JPMorgan Dealmaker Hannam in Eye of Storm Again on FSA Fine
Ian Hannam’s dealmaking has landed him in the center of a storm before. This time the soldier- turned-JPMorgan Chase & Co. (JPM) executive known for his Rolodex will be defending himself from outside the most profitable U.S. bank.
Hannam, 56, JPMorgan’s global chairman of equity capital markets and a top adviser to mining companies such as Xstrata Plc (XTA), resigned yesterday after the U.K.’s market regulator fined him 450,000 pounds ($720,000) for disclosing inside information. He said in a statement he will appeal and plans to continue his financial career after the dispute is over.
His exit will deal at least a temporary blow to JPMorgan’s mining advisory business, which ranks second behind Morgan Stanley, bolstered by its close relationship with Zug, Switzerland-based Xstrata. Hannam, who became a focal point of an aborted deal to sell Dow Chemical Co. (DOW) in 2007, will be fighting to keep his reputation intact as the Financial Services Authority clamps down on market abuse after it was criticized for failing to prevent the U.K.’s worst financial crisis since World War II.
“It will be a big blow to JPMorgan, which is the dominant adviser in mining deals,” said Philip Keevil, partner at New York-based advisory firm Compass Advisers. “Hannam is a big catch and people will take notice.”
The FSA fined Hannam for improperly disclosing information about a JPMorgan client, Heritage Oil Plc (HOLI), almost four years ago, at a time when the company was a potential takeover target and had made a new oil find -- two developments that hadn’t been publicly disclosed.
Hannam is among bankers advising Xstrata, the subject of a 22 billion-pound bid from commodity trader Glencore International Plc (GLEN) in the world’s largest deal this year. At JPMorgan, which also serves as a broker to Xstrata, Hannam helped the mining company first sell shares in 2002, and was involved in many of its subsequent takeovers, including the $18.1 billion purchase of the Canadian nickel producer Falconbridge Ltd. in 2006.
The bank has worked on at least six M&A deals for Xstrata since 2005 valued at about $69.2 billion, according to data compiled by Bloomberg. Like other advisory firms, it’s profited from the frenzy of dealmaking in the mining industry, which continues to be the most active sector with 266 transactions this year, according to the data.
‘Honesty and Integrity’
In a show of support, Hannam’s clients stepped forward after the FSA action to attest to his character and competence.
“He has always acted with honesty and integrity,” Xstrata Chief Executive Officer Mick Davis said in a statement yesterday. “He continues to have my full support.”
Peter Hambro, chairman of Petropavlovsk Plc (POG), a Russian iron-ore company that went public in London in 2002, said in an interview that he also had faith in Hannam. “The only person I talk to more than him is Pavel Maslovsky, my Russian partner.”
Hannam will complete his current commitments before leaving the bank, Emilio Saracho, the head of investment banking for Europe, the Middle East and Africa, said in a memorandum to employees. Calls to Hannam’s mobile phone were referred to JPMorgan’s press office. Brian Marchiony, a spokesman for the firm in London, declined to comment beyond the company’s memo.
Soldier to Banker
Hannam was raised in Sidcup, England, a lower-income area of south London, where his father was a council worker overseeing street repair, according to his website and a spokeswoman. He entered the Territorial Special Air Service when he was 17 as a trooper, and rose to the rank of captain, commanding a squadron. In 1984, he joined Salomon Brothers, and over the next 28 years he worked on almost 300 deals, according to the website.
Five years ago Hannam’s efforts to help orchestrate a deal for Dow Chemical, the largest U.S. chemical maker, collapsed when word of a proposed transaction leaked out. According to court documents, Hannam was the lead banker in talks in 2007 between senior Dow executives and a group of Middle East investors seeking to acquire and break up the company. Those talks, which Dow later said were unauthorized and undisclosed to the company’s CEO and board, led to the executives’ dismissal. JPMorgan quickly distanced itself from the deal, with CEO Jamie Dimon calling the contact “unstructured and informal,” according to a lawsuit by one of the fired executives.
JPMorgan is the third-ranked merger adviser in Europe this year after Morgan Stanley (MS) and Goldman Sachs Group Inc., according to data compiled by Bloomberg. The firm was the top- ranked arranger of equity offerings in Europe, the Middle East and Africa in the five years through 2011, the data show.
“As long as JPMorgan cuts its ties, it is no longer involved,” said Roy Smith, a former Goldman Sachs partner who’s now a finance professor at New York University’s Stern School of Business. “Its public reputation may be affected for a while but its reputation with clients for competence, professionalism and integrity is likely to survive unchanged.”
According to the FSA, Hannam sent an e-mail to an unidentified contact on Sept. 9, 2008, in which he said Heritage Oil (HOIL), a British oil and gas exploration firm, would receive an offer valued at between 350 pence and 400 pence a share. The stock closed at 204 pence in London that day.
The recipient of the e-mail was a representative of an organization with interests in the Kurdistan region of Iraq, an area where Heritage had exploration projects, the FSA said. Nine days after the e-mail was sent, Heritage disclosed it was in preliminary talks to sell some assets.
Hannam told the contact he was “not trying to force your hand, just wanted to make you aware of what is happening.”
In a second e-mail a month later, Hannam told his contact Heritage “has just found oil and it is looking good.” Jersey, U.K.-based Heritage announced a find later that month in Uganda.
No trades were made on the inside information, the FSA said. The recipient of Hannam’s e-mail later hired him to set up a fund for making investments in Kurdistan, the FSA said. The initial deal never materialized.
Hannam told the FSA that the e-mails were taken out of context because the person they were sent to was representing an organization with which Tony Buckingham, Heritage’s CEO, was trying to do a deal. The FSA didn’t name the organization.
Hannam told the FSA’s internal Regulatory Decisions Committee that the e-mail in October was sent “at a time of extreme turbulence in the financial markets, when he was under extreme pressure at work,” the regulator said. He said if he had committed market abuse, then it was because of an “honest error or errors of judgment.”
The FSA accepted that he didn’t benefit.
“Hannam’s honesty and integrity is not in question,” Andrew Long, the acting chairman of the FSA committee, said in its final notice. “In committing market abuse he acted neither deliberately or recklessly. However, his behavior constituted a serious error of judgment.”
The case is the first time the FSA has published a public notice of a fine before the defendant was given the chance to challenge it at the Upper Tribunal, a specialty court in London that hears appeals of decisions from regulators, including the FSA. The agency was given the power to publish notices earlier under new rules as part of the U.K. Treasury’s overhaul of financial regulation.
For Hannam and JPMorgan, it created “an untenable position for him in working and advising clients where he’s on the front page of various financial newspapers, with an allegation of market abuse,” said Louise Hodges, a regulatory lawyer at Kingsley Napley in London.
“If you fight, now the decision notice gets published, even though there are issues to be litigated,” Hodges said. “The reputational damage of being under investigation is such that you are just not able to work in the regulated sector.”
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