Deutsche Bank AG put its co-head of Asian corporate finance on leave earlier this year after an internal investigation of fund transfers to the German bank’s securities joint venture in China, people familiar with the situation said.
The bank’s compliance department found evidence that indicated that Douglas Morton had allocated revenue to Zhong De Securities Co. for at least one deal that the Chinese firm hadn’t worked on, according to the people, who asked not to be identified because the matter is private. Morton had been seeking to bolster revenue at the loss-making joint venture, the people said.
Reached by phone on Monday, Morton declined to comment. Amy Chang, a Deutsche Bank spokeswoman in Hong Kong, also declined to comment, as did an official from Zhong De Securities.
The Deutsche Bank compliance team had been stepping up its routine checks of the company’s China dealings since last year, the people said. Many global banks have been strengthening their compliance operations, and conducting more intensive supervision of employee actions, in the aftermath of recent financial scandals involving tax evasion, manipulation of interest-rate benchmarks and hiring practices in China.
Deutsche Bank bought a one-third stake in Zhong De in 2008 and is one of a number of foreign banks to have established joint ventures with smaller Chinese firms. The ventures have mostly struggled to gain market share from large domestic players such as Citic Securities Co.
Zhong De recorded a loss of 17 million yuan ($2.7 million) in 2014, compared with a loss of 38 million yuan in 2013, according to figures from the Securities Association of China.
The China Securities Regulatory Commission requires that brokerages such as Zhong De meet certain minimum profit and revenue requirements before it will allow them to expand their business. The rules give foreign partners in the joint ventures an incentive to help their local affiliate remain profitable, according to former executives who have been involved in brokerage joint ventures in China.
The CSRC didn’t respond to a request for comment.
Zhong De was ranked 19th last year in the list of companies advising on Chinese domestic equity offerings, down from 17th the previous year, data compiled by Bloomberg show.
Deutsche Bank’s decision to put Morton on administrative leave was first reported in May. At the time, the decision was attributed to a breach of internal compliance rules, a person familiar with the matter said in May, without elaborating.
The bank’s other co-head of Asian corporate finance, Venky Vishwanathan, also was placed on leave, but for different reasons, people familiar with the matter said in May. Deutsche Bank faces civil court cases over alleged mis-selling of derivatives by a group Vishwanathan helped oversee when he worked for the bank in London, the people familiar said.
Reached by phone on Monday, Vishwanathan said he remains an employee of Deutsche Bank and declined to comment further.