The Warburgs

by Ron Chernow

  During the war, Fritz had considered but rejected moving to Israel, saying he was too old to adopt the Hebrew language. Unlike Felix and Max, he hadn’t visited prewar Palestine and disagreed with the Zionist view that all Jews belonged in Israel. As he observed to a friend, “The 2,000-year-old history of exile cannot be undone and a portion of the most valuable Jewish traits has arisen from the experience of exile.”20 A world citizen, Fritz relished Ortega y Gasset’s view of the Jew as an itinerant cosmopolite, the yeast of many cultures.

  Fritz nursed no grudge against postwar Germany, which he hoped would be integrated into a pan-European community. If left to his own devices, he would have moved back to Hamburg, but Anna Beata preferred Sweden. Fritz returned often to Hamburg, staying in a hotel and working to rebuild the Jewish Hospital—the same charitable interest that had led to his 1938 imprisonment.

  On summer vacations, he and Anna Beata returned to the Black Forest and met Ingrid and her five Italian children there. A few times, Fritz and Anna visited Italy and toured the Vatican and Roman museums. They worried constantly about Ingrid, whose husband, Veniero, seemed to pursue his political dreams more assiduously than he did a steady income. To help their chronically cash-strapped daughter, Fritz and Anna reduced their own living standard.21 Bowing to Veniero’s wishes, Ingrid raised their five children as Catholics, to which Fritz and Anna acquiesced. The most Jewish of the Famous Five brothers ended up paying to educate Ingrid’s Italian children in Catholic schools.

  Each year Fritz and Anna visited their two daughters who had moved to Israel. Eva continued her work with young children, which had been interrupted by Hitler. In 1947, she appealed to Eleanor Roosevelt for aid in getting seventeen hundred Jewish orphans interned on Cyprus into Palestine, and Mrs. Roosevelt relayed her letter to President Truman. In Israel, Eva took care of fifty children on a kibbutz, while her sister Charlotte Esther (Noni) worked with deaf and blind children. Eventually, with one daughter in Italy and two in Israel, it became a strain for Fritz and Anna to remain in Sweden. After Fritz had a stroke in the 1950s, he and Anna Beata moved to Israel despite Fritz’s earlier resolutions.

  Even before they arrived, Anna and Fritz wondered how they would fit their cumbersome old Mittelweg furniture and pictures into the tiny rooms of a kibbutz bungalow. Indeed, in Israel, they would seem like exotic refugees from a forgotten world. It was late in the day for them to make such a transition. This was especially true of Fritz, who, for all his affection for Jewish folklore, was a classic denizen of European cafés, restaurants, and movie theaters. He missed his old friends and longed for a telephone.

  Now lame on one side and suffering from back trouble, Fritz always had a nurse in attendance. Both his hair and walrus mustache had turned white. For long hours, gazing out from glum, pouchy eyes, he sat on a white rocking chair rescued from the Kösterberg terrace. Always sedentary, he now seemed virtually immobile. As Eric reported, “Poor Fritz is really still mentally all there but he can hardly move and he feels like Napoleon on St. Helena.”22 Fritz, uprooted, avidly sought news about the Hamburg bank and Kösterberg. On October 13, 1964, he died at the Nezer Sereni kibbutz, age eighty-five. Anna Beata followed him two years later. Fritz’s twin sister, Louise—the last surviving child of Charlotte and Moritz Warburg—died in 1974 at age ninety-four. Seventy years had passed since her beautiful sister Olga had thrown herself from the window of a Swiss hotel room. It was remarkable that among the seven children of this nationalistic German family, only Aby had died on German soil. When Fritz died, it was still unclear whether the Warburgs would take root in Germany again or whether the great saga had ended.

