The Warburgs

by Ron Chernow

  If Siegmund prided himself on a fiercely logical mind, it operated amid a welter of turbulent emotions. Whether assessing events or people, he could be wildly impulsive or uncannily correct. Early in the war, he was plunged into an agony of doubt about the Allies’ chances to defeat Hitler only to reverse position sharply after Germany invaded the Soviet Union in June 1941. A few days later, he sent a sweeping, rather cold-blooded, Hegelian analysis to Stefan Zweig, saying that the war, however horrible, was an agent of social advancement. “It confirms me in the opinion that basically it is really a good destiny due to which increasingly larger and larger parts of the world have to go through the purgatory of war and destruction in order to arrive at a cleaner and saner state of things. This is exemplified in this country where the war has created a much stronger spirit of comradeship and sacrifice.”4

  Perhaps building on the intermediary role he had played between Dr. Schacht and the British government in the autumn of 1939, Siegmund engaged in intelligence work with the Ministry of Economic Warfare. His British partner, Harry Lucas, was deeply involved in Ministry work and Harry’s brother-in-law, John Noble, worked to decode enemy messages. Jewish refugees were a valuable intelligence resource. Siegmund was apparently consulted by the government for his comprehensive knowledge of German business and politics and also helped to obtain supplies in various countries.

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  Siegmund often sounded stoically philosophic about having to start his life over again in England. He liked to quote his grandfather Siegmund, who said, “It has been the Warburgs’ good fortune that whenever we were about to get very rich, something happened to make us poor and we had to start all over again.”5 At his New Trading Company, Siegmund gathered around him a group of first-rate German and Austrian refugees, who had also fallen far below their former lofty perch in the world. This sharpened their drive for success and enabled them to prevail against monumental odds. Far from being defeated by fate, these German Jews would exhibit fantastic enterprise and be rewarded with commensurate success.

  A later executive would coin the term “uncles” for these founding fathers of what would evolve into S. G. Warburg & Company. The term was oddly revealing, for it implied that the tiny firm of two dozen people was a surrogate family for these political castaways. It also hinted at the cautious, fussy, pedantic, somewhat secretive style of these men. Siegmund, significantly, was never an uncle, but the paterfamilias, floating above the fray.

  Though Siegmund was always the star of the show, he needed his supporting cast of uncles. Many people would come to regard him as the foremost global banker of the late twentieth century, but he didn’t excel in basic financial techniques. His genius never lay in crafting a deal, restructuring a balance sheet, or appraising shifting financial markets. He always had teams of minions to do that. Siegmund was the master salesman, long-term strategist, and reigning administrative deity rolled into one. If a maestro who couldn’t play every instrument, he knew how to coax topflight performances from his team of virtuosi. He understood intuitively the fears and insecurities of his fellow refugees, making them feel special and important. They feared, honored, and respected him. A man of warmth and extraordinary charm, he could also be a ruthless autocrat who knew every managerial trick to inspire, terrify, cajole, goad, and manipulate his staff. He was, at once, a seductive and unsettling presence.

  The nuts-and-bolts operation fell to Siegmund’s chief executive, Henry Grunfeld, whom many would regard as the brains of the firm and the smartest banker in London. For almost fifty years, he and Siegmund were as inseparable as Siamese twins. Feeling he owed his worldly success to Siegmund, Grunfeld worshipped him. Siegmund found Grunfeld a bit dour and Prussian, but revered his talents. Henry was the technician who would execute his wishes without ever challenging his ultimate authority. They developed a telepathic sense of each other’s thoughts. If Siegmund suddenly shifted gears with a client in mid-conversation, Grunfeld would pick up the signal and follow suit without a word being spoken between them.

