JPMorgan’s Abdelnour Closer to Solving China Puzzle

March 5 (Bloomberg) -- Gaby Abdelnour, JPMorgan Chase & Co. Asia-Pacific Chief Executive Officer, slaps the table three times as he spells out his ambition to end the firm’s five-year wait to enter China’s securities market: “I told everyone, I want to do a JV this year.”

At a town hall meeting Jan. 22, Abdelnour told about 500 of the firm’s employees in Asia that they’re nearer to that goal. JPMorgan has identified a partner for a securities joint venture in China and aims to sign an initial agreement as soon as next week, executives close to JPMorgan said. The people, who requested anonymity because the talks are private, declined to identify the company.

JPMorgan CEO Jamie Dimon steered the firm through the global financial crisis, emerging as the only top Wall Street bank to avoid posting a quarterly loss. In China, the company has failed to plug gaps in its business, while rivals Goldman Sachs Group Inc. and UBS AG found the local partners that are a prerequisite for arranging share sales in the world’s biggest market for initial public offerings in 2009.

“Dimon’s reputation is the best in America,” said Donald Straszheim, senior managing director of China research at Los Angeles-based International Strategy & Investment Group and a former Merrill Lynch & Co. chief economist. “It would be astonishing if JPMorgan didn’t keep pushing the China opportunity.”

Sitting in a 27th-floor meeting room in JPMorgan’s Hong Kong office, with a view across the harbor toward southern China, Abdelnour voiced his frustration at the advantage Goldman Sachs and UBS have won while JPMorgan spent four years in dead-end talks with Bohai Securities Co. and Liaoning Securities Co.

‘Wasted Time’

“I hate having wasted the time,” Abdelnour, 56, said in the March 2 interview. “We wasted several years and this is a lot of time, a lot of money and a lot of effort. That’s the thing that bothers me most,” he said, adding that he is now spending as much as 40 percent of his time in China, making five visits in the first two months of this year.

Abdelnour, who declined to comment on the joint-venture talks, was tapped to run JPMorgan’s Asia-Pacific business in July 2006, six months after the firm started discussions with Bohai Securities. The talks went on for about two years before falling apart.

“We should have been way ahead,” the 12-year veteran of the firm said in the interview. “Can I turn back the clock? No. I can learn from our experience and move on.”

Buying a Stake

Abdelnour said he aims for China to contribute about 25 percent of the bank’s Asia revenue “over time” from around 10 percent to 15 percent “through the cycle.” Investment banking, commercial banking and asset management each contribute about a third of revenue in the country. The U.S. bank is also considering buying a stake in a Chinese bank as its next step, when China relaxes limits on ownership, he said.

JPMorgan “needs to get a local venture up and running before becoming a real, active player in China,” said Charles Li, Hong Kong-based founder of investment bank Pelican Securities Ltd., which advises companies in the Greater China region on selling shares overseas and acquisitions.

During the past two years, ventures backed by Credit Suisse Group AG and Deutsche Bank AG have won regulatory approval to underwrite stock and bond sales in China. Morgan Stanley plans to sell its 34.3 percent stake in China’s oldest investment bank, China International Capital Corp., for about $1 billion and seek a new partner after failing to control the venture run by Levin Zhu, son of China’s former premier, Zhu Rongji.

Economic Growth

China’s economy has expanded about 60 percent since Abdelnour assumed his current position in mid-2006, and its stock market capitalization has swelled almost sixfold to about $3.13 trillion. By both measures, the country trails only the U.S. and Japan.

Companies raised 209 billion yuan ($31 billion) in IPOs in Shanghai and Shenzhen last year, making China the world’s biggest market for first-time stock sales -- even after the securities regulator blocked sales in the first half of 2009.

UBS Securities Co., 20 percent owned by the Zurich-based bank, had 26 million yuan in net income for 2008, according to the Securities Association of China. Goldman Sachs Gao Hua Securities Co. made 25.7 million yuan. China International, the nation’s biggest domestic share arranger in 2009, earned 627 million yuan. Second-placed Citic Securities Co. posted 7.3 billion yuan in profit.

Market Share

“From a profitability standpoint, I probably didn’t miss anything,” Abdelnour said. In terms of “market share, I missed something. The ability to be there ahead of everybody else and capture market share makes a big difference, of course. But we can claw it back.”

To help spearhead the push, Abdelnour in November hired Shao Zili, Asia managing partner at law firm Linklaters LLP, as chairman and CEO of JPMorgan in China. Shao helped Goldman Sachs and UBS set up their ventures in China.

Abdelnour also promoted Frank Gong, the bank’s chief China strategist, to vice chairman of China investment banking in July. Fang Fang, appointed as vice chairman of Asia in November, has also been given the task of helping to set up the venture.

Before joining JPMorgan, Abdelnour worked as a mergers and acquisition banker at Merrill Lynch in Hong Kong and Singapore. At JPMorgan, he managed the bank’s central and east European, and Middle East and North African business. He graduated in engineering from Lehigh University, and has a master’s in business administration from New York University. He is fluent in English, French and Arabic.

JPMorgan, which has asset management, futures and options ventures and operates a locally incorporated bank in China, will still face a five-year wait to qualify for a brokerage license under rules set out by the China Securities Regulatory Commission. UBS and Goldman Sachs set up their ventures before the regulations had been developed.

“Guess what? We in the West want to move at our own fast pace, and China moves at its own pace,” Abdelnour said. “They’re the host: I’m the guest and I have to adapt.”