In addition, Ivar was now obligated to send Germany 50 million dollars by August 30, 1930, and 75 million dollars more by May 29, 1931. The first 50 million dollars would come from International Match; the remaining 75 million dollars would be split between Swedish Match and Kreuger & Toll.40 Did Ivar have that much money to send to Germany? It certainly didn’t show up on the balance sheet of International Match. Given the recent market turmoil, it would be virtually impossible even for Ivar to raise that much cash. Jack wired an assistant that he was “much interested in Kreuger & Toll Company arrangement with German Government.”41 He wasn’t alone.
Ivar was determined to preserve investors’ faith in him, even as the markets crashed. He suggested to Durant that they encourage investors and support International Match’s securities by increasing the promised dividend payments. Ivar left it to Durant to decide when to increase the dividend, and by how much. He felt that if Durant made the decision, Durant and Lee Higginson would feel more confident about International Match. On November 5, Ivar cabled Durant, “I feel that present conditions make it particularly desirable to increase the dividend now. Kindly therefore take such steps as are necessary to have the increased dividend declared at the moment you consider to be the right one.”42 Three weeks later, at Durant’s instruction, International Match increased its annual dividend from $3.20 to $4 per share.43
Ivar and Karin Bökman publicized the German deal by sending copies of the agreement to everyone Ivar knew.44 Isaac Marcosson also helped. After chaperoning Ivar’s first meeting with President Hoover, as he had promised, he wrote about how both the President and Ivar benefited from the interaction. 45 Ivar thanked Marcosson for the continuing good words. He wrote, “I find your article a brilliant piece of work and feel greatly flattered over the contents of same.”46
November 1929 was full of surprises. Just seventeen days after the crash, The Kiss opened in New York. The movie, one of the last silent movies in an era of talkies, was not expected to do well. Yet it was a box office smash. Millions of Americans went to see Greta Garbo’s “silent swan song,” not to mention that kiss.48 Garbo’s popularity soared, and she became widely known as the “Woman of Mystery.”49
Many investors were destroyed, but others prospered. It wasn’t obvious that the stock market decline would have any real impact, and some commentators maintained it was merely a blip. According to the Harvard Economic Society, “A severe depression like that of 1920-21 is outside the range of probability. We are not facing protracted liquidation.” Financier Bernard Baruch sent a cable to British former Chancellor of the ExchequerWinston Churchill on November 15 noting, “Financial storm definitely passed.”47
Given the support of increased dividends and good publicity, the crash didn’t immediately hurt Ivar’s companies. It took time for crashes to ripple through financial businesses, particularly when those businesses were complex. Although the prices of securities had collapsed, most of the actual losses based on those securities would not be disclosed for several months. Likewise, even after the October crash, Ivar’s businesses sustained their value for several months. The persistently high value of Ivar’s securities might not reflect economic reality. But it was taking many people, even expert commentators, a long time to learn the truth.
If Ivar could continue to raise enough money, he could meet his obligations and support his companies, perhaps for long enough to weather the aftermath of the crash. The problem was that the market for raising new funds was dry. Ivar could have decided to cut his dividends, instead of raising them, so that he could afford to make payments for a longer period of time. However, such a decision would have forced him to swallow his pride, and it might have raised suspicions. Ivar preferred to do the opposite: increase dividends and gamble that he would be able to get enough money soon enough to pay them. Everything hinged on the continuing ability of Ivar’s companies to pay high dividends.
The Young Plan was signed in Paris on January 29, 1930, and the German parliament passed the monopoly law the same day, confirming the validity of Ivar’s loan, and his obligation to deliver 50 million dollars in a few months.50 Instead of backing down, Ivar continued to increase his companies’ obligations. Ivar agreed to another deal with the government of Poland in 1930, promising to lend it 32 million dollars to keep his monopoly there. The odds of Ivar raising enough cash to satisfy all of these obligations seemed slim.
After the crash, Krister Littorin and Karin Bökman, the two people who were closest to Ivar and saw him the most, began noticing some disturbing changes in his personality. Increasingly, it seemed, the pressure to raise more money and meet his company’s increasing obligations was splitting Ivar in two.
One version of Ivar spent more time alone, either locked in his Silence Room or behind the closed doors of hotel rooms throughout the world. Even when Karin Bökman traveled with Ivar, she might not see him for days. He spent hours memorizing new financial data and economic statistics. He seemed determined to jam all of this information into his brain, presumably so he could impress the world’s leaders with his command of the fragile markets.