  While Siegmund attracted, indeed encouraged, a certain mystique, Grunfeld avoided the limelight and lacked the king-sized ego that usually goes with superior intelligence. He shunned the travel in which Siegmund gloried and led a private life. Before his death, Siegmund told him, “You couldn’t have done it without me and I couldn’t have done it without you.”6

  Both men had a very Germanic sense of discipline and exactitude. In Siegmund it was coated with charm, while in Grunfeld it stood out more nakedly. Where Siegmund had a melancholy elegance, Grunfeld looked and acted all business. His narrow, thin-lipped face, steely spectacles, and austere mien reflected his bladelike mind. Presented with a complex problem, he could ferret out the hidden flaws and devise a pure, elegant solution. Where Siegmund had a guileless, almost childlike credulity at certain moments, Grunfeld was a thoroughgoing skeptic. Nobody could palm off damaged goods on Uncle Henry, and Siegmund seldom made a major step without having Grunfeld scrutinize it.

  While Grunfeld hadn’t known Siegmund in Germany—he hadn’t even realized the Warburgs were Jewish—these two agnostics had parallel backgrounds. The Grunfelds had been a prominent Jewish family with steel and chemical interests in Upper Silesia for three generations. (This was the same family of Rawack & Grünfeld mentioned earlier in connection with Friedrich Flick.) With similar educational backgrounds, both Henry and Siegmund had been young businessmen, burdened by early hardship, their families having surrendered fortunes to inflation and the Third Reich. They were bound by a common desire to recreate their former status. As Grunfeld said, “We both had the burning ambition and determination to get back to the position which we had in Germany and to show to the world and to ourselves that we could do it.”7 Because neither had much capital to contribute to the firm, they had to build up their shareholdings through options.

  In comparing their later attitudes toward Germany, Grunfeld would always stress that Siegmund had left Germany voluntarily, whereas he had fled from persecution. In spring 1934, the Gestapo arrested Grunfeld in Berlin, and held him for fifty-four hours. As they dragged him from one prison to another, his terrified wife couldn’t determine his whereabouts. Grunfeld only got out because he was an Honorary Spanish Consul in that part of Germany. At this critical juncture, he was shocked by the cowardice and indifference of supposed friends, a lesson that stayed with him. When released by the Gestapo, Grunfeld was advised by a friendly judge to go underground and he lived with his family in the Black Forest. After the Night of the Long Knives butchery, he left Germany. His father was financially plundered by the Nazis, and the family fortune was whittled away by the Flight Capital Tax, punishing exchange rates, and Aryanization. Many members of his family were killed during the Third Reich.

  In 1935, three people told Grunfeld about the Dutch International Corporation’s London venture and said that Siegmund needed somebody with industrial experience to match his financial knowledge. All three intermediaries later became Nazis and died in the war—an irony not lost upon the superstitious Siegmund and Grunfeld. During his last overnight trip to Berlin in 1937, Grunfeld was returning to the airport when Heinrich Himmler pulled up beside his taxi in a Mercedes—a baleful omen. It would be Grunfeld’s last glimpse of Berlin. Unable to banish memories of his 1934 arrest, Grunfeld never set foot in the city after the war. The arrest also left a lasting aversion to frivolity—perhaps explaining why he and Siegmund never posed for photos.

  The third member of this early triumvirate was Eric Korner, the head of the investment department. A country doctor’s son born in a village outside Vienna, Korner was an assimilated Jew and former cavalry officer. His first encounter with Siegmund occurred in Berlin in the 1930s, when they met for a six o’clock morning walk, the two competing to show which one rose earlier. While working in his Berlin bank, Korner was arrested by the Nazis, which would produce an embarrassing postwar incident.

  Unlike the other uncles, Korner was funny, tough, outgoing, flamboyant, br
ash, and mischievous. “I like my desserts and my clients to be rich,” he once said in his extremely thick Austrian accent.8 The accent was so impenetrable that his British colleagues thought he once said “Venezuela Day” when he was trying to ask “When is Labor Day?” Another time, he inquired about a mysterious company called Kelly Cigars—that turned out to be Tennessee Gas, fantastically enriched by an Austrian accent.9

