The last tycoons: the secret history of Lazard Frères & Co

by William D. Cohan

  AS HAD BEEN preordained, Frank Altschul, whose father, Charles, had emigrated from London to San Francisco during the gold rush and become one of the first nonfamily partners of Lazard, joined the New York office after graduating from Yale. He became a partner the same day his father retired--July 1, 1916. Except in the case of the descendants of Alexander Weill and, for a time, some of the Lazard family, the passing on of the partnership seat was not the same as passing along an ownership interest in the firm.

  Still, the profitability of the Lazard partnership was even then an invitation to vast riches, and Lazard partners became among the wealthiest men in their respective countries, regardless of whether they had an ownership stake in the firm. Frank Altschul became fabulously wealthy at Lazard, too. During his lifetime, which spanned ninety-four years, he donated millions of dollars to Yale, his beloved alma mater. In 1913, Altschul had cemented his position in the upper reaches of the Jewish financial hierarchy of New York by marrying Helen Lehman Goodhart of the Lehman Brothers banking fortune. His sister married Herbert Lehman, the former Lehman Brothers partner who would later serve as the governor of New York and its U.S. senator. Over time, Altschul also contributed $500,000 to Williams College and $1 million to Mount Sinai Hospital. He also donated hundreds of thousands for the legal defense of Sacco and Vanzetti, an effort being led by Felix Frankfurter, then a Harvard law professor and eventually a Supreme Court justice. One day Frankfurter showed up at Altschul's office at Lazard, eager "to see what kind of man in Wall Street could be sending money for Sacco and Vanzetti." Thereafter, Frankfurter and Altschul remained lifelong friends. Altschul lived at 550 Park Avenue, at the southwest corner of East Sixty-second Street, and owned a 450-acre estate--named Overbrook Farm--outside Stamford, Connecticut, where in 1934, in an abandoned pigpen, he started Overbrook Press, known for the graphic and technical excellence of its elegant publications.

  ONE OF THE first issues Altschul confronted after he became a Lazard partner, as early as October 1917, was the growing possibility that the French families would decide to liquidate and shutter either Lazard Brothers in London or Lazard Freres in New York. This was yet another life-threatening crisis for the fledgling firm. During a multiweek visit to Paris in October 1918 (as part of his war service in the U.S. Army), where these matters were discussed "in some detail," Altschul became well versed in the views of the French. In a three-page, single-spaced letter to George Blumenthal, the New York office's senior partner, Altschul was happy to report that the French partners were now far more sanguine about the prospects for a three-house firm: "There is a very real desire to continue both L.F. and L.B. & Co., and a very strong belief that the Trio is in an excellent position because of their name, their connections, and their general lay-out, to play an increasingly important part, in the after-war development." He continued, "As they say, the firm had a first rate name before the war; the reputation of the house has if anything been enhanced during the war; and it should be possible to use our name and credit to greater advantage." Crisis averted.

  When he returned to New York after the war, Altschul began to assume, from Blumenthal, more and more of the day-to-day responsibility of running the firm. But Altschul's authority extended only so far, as he still regularly deferred to the more powerful Blumenthal about matters such as negotiating annual partnership percentages, the reprimanding of partners who were deemed to be lazy or underperforming, and the proper accounting of costs among the three houses. Like his father, Altschul had numerous interests outside of Lazard, one of which was international affairs. In 1920, he helped to found the Council on Foreign Relations in New York, and from the start he hoped the council would be able to influence U.S. foreign policy--one of the organization's continuing goals.