But a different version of Ivar was suddenly more sociable than ever. He met periodically with President Hoover, and dined with the prime ministers of leading nations.51 He addressed the Bond Club at its monthly lunch, where he impressed everyone by citing bond yields from memory. He delivered major lectures, including a widely publicized address in Chicago advocating that “What the world hopes from the great creditor countries is no altruism, but only enlightened selfishness.”52
Ivar continued to charm young women, even while traveling with Karin Bökman.53 For example, when Ivar sailed Majestic, shortly after the October crash, he beguiled one passenger, Katharine von Rosenberg, with what she called a “charming vegetable dinner.” She found it memorable and offered to “reciprocate if we will ever be at the same time in the same city,” perhaps at one of the hotels he recommended, the Meurice or the Crillon.54
However, if a social occasion did not suit Ivar’s purposes, or he was not in the mood, he could be rude. He refused to attend the Queen of Sweden’s funeral because he considered the place offered him in the procession inadequate in view of his international standing.55 And when Miss Wilma Waite - who, like Katharine von Rosenberg, met Ivar on Majestic - asked not only if he would suggest a time and place for them to meet, but added a question about whether he “might be interested in purchase of ninety eight thousand acres pine land in Florida partly owned by our family,” Ivar’s response was brusque: “Regret not interested in pineland in Florida.”56
Ivar seems to have understood what was happening to his mind, because he increasingly worried about spending time in person with the people who mattered most to his business, particularly Donald Durant and A.D. Berning. After a brief stay in New York, he left for Europe and avoided these two men for months. Instead, he maintained his relationships through periodic letters and cables. Throughout 1930, nearly all of his dealings with Durant and Berning, including major business decisions, were done in writing, not in person.
For example, instead of pressing Durant in person with his plan to increase Kreuger & Toll’s dividend - just as they had increased the annual payments by International Match - Ivar merely reported in a letter “a strong feeling with our directors for increasing the Kreuger & Toll dividend to thirty percent.”57 Durant gave Ivar written authorization to sign for him on behalf of Kreuger & Toll, but did so without any in person discussion.58 The closest Ivar came to a real personal touch with Durant was handwriting some of his letters. In one note, about the Peruvian monopoly, Ivar’s handwriting was in a sprawling and flowery cursive, with large loops at the bottom of his “y”s and “p”s.59
In early 1930, Donald Durant reported that Ivar’s put back guarantee of the Kreuger & Toll American Certificates, one of Ivar’s chanciest moves, seemed to be working. More investors had purchased the Certificates, although the banks still held millions of dollars’ worth. Durant reported t
hat “since October 24th, 1929, the day of the start of the panic, to date the number of holders of American Certificates has increased by 3,645, or in other words, an advance of over 20%.”60 That was good news to Ivar, but not good enough.
Ivar paid Berning even less attention than he paid Durant. When Berning sent Ivar queries about International Match’s most recent financial statements, he received a letter indicating that Ivar was away and could not respond. When Berning requested details about the German loan, Ivar eventually responded that “I would not like you to give details of the item. I do not want the definite figure of our holdings in Germany to be known at present and I therefore suggest that you group our German holdings with our holdings in some other country and call them Sundry Investments.”61
The fact that Ivar was rarely available created problems for both Durant and Berning, particularly when American investors pressed them for details about International Match. After several unsuccessful attempts to contact Ivar, they drafted a short memorandum to send to investors, essentially explaining that many of International Match’s financial details couldn’t be released for political reasons. In the draft, the two men wrote,A large part of the corporation’s activities are carried on under special concessions or monopolies. In many cases, it is quite in order for such arrangements to be publicly known. In others, however, the political situation is such that it would be most detrimental to both the corporation’s interest and also to that of the country involved if these relationships were known to exist. The corporation has therefore used the greatest care and bided the time when it will be proper and in order to announce publicly its position in various countries. It is for this reason that an itemized statement of the countries involved under the items of “ADVANCES FOR INVESTMENT IN MATCH CONCESSIONS” and “ADVANCES TO GOVERNMENTS” has never publicly been made. Its relationship with France, Poland, Hungary, Roumania and other countries, and more recently with Germany, has of course been published. There are other countries, however, where conditions do not permit the corporation at this time to disclose its relationship, but there is little doubt that these conditions will change in times as they have in other instances.62
Durant and Berning sent this draft to Ivar, but heard nothing for six weeks. When Ivar finally dictated a response to Karin Bökman, he was breezy, noting only that the memorandum was “excellent.” He wrote, “I expect to come to America during the month of March and hope then to have the pleasure of seeing you.”63 But when Berning arranged a meeting time in March, Ivar abruptly cancelled his travel plans.64
Investors might have wanted to see something more than a generic description of “Sundry Investments,” but Ivar was unwilling to give anyone more than a half-page of detail about the sources of International Match’s income. Ivar confirmed that there were roughly thirty companies consolidated with International Match, but wouldn’t say more than that.65
The questions about how Ivar actually made so much money persisted when International Match reported “earnings” from 1929 of 21 million dollars, and Swedish Match reported 15 million dollars. Some of those “earnings” for one company were really just dividends paid by the other company. Those weren’t real earnings; they were just movements of cash from one pocket to the other. Still, even excluding those payments, the total reported earnings of Ivar’s two match companies was in the range of 30 million dollars.66
Many bankers and investors questioned these numbers. Total world consumption of matches was about 40 billion boxes. Ivar’s factories produced roughly two-thirds of all matches, and the public paid an average price of perhaps one-half cent per box. Basic math suggested that Ivar’s total annual revenue from match sales throughout the world would have been less than 150 million dollars. How much profit could Ivar earn on that revenue? Profit margins on matches, even with a monopoly, were narrow. Raw materials were costly and there also were shipping expenses, taxes, duties, and sales costs. Could Ivar really earn 30 million dollars from revenue of 150 million dollars? That was a wide profit margin of 20 percent.
