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

by William D. Cohan

  What makes Felix's singular success as a banker so remarkable is that he has sustained his relevance to corporate executives for so long and across so many industries. It seems not to matter to Felix or to his clients whether he understands their business. This fact is so profoundly counter to how every other major Wall Street firm designs its investment banking business--which is to have far younger deal makers specialize by industry and by product--that Felix had become an anachronism, the exception that proves the rule. Lesser bankers at inferior firms have attempted to imitate Felix's style and generalist approach with predictably disastrous results. His edge is his extraordinary level of deal experience and his consummate judgment--plus a killer Rolodex. It is nearly impossible to ignore a phone call from Felix Rohatyn--regardless of whether you are a CEO, a politician, or even one of his former partners. Indeed, simply seeing "Rohatyn, Felix" on the caller-ID screen caused the men (and a very few women) of Lazard in their forties, fifties, sixties--themselves earning millions of dollars per year, thanks, in large part, to Felix--to shudder visibly, interrupt a phone conversation with a client, and scurry down the threadbare, tan-carpeted hallways to Felix's lair. It was not unlike how a misbehaving middle school student reacts upon being summoned to the principal's office--with a predictably similar outcome.

  Befitting his status, lesser partners sought him out as a sounding board on deal ideas--and, of course, to see if they possessed the right stuff to be a Great Man, too. In one particularly humorous example of this testing, Michael Price called Felix and suggested that the Agnellis, the Italian industrialists who controlled Fiat, might want to think about acquiring the then-struggling Chrysler. Price then contritely choked into the phone, "Dumb idea? Okay," and hung up. Adapted from the cynical French moralist Francois La Rochefoucauld, the Lazard credo--"It is not enough for you to succeed; others must fail"--had Felix's fingerprints all over it. He charmed his partners--to say nothing of his clients--and rewarded them with a meaningful percentage of the profits when he needed them to execute his prodigious deal flow. At the slightest whiff of resentment, disloyalty, or burnout, Felix would dispatch them to irrelevance and excommunication, in some out-of-the-way hovel, before shining his beacon and affections on the next rising Lazard star. He was immensely feared around the halls of Lazard--just as his mentor, Andre Meyer, had been--but could not even for a moment be ignored, so long as he continued to produce 80 percent of the deal flow and profits. No one at Lazard had anything like Felix's client list, CEO access, or annual revenue production. Felix spent his time where it could be used most profitably. Being such an effective banker and of such enormous importance to Lazard's profitability meant that he was fabulously well paid. By 1995, the rumor mill pegged Felix's compensation at more than $15 million, all cash--which even for the top bankers in the frothy 1980s and 1990s was an attention grabber. But in truth, he could easily have demanded even higher compensation--and gotten it--because he was that good and that important to the firm, a fact that Felix belatedly came to realize but never did anything about.

  Felix relished his Great Man status as much as he relished having nothing to do with the day-to-day running of the firm. The poorly lit, unadorned, dingy corridors became his stage. When he would stroll with intent past Deirdre Hall and Catherine Cronin, his double-barreled secretarial guard, he was all Great Man, in his off-the-rack suits, blue and white Brooks Brothers oxford cloth, buttoned-down shirts, and Hermes ties. He was always completely in character, as if he were a larger-than-life Mickey Mouse making his entrance into Disney World. Generally speaking, it was no fun being the end point of one of his journeys. So, while he was impossible to avoid when he wanted you, he became expert at evading your gaze in the narrow One Rock hallways, pretending not to have heard a "Hello, Felix" from a lesser partner or junior professional, preferring instead to stare ahead icily--unless of course you happened to be one of the few attractive young women rarely in Lazard's employ. Then Felix could be exceptionally fine-tuned to your presence. Rumors abounded of his occasional indiscretions with the younger female professionals. But they were mostly unfounded. He was just a notorious flirt, and his conversation could be jam-packed with innuendo.

