Chinese Chairman of Credit Suisse Venture Is Missing

By Cathy Chan and Alfred Liu

Lei Jie, the chairman of China’s Founder Securities (601901) Co. and its joint venture with Credit Suisse Group AG (CSGN), can’t be contacted by Founder as the government questions executives at the company’s parent.
Lei asked for a week’s sick leave Jan. 12 and the firm hasn’t been able to reach him since Jan. 19, Founder Securities told Shanghai’s stock exchange Thursday night. Lei couldn’t be reached on his mobile yesterday. Hui Yuk-min, a spokeswoman for Credit Suisse in Hong Kong, declined to comment.
Founder Securities, China’s sixth-largest listed brokerage, and parent Peking University Founder Group are embroiled in disputes with billionaire Miles Kwok’s Beijing Zenith Holdings Co., the brokerage’s second-largest shareholder. In a public trading of accusations since late last year, Founder denied Zenith claims ranging from insider trading to misappropriating state assets.
“This is a headache for Credit Suisse -- it’s a problem that
nobody could have expected,” Linus Yip, a strategist at First Shanghai Securities Ltd., said in Hong Kong by phone. “One of the major risks for foreign firms in joint ventures in China is suddenly discovering some problem with the partner that is beyond their imagination.”

Frozen Accounts

In December, Zenith obtained a court order freezing some Founder Securities bank accounts. This month, Founder Group executives were questioned by authorities and its chairman stepped down, according to statements by its units, which didn’t give more details.
The Swiss lender owns a third of Credit Suisse Founder Securities Ltd., which was set up in 2008 and competes with similar partnerships between Chinese firms and global banks including UBS Group AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. Foreign banks are allowed to underwrite stocks and bonds in China only through joint ventures with local firms.
The relationship between Founder Group and Zenith soured after a deal in 2013 that saw Founder Securities combine with China Minzu Securities Co., a private brokerage owned by Zenith.
Shares of Founder Securities, which is based in Hunan province’s Changsha city have declined about 17 percent since Dec. 8, when Zenith said it had made a report to authorities accusing Founder Group management of wrongdoing. Even so, Founder Securities has more than doubled in the past six months because of China’s stock market boom.

Tough Market

Global firms have struggled to make inroads into mainland China’s stock underwriting market, which was dominated last year by domestic players, with neither the Credit Suisse nor the Goldman Sachs joint ventures advising on any initial public offerings, according to Bloomberg data.
In 2014, the Credit Suisse joint venture ranked 17th among advisers for mainland equity, equity-linked and rights sales, the data show. Still, it was the best ranking among global investment banks.
In June 2008, Kai Nargolwala, then chief executive officer of Credit Suisse Asia Pacific, said the joint venture was “a very important milestone in the implementation of Credit Suisse’s ambitious Asia-Pacific growth strategy, particularly for a vitally important country like China.”
In November 2013, Founder Securities said it would offer to pull out of the venture because of its planned tie-up with Minzu, the deal that led to the disputes between Founder and Zenith.
He Qicong was appointed acting chairman of Founder Securities on Jan. 21 and will remain in that job until Lei returns or the board sees a need to replace Lei, Founder Securities said in Thursday’s statement, adding that it’s in contact with regulators.