According to one banker who asked Ivar this question, Ivar readily admitted that only about half of his companies’ profits were from the match business. The rest, Ivar said, were from speculation.67 But even if Ivar was making large profits from speculation, so that his match companies actually had made 30 million dollars, that amount still wouldn’t be nearly enough. Ivar needed to come up with 50 million dollars for the first installment due on the German loan in August. Unless one of his bets paid off quickly, he wouldn’t be able to pay Germany. If Ivar breached that agreement, his reputation, and his businesses, would be destroyed.
He needed a rescue, and it came just in time.
10
ONE LAST CHANCE
When French Prime Minister Raymond Poincaré retired in late July 1929, citing health concerns, he was replaced by Aristide Briand, then the Minister of Foreign Affairs. Briand was a close friend of Poincaré. In the closeted world of French politics, he already had succeeded Poincaré once as prime minister, in 1913. This time, Briand wouldn’t last as long (indeed, he would predecease Poincaré, coincidentally in March 1932, just as Ivar was sailing from America to Europe for the last time).
The French economy was thriving, and one of Briand’s first acts was to repay the 75 million dollar loan his good friend Poincaré had arranged with Ivar. Recall that Ivar had structured the deal with Poincaré at a discount, so that the French received just 70 million dollars upfront, even though the government promised to repay Ivar 75 million dollars. If the French prepaid their loan, Ivar would receive the cash years earlier than he had planned. Ivar wanted that 5 million dollars as soon as possible.
For months, Ivar had been hanging by a financial thread. Now, an early payment of 5 million dollars from France would keep him from falling. Most importantly, money from France would give Ivar enough cash to make his first installment on the German loan.
Incredibly, the French committed to repay the 75 million dollars by April 1930, just before Ivar’s first payment to Germany was due. That payment would give Ivar enough cash to cover his obligation to Germany. Either Ivar had negotiated a sweetheart rescue deal with Prime Minister Briand, or he was incredibly lucky. One commentator called it “manna from Heaven.”1
Ivar immediately wired 50 million dollars of France’s money to Germany. He then transferred $23,733,152 to his Lichtenstein subsidiary, Continental. As usual, he left virtually nothing for International Match.
Time reported these payments with skepticism. The magazine was embarrassed by its glowing cover story about Ivar during the same week as the market crash, and it now highlighted concerns from investors about what Ivar was doing with France’s early repayment. Time scoffed at Ivar’s simple response that his funds would now be earning 6 percent from Germany instead of 5 percent from France.2
Yet most investors were unfazed by Time’s new doubts, especially when Ivar announced plans to use some of the remaining funds for new loan-for-monopoly deals that year. In fact, Ivar would add Bolivia, Bulgaria, the city state of Danzig, Guatemala, Lithuania, Turkey, and Yugoslavia to his portfolio of match monopolies during 1930.3 Those deals led McNeel’s, the well-regarded investment analysts, to issue a confidential bulletin recommending Ivar’s securities as “sound” with “possibilities of appreciation.”4
Privately, Ivar was concerned that the 1929 crash might have damaged his business prospects irreparably. He couldn’t cover double-digit dividends with 6 percent payments from Germany. And if the market overall continued to plummet, eventually the prices of his securities would be hit hard. Ivar could not continue to raise money during a financial crisis. Although Ivar projected confidence in his public dealings, he began spending more and more time alone in his Silence Room, worrying that he had made a mistake with the German loan. He needed to find a way to survive at least one more year, and pray that then the market’s downward tide would turn. Ivar crossed his fingers, and announced an increase of Kreuger & Toll’s divi
dend, from 25 to 30 percent.
When Ivar turned fifty years old, on March 2, 1930, he could have retreated to the Match Palace to retire comfortably. He certainly had plenty of money, and accolades. He had just received an honorary doctorate from Syracuse University, where he had built the Archbold Stadium. He played a prominent role in the annual Nobel Prize ceremonies. He met regularly with foreign leaders. Apart from the recent turnabout at Time, he was still a media darling. He could spend his days advising policymakers, and on social or philanthropic endeavors.
Yet not long after his fiftieth birthday, Ivar planned to begin a renewed and relentless push to secure another match monopoly - this time in Italy. Ivar asked Sweden’s King Gustav to help him by pulling some political strings, to get Ivar back in touch with the senior Italian officials who would be responsible for any monopoly deal. Italy was the only major European country left to do a deal with Ivar. Spain had balked and, like the United States, Britain would not grant him a monopoly for antitrust reasons.
Ivar had been involved in negotiations in Italy off and on since 1923, just after he first raised money in America. At the time, the Italian government had just dissolved its public monopoly and formed a syndicate to handle domestic match sales. Ivar owned more than 30 percent of the largest Italian match company, Fabbriche Riunite di Fiammiferi (FRF), as well as several smaller Italian match factories.5 During the fall of 1928, Ivar approached the Italian government through an Italian intermediary to propose a 75 million dollar loan in exchange for a match monopoly, but the government wasn’t interested.
The Match King Page 21