In a series of late-night emails, JPMorgan Chase executives in Hong Kong lamented the loss of a lucrative assignment.
"We lost a deal to DB today because they got chairman's daughter work for them this summer," one JPMorgan investment banking executive remarked to colleagues, using the initials for Deutsche Bank.
(Read more: Bank tabulated business linked to China hiring)
The loss of that business in 2009, coming after rival banks landed a string of other deals, stung the JPMorgan executives. For Wall Street banks enduring slowdowns in the wake of the financial crisis, China was the last great gold rush. As its economy boomed, China's state-owned enterprises were using banks to raise billions of dollars in stock and debt offerings — yet JPMorgan was falling further behind in capturing that business.
The solution, the executives decided over email, was to embrace the strategy that seemed to work so well for rivals: hire the children of China's ruling elite.
"I am supportive to have our own" hiring strategy, a JPMorgan executive wrote in the 2009 email exchange.
In the months and years that followed, emails and other confidential documents show, JPMorgan escalated what it called its "Sons and Daughters" hiring program, adding scores of well-connected employees and tracking how those hires translated into business deals with the Chinese government.
The previously unreported emails and documents — copies of which were reviewed by The New York Times — offer a view into JPMorgan's motivations for ramping up the hiring program, suggesting that competitive pressures drove many of the bank's decisions that are now under federal investigation.
The references to other banks in the emails also paint for the first time a broad picture of questionable hiring practices by other Wall Street banks doing business in China — some of them hiring the same employees with family connections. Since opening a bribery investigation into JPMorgan this spring, the authorities have expanded the inquiry to include hiring at other big banks.
Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley have previously been identified as coming under scrutiny. A sixth bank, UBS, is also facing scrutiny, according to interviews with current and former Wall Street employees. Neither JPMorgan nor any of the other banks have been accused of wrongdoing.
Still, the investigations have put Wall Street on high alert, said the current and former employees, who were not authorized to speak publicly. Some banks, they said, have adopted an unofficial hiring freeze for well-connected job candidates in China.
The investigation has also had a chilling effect on JPMorgan's deal-making in China, interviews show. The bank, seeking to build good will with federal authorities, has considered forgoing certain deals in China and abandoned one assignment altogether.
The pullback comes just as JPMorgan had regained a significant share of the Chinese market. Its deal-making revived a few years after it escalated the Sons and Daughters program in 2009, an analysis of data from Thomson Reuters shows. In 2009, JPMorgan was 13th among banks winning business in China and Hong Kong.
By 2013, once other banks had scaled back their Chinese business, it had climbed to No. 3. Other data shows that the bank was eighth in 2009 and — after losing market share in 2011 and 2012 — is now No. 4 in deal-making. While the hiring boom coincided with the increased business, the data does not establish a causal link between the two.
Yet the Securities and Exchange Commission and federal prosecutors in Brooklyn, which are leading the JPMorgan inquiry, are examining whether the bank improperly won some of those deals by trading job offers for business with state-owned Chinese companies. The S.E.C. and the prosecutors, which might ultimately conclude that none of the hiring crossed a legal line, did not comment.
JPMorgan, which is cooperating with the investigation, also declined to comment. There is no indication that executives at the bank's headquarters in New York were aware of the hiring practices. The six other banks facing scrutiny from the S.E.C. declined to comment on the investigations, which are at an early stage.
Economic forces fueled the hiring boom by Wall Street banks.
An era of financial deregulation in Washington coincided with a roaring economy in China, enabling questionable hiring practices to escape government scrutiny. The hiring became so widespread over the last two decades that banks competed over the most politically connected recent college graduates, known in China as princelings.
Goldman's employee roster briefly included the grandson of the former Chinese president Jiang Zemin. And Feng Shaodong, the son-in-law of a high-ranking Communist Party official, worked with Merrill Lynch.
In recent months, though, federal authorities have adopted a tougher stance toward Wall Street firms suspected of trading jobs for government business. The S.E.C. and the Brooklyn prosecutors have bolstered enforcement of the Foreign Corrupt Practices Act, which effectively bans United States corporations from giving "anything of value" to foreign officials to gain "any improper advantage" in retaining business. JPMorgan would have violated the 1977 law if it had acted with "corrupt" intent.
