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Citigroup Suspends

Two China Bankers

By NISHA GOPALAN

DOW JONES NEWSWIRES

June 24, 2004 10:45 a.m.

HONG KONG -- Citigroup Inc. has suspended two of its senior China bankers, including the high-profile Margaret Ren, in a move that raises questions about the U.S. investment bank's fledgling but booming interests in the China issuance market.

Citigroup spokeswoman Katherine D'Arcy today confirmed the contents of an internal company memo that said the bank had suspended Ms. Ren, daughter-in-law of former Chinese Premier Zhao Ziyang and the vice chairman of its China investment-banking operations, and Earl Yen, director of China investment banking. The suspensions, according to the memo, were in relation to the "presentation of false information to the company and its regulators."

Ms. Ren, hired in August 2001, is widely credited with landing the U.S. investment bank several big-ticket China deals, including the initial public offering of China Life Insurance Co., the world's largest IPO last year.

The China Life deal was Citigroup's first major foray into mainland China -- in 1999, its initial attempt to list China National Offshore Oil Corp. in Hong Kong and New York collapsed. When Cnooc went public two years later with a $1.3 billion IPO, Citigroup wasn't on the deal; Merrill Lynch, Credit Suisse First Boston and a unit of Bank of China were.

"With regret, after a careful and thorough review, we have suspended Margaret Ren and Earl Yen," Citigroup said in an internal memo sent to senior management yesterday.

"The conduct for which they were suspended, which didn't involve client matters, related to the presentation of false information to the company and its regulators," it said.

"We immediately informed the appropriate government authorities of the suspension and will cooperate fully as they pursue this matter," the memo said.

Citigroup declined to comment further.

A spokesman at the Securities and Futures Commission also declined to comment.

China Market Implications

A person familiar with the situation said the suspension wasn't related to China Life. China Life is now facing shareholder lawsuits and U.S. regulatory investigations over its failure to disclose the findings of a Chinese government audit ahead of its IPO late last year.

"The situation doesn't involve client matters," the source said. Citigroup, along with China International Capital Corp., Credit Suisse First Boston and Deutsche Bank were the listing sponsors of that $3.01 billion IPO.

Francis Leung, chairman of Asia, Citigroup Global Market Asia Ltd., will assume leadership of the China investment-banking team, according to the internal memo.

Mr. Leung, who co-founded Hong Kong investment bank Peregrine, which collapsed in 1998, was known as the "father of the red chips" for arranging a string of Hong Kong listings for Chinese companies in the mid-1990s. But while he is known to have close ties to tycoons such as Asia's richest man, Li Ka-shing, he isn't seen as having the same kind of relationships on the mainland as Ms. Ren.

"Margaret was a key relationship manager for Citigroup in China and her suspension will leave a big hole in their government coverage," said a senior China banker at an investment bank that competes with Citigroup on the mainland. "Francis has connections, but not at the same level as Margaret."

Investment banks world-wide have been falling over themselves in the past few years to pitch for fund-raising deals by Chinese companies, among the world's biggest deals at a time when global markets were flagging. For many, relationships have said to have helped. For instance, Levin Zhu, the head of investment banking at CICC, a joint venture investment bank between Morgan Stanley and China Construction Bank, is the son of former Chinese premier Zhu Rongji.

Propelled by the China Life IPO, Citigroup ranked fourth in China equity issuance last year, tying with Deutsche Bank, according to data from Thomson Financial. It wasn't in the top 25 for China in 2002.

In the first quarter of 2004, Citigroup wasn't in the top 25 in China, though it ranked ninth in Asia, according to figures from the data provider.

Giving its ranking a likely boost this year will be other deals the bank is said to be involved in -- the $1.5 billion IPO of fixed-line operator China Netcom, the $1 billion IPO of Minsheng Bank and the jumbo $5 billion offering of China Construction Bank, which could list either later this year or early next year.

Other recent China deals Citigroup has been involved in include the much-smaller IPO of CSMC Technology, whose listing was called off late last week because the company said it couldn't agree on a final offer price with its underwriter Citigroup.