by Ron Chernow
The Aluminium War was a watershed for S. G. Warburg & Co., giving it an exalted place in corporate finance, as executives took notice of Siegmund’s masterstroke. It was also a watershed for the City, which had come to prefer style and ceremony to competence and conviction. When somebody asked Henry Grunfeld how Warburgs won the BA battle, he said simply, “We just didn’t make any mistakes and the other side did.”36 Before Siegmund came along, mergers were negotiated on the backs of envelopes. Now merchant banks set up professional corporate finance teams to stop the Warburg juggernaut. Young turks at other merchant banks wanted to imitate Siegmund. In the coming decade, the entire City would take on the disciplined, fighting spirit of S. G. Warburg. Corporate battles would henceforth be fought in the open and not behind closed doors. One man had indeed made an amazing difference.
Despite Siegmund’s undoubted triumph, the affair exposed some shortcomings of hostile takeovers that would bedevil Anglo-American finance for decades. The famous victory may have been a net loss for the companies involved. Some observers believe the need to win evinced by Siegmund and his clients superseded the economic logic of the deal. However thrilled by Siegmund’s victory, Reynolds had paid a very high price. In 1957, BA shares had traded for as low as thirty-six shillings then had risen as high as eighty-five shillings during the battle. Noted Michael Verey, who advised TI for Helbert Wagg: “It didn’t emerge for years that the fight was a very expensive one for the client. In fact, Siegmund gave Reynolds poor advice. British Aluminium was not worth it at that price.”37
The high purchase price made Reynolds/TI reluctant to spend money on the company. “Both TI and Reynolds realized that they had overpaid,” said Ronald Utiger, a later British Aluminium chairman. “BA had a considerable need for investment. But Reynolds and TI made it clear that having paid what they had paid, they weren’t willing to put more into the company. The takeover was a tremendous strategic mistake. They couldn’t exploit possibilities in Australia and elsewhere that required capital. Alcoa, without question, would have seen the potential and could have provided the financial and technical background to go forward in these ventures.”38 This revisionist view, of course, enjoys the benefit of hindsight.
Meanwhile, battle-hardened S. G. Warburg troops emerged supreme in the rough-and-tumble art of takeovers. During the 1960s, the firm seemed virtually invincible, whether on offense or defense. In Henry Grunfeld and Frank Smith, Siegmund had the two reigning masters at crafting bids. He could now fulfill his dream of having a low-overhead bank that booked big fees as financial consultants instead of through lending money.
This winning aura attracted many clients. In July 1959, Siegmund advised Roy Thomson, the Toronto barber’s son who owned a chain of Canadian newspapers, in his purchase of the Sunday Times. Siegmund, who seldom read newspapers, already had as a client Cecil King, the tabloid press baron of the Daily Mirror, who had been turned down by older, stodgier merchant banks. Advised by Siegmund, King would become Britain’s largest newspaper publisher. When King and Thomson vied for Odhams Press in the early 1960s, Siegmund advised Thomson that he would represent King, the client with seniority. Thomson was taken aback, but after he lost, he returned to War-burgs in an extraordinary gesture of confidence.
After the Aluminium War, a partner at a rival bank confided to Siegmund, “No company director whose shares are publicly quoted can sleep well from now on, because he must always wake up in the middle of the night and wonder who will make a raid on the company.”39 Siegmund, who hated inept entrenched managers, rejoiced at that remark. At the same time, he had found a charm in the very gentle, leisurely British style that he was helping to end. In a 1970 interview, Siegmund admitted that he had often asked himself whether “there is not a strong grain of wisdom behind an inclination in this country to resist the modern urge for ruthless efficiency at the cost of human values.”40 Either the Janus-faced Siegmund was storming the twenty-first century or waxing sentimental about the nineteenth.
On the strength of the Seligman merger and the Aluminium War, Siegmund had succeeded in resurrecting the Warburg name from the ruins of the Third Reich. Nobody had ever entered the clubby London elite so quickly. With this staggering achievement, Siegmund recapitulated an old Warburg story of fighting back from adversity. He also demonstrated the perseverance of the German Jews in exile. Once again, the Jewish banker had been an agent of new ideas, threatening the status quo but invigorating the scene. Many would trace an absence of creative sparkle in postwar German finance to the annihilation of the Jews. In expelling people such as Siegmund Warburg, the Nazis had severely hurt the Germany they presumed to save and had conferred a priceless gift upon their British enemies.
