The partners of Lee Higginson gave Durant a broad mandate: explore new markets and find unique and previously untapped investment opportunities that would seize the imaginations of new American investors. If Durant could find companies with compelling stories and appealing leaders, Lee Higginson’s partners could do even more than make unimaginably large amounts of money; they could help remake the economic structure of society, democratize markets, and lift investors out of their post-war doldrums. Durant, like the investors he sought, was brimming with enthusiasm. Frederic Allen’s inspirational speeches about War Savings Certificates could have applied equally to Durant: he and his firm wanted to be “within the reach of all.”
It was no surprise, then, that during the summer of 1922, as Ivar was pondering his trip to New York, the men of Lee Higginson made what would turn out to be the most important decision in the firm’s history. They elected Donald Durant, a self-made man, to be their newest partner.18
Unlike James Storrow, Jr, and the Higginson brothers, Durant hadn’t attended Harvard. Unlike Allen, he hadn’t attended Yale. His father hadn’t been a banker. His uncles and cousins weren’t bankers, either. Durant was a most unlikely addition to the prestigious Lee Higginson partnership. He didn’t even have a moustache.
Now, just a few months after his election to the partnership, Donald Durant was about to meet Ivar Kreuger, another self-made man, someone who could offer Americans a truly new and exciting investment opportunity. The partners at Lee Higginson were giddy. They could not possibly have thought this meeting ultimately would lead to the destruction of their firm.
In truth, this trip on Berengaria was not Ivar’s first attempt to profit from what he believed would be a post-war boom in America. Just three years earlier, he had set up a corporation in New York called American Kreuger & Toll, which he had hoped would attract American investors. Yet that company had failed - spectacularly so. Ivar’s recent public relations blitz, and his planned performances at sea, were designed to obscure that failure, and to remarket Ivar as someone new to America.
It is worth stepping back, briefly, to see just how poorly Ivar’s earlier dealings in New York had gone. If Durant had known these details, he would not have wanted to meet Ivar. But Durant did not know, and probably could not have imagined, how far Ivar had strayed from his previous focus on the production and sale of matches. Nor could Durant have guessed how poorly Ivar’s negotiations with American match manufacturers already had gone, or why they had collapsed.
Ivar’s first attempt to raise funds from American investors had begun in 1919. He had planned to have American Kreuger & Toll replicate his approach during the previous decade in Europe: acquire control of local match production, squelch the competition, and then raise prices. The name of his new business was apt. It was to be an American clone of Kreuger & Toll, his Swedish industrial company.
However, Ivar quickly confronted two major obstacles. First, monopolies were illegal in the United States. Unlike a few decades earlier, when industrywide trusts were essentially unregulated, prosecutors were now targeting antitrust violators. Ivar couldn’t simply buy every match factory, as he had in Europe.
Second, another company, Diamond Match, already controlled much of the US production of matches. To the extent anyone was likely to achieve Ivar’s plan of an American monopoly, legal or not, it was Diamond Match, not him.
If Ivar understood the magnitude of these challenges, he did not take them seriously, at least at first. Instead of setting up the business himself in New York, he had sent Anders Jordahl, a Norwegian friend who knew more about liquor than loans. Ivar and Jordahl had become close during a stint working construction in Vera Cruz, fifteen years earlier. In Mexico, they had opened a restaurant and bar, gambled on foreign exchange, and led what even single twenty-something Scandinavian men traveling abroad would have called an adventuresome social life. Jordahl had even persuaded smooth-skinned Ivar to grow a moustache, though that was short-lived.
Jordahl was great company for Ivar, but not great for Ivar’s company. When Jordahl arrived in New York during winter 1919, he wrote that American Kreuger & Toll would “give Kreuger the fresh foothold he wanted in the States.”19 Of course, that foothold would be expensive. Jordahl asked Ivar to wire him 500,000 dollars to get the business started.20
Jordahl began burning through that cash immediately. He took the new business in unusual directions for someone who was supposed to be pursuing New York’s banking élite. First, he set up a new office, not downtown where the bankers were, but in midtown near Broadway and the most popular theaters in the city. This was an odd choice for an industrial firm seeking the attention of Wall Street. Ostensibly, Jordahl chose this location because he and Ivar believed midtown would become the new financial section of the city as banks migrated north. Perhaps some clients would have found this explanation plausible.
