J.P. Morgan is in more hot water over claims that it hired children of powerful Chinese officials in order to help it win business in the country. This is the last thing the bank needs – it could need to shell out up to $6.8bn in legal costs in the future as it battles regulators on various fronts.
J.P. Morgan’s hires in China may have come at an opportune time – it allegedly took on the daughter of a railway official just as it was in the process of selecting the bank to advise on its plans to go public – but the tactic of recruiting the offspring of influential public figures in the country is amazingly common.
Liu Lefei, son of Liu Yunshan who is in charge of ideology and propaganda in the Communist Party, was until recently chairman and chief executive of Citec Securities. Li Wangzhi, the forgotten son of expelled Chongqing leader Bo Xilai, worked at Citigroup and Chen Xiaodan, granddaughter of Chen Yun, attended Harvard, worked at Morgan Stanley in New York and was recently recruited by private equity firm Permira Advisers in Hong Kong, while her brother Chen Xiaodin is a Stanford MBA who was formerly at Citigroup.
Nor is this nepotism for those connected to influential people – or those with bulging bank balances – restricted to dubious deal-making in China where corporate governance is weak. Banks want people who can open doors, which means those who are connected have a better chance of being hired than mere mortals.
Goldman Sachs reportedly offered the son of Mustafa Zarti, a long-time friend of Muammar Gaddafi and then deputy head of the Libyan Investment Authority, a three-month internship in 2008 shortly after the fund bought $1.3bn worth of options from the bank (though it said the two were unconnected). Meanwhile, Man Group and Oppenheimer both signed up to a scheme offering internships to the highest bidder – namely, parents with the financial firepower to pay for their children’s work experience.
In wealth management, the connection is even more obvious. St James’ Place has a graduate training scheme specifically set up for the sons and daughters of its partners. Wealth managers in the U.S. intensively grill potential financial advisers on their parents and friends, and then expect them to tap them for business once hired.
There are at least some attempts to make amends – most banks now have schemes specifically targeting graduates from poorer backgrounds who would not have been jumping through all the hoops required from an early age to get into investment banking. Clearly, though, there’s some way to go.