CHAPTER 45
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The Quality of Mercy
Now in his early sixties, Eric had the balding Warburg head, prominent forehead, deep-set eyes, and tufty, beetling brows. Despite his battle royal with Brinckmann, he was a cheerful man of great vitality who moved quickly as he barreled down the hallway of the Hamburg bank. Unlike Siegmund, he didn’t seem to carry the scars of a dark, turbulent history. Nothing gratified him more than to show visiting Warburgs his rich trove of memorabilia at the bank and at Kösterberg. A sense of tradition sustained him in his struggle to recapture the bank.
Reflecting the eternal ambivalence of the German Jew, Eric Warburg alternately demanded justice and granted forgiveness in postwar Germany. After returning to Hamburg, he emerged as a gray eminence of German-Jewish reconciliation and hence a figure of considerable symbolic weight. When eternally skeptical Jewish visitors later quizzed Chancellor Helmut Schmidt about whether anti-Semitism persisted in Germany, he would lift the telephone and have his sailing partner, Eric, reassure the wary visitors. Never as sanguine in private as in public, Eric nonetheless still viewed Nazism as an extinct volcano.
Each year, Eric lunched with Count von Rothkirch, the languid, monocled general who had led German troops into Vienna in 1938 and whom he had debriefed at war’s end. He made peace missions to other old Wehrmacht officers. During the North African campaign, Eric had tracked down a Lieutenant Almenröder, whom the French had shut up in an old, rat-infested fortress. After the war, Almenröder became a Catholic priest in a cloister near Munich. Thirty years after their wartime meeting, Eric sought him out to return a confiscated pocket knife. The two men talked animatedly for three hours. Such visits expressed Eric’s reverence for the military caste and his strong need to settle past differences. If Siegmund was an iconoclast by nature, Eric was a staunch traditionalist, who wished to return to the well-worn paths of his pre-Hitler life.
Emotionally it was always dangerous business to revisit the Nazi past. In 1945, Eric’s deputy had interrogated a short, stocky lieutenant general named Fritz Bayerlein, who had been Rommel’s tank chief in North Africa. After the war, Bayerlein entered the Persian rug business, which brought him to Hamburg each year. Eager to make amends, he always paid a visit to Eric. In 1967, right after the Six-Day War, he burst into Eric’s office, unfurling a military map of the Sinai peninsula. For two hours, he babbled on with gusto about Israel’s blitzkrieg tactics. “You must confess,” he said, “the boys have learned a lot from us.” Usually a model of tact, Eric replied, “Indeed, Mr. Bayerlein, the few who weren’t gassed probably learned their lesson.”1
Though Eric encountered little, if any, overt anti-Semitism, he found moral stupidity of the sort that had, in the past, shaded into full-blown Nazism. He had generously given model ships to a nearby church in Blankenese. One Sunday, he strolled by the church and, hearing the choir singing, decided to drop in to listen. The text of the pastor’s sermon was the crucifixion of Christ by the Jews. Governing his temper with difficulty, Eric sat down and wrote the pastor a calm letter, pointing out that the Romans, not the Jews, had murdered Christ. The pastor not only accepted the correction but later asked Eric for an introductory letter when he visited Israel. Eric taught forgiveness to the Christians.
Among
Eric’s competing parts—German, Jewish, and American—the German side came to predominate as he again surrendered to his old imperial love of the aristocracy and military. His memoirs would be a faintly embarrassing cavalcade of “vons” and generals he had known. Yet his Jewish side was never wholly extinguished. In the face of adversity, he could fight stubbornly for his principles. In 1952, the Conference on Jewish Material Claims against Germany, representing twenty-four organizations of Holocaust survivors, concluded a reparations agreement with Konrad Adenauer. Between 1953 and 1965, Germany agreed to pay Israel more than seven hundred million dollars and the Claims Conference more than one hundred million. While the East Germans disclaimed responsibility for the Holocaust and refused to pay a cent—they were supposedly all anti-Fascist “freedom fighters”—West Germany would devote about 5 percent of its annual federal budget to compensate Jewish victims. It was a pittance beside the suffering, but an important symbolic gesture. Germany would end up as Israel’s second-most important trading partner after the United States. This mutually advantageous relationship gave Germany global respectability and Israel economic aid.
