Even with the mistakes, the message of Berning’s letter came through:I must have been weaker than I suspected on Monday when you handed me the debentures with the accompanying statement. When I looked over the amount I was under the impression that the 230 debentures were the equivalent of our American certificates. Upon returning to the hotel I found the matter quite different, and feel now that I did not properly appreciate at the time what you were doing. Mr Kreuger, you have been entirely too generous, thoughtful and kind to me, and all of it is far more than I deserve. I feel I shall never be able to reciprocate. Please be assured however of my grateful appreciation, not only for the material things, but for the great help that you have given me personally in so many ways.36
When Berning finally returned home from Sweden, he found yet more good news. First, there was yet another gift from Ivar, this one a self-portrait. Berning found the painting of Ivar’s face stunning, and gushed that he was “honored that I may be included among those who may have the privilege of owning one.”37
Next, the Ernst brothers told Berning they had an important matter to discuss with him. After seven years, Ivar had become one of the firm’s biggest clients, and Berning deserved credit. He had persuaded Ivar to pay the firm more for its audits, as well as additional fees for consulting and tax advice. The Ernsts were proud of everything he had done, and they had decided to offer him a partnership. From now on, his correspondence would read, in block letters, “RESIDENT PARTNER.”
The Bernings didn’t revel at Restaurant Paillard, or order 105 bottles of wine, but May Berning certainly was proud of her A.D. Now they could afford a new apartment, at 40 Fifth Avenue, in Greenwich Village. They could afford a new social set as well. The Bernings joined several of New York’s most prestigious societies, including the Union League Club and Sleepy Hollow Country Club. 38
Yet neither the partnership nor these memberships relaxed A.D. Berning’s nerves. His promotion added more pressure than it relieved, and he didn’t have time to play golf. Unfortunately for Berning, the stress was only just beginning.
After a modest celebration at his Greeenwich Village apartment, Berning asked Anton Wendler, the Swedish accountant, to send him final statements for 1928 for Swedish Match and Continental, Ivar’s Liechtenstein subsidiary. Durant had not accepted Berning’s assurances, and asked him to assemble as much information as he could. But if Durant was expecting significantly more detail than he had seen in the past, he was seriously disappointed.
Berning and Durant thought they understood some of what Anton Wendler and his brother were doing with Continental, but when they saw the 1928 numbers, they were stunned. They hadn’t realized how massive Continental had become. According to Wendler’s documents, as of the end of 1928, Continental had roughly 125 million dollars of assets. That made this obscure secretive Liechtenstein company one of the world’s largest businesses. Yet the entries on Continental’s balance sheet were no more detailed than any other information they had received from Ivar. Here is what Wendler sent:39 Continental Investment Corporation Balance Sheet
Advances to Governments of $31 million
Land, Buildings, Machinery, and Equipment of $32 million
Advances for Investments in Match Concessions of $28 million
Stocks and Bonds of $15 million
Accounts Receivable and Others of $9 million
That was it. These disclosures contained more questions than answers, and they made Durant more nervous than Berning had been. In recent months, Ivar had been showering Durant with kindness. To supplement Durant’s income as a director of International Match, Ivar had appointed him to the board of Kreuger & Toll as well.40 Ivar and Durant had spent several extravagant evenings together in New York in May, around the time of International Match’s annual meeting. Durant liked to be entertained, but he wondered why Ivar suddenly was being so generous with his time and money.
Ivar tried to mollify Durant by inviting Berning to inspect Ivar’s businesses throughout Europe. Although Mrs Berning did not accompany him, and he spent much of the time working, this trip was his best one to Europe yet. Berning produced a four-page single-spaced memorandum setting forth the results of a personal inspection of Ivar’s factories and facilities during a tour that covered Berlin, Copenhagen, London, Nürnberg, Paris, Prague, Vienna, Zürich, and, of course, Stockholm.41
A.D. Berning apparently resumed his faith in Ivar during this trip. He reported that he was “considerably impressed by the speed with which rough logs were converted into veneer, cut into splints, polished, treated and turned into finished matches. The inventory turn-over is extremely rapid as you undoubtedly have observed when comparing the balance sheet inventory total with the annual sales.” Berning saw “capable executives” with an “exceptional grasp of affairs” and everyone was “keen, aggressive and capable.”42
He concluded thatIt seems to me that Mr Kreuger’s policy is to carefully select the man for each post and then to give him complete responsibility for the duties therein involved. I was considerably impressed with the complete harmony with which the organizations function and the extreme confidence that each one has in the other. There seems to be throughout the entire organization a splendid spirit of loyalty and an unselfish devotion to duty. No doubt a considerable part of the accomplishments and amazing growth of this enterprise is due to these qualities.43
Berning tried to respond to some of Durant’s questions about the size and boundaries of Ivar’s companies. For example, Durant had asked, where did one of Ivar’s companies begin and others end? Which liabilities belonged to International Match, as opposed to Swedish Match or Kreuger & Toll? How could they be sure Ivar wasn’t allocating income among the companies in an arbitrary way? Berning wrote,The operations of the three larger companies are closely related, as you well know, and the inter-company transactions are quite large. All of those transactions which have come under my notice have always been handled with the highest degree of fairness. During none of the many examinations which we have made of the affairs of International Match Corporation have we ever had occasion to question the fairness of any transaction which this company has had with any of its affiliates. I thought you would be interested in this observation.44
Berning also sent a copy of the memorandum to Ivar, so he would know the efforts he was making with Durant. Berning labeled each page “PERSONAL” and attached a handwritten note: “D.D. just got around to this matter, and here is a copy for your information. I hope you approve of it. Sincerely, A.D.”45 Ivar certainly approved. Berning had run hot and cold during recent months, and Ivar was delighted to know his auditor was in a warming phase.
