The Warburgs

by Ron Chernow

  Having gotten Siegmund’s support, the two young men felt guilty and ashamed, as if they had let Siegmund down. With a tiny stake of less than 5 percent in the new firm, Siegmund didn’t think it proper for S. G. Warburg & Co. to save George. A foe of nepotism, he wasn’t a saintly Paul Warburg rescuing Max in 1931. As he later said, “I grew up in a family firm … as a result of these experiences I was always against nepotism of any kind.…”20 Justly or not, many in the City and on Wall Street were stunned that Siegmund would let a firm bearing the Warburg name and associated with his own son come to an ignominious end.

  A crestfallen George got on the telephone and helped to find jobs for all seventy of his employees. Twice Siegmund offered to bring his son back into the firm: in 1975, when Cripps Warburg folded, and in 1978 when George and his family moved to America and he took a job in a Connecticut bank. Having never gone to college, George took courses at Yale after his retirement. In Siegmund’s last years, his relationship with George improved somewhat, to the immense relief of both. Although Siegmund had applied for a permit for Anna to come and live in Switzerland, she decided to stay in Israel. Both George and Anna loved their father, but they evidently found it easier to feel that love at a great distance.

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  Never an observant Jew—he thought Yom Kippur always fell on Saturdays—Siegmund displayed a Warburgian ambivalence toward religion. He was proud of being Jewish. Even in the early New Trading days, Chaim Weizmann had come for lunch at Felix’s behest. Siegmund reviled those who denied their heritage. Early in his career, Robert Maxwell came for a disastrous lunch at Warburgs. Afterward, Siegmund sent around a blistering memo that Maxwell was a Jew who pretended not to be a Jew and who exploited Jews. He barred S. G. Warburg & Co. from doing business with him. Hence, the Warburg bank was later spared the fallout of Maxwell’s collapse. And Siegmund could be so touchy about anti-Semitism that at one point he thought all Canadians were anti-Semitic except his own representative there.21

  Yet Siegmund kept apart from Judaism. George, for instance, was never bar mitzvahed. When one Orthodox Jewish client came for lunch, he was surprised that he couldn’t get kosher food, so the kitchen staff hastily whipped up scrambled eggs. The bank often held its annual general meetings on Jewish holidays. In the firm it was often said that Siegmund was tougher on Jews. Siegmund and the uncles so distanced themselves from Judaism that some employees felt free to voice anti-Semitic sentiments. George was once shocked when his boss, Frank Smith, made a statement hostile to Jews. He asked how he could say such a thing at a firm largely run by Jews. “But, George,” Smith replied, “you don’t understand. Your father and the uncles—they are not Jews.”

  Never a Zionist, Siegmund believed that the Jewish spirit flourished in the Diaspora and worried about the corrosive effect of a sectarian Jewish state. Like many wealthy German Jews, he had idealized Israel as a spiritual Eden and had hoped it would serve as “an exemplary community built on justice and humanity,” as he phrased it.22

  Siegmund developed an emotional investment in Israel’s success. On his first visit in 1959, he was moved by his experience of a kibbutz. During the Six-Day War in 1967, Siegmund took up a collection among Jewish bankers on the proviso that afterward they reform Israeli finances. At a 1968 economic summit in Jerusalem, Siegmund emerged as the guiding spirit behind the Israel Corporation, which was to funnel foreign capital into Israel’s nascent industry. During the next few years, S. G. Warburg & Co. was involved in diverse Israeli ventures and worked closely with Bank Leumi, the foremost Israeli bank.

  When the Yom Kippur War broke out in 1973, young non-Jewish directors at Warburgs wanted to express their solidarity with the uncles. Speaking for these directors, Bernard Kelly went to Eric Korner and proposed that the firm make a one-hundred-thousand-pound gift to Israel. Siegmund and the uncles were touched by the gesture. Like Uncle Aby, Siegmund always heard the dark rustle of the bankruptcy vultures. Of the Arab oil embargo, he said, “this crisis will be of much longer duration than the one that started in 1929, but I do think it will be resolved eventually. Meanwhile, even if the crisis lasts 10 years, what is 10 years? As Arnold Toynbee says, it is only a minute in world history.”23

  Like all German Jews, Siegmund rediscovered his religious roots under attack. When S. G. Warburg & Co. appeared on the Arab blacklist, he was loath at first to admit it was even happening. His attitude changed when it became obvious that Warburgs and N. M. Rothschild were being blackballed from some Eurobond syndicates that included Arab banks. Firms that had obsequiously courted Siegmund to enter the Euromarkets now cast him aside to appease the Arabs.

