Bank of New York Mellon agreed this week to a $US14.8 million settlement of allegations it gave internships to relatives of foreign government officials with the expectation of retaining or winning lucrative business — seemingly a violation of the U.S. Foreign Corrupt Practices Act. That’s peanuts relative to the financial benefit they likely gained from keeping one of their biggest clients (a Middle Eastern sovereign wealth fund) happy.
This quid pro quo notion of trading favours in exchange for future business is nothing new. As Matt Levine points out, “the whole business of financial services is about flinging free things at clients in the hopes that they will give you some extremely overpriced paying work.” JPMorgan, Goldman Sachs, Deutsche Bank, Citigroup and many other Wall Street firms have also been implicated in the practice of handing out prestigious internships and jobs with the expectation of winning future business.
We’re no strangers to nepotism, so this news should hardly come as a surprise. We all understand and expect that Chelsea Clinton can walk into a job at McKinsey or at Marc Lasry’s hedge fund, or that Brian Williams might have used his close relationship with Judd Apatow to help his daughter land a role on Girls.
However, in banking, particularly in the emerging markets, this practice is the rule and not the exception. Most banks hire a disproportionate number of relatives of regional tycoons, captains of industry, and government officials with the expectation that it pays dividends in the form of business and mandates from their influential families. In Asia, these kids are called Princeling (having broadened that definition beyond simply the children of Chinese party officials). Although, we always called them Dumplings, given their overall lack of qualification and tepid ambition.
When I worked for Citigroup in Hong Kong, we recruited many of our interns and analysts from the pool of résumés that were sent in to Citi Private Bank by their ultra high net worth clients looking for favours. Most of the candidates did not come from target recruiting schools. None of them would have made it beyond the first round of interviews in New York. But, a few of them were kids of well-known billionaire families, and the rest were just super rich — all of them.
In some cases, these kids didn’t even want to be there; all their family wanted was to say that their son [or daughter] worked “as an investment banker” for a few years before joining the family business or going to business school. It didn’t matter what the job was.
In one instance, our structured credit trading desk hired the son of a Hong Kong property tycoon as the desk assistant. It was hilarious watching people tip-toe around him ever so politely, prefacing mundane requests with “Hey, if it’s not too much trouble…” as opposed to the typical “Hey f–kstick.”
At the end of the day, we’d all get in the same long taxi line to go home, and these kids would discreetly slink away to the chauffeured cars waiting for them. It wasn’t simply that there was this implicit understanding that the hiring of Princelings is good for winning future business; there were times where we would explicitly draw from these resources. “Hey, you know we’re pitching X next week for a bond deal. Does your Dad know the CEO? Maybe he can remind them that you’d be on the deal team if we’re mandated.”
There were even times where we weren’t above asking one of these analysts to help us out on a deal. For one notable Indonesian high yield bond, we were so close to getting it over the line that, having exhausted all institutional avenues, we decided any little bump in interest from retail investors via the private banks could make a difference. “Hey, why don’t you show this deal to your Dad and his friends? It’s got a 11% coupon.”
It wasn’t just us. Everyone did it. One U.S. bank famously moved up the Asia M&A league tables after they hired two kids from one of Hong Kong’s most famous dynasties. It became the running joke any time one of our counterparts at another bank brought an intern or new analyst to a meeting or roadshow luncheon. “So, who is his [or her] father?” was the first question bankers would ask, unless she was attractive, then it was “Is she single?”
Bank of New York Mellon settled, largely because of some horrendously incriminating emails. With them emerging relatively unscathed, I would now expect other banks to willingly follow suit. After all, we said some really stupid things over email.
This article has been adapted from the New York Times bestselling book, Straight To Hell: True Tales of Deviance, Debauchery, And Billion-Dollar Deals