But the real reason Jordahl selected an office near Broadway was Ivar’s newfound obsession with the entertainment industry. Donald Durant had been something of a playboy in his youth, but even he would have been surprised by the amount of time Ivar was devoting to teenage actresses. Lately, Ivar had become more fixated on Swedish film projects and aspiring female models than on the American match industry.
One of Ivar’s recent discoveries was a teenage hat clerk he had met while shopping at Stockholm’s stylish version of Macy’s, PUB, Paul U. Bergström’s department store emporium on Hötorget Plaza.21 Ivar had met many other women while shopping, one of his favorite pastimes. Yet this girl was special. She was stunningly beautiful, and nearly as charismatic as Ivar. Ivar must have seen something of his own personality in her eyes. After she showed Ivar a few Homburgs he promised her that, with his help, she would become a leading model and actress. He meant it, and she believed him. Ivar had no trouble charming her, and everything else followed smoothly.
Although Greta Gustafson was just fifteen years old when she met Ivar, they quickly became close. Ivar had grand plans for Greta. He persuaded her to take modeling and acting classes, and even paid to produce her first short film. He introduced her to his contacts in the film industry and supported her financially while she began studying at the Royal Dramatic Theater in Stockholm. From the time Jordahl left for America until Ivar’s meeting with Durant, Greta would appear in three short films and two features, including one called Peter the Tramp, which was produced by Ivar’s production company, Svenska Filmindustri.
In Manhattan, Jordahl found that, given Ivar’s focus on film and theater, and the young women who went with them, an office downtown near Wall Street was not “a suitable location for our purpose.”22 Instead, Jordahl secured a one-year lease on the eleventh floor of the Guaranty Trust Building. The lease price was high for the area (roughly 4 dollars per square foot), and the brokers’ promises that the building soon would be renovated were dubious. What clinched the deal for Jordahl was the location: 44th Street and Fifth Avenue, just a few blocks east of the theaters on Broadway and a short walk from many fashionable restaurants. Even if the business failed, the midtown space would be a superb bachelor pad for Jordahl, and for Ivar, who planned to spend more time in New York.
Ivar paid Jordahl a handsome salary of 12,000 dollars a year plus 7,000 for expenses - roughly the same salary as a mid-level banker or corporate lawyer. Jordahl received additional perks as well. Periodically, he would receive a notification from a bank that some obscure company he had never heard of had deposited more money in the American Kreuger & Toll account.23
Films did wonders for Ivar’s social life, but they weren’t making him any money, especially in the United States. American moviegoers were indifferent to Swedish films, and the artist then known as Greta Gustafson was not yet a star. By March 1921, Ivar’s total revenue from film exports to the United States was just a quarter of a million dollars, and his costs were much higher.
After two years of losses, Ivar pressed Jordahl to find American Kreuger & Toll some “business activity with corres
ponding earnings.”24 When the 1921 summer film season didn’t generate any success, Ivar cabled to Jordahl that “it is extremely important that negotiations regarding Swedish films in United States are taken up immediately.”25 Ivar was concerned that his American venture was headed in the wrong financial direction. It wasn’t just about the money, although that clearly was one of Ivar’s concerns. Ivar knew the social status of a failing film producer would be well below that of a successful one.
It took Jordahl months, but he finally secured an agreement with the 42nd Street Theater to show one Swedish film, Körkarlen, over Christmas. This film was a gamble: the umlaut in the title was enough to keep most New Yorkers away, and the story was not exactly holiday fare, particularly at a time when popular films were titled Cops or Robin Hood or subtitled “A Symphony of Horror.”26 Körkarlen was based on a 1912 novel by Swedish author Selma Lagerlöf (that umlaut again), the first woman to win the Nobel Prize for Literature. The story tracked a legend that the last sinner to die in a calendar year would spend the following year driving a phantom chariot that took the souls of the dead. Anyone who read the book would be even less likely to see the movie. For a late December audience in Manhattan, one of the film’s best features was that it was silent.