  CHAPTER 13

  "FELIX LOSES IT"

  No doubt Steve's evolving mimicry of Felix received a significant boost on November 10, 1993, when the Wall Street Journal published a story--written, the paper said, without the help of Steve, Felix, or Michel--on the front of its third section with the headline "Rattner's Star Rises as a Deal Maker at Lazard Freres." In exploring the question of what happens when Felix, then sixty-five, "slows down," the Journal concluded, "The clouds are parting just a bit with the emergence of Steven Rattner, a 41-year-old specialist in the type of media mergers driving the current acquisition boom." There was the view, espoused by an unnamed "observer," that Steve was now "sharing Felix's aura." Steve was said to have generated for the firm the second-largest pot of fees after Felix--and twice as many as his nearest rival--while also continuing to serve as co-head of banking and to chair the Monday partners' meetings when Michel was away (all while seeking to abdicate the role). His pay was said to top $5 million a year, enough to easily afford, the Journal revealed, his Dakota co-op overlooking Central Park, where the walls "are studded with prints by Andy Warhol and Roy Lichtenstein"; his "country house" in Kent, Connecticut; and his eight-seat Cessna that he flies to his "beach house" on Martha's Vineyard. The paper reiterated Steve's "media savvy" and described his close friendship with Arthur Sulzberger Jr., including their now legendary workouts at the gym and a scuba-diving vacation on Little Cayman Island in the middle of the recently commenced battle for the hand of Paramount Communications--with Felix and Steve advising--between Viacom and QVC Network. Steve's "my best friend," Sulzberger repeated. The Journal reported that Steve punctuated his obvious wealth with "regular-guy touches," such as taking his twin boys to school at Temple Emanu-El on the "crosstown bus" and attending parents' night there while at the same time "juggling calls" on his cell phone from Marty Davis, the CEO of Paramount, at a crucial moment in the deal.

  In the unwritten--but well-known--rules of Lazard, the Journal article about Steve was just the kind of self-aggrandizing publicity that only Felix, and occasionally Michel (since not even Felix could squash that), were allowed. The risks for other bankers who dared swim in these waters were great indeed. Steve, though, "did not obviously completely appreciate the extent to which Felix had no interest in anyone competing for his oxygen," one former partner explained. But he was prepared to try to swim in the riptide anyway. At least, in this instance, Steve could claim not to have spoken to the Journal's reporter, although some of the personal details in the article would seem hard to know unless Steve had confided them. The article also conveyed the risks to Steve "of having a high profile" at Lazard and not being Felix or Michel. "Most other senior Lazard bankers labor in obscurity, by their own choice and the firm's," the article said. Accordingly, Damon Mezzacappa told the paper, Steve's rise had engendered a "predictable amount" of "jealousy and resentment" around the firm. A hint of Felix's reaction to the Journal story appeared in The New Yorker a few days later. Under the title "Felix Rohatyn in Autumn," a swan song to the man who a few weeks before had stepped down--once and for all--as head of MAC after eighteen years, Felix acknowledged there was the lingering question of what would happen at Lazard when its "biggest rainmaker" decided to slow down. Over breakfast of dry toast in his Fifth Avenue apartment, Central Park spread before him, Felix confided to the reporter that "while he has left MAC and no longer suffers well all the details of investment banking, he has no intention of fading from the scene."

  As it turned out, the Journal article was only the opening salvo in Rattner's sophisticated media assault. At the same time that the troika of Michel, Felix, and Steve were supposedly not speaking with the Journal, they were fully engaged in helping the writer Ed Klein, the former editor of the New York Times Magazine, put together a profile of Steve that w
ould appear in the January 1994 issue of Vanity Fair. Apparently, the idea for the article came about when Klein happened to run into Felix after the announcement of the AT&T-McCaw deal and, after Klein congratulated him for it, Felix charitably and accurately gave full credit for the origination of the transaction to Steve. Before cooperating with Klein, though, Steve knew he should get Felix's approval. Steve discussed with Felix what Klein had in mind. "He said, 'You've worked very hard. You deserve some attention, and you should do it,'" Steve remembered. "And what I didn't understand is that he didn't mean it, and even if he thought he meant it, he didn't mean it."

  The front-page machinations of the then-raging battle for Paramount Communications provided the perfect amber to examine the vicissitudes of the--until that moment--symbiotic father-son relationship between Felix and Steve. Atypically, Felix was incredibly gracious--up to a point--in his comments to Klein about Steve, being more laudatory about his younger partner than he had ever been in public about any of his Lazard partners. The resulting article, titled "Paramount Player," was the first time the firm or any of its partners had been featured in the gossipy Vanity Fair.