  CHAPTER 42

  ––

  The Cousins Club

  Siegmund Warburg had the sparkle and audacity of the gifted entrepreneur, but these qualities had to struggle against a deep-seated pessimism. Since he viewed the world through a dark lens, he forever saw the stable political universe about to crumble into chaos. In the early postwar years, he again pictured Western economies slouching toward Armageddon. After a New York visit in 1947, he told Fritz, “A real depression in the United States is just around the corner.”1 A few years later, he warned “be prepared for an international inflation wave … which may be on a scale comparable to the German inflation wave of 1921/2 (though not 1923!).”2 At first he despaired of American global leadership, then was heartened by the Marshall Plan and Jimmy Warburg’s activism for it. Admiring of the Soviet Union during the war, he had come to regard it as the chief bogeyman. “There is, I think, too much easygoing optimism in the air throughout the whole Western world and I am afraid there is therefore a relaxation of effort on the Western side towards the cold war which is by no means over yet.”3 Turning conservative, Siegmund rooted for a Tory victory over Labour in 1950.4

  He was forever jittery about his firm. In 1953 S. G. Warburg & Co. moved to more spacious quarters at 9–13, King William Street—a move that another boss might have celebrated, but which aroused superstitious fear in Siegmund. As he told Fritz, “I have a cauchemar about too big an organisational basis for a private banking house.”5 Still fearing excessive reliance on banking, Siegmund steered S. G. Warburg & Co. into diverse businesses. With this in mind, he decided to create a holding company and bought a shell company called Central Wagon Company. When the Labour government nationalized the railroads, it stripped Central Wagon of its assets and this enabled Siegmund to use its stock exchange listing for his new holding company. The customary name would have been S. G. Warburg Holdings, but Siegmund again thought it tempting fate to put his name on a listed company with a banking component. The new vehicle was baptized Mercury Securities instead.

  The common wisdom about Siegmund Warburg is that he ruled his firm not by ownership, but by sheer force of personality. In fact, before the Central Wagon deal was finalized, he formed another private holding company called Warburg Continuation. Endowed with slender capital, it took control of S. G. Warburg & Company by subscribing to a new class of shares that had voting rights, but not equity rights, over the operating company. Siegmund took 52 percent of Warburg Continuation and parceled it out in four equal pieces among himself, Eva, and their two children, with the remaining 48 percent divided among the directors. So it was something of an illusion that Mercury Securities controlled the Warburg bank. Without fuss or publicity, this arrangement lasted for twenty years.

  Siegmund wanted to revive Warburg glory on Wall Street and in Germany and resurrect an international capital market moribund since the 1920s. S. G. Warburg would be London’s most cosmopolitan bank, with its domestic and foreign activities interfused. But for all his brains, charm, and famous name, Siegmund faced an insuperable hurdle: He was an international banker in a provincial postwar City strait jacketed by exchange controls and bound by an insular outlook. World finance was now centered upon New York and conducted in dollars.

  By 1946 Siegmund was bustling about Wall Street, trying to drum up business. The next year, he set up American European Associates, drafting Dr. Ernst Spiegelberg, his former Hamburg partner, to head it. Traveling on the Queen Mary, staying at the Drake Hotel, and working from a Bank of the Manhattan office, Siegmund began to trail a cloud of mystery behind him. He started to project his mythic persona of the brilliantly mercurial banker who stayed in discreet hotels on several continents and advised powerful clients in intimate chats. His capacity for work was awesome. Aboard the Queen Mary, his secretary typed away in her cabin and they worked either Saturday or Sunday. As he had in the 1920s, Siegmund felt at home in New York, enjoying its zest and vitality. Thanks to Hitler, he now had relatives galore there and once said that he had counted seventy-two of them, if widows and divorced wives were included.6

  ——

  Sitting in an Alpine setting, Siegmund Warburg is caught, red-handed, reading a newspaper.

  (Private collection)

  In London, Siegmund was fast becoming a legend, but he was patronized in the smug world of postwar Wall Street. T
his snobbery would be, in many ways, more insidious than the brittle upper-crust condescension he dealt with in London. In New York, people called him “Siggy” Warburg, a diminutive that made him cringe. Indeed, his tiny firm in London still had only a few dozen people and more second-tier clients than blue-chip companies on its roster. He was fussy about whom he dealt with, but the upper-bracket firms eluded him.