  Like the other uncles, Korner was a cultured man who loved opera and symphonic music and collected illuminated manuscripts. Endowed with a vast range of European contacts, Korner would later be able to raise millions of dollars with a few telephone calls. If Grunfeld dryly stuck to the facts, Korner, the firm’s stock-exchange man, knew how to embroider a sales pitch. After the war, he was trying to sell shares in the London Rubber Company to the church commissioners. When asked what the company made, he covered the telephone receiver and urgently asked a subordinate, who said they manufactured condoms. Aghast, Korner asked what else they made? Garden gloves, said the young man. “They’re the world’s largest garden glove company,” Korner told the church commissioners briskly and closed the sale.10

  During World War II, Siegmund and the uncles suffered comparative isolation in the City of London. Though a naturalized British citizen, Siegmund was legally obligated to note his German origins on the company letterhead by appending to his name “(formerly German).” The uncles ruefully referred to themselves as the “natives,” mocking how they thought the British stereotyped them. The City viewed them as queer birds indeed but treated them with occasional kindness as well as condescension. When New Trading suffered bomb damage at one point, Rex Benson of Robert Benson (later incorporated into Kleinwort Benson) provided temporary space for the natives in his office. N. M. Rothschild remained the fairy godmother of New Trading and sometimes sent them unwanted business. Until well into the 1950s, N. M. Rothschild was always the first firm to receive the annual financial statement of Siegmund’s firm.

  Like other stranded Jews, the uncles were shocked by the hostility that greeted anyone with a German accent during the war. They were sometimes perceived less as Nazi victims than as risky German partisans. Declared an enemy alien on the war’s third day, Grunfeld had to surrender his car and required permission to travel for the duration. Struggling with a heavy German accent and carrying a German passport, he constantly had to allay suspicions as he tried to drum up business in war factories. It was an insane situation that would have defeated all but the hardiest souls.

  After Germany overran Holland in 1940, Britain interned German Jews as enemy aliens and crowded more than thirty thousand into camps outside Liverpool or on the Isle of Man. Because Jews were often seized between eight and nine o’clock in the morning, Grunfeld would wander around Hyde Park at six in the morning to avoid arrest. Eric Korner, not so lucky, spent several months shut up on the Isle of Man.11 By no coincidence, Siegmund and the uncles would remain haunted, secretive in style, and alert for enemies. They had known the fear of the midnight knock on the door in Germany, then had encountered suspicion in England.

  Unexpectedly, the war Germanized the New Trading Company, as British staff members were swept into the armed forces. Employees took turns on the roof at 82 King William Street, doing duty as fire wardens. When air raids started and bombs dropped around the building, the edgy Germans were the first to fling themselves to the floor. New Trading built a basement bunker for alerts, but after a time people got blasé and didn’t go downstairs. A wartime ban constrained the uncles from speaking or writing German in the office. One day, after BBC radio announced that German aircraft were dropping bombs at random, the uncles stood squinting over a map, trying to locate the town of Random.12 Attempting to function in a foreign tongue, these refugees developed an English that was, syntactically, pure German. Henry Grunfeld would be celebrated for his famous exhortation, “Then into action we must swing” and his dismissive reference to “All that sky in the pie.”13 Even Siegmund continued to write letters about “having” people for lunch until his secretary gently noted that he sounded as if he were devouring his guests. At first, George Warburg screened his father’s letters for Germanic howlers at home then later arbitrated disputes at the office over English usage. Siegmund never shed his strong Swabian accent. Later he admitted that he could have learned to speak without one, “but I didn’t, because I would have sounded ridiculous.”14

  In many ways, exile simplified life for the uncles. After the Third Reich, they didn’t care for the trappings of power and only wanted wealth that was portable. It would take time before they bought houses in England or felt rooted. Siegmund epitomized these contradictory men, for he combined a renowned name and old-money tastes with the creative spark of the self-made businessman. Seldom has an ambitious underdog stepped into the fray with such a fine pedigree. From the outset, he and his colleagues exhibited a Spartan style and worked extraordinarily long hours—something the privileged sons of the City could never match. At first, they observed Jewish holidays, but when they noticed gentile competitors still working, they began to skip the observance. Every Saturday, a secretary took four hours of dictation from Siegmund at home and on Sundays he telephoned the uncles, reviewing the week’s business. Many nights, Siegmund took clients out to dinner. The Warburg wives would always feel widowed by the firm.

