At the end of last week, Credit Suisse paid out fines of $47m to the DoJ and around $30m to the SEC, to settle the investigation into its “princelings” hiring scandal. This was an investigation into the practice of hiring the children of highly-placed Communist Party officials in China into lucrative banking jobs in the hope the kids would be able to help CS Hong Kong get banking business from their parents. This was felt by the regulators to breach the Foreign Corrupt Practices Act. But the official press release on the settlement might strike many of us as familiar.
One employee, described at length in the DoJ press release, was hired after a slightly less-rigorous-than-normal process in which a CS banker wrote her resume for her, and warned colleagues that “she is a princess who is not used to too many rounds of interview”. After joining the graduate intake, she was rated bottom of her analyst class, and criticised for little things like rarely coming into the office and bringing her mother along to training events.
This didn’t affect her promotion prospects. She got evaluations with phrases like “try to answer the phone and not be rude” and “come into the office more – we love to see your smiling face”. Other bankers were asked to send her “congratulations, couldn’t have done it without you” emails relating to deals they had done thanks to her connections. She ended up getting about $1m total comp before the investigation turned into a career speed bump. The settlement doesn’t record what the other employees thought about all this, but it’s hard to imagine that it was anything very positive.
This is something of an extreme case. But haven’t we all worked alongside someone who was just a little bit of a teacher’s pet? A relative of someone who is a senior executive, or a kid of a big client, or someone with a surname that’s on one of the conference rooms, for example. The fact is that investment banking is about doing deals, and for this reason, people who can help the bank get deals are more valuable than people who can’t. And the P&L account doesn’t really care whether the deals are brought in by financial brilliance and business savvy, or by family connections. That’s why this isn’t the first princelings scandal by a long way – JP Morgan, for example, paid $264m to settle similar charges two years ago. The old proverb that “it’s not what you know, it’s who you know” is in many ways true.
Separately, which bank begins with D, ends with E and has a load of compliance trouble? Well yes, them too, but Danske Bank’s Estonian operations appear to be caught in a major money-laundering scandal which has grown and grown the more it’s been investigated and might involve as much as 53bn Danish kronor ($8.3bn). The bank is now seeing some customers shifting their own deposits in protest, and Bill Browder (of Hermitage Capital, and a perennial lobbyist against Russia-related organised crime) is planning to launch a criminal complaint against them.
What it looks like is a scandal similar to the HSBC Mexico case of a few years ago – a local operation that has never been properly integrated into the compliance framework of the group as a whole, and which has never in the past been seen as important enough to be worth supervising properly. A bad branch of a good bank is the most dangerous thing in financial crime, as it tends to be given the benefit of the doubt earned by the reputable parent, so there are much weaker constraints on its ability to expand its activities to truly amazing proportions. That’s another old proverb – “what you don’t know can hurt you.”
Meanwhile:
The top hedge funds in Europe surveyed, including some which don’t usually get much publicity. (Financial Times)
Steve Cohen gets turned down by the FCA as not “fit and proper” to open Point72 to the British hedge fund investing public. (CNBC)
A poem made up of Wall Street platitudes. (WSJ)
The inside story of the Blackrock / Hovnanian CDS affair. (WSJ)
HSBC and L&G chief executives will be having dinner with Donald Trump on his official visit to the UK. (Financial News)
Old Mutual Global Investors is to be renamed “Merian”, after a 17th century butterfly expert. (Financial News)
A review of “Finn”, the new J.P. Morgan banking brand aimed at millennials. (Business Insider)
Citigroup has hired Gregoire Haemmerle and Pierre Drevillon from UBS to run CIB and M&A in France. (WSJ)
Arif Hussein is now running a burger restaurant rather than trading sterling rates for UBS, but he still wants them to cover his legal fees. (Daily Telegraph)
Credit Suisse has appointed Antoinette Poschung to the newly-created “Conduct and Ethics Ombudswoman” post, with responsibility among other things for handling all #MeToo cases. (Reuters)
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Where you can still get a finance job as a ‘princeling’ in AsiaWestern banks in Asia have stopped hiring princelings…but some firms still want them.
Image credit: tuu Sitthikorn, Getty