On December 22, the manager of the 42nd Street Theater abruptly backed out.27 Jordahl frantically called on other theaters - the Republic just west of Broadway and the Central on Broadway at 47th Street - but everyone gave Jordahl what, in the entertainment industry, was known as the “run around.” One theater promised the first two weeks after the New Year, but then said it could run the movie only from December 28 through January 3. Others just said no.
Ivar’s American film business quickly became both a money pit and a distraction. As Jordahl burned through Ivar’s cash, both men focused on movies more than matches. Meanwhile, American Kreuger & Toll’s import business suffered. Although Ivar’s match shipments to the United States doubled during 1921, they were still just 45,000 cases.28 Ivar faced intense competition from Diamond Match, the leading American firm, as well as high excise taxes on imported matches, and the threat of antitrust prosecution if he tried to monopolize US production. His prospects were bleak.
Ivar decided his last chance to penetrate the American match industry was to open negotiations with W. A. Fairburn, the president of Diamond Match. Ivar sent an inquiry, and Fairburn replied that he was interested in a partnership with Swedish Match, but only with respect to Diamond’s interests in Japan, South America, and Europe - not the United States. The men discussed forming a new company, but Fairburn wanted Swedish Match to take the lion’s share of any debt burden.
In a letter Ivar must have found insulting, Fairburn said Swedish Match alone should guarantee the debt payments of a new company, because the mere involvement of Diamond Match would be worth at least as much as Ivar’s guarantee. Fairburn wrote,I am inclined to the opinion that the prestige of The Diamond Match Co. in the United States, allied in the forming of the new Company, and with the reputation, influence and ability of The Diamond Match Co. behind the new International Company, will have as much influence on the subscribing public in this market as the guarantee of Bond interest by the Swedish Company.29
That was too much for Ivar. Did Fairburn have any idea who Ivar was? If Fairburn wanted to pontificate about the “prestige” of Diamond Match, he would have to deal with one of Ivar’s underlings from then on. Ivar didn’t want to abandon the prospect of an American match deal, but he refused to correspond directly with Fairburn.
It wasn’t difficult for Ivar to choose between spending time with W. A. Fairburn or with Greta Gustafson, his teenage discovery from PUB. Ivar saw some of his own ambition in Greta, who was already raw with experience and had a reputation for running with an edgy crowd. It didn’t take Greta long to charm not only Ivar, but all of his film industry contacts. At the Royal Dramatic Theater, where Ivar sponsored her acting lessons, Greta met Mauritz Stiller. Stiller was emerging from Sweden as one of Europe’s leading directors, and he instantly saw Greta’s potential. He cast her as Countess Elizabeth Dohna in his film epic The Saga of Gösta Berling. He also insisted that she abandon the surname Gustafson. Stiller took her to Constantinople, then Berlin, and, finally, arranged a trip to Hollywood, after Louis B. Mayer asked Stiller to direct a film there.30
Before Greta left for America, she attended a ball Ivar threw in Saltsjöbaden for Douglas Fairbanks and Mary Pickford. Ivar introduced her to the famous actors, though he kept Greta for himself as a dancing partner. Greta’s eyes, like Ivar’s, were capable of looking right through a person, and she looked right through Ivar. She shared his intense need for privacy, and she understood how a person’s real personality could slip away as he or she formed a new on-stage persona for the public. Following Ivar’s lead, she also would split her life in two.
Throughout their lives, Ivar and Greta would share this bond, as the two most famous people from Sweden during the 1920s. They loved each other, in a way, though neither found the idea of a permanent relationship with another person attractive. Like Ivar, Greta embraced the idea of love, but questioned the notion of marriage. As she put it, “Love? I have said over and over again that I do not know. There is always my overwhelming desire to be alone.”31 When Ivar and Greta saw each other, there was a deep connection, a kind of shared loneliness.
By the time of the Fairbanks-Pickford ball, Ivar’s department store discovery was a new person, with a new name. She was Greta Garbo.