Durant, on the other hand, began to wonder whom he could trust. He previously had been concerned about Ivar. Now, he was just as worried about Berning. Berning’s repeated use of the word “fairness” was alarming. It wasn’t a term many 1920s accountants were comfortable using.
In fact, Durant had more reason for concern than he knew. On August 16, 1929, Ivar sat down with Karin Bökman to dictate a letter to Berning. Perhaps the handwritten “D.D.” note had made Ivar more confident of Berning. In any event, Ivar had arranged an inter-company account transfer that was not even close to fairness, and he thought now was just the right time to let Berning know.
Bökman typed:Dear Mr Berning,
In making the accounts of Swedish Match Company for the year 1928 there was created a certain secret reserve by temporarily crediting International Match Corporation’s account with $1,135,753.09, being one quarter of the profit made by Swedish Match Company on the sales of certain foreign bonds. International Match Corporation has no claim on this profit which during the current year has been brought back to Swedish Match Company.46
In other words, Ivar initially had permitted International Match to claim credit for a quarter of Swedish Match’s profits for 1928, but now he was taking those profits back. Easy come, easy go.
Ivar wanted a letter from Ernst & Ernst certifying that th
ese shenanigans were appropriate, and that International Match had no claim to any of these profits. Ivar even suggested an attestation, in his best accounting jargon:We herewith certify that on December 31st, 1928, the balance of all accounts between International Match Corporation and Swedish Match Company resulted in a debt of Swedish Match Company to International Match Corporation of $520,872.87. We are informed that in the books of Swedish Match Company, as at December 31st, 1928, there is booked a debt of $1,656,625.96 to International Match Corporation and that the difference is caused by Swedish Match having credited International Match Corporation with an amount of $1,135,753.09, corresponding to one quarter of the profit on certain foreign bonds. We herewith certify that, as far as we know, International Match Corporation has no claim on any profit on these bonds, and that the amount given in the books of International Match Corporation is correct.47
Ironically, shifting profits away from International Match to save for a rainy day had been Durant’s idea initially, and Durant might even have approved of these terms, especially given that the “certification” was followed by the loose qualifier “as far as we know.” Yet Berning decided to keep the million-dollar adjustment a secret from Durant. Ivar wanted to move the income away from International Match without Durant’s knowledge, and Berning gave him what he wanted.
Ernst & Ernst complied with Ivar’s request, and issued the certification privately to Ivar in almost identical language a few days later, even using Ivar’s term “as far as we know.”48 At the same time, Ivar wrote to Berning that he had just taken over some interests in the Swedish lumber and pulp industry, and would probably have some new work, and some new fees, for Ernst & Ernst related to these interests.49
During 1929, while Ivar’s bankers and accountants were scurrying around trying to issue new securities to be traded on the New York Stock Exchange, Ivar was focused on a more precious commodity: his reputation. Ivar had become extremely selective about social engagements. He now spent most of his time either alone or with Krister Littorin and Karin Bökman. He sought out only the most reputable people, leaders who could bolster his already exalted name. Otherwise, he preferred to be by himself.
At the time, two of the most sought-after men anywhere were the newly elected President Hoover and Isaac F. Marcosson, an editor at the Saturday Evening Post and one of the world’s most widely read journalists. During the next few months, Ivar would meet and charm both of these men.
Marcosson was first. He started a mutual courtship with Ivar on April 15, when he sent a formal letter, on stationery from the Carlton Hotel in London, requesting an interview in Stockholm on June 15.50 Marcosson included a letter of introduction from Frederic Allen, the Lee Higginson partner and Director of War Savings who had proclaimed in 1922 that Ivar was “a brilliant business head, full of compelling ideas, and a gentleman to boot.” Allen’s recommendation was even more glowing seven years later.
As Ivar knew, Marcosson was connected to just about every important person in the world, people far more important than Frederic Allen. It was apparent from the tone of Marcosson’s letter that he was aware of Ivar’s importance. In an exchange of letters through July 1929, these two important men engaged in an extended sniffing exercise, like two big dogs walking the same trail, establishing turf by marking the same spots.
