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J.P. Morgan and the art of nepotism present at every bank

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.

AUTHORPaul Clarke
  • an
    20 August 2013

    This isn't confined to China, it happens in many banks and in many Asian countries and no doubt throughout Latin America too. Who in Singapore for example hasn't wondered how certain loud mouthed, obnoxious morons who apparently do absolutely nothing and know nothing, manage to get into extremely senior positions, like the very top? It is common knowledge that these people are there for their connections and no other reason...why put up with them otherwise, they are like a bad fart that just doesn't go away. And who doesn't know that local interns, the opposite end of the senior spectrum, are there because of their father, uncle, cousin etc. These big banks make a great play of their meritocracy but the truth is its mostly about connections, networks, all insider deals. The difference between some of these countries is that in China this kind of corruption (as well as many other kinds ) is the only way. In other counrtries, its more of a choice. But because the culture of sucking up is so much at the heart of many of these vast institutions, they do it that way anyway.

  • Mr
    Mr Magoo
    19 August 2013

    The Chinese have a word for this 'guanxi', western rules do not apply and are completely alien. Bribery and corruption are absolutely everywhere. Its what makes the recent Glaxo case so utterly ridiculous - it's the government officials who are rotten to the core and make the rules. The Party millionaires (and billionaires) aren't stupid though, they are shipping their illegal cash out of China by the truck load and sticking it on the western, and especially London, property market so when it all goes sour they've got cash in the bank and somewhere to run. Ah, the wonderful fairness of socialism!!

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