  As a refugee from Hitler, Siegmund felt that bullying must be resisted, and he confronted bankers who caved in to pressure, saying, “I hear you seem to be giving in to this blackmail of the Arabs.… Shall I interpret that as meaning you sympathize with anti-Semitism?”24 When a Kommerzbank director came for lunch, Siegmund berated him for yielding to pressure. Afterward, he told Bernard Kelly, who had invited the German, “Please, Bernard, only invite people who are my friends!” Any bank that cooperated with the blacklist had a sternly worded letter from Siegmund on the chairman’s desk the next morning. He was especially disgusted by the cowardice and timidity of the British Foreign Office and noted approvingly the tougher line of the U.S. State Department.25

  As a wave of terrorist bombings and kidnappings hit Europe, S. G. Warburg posted police officers with machine guns in the reception area. Siegmund sent a confidential note to senior executives, saying that if he were kidnapped, the firm should refrain from paying ransom money, since such capitulation would only encourage terrorism. By 1976, the Arab pressure eased and within a few years S. G. Warburg was off the boycott list. Through channels, Siegmund had notified the Arabs that he wasn’t a Zionist and was now retired from his firm anyway.

  It was typical of Siegmund’s headstrong, unpredictable nature that after the Arab problem disappeared, he became a vocal critic of Israel. When the Labour coalition gave way to Menachem Begin’s nationalistic Likud bloc in 1977, Siegmund castigated the government for colonizing the West Bank. He supported the plan of his friend, Nahum Goldmann, to make peace with the Arabs. Opposed to dogma and fanaticism, Siegmund associated Begin with the Irgun and Yitzhak Shamir with the Stern Gang and tended to view the new Israeli leadership as so many former thugs and terrorists.

  Irate over Begin’s intransigence toward the Arabs, Siegmund refused to set foot in Israel. Like Jimmy Warburg, he wouldn’t donate to the United Jewish Appeal. He aroused the ire of Britain’s Jewish community by criticizing Israel in The Times of London in 1978. “Safety in this world can never be guaranteed by more barbed wire,” he wrote. “Many Jews inside as well as outside Israel who share the views put forward in this letter are reluctant to speak out publicly because they are afraid that this might be interpreted as lack of loyalty to the cause of Israel. However, loyalty to sound principles and moral precepts must override any other loyalties.”26 Siegmund tried to coax three or four prominent London Jews into joining him, but he ended up signing this letter alone. He was terribly distressed by their refusal to come clean with their private qualms.

  In 1978, Siegmund met in Paris with President Anwar Sadat of Egypt and lobbied Begin to respond to his peace overtures. He denounced Israeli occupation of the West Bank and Gaza Strip as “petty nationalism” that diminished Israeli security. Siegmund’s commitment to Israel clashed with his internationalism and he tended to dismiss Zionism as another brand of nationalism. “I don’t believe in German chauvinism, never did,” he said in 1980. “I don’t believe in British chauvinism, I don’t believe in American chauvinism and I don’t believe in Israeli chauvinism.”27 After the Camp David accords, Siegmund and David Rockefeller made a secret trip to see Sadat in Cairo. Siegmund also cooperated with the French Socialist government to get peace talks going with the Palestine Liberation Organization. For Siegmund, Israel was like a backward child that he could never train, but could never
entirely abandon. His concern for Israel showed how deeply he cared about the Jewish people yet how conflicted he felt at the same time.

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  Eva and Siegmund Warburg. (St. Paul’s Girls’ School)

  CHAPTER 48

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  Forgotten Gravestone

  At moments in the 1970s, Siegmund must have worried that his world of small, intimate merchant banks was dying. He often drew an analogy between bankers and physicians. “You listen to your patients, advise them well and strive to understand not just their special ailments, but the whole fellow.”1 The doctor, he thought, should deliver stern truths, not just flattery. If patients steadily flouted the doctor’s advice, they should part company. Sometimes Siegmund dismissed people by saying, “Oh, my dear fellow, but he’s not a banker.” By that he meant that the person was a technician, not a rounded financial person with a broad view of events.