  AN INDICATION OF how important Lazard and Altschul had become in the world financial markets arose in 1923, when the French occupation of the Ruhr, Adolf Hitler's failed Beer Hall Putsch, and the resultant international uncertainty led to havoc in the market. France found itself in a full-blown financial crisis. The value of the French franc fell by some 50 percent. In January 1924, the French Ministry of Finance summoned Altschul to Paris to hear his views on solving the French currency crisis. In a carefully prepared speech, which Altschul delivered in Paris on January 24, he called for the French government to undertake what he called an "experiment" designed to stabilize the plunging currency. "This would involve arranging credits for the government in the United States and perhaps in England, in round amounts," he told the French. "It is felt that a banking group could readily be formed in New York to extend the necessary facilities under appropriate guarantees on reasonable terms. The present ease in the New York money market and the fundamental friendship for and confidence in France make this appear likely." He averred that with the cooperation of the media--and without being able to judge its political feasibility--"the experiment could be made to succeed." Altschul, though, was adamant about one thing: that Lazard Freres & Co. be kept out of the press. "As we do not desire publicity for ourselves, it must be understood that our name is not to be mentioned under any circumstances in connection with the following," he said. "If you care to, you may say that you have been informed by an influential banking house that they have advices from abroad to the effect that steps have been taken in Paris which seem adequate to restore confidence in France and to protect the French exchange, and the situation appears well in hand."

  The French government quickly adopted Altschul's plan and constructed a classic "short squeeze" of the speculators who had been betting against the value of the franc. Due to "the sensitivities of the French government," Altschul's partners in Paris were given the job of implementing his ideas. According to a discussion of Lazard's role in the 1924 franc crisis in The Fortune Encyclopedia of Economics, "Using a $100 million loan from J. P. Morgan, [the French government] bid the franc from 124 to 61 per dollar in a few weeks. Speculators who had sold the franc short in the expectation that its value would fall were hit by big losses." A month after Altschul's speech, with the Lazard-designed intervention looking successful, Christian Lazard, a partner in Paris and a son of one of the founding brothers, wrote him: "Things are looking better in Paris although the bears on francs will no doubt renew their attacks more than once. But I still feel that there is a great change in the situation now that the truth has been told. The people here are ready to pay their taxes, even the peasants."

  In March 1924, Altschul wrote Christian Lazard, taking a bit of a victory lap. "My heartiest congratulations on the success of the experiment, which I consider no longer at all in doubt," he wrote. "The situation has been dealt with in admirable manner." In a postscript to the letter, Altschul confided a twinge of regret that the house of Morgan, instead of the house of Lazard, seemed to be garnering the lion's share of the accolades for the success of the rescue plan. "Of course it is a matter of keen regret to me personally that we were not associated with Morgans in name in an operation the seed of which would seem to have originated with L.F.," he wrote, actually crossing out the typewritten words "me personally" and inserting, in his own hand, the words "all of us" instead. "We take for granted, however, that we will receive some adequate compensation through Joint Account or otherwise for the accommodation extended through Loan Account No. 2 and for the not inconsiderable services rendered." He also suggested that someone should be awarded the French Legion of Honor for the accomplishment--which is exactly what Altschul and Blumenthal received two years later from the French government, beginning another long tradition of Lazard partners so honored.

  Eventually the truth came out about how the franc crisis was solved, and Lazard Freres et Cie in Paris received many a tribute in the press and from the French government. "You can imagine what thrilling hours we have gone through," Christian Lazard wrote Altschul. "I do not think the Firm of L.F. & Cie, Paris had ever known a period like that one before." But he recognized that perhaps the real acclaim belonged with Altschul in New York. "All the time, I mis
sed your presence here, because I remembered all our conversations and our visits [on the] Rue de Rivoli and I was sincerely sorry that L.F.N.Y. could not play, on your side, the prominent part to which they were entitled considering that the first idea of the whole scheme came from you." He also confided to Altschul "a secret" about how he had sold part of his equity portfolio to have plenty of francs around for the upcoming June 1924 sale of the highbrow art collection of Arthur Meyer, the Jewish owner of Le Gaulois, an important French newspaper. Included in the sale was a sublime haystack painting Meyer commissioned from Claude Monet in 1909. "I hope you won't be against me in the market," Christian wrote.