  Siegmund made the fateful but highly questionable decision of trying to restore the fame of Kuhn, Loeb, which he considered a “Warburg firm.” Paul and Felix had been partners and Felix’s son, Freddy, remained a general partner. When Siegmund had trained there in the 1920s, Kuhn, Loeb had been so regal that its letterhead simply announced “William and Pine Streets.” In the 1950s it still shared preeminence with Morgan Stanley, but precariously so. For over a century, it had financed railroads, steel mills, and shipping firms, and had contributed to the growth of the auto, film, and aviation industries. It also served as agent bank for many foreign governments. For Siegmund, its client list must have shimmered like the stuff of fantasy: Bethlehem Steel, Eastern Airlines, Westinghouse Electric, Western Union, Polaroid Corporation. He spied a chance to revitalize a Warburg house and simultaneously catapult his London firm to the top of world finance. It was an implausible daydream that would tease, torment, and tantalize him for a decade.

  As Siegmund had already foreseen in his apprenticeship days, Kuhn, Loeb had become a rich, sleepy place run by sedate partners who banked fat, easy domestic profits. They assumed business would come to them. Once led by aggressive immigrants, the firm had settled into a state of exaggerated gentility, with a formal, airless, almost mortuary atmosphere. In the reception area, beneath pictures of Felix Warburg and Jacob Schiff, two black men took visitors’ hats. The secretaries were called Miss and men by their last names. The firm served only sherry at lunch, which featured lots of jejune chatter about French wines and European hotels. The style was still so discreet that a young employee could be fired after lunch if heard discussing a client’s business at a restaurant.

  John Schiff, Jacob’s grandson and the chief partner, and his adviser, Sir William Wiseman, knew the firm risked stagnation. A shrewd cloak-and-dagger figure, Wiseman had been the chief British spy master in America during World War I and then became a Kuhn, Loeb partner. He spotted Siegmund as a rising London star and told Schiff that Siegmund could be the spark to recharge Kuhn, Loeb’s battery. In 1951, Schiff wooed Siegmund with a fantastically tempting offer: He could become senior partner of Kuhn, Loeb if he moved to New York and made it his principal activity. But Siegmund had an immigrant’s fondness for England and owed much to the Bank of England, the Rothschilds, other friendly British firms, and the industrious uncles. So he declined, later explaining that “having built up my firm in England, I felt very deeply attached to England and I wouldn’t dream of moving my domicile from London.”7

  Instead, Siegmund became a normal Kuhn, Loeb partner, spending half the year in New York and sharing his New York earnings with his London firm. Since the New York Stock Exchange forbade officers of foreign banks from becoming partners in member firms, Siegmund started out in late 1952 as an “executive director” and didn’t officially become a partner until 1956. In reality, he enjoyed a partner’s authority all along. As one associate said, “His views on the New York Stock Exchange, from his experience as a partner in Kuhn, Loeb, produced invective of a style and force which could rival Swift.”8

  Siegmund was extremely excited about the prestigious Kuhn, Loeb connection and instructed his London secretaries to address letters to American businessmen as “Mr.” but to Kuhn, Loeb partners as “Esquire.” His relatives were dubious about his prospects. Knowing how he set himself up for disappointments, Eva warned that the Kuhn, Loeb partners were rich and self-satisfied and that he was taking on a losing battle. But Siegmund liked a challenge and was excessively confident of his own powers of persuasion.

  John Schiff hoped Siegmund would develop transatlantic business, bring European clients to Kuhn, Loeb, and serve the firm’s clients in Europe. He put Siegmund on the executive committee, a stunning feat that made him the sole European banker with such standing in a top-drawer Wall Street house. Henceforth, S. G. Warburg & Co. and Kuhn, Loeb would represent each other in London and New York.

  During his stormy Kuhn, Loeb tenure, Siegmund faced the same predicament that had stymied him in Hamburg and London. He was again the capable outsider, the brilliant upstart, baffled and derided by threatened insiders. This maddened him, making him more determined to succeed. For Siegmund, Kuhn, Loeb was the sort of haphazard outfit that brought out his moralistic contempt for waste.

