chinese business publication Caixin said on Friday the pair had been detained, although it was not clear whether they were subjects of an investigation or merely being asked to assist with it."

Late last month, Citic announced that chairman Wang Dongming would step down "in consideration of his age," but the ubiquitous "people familiar with the matter" say he was forced out for failing to stop insider trading. "Citic used its own balance sheet to buy stocks as part of the rescue effort and also executed trades on behalf of other national team entities," FT reports, referencing China's so-called "national team" which the PBoC used to pump some CNY1.5 trillion into the market. "Citic executives are alleged to have used information about which stocks the national team intended to 'front-run' for their own accounts."

So who knows where Citic's executives are being held or why they're being detained, but what seems clear from Fu Zhenghua's (read more about Fu, the man at the heart of Xi's crackdown, here) increasingly aggressive campaign is that the Politburo fully intends to make an example of quite a few people that were involved in the sweeping effort to prop up the market.

Whether this represents an honest attempt to root out corruption or whether the idea is simply to intimidate the market on the way to ensuring that everyone toes the line going forward is unclear but one thing we do know is this (to quote a director at an international brokerage in Hong Kong quoted by Reuters last week): "At the moment, if you don't do what the CSRC asks you to do, there will be blood."