Ivar thanked Marcosson for his letter, but replied that he wasn’t sure he could be in Stockholm precisely on June 15. Ivar suggested they meet at “about that time.” That wasn’t good enough for Marcosson, who responded that in any event he would be delayed in Berlin until June 20; could Ivar meet on June 25? This time, Ivar didn’t respond at all. Not one to be jilted, Marcosson wrote back on June 17 that he needed to postpone their meeting for a few weeks so he could interview Ramsay MacDonald, who as the first leader of the Labour Party to be elected Prime Minister of Great Britain had just formed a new minority government. Marcosson thought he might be able to meet Ivar in July, but he hedged, “At least this is as it looks at the moment.”51
The correspondence trail suggested that Marcosson was the bigger dog, at least on paper. Then, the men finally met, in July 1929.
From the moment the two met, the power balance shifted, just as it had with Donald Durant in 1922. Ivar charmed Marcosson like no foreign leader or movie star ever had. Marcosson found Ivar soft and persuasive in speech, modest and unostentatious in manner. He was utterly without vanity, almost self-effacing. He seldom spoke of himself, and Marcosson found what he said enormously interesting. He loved the tour of the Match Palace, and appreciated its architecture and art, the Milles sculpture, the boardroom panels, and the details throughout.
Marcosson dashed off several handwritten notes to Ivar immediately after the interview. On July 12, he wrote, “I hope you will permit me to thank you again for your generous hospitality. It has been a genuine privilege to meet you in such delightful circumstances and I look forward to seeing you again soon.” Marcosson wrote again several times in the next weeks, sending Ivar books they had discussed and suggesting that Ivar sit for another photograph because Marcosson didn’t think the first one did him justice. In turn, Ivar sent Marcosson a book of engravings and some old maps of New York and Philadelphia. They promised to meet again, in January in Paris.
Marcosson also provided an introduction to the President. On August 23, he wrote to Ivar,I had a long talk yesterday afternoon with President Hoover. After we had finished with reparations and the International Bank, I told him about my visit with you and that I want to take you down to meet him when you are next in America. The President said that he would be delighted to make your acquaintance, so you can now consider this experience in store for you when you come.52
Marcosson kept his promise and introduced Ivar to Hoover several weeks later, when Ivar was in Washington, DC. Ivar planned his first visit to the White House carefully. He scripted this meeting as carefully as he had plotted his 1922 Berengaria entrance. Hoover was impressed by the breadth of Ivar’s knowledge of global finance, the history of monopolies, the current American political scene, and even the individual names of flowers in the White House gardens. Hoover was an engineer, too, and had founded the Zinc Corporation before becoming Commerce Secretary. The men had visited the same places, stayed in the same hotels, eaten at the same restaurants. They shared friends. During the following years, Ivar would become one of the President’s most valued advisors.
The markets rose throughout 1929, just as they had since Ivar’s 1922 trip to America on Berengaria. The 1929 boom was rooted in consumer products companies, especially the chain stores, such as Montgomery Ward, Wool-worth, and American Stores, which were attracting hordes of customers.53 Many companies had followed Ivar’s lead, and now had substantial off balance sheet liabilities, inter-company holdings, and complex hybrid securities issues. United Founders Corporation had 320 million dollars invested in related corporations, and even owned thousands of shares of Kreuger & Toll.54 Goldman Sachs had issued a quarter of a billion dollars of complex new securities in August alone. Lehman Corporation, another investment bank, launched a novel securities offering, which immediately rose by 30 percent.55
Wall Street’s performance during the summer of 1929 was spectacular. The New York Times industrial average rose by 25 percent from May 1 through August 31. Westinghouse was up from $151 to $286; General Electric from $268 to $391; Steel from $165 to $258; Alleghany from $33 to $56. Even United Founders, with its mysterious leverage and subsidiaries, shot from $36 to $68.56 America’s intelligentsia applauded the markets. Bernard Baruch heralded a “great forward movement.” Academics praised the wisdom of crowds, including the millions of people trading through the New York Stock Exchange. A Princeton economist questioned whether anyone could “veto the judgment of this intelligent multitude?” Yale professor Irving Fisher remarked that “stock prices have reached what looks like a permanently high plateau.”57
But then, in September 1929, as Marcosson was finishing his article on Ivar, stocks b
egan to fall, for no apparent reason and gradually at first. Investors and the media hardly noticed the early declines. Everyone assumed the seven-year bull market, including an overall increase of 38 percent during the previous year, would continue. During September, a few stocks held firm, fluctuated, or even went up, as did Ivar’s securities, which now amounted to one-fourth of all foreign corporate issues in the United States. But most stocks fell.
Marcosson’s lengthy cover story on Ivar was published in the October 12 edition of the Saturday Evening Post. It was glowing, a paean from one Renaissance man to another. Marcosson reported details about Ivar’s extravagant lifestyle, praised his match business, and argued that monopolies such as Ivar’s were of great benefit to society and should be encouraged. He also mentioned Ivar’s response to a question about what three things accounted most for his success. The answer, which became emblazoned in the public’s memory, was: “One is silence; the second is more silence; while the third is still more silence.”58
The next week, Ivar was the most talked about person in the United States, even as the markets continued to decline. Marcosson’s article ignited the media’s interest in Ivar. Journalists from every major publication called and cabled, desperate for interviews. But Ivar remained silent, even when reporters from Time said they were putting his face on the cover. He had decided to talk to Marcosson, but he didn’t want to bother with anyone else.
The Match King Page 18