  A subsequent, handwritten letter a few days later from Christian reiterated his thanks to the "sister firms" for the "brave manner in which they have fought the battle with us." He also answered Altschul's postscript about how Lazard in New York would be compensated for its role by explaining, "We have placed all our staff and all our brains at the disposal of the B. of Fr. without accepting any remunerization whatsoever and...all our own business has been practically stopped since that first day of the fight. We feel sure you understand our point of view. We believe that in cases like that one, when public interest is at stake, it is not only patriotic but also wise policy to refuse any remuneration. We firmly believe that our firms will sooner or later get their reward for their present attitude. I might add that our London house has spontaneously offered the Bank of France to return the commission they have received from the English banks."

  While in Paris to work his magic in the franc crisis, Altschul seized the opportunity to introduce to the French partners his idea to move Lazard in New York into a wholly new business: a closed-end investment fund. At the outset, David David-Weill agreed to put $1 million "at the disposal of the Trust." But David-Weill's other French partners were more cautious and wanted to know both George Blumenthal's opinion of the venture and how Altschul intended to divide the profits of the fund between Paris and New York. Altschul and Christian Lazard had some correspondence on the subject, but Altschul believed that Christian was pushing the idea too far, too quickly in Paris.

  AT THE END of December 1925, the feared and venerated George Blumenthal retired from Lazard, after twenty-one years as the senior partner, to pursue a life devoted to philanthropy and art collecting. The news made the New York Times. Two years earlier, Blumenthal had transferred--by a vote of "13 white, no black"--his New York Stock Exchange seat to Frank Altschul, who was then thirty-six years old.

  Blumenthal's departure coincided with--or perhaps facilitated--two major turning points in the turbulent history of Lazard to that time: Altschul's now unfettered pursuit of his desire to create the investment trust; and David David-Weill's now unfettered pursuit of a short, stocky powerhouse currency trader, Andre Meyer, later known as the "Picasso of banking." Although Meyer grew up in the Marais--Paris's old Jewish quarter--both of his parents were from Strasbourg, the Alsatian city hard on the German border. Jules Meyer, Andre's father, was said to be "some sort of printing salesman" or "small businessman."

  Andre Meyer attended school in Paris but was an indifferent student and left his secondary school, College Rollin, in July 1913, before graduating. He needed to earn money for his struggling family, as his itinerant father spent more time gambling than working. Andre had always shown a keen interest in the Paris Bourse, the French stock exchange, and was said to know, by heart, the prices of all the stocks listed there. He quickly found a job as a messenger at the Bourse, and soon thereafter a position at a small French bank, Baur & Sons. Andre was exempted from military service in World War I because of a "weak heart" and because of his important role in supporting his family.

  At Baur, he quickly learned the art and science of trading currencies as well as of government and corporate obligations. "It called for a quick mind, which the teenager certainly had," his biographer, Cary Reich, wrote in Financier, "a hardheaded sense of values, which he was fast acquiring; and boundless energy, a prerequisite that the nervous, fidgety boy had no problem fulfilling. Already as a youth he was awakening daily at four in the morning to study the financial tables of the newspaper and plot out his moves of the day. During family meals in the cramped apartment, he put his telephone on the dinner table and chattered away about the market between bites."

  Like other traders at the time, Andre would dutifully report to the Bourse during the trading hours of one to three-fifteen every business day to conduct Baur's trading. "So it is with a clear head, alertness and quick action that a foreign exchange broker in Paris can, by the manipulation of a very few million francs routed via London and America, drop the Paris currency several points," the New York Times Magazine reported. "He can as quickly in a few short rounds jack it up to his eventual profit." Andre's success as a trader at the Bourse during and after the franc crisis of 1924 brought him to the attention of David David-Weill, who asked him in 1925 to come to Lazard's Paris office, at Rue Pillet-Will, for a job interview. "He just took everybody to the cleaners," his grandson Patrick Gerschel said of Andre's trading ability. But the exacting Andre, then twenty-seven, drove a hard bargain with David-Weill. He wanted to know when, precisely, he would become a Lazard partner. But at first David-Weill would not commit to a timetable. Andre walked out and returned to Baur. (Other accounts have David-Weill "dismissing" Andre.)