While the JPMorgan emails provided to federal authorities and reviewed by The Times most frequently referred to Deutsche Bank and Goldman, other banks might have also inspired JPMorgan's hiring.
Both JPMorgan and Credit Suisse, for example, did business with Fullmark, a consulting firm run by the only daughter of Wen Jiabao, then the prime minister of China. Another prized JPMorgan hire, whose father is the chairman of a state-owned financial conglomerate, previously held internships at Citigroup and Goldman.
JPMorgan executives in Hong Kong also studied the hiring movements of banks with a firmer foothold in China, the documents and emails show. "Learned from GS," one JPMorgan executive wrote in an email to colleagues, referring to Goldman Sachs's hiring practices.
JPMorgan's legal woes extend beyond China. In November, JPMorgan struck a $13 billion settlement with government authorities over the bank's sale of questionable mortgage-backed securities.
(Read more: Hiring in China by JPMorgan under scrutiny)
But unlike the mortgage pact, which focused on the bank's financial crisis-era business, the China investigations take aim at hiring practices that lasted until this year. And while the $13 billion payout involved civil settlements with various authorities, the bribery inquiry carries the threat of criminal penalties. A few top JPMorgan executives in Hong Kong have hired criminal defense lawyers, interviews show.
The fallout from the investigation may also hamper the bank's relationships with clients. As the investigation intensified in recent months, JPMorgan withdrew from a deal in which it was advising Cofco, a large state-run food company. JPMorgan offered the daughter of the company's chairman a short-term internship in 2011, according to securities filings, and another internship in 2012.
"We really need her to be back," a JPMorgan executive in Hong Kong wrote in an email. "Her father called and emailed me."
The bank created the Sons and Daughters program in 2006 to ensure that the hiring would pass legal and regulatory muster.
But then JPMorgan's investment banking business began to lose market share in China, the data from Thomson Reuters shows. By the time JPMorgan lost the 2009 deal to Deutsche Bank, the Hong Kong executives at JPMorgan's investment bank decided that it needed to step up its hiring.
"A missed opportunity for us this year," an executive said in an email upon learning of the loss to Deutsche Bank. "Can you guys craft a program that could work for us?"
The investment banking unit experimented with a program that would have offered well-connected hires a one-year contract worth $70,000 to $100,000. The program, internal documents said, might offer "directly attributable linkage to business opportunity."
Still, some Hong Kong executives pushed for more of what they called "client referral" hiring to keep pace with rivals.
"We do way, way, way too little of this type of hiring and I have been pounding on it with China team for a year," a JPMorgan employee wrote to a colleague in a 2010 email. In that same email, the employee added: "confidential, just added son of #2 at SinoTruk to my team," referring to a company that is part of a state-owned trucking enterprise.
He added: "I got room for a lot more hires like this (Goldman has 25)."
JPMorgan's expanded program had an apparent coup when Tang Xiaoning, whose father is the chairman of the financial conglomerate China Everbright Group, was hired. Until that 2010 hiring, which has been previously reported by The Times, the bank had missed out on deal after deal from China Everbright, including one assignment that went to Morgan Stanley.
But since the younger Mr. Tang was hired, China Everbright and its subsidiaries hired JPMorgan at least three times, according to Standard & Poor's Capital IQ, a research service.
When pursuing an assignment from Taikang, a life insurer that was not owned by the state, JPMorgan executives drew a similar link between hiring and deal-making. Hoping to get the nod to advise Taikang on an initial public offering of stock, emails show, JPMorgan sought to hire the chairman's niece. But it had stiff competition.
"Regarding to the juicy size, every existing active banks are trying to lobby with them," a JPMorgan banker wrote in an email, which is unlikely to become a focus of the federal investigation, because it involves a private company. Goldman, which employed the chairman's son, had a direct investment in the company. And the Royal Bank of Scotland was "trying to approach" the chairman's niece, the banker wrote, "to compete us."