  Needless to say, though, the Klein piece caused a sensation and set in motion a series of events that would forever change Lazard. Right from the opening blurb, the article foreshadowed trouble. Next to a full-page picture of Steve, arms folded, eyes piercing, in his Lazard office, the theme of the article was revealed: "Among the financial wizards involved in the Paramount takeover is a New Age breed of Wall Streeter: 41-year-old Steven Rattner, the former New York Times reporter who, as a partner at Lazard Freres, is fast becoming the most prominent investment banker of his generation. Bosom buddy of Arthur Sulzberger Jr. and whispered successor to the legendary Felix Rohatyn, Rattner regularly commands multimillion-dollar fees and bonuses, but, he tells Edward Klein, he isn't in it for the money." As the curtain rises, Klein rapidly brings together the globe-trotting Paramount protagonists for a hastily scheduled Saturday morning strategy session in the Columbus Circle office of Marty Davis. Viacom had just revised upward its original offer for Paramount. Felix was there, as was Dick Beattie, the head of the prestigious New York law firm Simpson Thacher. But the focus of the vignette was Steve. The scene included the requisite description of the opulent Paramount offices, of Felix huddled with Davis awaiting Steve's and Beattie's arrival, and of Steve giving some advice to the Paramount executives about a technical aspect of Viacom's revised offer and whether it would stand up to scrutiny in the face of rival bidding from Barry Diller at QVC. There was also some novel reportage from inside the Paramount board of directors meeting of presentations Felix and Steve were making just as Viacom decided to raise the cash portion of its offer. The article noted that the Paramount board swiftly endorsed the new Viacom deal.

  Missing from this mise-en-scene was Ira Harris, the Chicago-based Lazard partner who had known Marty Davis from the Bronx and who had worked with Felix--and Davis--in 1989 on the $3.4 billion sale of the Associates from Gulf+Western (thereafter renamed Paramount) to Ford Motor Company. Inside Lazard, bankers noted with interest Felix's decision to exclude Harris from the Paramount deal and replace him with Steve. "Paramount was Ira's relationship," Mezzacappa said. "But before you knew it, Felix and Steve were carving it up, and I think Ira felt that it happened to him on two or three occasions and he was pretty angry about it. When he came in, I think he thought it was going to be the Felix and Ira show and it wasn't." For his part, Harris told his partners: "Everybody in the firm knows who brought in the Paramount relationship. But life goes on."

  Much of the Vanity Fair piece was given over to revealing aspects of Steve's personal life and to attempting to answer the central question of whether he was the man to succeed Felix at the firm. Klein, a longtime colleague of Steve's from the Times, seemed to be advancing Rattner's cause. "Today, when C.E.O.'s want to do major media deals, they no longer pick up the phone and ask for the Gleachers, Hills, and Wassersteins--all stars in the 1980s and all still active to one degree or another in the 90s," he wrote. "Often, the person they think first of calling is Steve Rattner." There was the requisite homage from Steve's mogul friend Arthur Sulzberger Jr. And then Felix added his rarely bestowed imprimatur. "Andre Meyer used to say that you can explain things to people, but you can't understand for them," he told Klein. "Which means that if you're going to be an adviser to important people, you not only have to have the intellect to decide the right advice but also the authority to have that advice be listened to. The other person has to recognize you as a peer. Steve clearly has all that."

  Steve's reaping so far, the article revealed, had already yielded him a rich harvest. His annual compensation for 1993 had increased to "about $8 million" (some 60 percent more than the Journal estimated a month earlier) from the $60,000 he received in 1982 as a Times reporter. The Rattner's foundation by then had assets of $2 million (now more than $3 million, public records show). Also reiterated in the article were Steve's perks: the Dakota apartment, noticeably underdecorated, did hold his burgeoning collection of modern prints, among them those by Ruscha and Motherwell, in addition to those of Lichtenstein and Warhol. And then, of course, there was the ubiquitous twin-engine Cessna 421--since upgraded--on which Klein accompanied Steve for a trip up to Providence for a Brown trustees meeting. Then there was the house on Martha's Vineyard, although no mention was made of the one in Kent, Connecticut. Somehow, though, Steve and Maureen, with Klein's help, turned all of this conspicuous consumption into an example of the "upright, self-depriving attitudes of the Bill and Hillary Clinton era," a soon-to-be-plenty-ironic observation. Maureen explained that she had no interest in going back to Wall Street "because we don't need to add to our income level" and because "we already live well below our means, and I don't want any more money." She said when her children get older she would look for something "more socially useful [to do] with my life."