——Eric Warburg.
(Courtesy of Anita Warburg)
The 1953 agreement also provided for an indemnification law to compensate individual Jews for loss of life, health, careers, or retirement benefits. No provision was made, however, for the 150,000 concentration camp inmates exploited as forced labor. They had endured filth, beatings, and starvation, often in nightmarish underground plants. During the war, German companies could order slave labor by phone and the victims would be promptly shipped off by rail. Afterward, German executives sheltered behind the flimsy excuse that they had merely served as agents of the Third Reich. They often pleaded ignorance of the atrocities carried out in their own installations.
When the Claims Conference sought reparations from the successor firms to Krupp, Flick, Siemens, Rheinmetall, and I. G. Farben, Eric functioned as a pivotal figure, and the conference used Brinckmann, Wirtz to transfer payments. Afraid of opening the door to unending lawsuits, most German companies reacted in an extremely defensive, bureaucratic style. To extract payments from niggardly, unrepentant companies required massive research. Before approaching Krupp, Benjamin B. Ferencz of the Claims Conference compiled evidence showing that Alfried Krupp had known about the slave labor. In 1943, Krupp officials inspected naked prisoners at Auschwitz and some executives even handed out assignments to concentration camp inmates at a Krupp munitions factory.2 When Ferencz presented a lengthy brief about this to Alfried’s top aide, Berthold Beitz, Beitz blanched and exclaimed, “Blackmail!”3
After this unpromising start, the conference enlisted the help of John J. McCloy, now chairman of the Chase Manhattan Bank in New York. With his controversial pardon of Alfried, McCloy feared that any concession he helped to elicit on reparations might look like a belated payoff. Nevertheless, McCloy dined with Krupp at his mountaintop villa in Essen in mid-1959. When Krupp resisted McCloy’s plea to settle with the conference, Ferencz sued Krupp in New York, demanding ten thousand dollars per slave worker.
Enter Eric. It offended his sense of justice that a billion-dollar outfit could just shrug off responsibility. Since Krupp was a Brinckmann, Wirtz client, Eric approached Beitz in a uniquely ambiguous role: He was both a Jew asking for justice and a friendly German businessman offering timely advice. Before the conference filed suit in New York, Eric showed Beitz damaging documents that confirmed Alfried’s knowledge of the slave labor and advised Beitz to avoid bad publicity by settling.4 Certainly Eric’s role turned up the moral pressure on Krupp. With Krupp’s blessing, Beitz flew to America and offered to pay $2.38 million. The final sum came to a meager $500 per victim, but at least there was a grudging admission of wrongdoing.5
Other cases were far more uncomfortable for Eric. Siemens Bauunion had employed about eight thousand camp prisoners at underground arms factories.6 While the firm later alleged that it was coerced into using slave labor, a 1945 internal company report suggested otherwise.7 Meeting with Siemens leadership, Eric disclosed that the conference had possession of the damaging 1945 report, which induced the firm to settle.8
The reparations work led straight to that Warburg bogeyman of the 1930s, Friedrich Flick, who had waded hip-deep in the horror. As Himmler’s friend and patron, he had toured concentration camps with the SS chief himself.9 The Nobel dynamite company, 80 percent owned by Flick, had written an especially grisly chapter of Nazi history. It had commandeered women from Auschwitz to insert explosives into bombs and grenades. Their errors were often repaid with instant death.10 After the war, Flick was sentenced to seven years in jail for exploiting slave labor and funding the SS, until McCloy commuted his prison term in 1951. Flick then resumed his business career, acquired control of more than three hundred companies, and became the richest man in Germany. So much for earthly justice.
When it came to callous arrogance, Flick had no peer and he blustered that “nothing will convince us that we are war criminals.”11 When Eric was tapped by the conference to approach Flick, he found himself negotiating with Flick’s representative, a man for whom he felt profound friendship and admiration. Fabian von Schlabrendorff was a Resistance hero who had tried to murder Hitler with bombs hidden in a package of brandy bottles and stowed aboard the Führer’s plane. He had recruited Count von Stauffenberg into the anti-Hitler plot. In February 1945, he had been about to be sentenced to death by a Nazi court when bombs shattered the courtroom, killing the judge and incinerating his records. Someone of unquestionable bravery, von Schlabrendorff was reputed to have been the survivor most tortured by the Gestapo. A distinguished lawyer, he was among the Resistance figures aided by Eric in the rubble of 1945. Each year, Eric attended the Commemoration Day services in Berlin for veterans of the July 20, 1944, plot and kept in touch with von Schlabrendorff.
