Now that J.P. Morgan's been fined $212m for hiring the children of well-connected Chinese officials and clients, banks everywhere are going to think carefully before giving preferential treatment to anyone whose parents can help them out. That's kind of a shame. As someone who's worked in banking, both in Europe and in Asia, I can you tell this: those guys are often the best.
I never knew upfront which of my juniors had an important daddy - this was in the days before the Chinese clients clocked they could demand the bank hired their baby in return for doing a deal - but I usually found out along the way. The connected juniors were around 20% of my team and they were almost always the hardest working.
The thing was, they had to prove themselves. If you hire a son or daughter whose parents have achieved big things, they've got drive. They want to compete with daddy: to show that they've been hired irrespective of family.
Obviously, this wasn't always the case with the lazy princelings J.P. Morgan hired through its "referral programme", but those guys had been given a shoo-in. The referral programme meant J.P.M hired a load of lazy good-for-nothings whose parents were trying to offload their useless sons. The juniors I'm referring to had been hired through the usual channels: they were high calibre and they were driven. They wanted to succeed.
You can understand where these capable young relatives were coming from if you read one of the statements given to the SEC by what was probably the only good princeling hired through the J.P. Morgan referral programme: "All my efforts seem meaningless to you [J.P.M.] and you tend to judge me solely on the relation part of me...", he complained, before quitting.
Good young people have no interest in riding on their parents' backs. They want to succeed on their own merits.
In my experience, the best junior hires are usually those whose parents run a family business, which is typically a client of the bank. These young analysts and associates know they're only going to be in banking a few years before they leave to take up a position in the family group. They need to learn as much as they can because pretty soon they're going to be in the real world: not as an advisor, not as a private equity investor, but as someone actually dealing with operational issues of running a company. These juniors need to know everything: about corporate finance, about equity capital markets, about M&A. - They're the ones the family group will rely upon to deal with banks and minimize banking fees later on.
Unfortunately, banks are going to think long and hard about hiring these connected young people in future. Naturally, no bank is going to be as blatant as J.P. Morgan with its spreadsheet of referral hires showing how much money they'd brought in, but any connected junior is now going to be seen as a risk. The safest analysts and associates are now those whose parents have nothing to do with the bank and who will never be a client. That's sad: banks are missing out.
Maragold D’Orac is the pseudonym of a recently retired senior ECM banker in Asia