  Steve elaborated extensively on this theme of modesty. "At times," he said, "it crosses my mind: What am I doing this for? But I think, I wouldn't quit and do nothing, because it would set a terrible example for my children.... We live comfortably but have deliberately changed our lifestyle little since our children were born, largely to prevent their values from being adversely affected"--and here he referred again to a detail someone supposedly told the Journal. "When I take the boys to school, it is on the M72 bus, even though a car and driver is certainly within our means. Maureen buys their clothes from discount catalogues, not trendy Madison Avenue boutiques.... I often take the subway to and from work, in part, because I don't see how one can have a view about the problems of the city without experiencing the city on at least some level as typical people do." This lovefest did contain a few shots across Steve's bow, though, some surreptitious, some direct. One of his "best friends" described him as the "Michael J. Fox of investment banking." For his part, as he puffed away on his cigar, Michel listed Steve as merely one of the firm's important partners, preferring instead to tell Klein how well positioned the firm was in its three financial capitals. He brushed aside talk of successors and the future. But "a friend of both" Felix and Michel told Klein: "Felix has always been a problem for Michel. Felix has always been a very big producer for Michel, but if you're the guy who owns the business, you say to yourself, 'This guy Felix controls too much of the business, and what happens if he gets hit by a bus?' So Michel has tried to get away from the star system and diversify the business by bringing in new blood and integrating his three firms to make a network."

  Steve's remarkable financial performance in such a short time appeared to provide Michel with the outlines of a much-needed insurance policy for the inevitable day when Felix decided to leave the firm. And Felix was aware of this. Along with his unqualified praise of Steve, he served up what could only be taken as a warning. "Talking about an heir is a meaningless thing in a firm like ours," he said. "I came to this firm in 1948, when Andre Meyer was the senior partner. Since 1948 we've had two men running this fir
m--Andre and Michel. Michel and I became senior partners on the same day in 1961, and we go back to the days of Andre. We have an extraordinarily close relationship. We have similar European backgrounds. I'm 65 and he's 60. We'll be around for a while. I can't transfer my background and my relationship with Michel to someone else." He then continued, more explicitly: "We're all worried for Steve about this story that you are writing. I've been through stories like this at Steve's stage in life. The firm was a lot smaller then, but still these kinds of articles inevitably create internal tensions. The mergers-and-acquisitions side has become very personalized and show-biz. In M&A, you have marquee players. Obviously, being a marquee name is nice, as long as everything is wonderful. But it makes you a target. People are unforgiving if you falter.... It's heady stuff, a little scary, because for every marquee name that stays up on the marquee, there are 10 shattered names on the sidewalk."

  AN ADVANCE COPY of the Vanity Fair article, sent by the editor Graydon Carter, landed with a thud on Felix's desk. He obviously knew the extent of the praise he had lavished on Steve, but when he read the article in toto, he was beyond incensed. The combination of the boardroom leaks, the top billing given to Steve, and his fey stabs at humility sent Felix into the stratosphere. "Felix went berserk. Berserk," according to one Lazard partner at the time. Another said, "Of course Felix was pissed." Still another: "Felix ran that deal, not Steve." Steve's nearly five-year honeymoon with Felix evaporated like rain in the Sahara. "He goes hot and cold on people," one partner said of Felix, echoing the earlier observation about Felix's successive loyalties. "Steve was his favorite son for a while. He was going around telling people, 'Steve's my guy, and when I can't do this anymore, Steve's the guy.' And then the Vanity Fair piece came along." And that was the end of their relationship at Lazard. The Vanity Fair article was "a real oh-shit moment," Felix said subsequently. "Michel and I were appalled."