Now, in Eric’s office, this Resistance hero represented a convicted war criminal. Apparently operating in good faith, he seemed sympathetic to the demands of the Claims Conference and he and Eric worked out a deal that he could take back to his boss.12 It proved a deceptively easy start. When Schlabrendorff had a heart attack, it postponed negotiations for six months and after that he became noncommittal.13
To restart talks, the Claims Conference dredged up SS records documenting that concentration camp inmates had worked at Nobel. For an extended period, Eric dickered with von Schlabrendorff about the size of a settlement. Then Flick delegated the matter to his assistant, Dr. Wolfgang Pohle, who had joined the Nazi party in 1933 and defended him at Nuremberg. Occasionally Pohle intimated that a settlement was near, but nothing would ever happen after this bluff. Even as Flick engaged in such flagrantly dilatory tactics, Schlabrendorff insisted he would pay. In January 1967, when the Nobel board met to take up the question, Schlabrendorff assured Eric that “we have the contract in the bag.”14
The outcome was a calculated insult. The Nobel board said they weren’t liquid enough to pay anything, even though Flick’s personal wealth had swollen to an estimated two billion deutsche marks. Despite the good offices of McCloy and Hermann Abs of Deutsche Bank, Eric could make no further headway. Later, he said, quite bitterly, that Flick could have paid from his vest pocket.15 In January 1970, after nine years of cruelly abusing the hopes of thirty-five hundred Jewish victims, Flick informed McCloy that he had decided not to make any payments.16 In 1972, an unrepentant Friedrich Flick died at age eighty-nine. Worth more than one billion dollars, he had not paid one penny to his Jewish victims.17
—
After moving back to Germany, Eric wanted to guarantee the employment of his E. M. Warburg & Co. staff in New York. A small firm of aging foreigners, it needed to be modernized, invigorated, Americanized. Through Eric’s friendship with Freddy, the firm participated in Kuhn, Loeb syndicates and managed clients’ portfolios, but found it hard to broaden its base beyond its original German clientele. To stimulate change, Donald Blinken introduced Eric to a tall, ha
ndsome young man named Lionel Pincus in 1965. Pincus’s grandfather had migrated from Poland and his parents had a clothing and real estate business in Philadelphia. As a Ladenburg, Thalmann partner, he invested money in corporate ventures for wealthy families.
Though Eric was sixty-five and Pincus thirty-one years younger, their rapport was instantaneous, the sort of father-son relationship that never occurs between real fathers and sons. Like Eric, Pincus was genial, low-profile, and discreet. If Pincus thought Eric a banker of middling talents, he honored him as a human being. At first, Pincus didn’t realize he had stumbled into the tangled, maddening web of Warburg relationships. Never having been to Germany, he was naïve about this brilliant, perpetually warring clan. Over time he would learn the lesson that wherever the Warburgs were concerned, nothing was ever simple.
Taking down atlas and annals, Eric laid out for Pincus the long, colorful chronicle of the Warburgs and urged his new surrogate son to learn German (Pincus never did). They had long talks about Eric’s decision to return to Germany, Eric saying how his aristocratic friends had urged him to return and that the sons shouldn’t be punished for their fathers’ sins. It was all alien to Pincus, but pleasantly so. Although everybody at E. M. Warburg & Co. spoke German, as soon as Pincus entered the room, they all switched in unison to English. In January 1966 Pincus acquired a 50 percent stake in E. M. Warburg & Co. and Eric and his group kept 50 percent.
On their first trip to Germany together in 1967, Pincus admired Eric’s diplomatic arts and pondered the awkward position of a Jewish banker in postwar Germany. The day they arrived in Hamburg, newspapers carried front-page photos of a desecrated Jewish cemetery. Eric and Pincus visited companies, including soap and chemical concerns, that had made a tidy profit in the Holocaust. Whether from genuine contrition, guilt, or patent self-interest, German executives rushed to do business with Eric. Pincus came to appreciate Eric’s philosophy that one had to accept life in its terribly impure complexity, rather than sit back and wait for ideal situations.