Chinese Rules

Amid China Probe, Deutsche Bank Seeks Settlement With Former Executive

ICBC is the world's largest bank. Source: AFP
ICBC is the world's largest bank.
  • Why it matters

    Why it matters

    Deutsche Bank’s pursuit of ex-manager Zhang Hongli in China could be retaliation for a government crackdown on German automakers over alleged price fixing.

  • Facts

    Facts

    • Deutsche Bank had originally planned to sue Mr. Zhang for fraud.
    • The Chinese banker allegedly owes the bank $6.2 million including interest.
    • Mr. Zhang now works for the influential Industrial and Commercial Bank of China.
  • Audio

    Audio

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Deutsche Bank is aiming to reach an amicable agreement with a former top executive in China who had been accused of misappropriating bank funds.

The ex-employee, Zhang Hongli, purposefully deceived the bank at the time, said a spokeswoman for Deutsche Bank in Hong Kong. “We are trying to get the funds back,”she said.

The case has attracted considerable attention in the Chinese banking world.

Mr. Zhang, after leaving Deutsche Bank, has since become senior executive vice president at Industrial and Commercial Bank of China (ICBC), the leader in the Chinese market and by market value one of the largest financial institutions in the world.

After filing a lawsuit against its former employee at a court in Hong Kong in mid-August, Deutsche Bank has suddenly changed course and is now looking to settle, according to sources inside the company. Instead of seeking $6.2 million including interest, they are demanding the original $3.9 million to avoid a trial.

There could be several reasons for the change.

Mr. Zhang is currently one of the most powerful bankers in China. He is a member of the Chinese People’s Political Consultative Conference, a high-level political advisory body on par with the Chinese legislature. Mr. Zhang and his new employer reportedly sent the message that they did not appreciate the uproar over the alleged misuse of funds.

In addition, there is increasing doubt over whether or not the leadership at Deutsche Bank was really uninformed about Mr. Zhange’s activities at the time. “Everything I did was legal, and I will clear up the discrepancies with Deutsche Bank through regular channels,” Mr. Zhang told the Chinese business publication Caixin.

His supporters have told the Chinese media that in those days Mr. Zhang’s contacts were most welcome at the German bank and opened many doors. Mr. Zhang was indisputably a master of arranging lucrative deals the Chinese market.

The controversial transfer in question to the Hong Kong-based company Harperskille was reportedly a commission for landing a fat contract. According to the South China Morning Post newspaper, one of Mr. Zhang’s relatives was a major shareholder in the company.

Why the bank waited four years before it demanded the money back remains unclear, especially since revealing the payment means a loss of face for its important partner ICBC.

Deutsche Bank’s stance against its former employee could have something to do with the change in the political climate.

What once might have been an acceptable practice in the world of investment banking, could, in an age of billion-dollar fines against financial institutions, look fishy. And since the financial crisis in 2009, the public is watching banks very closely.

Chinese President Xi Jinping is also rigorously going after corruption. Last year, the authorities fined 180,000 corrupt officials, and state banks fall under the same category as public authorities. The recent trouble German automakers have gotten into in China for price fixing is also related to this. These days, Beijing expects that especially large international companies to conduct themselves properly.

Some suggest that Deutsche Bank simply does not want to take responsibility for the dubious dealings. Why the bank waited four years before it demanded the money back remains unclear, especially since revealing the payment means a loss of face for its important partner ICBC. When contacted by Handelsblatt on Monday, ICBC declined to comment.

Mr. Zhang’s move to the Chinese market leader was a closely observed event in the Asian banking sector. It was the first time a manager left a major western bank for a Chinese financial colossus. At the time, Deutsche Bank was proud that Mr. Zhang had won such an important position and heaped praise on him when he left.

Mr. Zhang worked for Deutsche Bank from 2001 until 2010, and was one of its most important employees for winning contracts. He was apparently primarily responsible for looking after landing important initial public offerings.

The China Shenhua Energy initial public offering is rumored to have been the reason for the controversial payment in question, a commission for influential contacts making it possible for Deutsche Bank to become the underwriter for the company’s public listing.

This success helped Mr. Zhang, who is also known by the name Lee Zhang, rise to become chairman for China and the institution’s head of Global Banking, Asia Pacific.

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