Even with Greta and other actresses drawing his attention from business, Ivar didn’t give up on an American match deal. He wasn’t spending much time in America, so he needed someone there to focus on direct talks with Diamond Match. Jordahl was busy and even more distracted, so Ivar delegated responsibility for future negotiations to one of his more junior New York employees, Eric Landgren. Ivar could not have chosen a worse person for the job.
Landgren was even wilder and less responsible than Anders Jordahl. He already had been involved in some shady efforts to persuade Congress to reduce import taxes on matches, efforts that ranged from merely aggressive lobbying to illicit payments of cash.32 He also had run up extraordinarily high expenses, overdrawing his personal account by four times his monthly salary.33
Ivar arranged for Landgren to meet directly with W. A. Fairburn to hammer out the details of a transaction. Fairburn was underwhelmed by Landgren,34 and clearly felt slighted to be dealing with one of Ivar’s lackeys. Fairburn didn’t trust this new man, and asked him to report directly to Diamond Match’s auditors from Price Waterhouse & Co., one of the leading accounting firms at the time.35
Price Waterhouse’s accountants were famously attentive to details, and they began submitting inquiries to Landgren about certain of American Kreuger & Toll’s profits and expenses. For example, they immediately spotted, and questioned, Landgren’s $4,428.68 charge for the use of an automobile.36 When they discovered several irregular book entries, they began questioning Swedish Match’s financial statements, too. Then the real trouble started.
When Landgren concocted false figures to explain some of the numbers in the financial statements, the auditors quickly found the fabrication and negotiations fell apart. W. E. Seatree, a lawyer and an accountant with Price Waterhouse, dashed off an angry letter directly to Ivar, in the formal style of someone who had proudly mastered the disciplines of both law and accounting during the early twentieth century:You will note that we did not certify the balance sheet. Mr Landgren’s letter is obviously an attempt to make it appear to you that he had accomplished something; but the fact that he had to resort to forgery to accomplish his purpose is the best proof of his failure. The euphemism, that he was going to issue a so-called copy of our balance sheet leaving out parts which were of material importance, does not disguise the true nature of his action.37
When Price Waterhouse lost confidence in Ivar, so did Fairburn and Diamond Match. Ivar tried to repair the damage by asking Jordahl to retain an i
ndependent outside accountant to vouch for their new US business. Ernst & Ernst, a reliable audit firm, completed a review of American Kreuger & Toll’s financial statements in June, but by then it was too late.38 The damage was done, and so were the negotiations.
Without a deal with Diamond Match, Ivar had no chance of an American monopoly. On September 26, 1922, Ivar told Jordahl, “suggest putting off negotiations Fairburn.”39
By this time, Ivar’s American business was a mess. His employees were out of control. He was locked out of the American match markets. His film business was losing money. Jordahl had approached several banks about raising new funds for American Kreuger & Toll, but he fared even worse with the banks than he had with Körkarlen, the Swedish film. Kuhn Loeb & Co. said no. The Warburgs were interested, but said the business was too young. Jack Morgan, J. P. Morgan & Co.’s lead partner, wasn’t about to risk sullying his bank’s reputation on a 39-year-old Swede. Jack might have been a pale imitation of his father, Pierpont, but, like many of the partners of Lee Higginson, he didn’t associate with self-made men. By the time Ivar stepped off Berengaria to meet with the media, he had run through nearly all of his options.
Ivar needed to put the starlets aside, come to America, and refocus on matches. This was the reason he had sailed to America in 1922. This was the reason he needed Donald Durant.
As Ivar traveled downtown to the Wall Street offices of Lee Higginson, he shifted gears. His pitch to Durant wouldn’t be an American monopoly - that venture clearly had floundered. He certainly wouldn’t mention film. Instead, Ivar would dangle a new idea before Durant: the prospect of Americans investing in foreign monopolies. Antitrust laws prohibited a match monopoly in the United States, but nothing prevented American investors from buying into monopolies abroad. Ivar’s match monopoly in Sweden was a highly profitable model. It could be just the beginning.
The Match King Page 4