  By the 1970s, world finance had evolved in a way that threatened the old-fashioned banker. With the rise of institutional investors, it became important to commit capital to trading, distribution, and portfolio management. Yet Siegmund had patronized brokers, traders, and money managers as an inferior breed. He seldom visited his own investment department. When he slipped in, a hush fell over the room as this infrequent visitor surveyed the premises. Wanting to control things, Siegmund loathed the stock market as a bedlam impervious to reason. Portfolio management struck him as a foolproof way to alienate top clients. People assumed that this storied tycoon possessed hot stock tips. In fact, he was an abysmal stock picker who didn’t care about market fads. Each year, he issued the same dreadful recommendation to buy Shell Oil at the annual investment meeting.

  When Peter Stormonth Darling became chairman of Warburg Investment Management in 1979, Siegmund instructed him, “Now, Peter, you are the chairman of this business. Your first job is to get rid of it.” Though the division managed about one billion pounds in assets, Siegmund waved it away as worthless. He and Darling lunched with two senior people at Robert Fleming to see if they could unload the investment division. They failed to do so because the Fleming people didn’t comprehend that Siegmund wanted to give away the business free. Since nobody would take this intolerable burden off his hands, Siegmund instructed Darling to fix it. And he did. By the early 1990s, under the Mercury Asset Management rubric, S. G. Warburg would oversee the largest investment group in Britain, possibly in all of Europe, handling an astronomical forty billion pounds.

  Anxious about the future of small merchant banks and afraid that S. G. Warburg was vulnerable to a takeover, Siegmund began to court larger, stronger partners. He pursued a liaison with Deutsche Bank, but was rebuffed. Then in 1973, amid a chorus of grumbling at Gresham Street, S. G. Warburg & Co. swapped shares with Paribas, a venerable French banque d’affaires. Siegmund made the deal complicated enough to hide the sizable imbalance between S. G. Warburg and its bigger bride. Siegmund nursed the relationship along, attending several meetings each year at the Ritz in Paris. With its branch network in the Persian Gulf, Paribas tapped its contacts to help to delete S. G. Warburg from the Arab blacklist.

  Siegmund pursued Paribas knowing that its strong-willed president, Jacques de Fouchier, would soon retire. He had formed a close friendship with the more malleable Pierre Moussa, president after 1978, and wooed Moussa with gourmet meals, fine wines, and stimulating table talk. The two mulled over a possible merger of their firms, with Warburgs handling the British, American, and international side, and Paribas contributing its European, Mideast, and Latin American operations. This was another attempt by Siegmund to leverage his slender capital by merging with a larger partner. It also reflected a genuinely visionary desire to form a new species of European bank transcending national borders. Moussa admired Siegmund, with reservations, and spotted the striking contradictions of the man. He perceived that Siegmund was extremely cultured and self-possessed, but “very authoritarian and even hard.”2

  In the Paribas deal, Siegmund saw a last chance to make a major breakthrough on Wall Street after the modest success of his New York office under David Mitchell. Paul Judy was the brassy, aggressive head of a Chicago securities firm called A. G. Becker that dated from the late nineteenth century. In need of capital, he was intrigued by the Warburg-Paribas match. A medium-sized firm strong in commercial paper, Becker seemed an unlikely partner for such hallowed European names as Warburg and Paribas. Yet Judy managed to convince Paribas to form a triple alliance. Reluctant to upset his Parisian bride, Siegmund overrode his London colleagues and turned into a passionate advocate of the triangular merger with Becker.

  During one Paris dinner with executives from Warburgs and Paribas, Peter Spira openly questioned the wisdom of such a link. Having just won Imperial Chemical Industries as a Warburg client he couldn’t imagine referring his blue-ribbon conquest to the plebeian Becker. “Don’t be ridiculous,” Siegmund retorted. “Becker can do anything that Morgan Stanley can do.” Slamming his fist on the table, he sent a bowl of chocolate-covered strawberries flying into the air. The king’s prerogative had been challenged and Siegmund resorted to hyperbole. “Not only can Becker do anything that Morgan Stanley can do—but they can do it better.”3 Once again, Siegmund displayed a faulty sense of American corporate culture. He believed Becker could grab Midwestern business from New York firms and break into the august special bracket of underwriters. Indeed, Spira’s warning proved correct, for many of S. G. Warburg’s European clients would turn to an investment bank other than Becker on Wall Street.