  A year later, David-Weill tried to get Andre again, and this time he succeeded by promising him that if his performance was up to David-Weill's considerable expectations, Andre would be made a partner of the French firm. Andre joined Lazard as an associate in 1926, in part because he had been so impressed by the gutsy trading positions Lazard had taken during the franc crisis. Within a year, David-Weill kept his promise and promoted Andre to a partner of Lazard Freres et Cie, at the same time he named his son Pierre David-Weill to be a partner as well. Andre, with his financial genius and forceful personality, would dominate Lazard for the next fifty years.

  AT THE START of 1927, Altschul turned his attention to establishing General American Investors Company as the nation's first closed-end mutual fund. And in May 1927, with Lazard and Lehman Brothers as its principal investors and owners, the fund opened for business to "acquire, hold, sell and underwrite securities of any nature, both foreign and domestic." Another fund, the Second General American Investors Company, was started on October 15, 1928. On September 5, 1929--a month before the Crash--the first and second General American funds were merged into one fund, which at the end of 1929 had $33 million in assets. General American would remain one of Altschul's passions for the remainder of his long life, but would lead to a permanent and irrevocable rupture of his relationship with Andre Meyer.

  In New York, it is clear from Altschul's correspondence with his new partner Albert Forsch, there was increasing concern in Lazard's offices during the summer leading up to the stock market crash of 1929. "It seems to me that the cycle through which we are passing has not run its course, and aside from a slight change in the sentiment I fail to detect any indications of any betterment," Forsch wrote Altschul, who was in Paris. "The construction figures are certainly most discouraging. The automobile business if anything is worse, commodity prices have not changed their trend, and unemployment shows not only no signs of improvement but seems to be on the increase, and I think we shall see real distress this winter for the first time in many years."

  Forsch was prescient, of course. The stock market slide, which began in September 1929 and ended in July 1932, sliced an astonishing 89.2 percent off the Dow Jones Industrial Average. Much of the industrialized world was thrown into a near-decade-long depression. The three Lazard houses survived the Crash and its aftermath--just barely--but the firm's latest brush with death ironically had nothing to do with the momentous macroeconomic events and everything to do with serious mismanagement.

  A series of unexpected events, beginning in March 1931, almost led to the total liquidation of Lazard. First came the sudden death of Andre Lazard, son of Si
mon and brother of Christian, who had only three years earlier taken over as senior partner upon the death of his cousin Michel. Andre had died, at age sixty-two, in Nice after a short illness. He was the last Lazard family member to be a part of the firm. The impression has been given over the years that the reason for this was the lack of male issue in the Lazard family lineage following Andre Lazard's untimely death. And to some degree that is accurate. But the descendants of Elie Lazard did have several sons in their lineage. Whether they were ever part of the firm is not known. It is likely that the David-Weills used the occasion of the deaths of Andre and Michel Lazard to consolidate their control over the firm.

  On the other hand, in the late spring and summer of 1931, as a result of an untimely combination of world events and a rogue Czech trader sitting in a Lazard Brothers office in Brussels, the David-Weills almost lost everything--yet again--that they had so carefully constructed during the previous eighty years. Financial trouble had been brewing for some time in Europe by 1931, for any number of reasons, among them the exporting of the U.S. and German Depressions, the chronic U.K. budget deficits, the unfavorable balance of trade payments, and the overvaluation of the pound versus the dollar. All of these factors combined to leave the London economy with liabilities far in excess of the gold and foreign exchange reserves then held in the Bank of England. When, on May 11, the Creditanstalt failed, due in part to the French government's refusal to continue to provide it with short-term credit, financial panic spread across Europe. The Austrian branch of the powerful Rothschild banking family controlled Creditanstalt, Austria's largest private bank. The bank's failure revealed how poorly the family had been managing the bank. "An immediate consequence was the freezing of London's claims, first those in Vienna and then in Berlin," R. S. Sayers wrote in his definitive history of the Bank of England. Lazard Brothers was one of the creditors of Creditanstalt. The London firm had an exposure estimated at around PS40,000, equivalent to about PS10 million today. Not an excessive amount, for sure, but given that the entire capital of the firm was just over PS3 million, it was not an amount anyone was comfortable losing.