  At work, Siegmund introduced methods he had learned at M. M. Warburg in the 1920s and, psychologically, stepped into the role of Uncle Max. Every morning, when the uncles and other executives arrived at eight or eight-thirty, they sat around a table and perused each other’s mail before the nine-fifteen meeting. Letters were summarized and abstracts circulated to all directors. Outgoing mail had to be read and initialed by a colleague—a time-honored German practice. To avert bureaucratic segmentation and debilitating turf wars, Siegmund gave the firm an open, free-flowing feeling. To foster a group feeling, he rotated people among departments and created talented generalists. Among other things, this wedded clients to the firm instead of to any single director. It also concentrated power in Siegmund’s hands and prevented the emergence of rivals to his authority.

  Siegmund’s disciplined upbringing instilled in him an exaggerated need for order, which was probably intensified by the chaos of his early adult life in Germany. A perfectionist by nature, Siegmund couldn’t tolerate tiny errors in letters and threw fits over misplaced commas. He dreaded the dry rot of mediocrity, the spreading miasma of sloth. This concern for detail extended to matters of dress. Equipped with legendary powers of observation, Siegmund would chide a secretary for a spot on her blouse or a bit of exposed petticoat. He became the arbiter of office style; one time when his secretary wore a fashionable scarf tucked into a sweater, Siegmund asked her, in a funny, quizzical, understated way, whether she had a sore throat.15

  Although a man of beautiful manners and punctilious etiquette, Siegmund struggled to control his emotions. He was a prototypical German Jew—exacting, disciplined, hypercritical, industrious—and pushed himself and others relentlessly. Aside from social evenings spent playing gin rummy or bridge, he didn’t want to squander a second. He had already given up too much time to the Nazis. He seldom read newspapers, relying instead on summaries prepared at the office. Aside from walking and stair-climbing, he never exercised and disapproved of athletics. Before the war, he borrowed a big green Ford from Gero von Gaevernitz, but otherwise never had a car or learned to drive and always took hired cars. (After one catastrophic driving lesson, the petrified instructor told Siegmund he was dangerous.) Even while riding in the car to work, he would read or dictate letters to his secretary, often clearing up the backlog of mail by the time he arrived at the office.

  Siegmund’s lack of interest in small talk or carefree leisure activities produced an extraordinary human being, but also a driven one with a lot of bottled-up tension. Already in New Trading days, he could be a martinet who flung file holders and telephone directories when people didn’t behave exactly as he wished. (After h
is outbursts, he said he felt sick but also better.) He personalized work relationships to an unusual degree. Frequently elated after hiring somebody, he would then grow disenchanted and the idealization could abruptly curdle into disgust. Sometimes he seemed to have a separate little psychodrama going on with each employee. Behind the polished erudition, Siegmund was an extremely sensitive, vulnerable, and lonely man. When people disappointed him, he could break down and weep. Like Eva, Grunfeld was more even-tempered and tried to shield Siegmund from the volatile extremes of his own titanic emotions.

  After two world wars, hyperinflation, the 1931 banking collapse, and Adolf Hitler, Siegmund could never scrub past disasters from his mind. A chronic worrier, he gloomily foresaw postwar America sunk in a deep economic morass and chided America’s religious faith “in the automatic effects of unbridled private enterprise and competition if only laissez-faire economics are allowed to run their course.”16 Still leftish in outlook, he predicted that Soviet living standards would overtake those of England and possibly America. He thought the Soviet Union would dominate central Europe after the war, but didn’t seem to mind, praising the country’s “shrewd political leadership” and “efficient handling of her military and industrial affairs.”17 Impressed by Soviet might, Siegmund began taking private lessons in Russian.18 He often argued with his tutor, insisting that Russian grammar was illogical and to blame for his errors. As with so many of his views, Siegmund would radically revise his opinion of the Soviet Union and become something of a cold warrior in the 1950s.