  To nobody’s surprise, Siegmund insisted that the Warburg name appear first in the new corporate entity, even though S. G. Warburg and Paribas held equal stakes. In everyday speech, Siegmund knew that people, for the sake of speed, resorted to the shorthand of the first name. So the new American operation was christened Warburg Paribas Becker. Enriched by twenty-five million dollars in fresh capital from London and Paris—Warburg and Paribas each had a 20 percent stake while Becker employees held the remainder—the new operation started life in 1974 in sparkling new headquarters at 55 Water Street in lower Manhattan.

  Even as Siegmund struggled to overcome the legacy of Kuhn, Loeb, his old Wall Street firm floated in a strategic limbo. In the late 1960s, Siegmund had made overtures to buy the house. Now he summoned up one last burst of energy to fuse Becker with Kuhn, Loeb. The talks dissolved in confusion when it became plain that both the Kuhn, Loeb and the Becker people believed they would run the show after any merger. The Kuhn, Loeb people also feared that Siegmund would impose tight restrictions on their more unconstrained style. So in 1977 an enfeebled Kuhn, Loeb was taken over by Lehman Brothers, which then vanished into the voracious maw of Shearson Lehman American Express. One of Wall Street’s most distinguished names had disappeared because of the myopia of its partners. Of the Lehman Brothers merger, Siegmund said ruefully, “You know, I had proposed such a merger years ago. When I proposed it, Kuhn, Loeb would have been the dominant partner. That would have been different.”4

  Siegmund’s talks with Kuhn, Loeb foundered at the same time as serious problems surfaced at Becker. The brash, abrupt style of Paul Judy, an ex-Marine, didn’t sit well with the S. G. Warburg people, who never understood the gung-ho, money-driven mentality of Wall Street. Fatigued by clashes with his European bosses, Judy bowed out in 1977 and was replaced the next year by the soft-spoken, intellectual Ira Wender, a lawyer at Baker & McKenzie. A man who preferred literature to sports, Wender would be the last of the ill-fated “adopted sons.” At first, Siegmund doted on Wender, thinking he had found a young Henry Grunfeld who could master reams of facts. The relationship ended in disillusionment.

  For Siegmund, the new operation would represent another agonizingly visible New York failure. With his exaggerated sense of the Warburg mystique, he fooled himself into thinking that the new firm could be another Lazard Frères, serving an elite corporate clientele. He misread the strength of the ties that bound blue-chip companies to their traditional Wall
Street houses. The schizoid Becker had to please two masters and never knew whether to steer clients to Warburg or Paribas for European business. Though the caliber of Becker people never matched that of their London and Paris superiors, they had managed to negotiate staggering compensation packages for themselves. Warburg people faulted Wender for being distracted by management and organizational matters to the neglect of corporate finance.5 As we shall see, Wender would always regard this as the cover story for a far more serious political and personal drama unfolding behind the scenes.

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  At Blonay, Siegmund was never happier than when sitting in the sunshine beside a stack of heavy tomes. From the terrace, he could see snow-capped peaks across sparkling Lake Geneva. Following a long-cherished desire, he toyed with writing two books: The Businessman’s Book of Quotations and Education of the Adult, the latter to expound the theme that education was a lifetime task.6 The notion of being a teacher manqué was a seductive daydream for Siegmund, who could never admit he was a banker at heart. For all his intellectual aspirations, he never completed a single writing project. When asked to write an article by the London newspapers, he had an assistant draft it. Siegmund carried in his mind an ideal person he wanted to be. But there was always a discrepancy between that idealized being and the far more practical, fallible person he was at heart.

  Though many publishers wanted the autobiography of this mysterious legend, he brushed aside all offers to write it. For a time in the 1970s, he had an intellectual infatuation with the Cambridge literary critic George Steiner, the son of an Austrian-Jewish banker. The bookish Steiner occupied a place in Siegmund’s pantheon formerly occupied by Stefan Zweig. Siegmund cherished the epigrams that Steiner passed along—for instance, T. S. Eliot’s dictum that “Mankind can bear only a little bit of reality”—and he sent many people copies of Steiner’s books. For a time, they engaged in a collaborative book project, variously described as a Socratic dialogue and a biography of Siegmund. As always with Siegmund, the reverie ended in a feud and their relationship didn’t survive this literary partnership. Steiner hotly denies that any such feud occurred.