  With his penetrating vision, Siegmund at once spotted the firm’s flaws. In 1954, he prepared a memo charting Kuhn, Loeb’s real, if still imperceptible decline. In London, Siegmund had created a free-flowing collegial atmosphere. Anticipating Japanese methods, he would form teams for each client and have green recruits working beside senior directors. In contrast, Siegmund noted that the ossified Kuhn, Loeb had gone from Jacob Schiffs dictatorship to separate baronies. Too lazy to chase new business, the firm coasted on its past. “On the one hand,” he told John Schiff, “there is too much free play for dilettantism without sufficient appreciation of the importance of professional work.”9 Siegmund was shocked at how Kuhn, Loeb moved by inertia. “The firm has apparently no long-range plan, other than to hang on to existing clients and to try—by no particular or definite method—to get new ones. Its organization, at best, is rudimentary and unintegrated.…”10 For Siegmund, if the people, corporate structure, and culture were right, the rest would fall into place.

  Siegmund’s critique was prescient. Unfortunately, his efforts to galvanize Kuhn, Loeb became ensnared in the issue of his own personal ambitions. It was widely feared that Siegmund wanted to dominate or take over Kuhn, Loeb and run it from London. No sooner did he join the executive committee in 1953 than he lobbied to be its chairman.11 In the 1954 memo, Siegmund urged Schiff to appoint him managing director, spawning mistrust.12 A few weeks later, Siegmund told Schiff defensively, “your remark yesterday about the question of powers gave me the impression that you thought I wanted to have dictatorial powers.”13 Siegmund had a clear-sighted view of Kuhn, Loeb’s problems but his thrusting style, superior intelligence, and sometimes overbearing manner unsettled the leery Americans.

  Critical of the firm’s fragmented structure, Siegmund generated many sweeping blueprints to concentrate power in a small leadership group that always seemed to include himself. He thought piecemeal solutions a form of cowardly evasion. The model he invoked was the close teamwork and professionalism of his London firm. But Siegmund’s Prussian sense of hierarchy collided with the anarchic culture of an American partnership. When he tried to end turf wars at Kuhn, Loeb by having partners share the morning mail—imitating the uncles in London—it created an uproar. Siegmund also disliked the American mentality that people who produced the most should be paid the most, which he thought undercut the necessary team spirit.

  Siegmund was now a personage in his own right, a powerful presence when he entered a room. With a melancholy, world-weary aura, sallow complexion, and saturnine smile, he was an enigmatic figure. He seemed a magician who might suddenly pull a scarf from his sleeve or a chess master who might spring an unexpected move. Still striking with his jet-black hair and piercing eyes, he wore well-tailored, double-breasted suits of dark blue or gray. The wheels of his mind always turned. A mesmerizing orator, he spoke softly, but with such cogent, precisely chosen words that people leaned forward and sat riveted. He had a knack for delivering remarks that seemed spontaneous but were premeditated down to the opening pleasantries. Siegmund was so artful that people at a meeting could never spot his precise agenda, which often came wrapped in a carefully spun tissue of secondary or tertiary concerns.

  Like a cloistered scholar, he paced the Kuhn, Loeb halls, his hands clasped behind him, his back increasingly hunched. Enormous tension was
bottled up inside him. In fact, his famous charm seemed to spring from a lifelong struggle to tame his strong emotions. Sometimes his nervous shoulder tic gave a telltale twitch when he asked a loaded question. His eyes were cool, steady, watchful, and all-seeing. If he stopped to chat with a young associate, clapping a hand on his shoulder, his eyes would scan the work on the employee’s desk. Phenomenally diligent, he often started at eight-forty-five while the American partners ambled in at ten. Throughout his life, Siegmund had minutely budgeted days, but never seemed in a hurry. He was always available if problems arose and he knew how to make twenty guests per day feel they were currently his top priority.

  But instead of seeing Siegmund’s strength and drive, many Kuhn, Loeb partners saw an overweening and egotistical upstart. They didn’t warm to the Old World erudition that enchanted others. For many in the flippant Kuhn, Loeb crowd, Siegmund’s book chatter sounded pretentious. When he cultivated Lehman Brothers partners for new business, his detractors yawned. They didn’t respond to Siegmund’s view of the banker as a combination of guru, confidant, and management consultant. At the time, Wall Street bankers condescended to their more threadbare British counterparts and this certainly extended to Siegmund.