The Warburgs

by Ron Chernow

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  As immigrants, the uncles had to hustle and innovate to capture clients from established houses. They had no false pride. Henry Grunfeld would gleefully recall snaring a fifty-pound retainer in Paris. At a time when London bankers seldom spoke foreign languages, New Trading lured British clients by catering to their foreign needs. Siegmund followed Uncle Max’s practice of providing high-quality, personal service to every client, large or small. He often told trainees that they never knew whom their client might be dining with that night.

  A striking case of this wisely democratic strategy involved publisher Fredric Warburg, a descendant of the Swedish Warburgs, who bought Martin Seeker’s foundering publishing house in 1936. (He is not to be confused with Felix’s son, Frederick.) When Victor Gollancz refused to publish George Orwell’s Homage to Catalonia, Fredric snapped it up. Offended by this leftward turn, Seeker left the publishing house and financial disaster beckoned. Fredric’s aunt steered him to Siegmund for a five-thousand-pound loan. As he said, Siegmund “took as much trouble over my miserable 5,000-pound investment as he could have done over the millions in the aluminium affair.”19 Siegmund planted a refugee editor from the Frankfurter Zeitung on the board and he himself nominally headed Seeker & Warburg at one point during the war.

  It was a paradox that the premier financier of his age would always remain queasy about being a lender. Even in later years, the Warburg bank would be known as the most conservative in London, rarely lending against real estate or shipping. However stodgy banking might seem in London, the uncles deemed it risky stuff and fretted over each loan. Grunfeld had sat on the board of a failed bank in 1931 and remembered the Schadenfreude with which rival banks watched his institution sink below the waves.

  While Grunfeld excelled in banking, Siegmund found it boring and adhered to the ancient banker’s dictim that “Lending is to cover overhead.”20 His experiences in Germany had taught him the need for a diversified income stream from financial services and long-term investments. The will-o’-the-wisp that teased him was to develop a fee-based business—that is, to pour high-priced, confidential wisdom into the ears of chief executives instead of making loans or taking positions. His role model was André Meyer of Lazard Frères. Once, on a flight to New York, Siegmund anxiously prepared for a meeting and suddenly blurted out to his companion, “There’s only one man in the world that I am totally afraid of and intimidated by and that’s André Meyer.” But despite his monstrous temperament, Meyer was also a man of financial acumen, and Siegmund closely studied his moves.

  Siegmund would always prefer strategic corporate planning to humdrum short-term lending, for it allowed greater scope for his imagination. In the early days, he often served as a bridge between small industrial companies that were short of capital and large institutional investors. Often he represented those investors on small company boards and in the 1940s parlayed this into nonexecutive chairmanship of a plywood manufacturer, a dredge builder, and a chemical engineering firm.

  The boldest such industrial foray came in the 1940s with S. G. Warburg’s purchase of the metals trading house of Brandeis-Goldschmidt, long headed by the Napoleonic Paul Kohn-Speyer. This step would unleash a family feud venomous even by Warburg standards.

  Because the battle involved a clash of personalities, we must review some family history. Olga Warburg, sister of the Famous Five brothers, had married Paul Kohn-Speyer and then committed suicide after the birth of their fourth child, Edmund, who grew up close to his Warburg relations. Paul Kohn-Speyer subsequently married Anna Leo-Wolf. Eddy was dark and Semitic-looking while Anna was blond and coolly fashionable. She and Eddy conceived an intense dislike for each other. When Anna first set eyes upon the three-year-old Edmund, she burst out laughing at the queer child.21 Paul and Anna Kohn-Speyer had another set of pretty blond children, and for a long time the children thought they all issued from the same marriage. In time, Olga’s memory faded and Paul didn’t talk about her.

  As Olga’s children grew older, they learned of their separate parentage, but remained ignorant of their mother’s suicide. On a trip to New York in the 1930s, Eddy’ sister, Alice, learned the true story of Olga from Frieda and Nina. During the war, Alice disclosed to Eddy the secret of their mother’s suicide. Although shattered, he was relieved to know the truth.22 If he had known earlier, Alice speculated, he might not have regarded his stepmother as an interloper.23

  Paul and Anna Kohn-Speyer behaved like British gentry, celebrating Christmas and contributing to the local church. They lived on a 154-acre estate in Surrey called Old Quarry Hall that was nicknamed Old Quarrel Hall by the Warburgs. Run by two dozen servants, the estate had tennis courts, espaliered fruit trees, a working farm, several cottages, and a dairy. When Paul sent Eddy to a prep school in Kent run by two Anglican priests, the boy didn’t even know he was Jewish. When the Great War broke out, the bilingual Kohn-Speyer children stopped speaking German. As a Jew with a hyphenated German name, Eddy faced double jeopardy in a jingoistic school rife with anti-Semitism. He read law at Balliol College, Oxford, became a barrister, and trained at M. M. Warburg in the 1920s. After his loveless childhood, Eddy treasured the lively Warburgs and regarded Eric as more a brother than a cousin. The Warburgs knew Eddy was highly flawed and erratic. Bright, clever, and amusing, he could also be brash and tactless, showing flashes of irreverence that either charmed or infuriated people. As Eric told people, “Insult Eddy before he insults you.”

  In 1929, Eddy interned with the National Lead Company in New York. When he asked to head the New York office of Brandeis, Goldschmidt, his father insisted upon having a Christian at the helm instead.24 To cope with his strained relationship with his father, Eddy consulted his cousin Bettina, now a psychoanalyst, who advised that his relationship with his father might improve if they worked together. It wasn’t an inspired insight. Paul Kohn-Speyer was a rigid, humorless perfectionist while Eddy was undisciplined with an incorrigible delight in naughty pranks. They frequently argued in the office.

  The question of succession at Brandeis-Goldschmidt was a momentous one. Paul Kohn-Speyer was the Copper King whose firm brokered the output of many mines and surpassed in trading volume all copper dealers on the London Metal Exchange. The firm also had strength in tin, nickel, and lead. Paul Kohn-Speyer had scant regard for Eddy’s business ability and groomed as successor Cecil Goldschmidt, son of his deceased partner. When Cecil Goldschmidt died young in 1934, it reopened the successor question.

  Out of friendship for Max Warburg, Paul Kohn-Speyer had provided desk space, telephones, and an office at Brandeis-Goldschmidt when Siegmund arrived in London and he also financed many of his early transactions. Paul Kohn-Speyer regarded Siegmund’s business ability so highly that he appointed him an executor of his estate. Toward the end of his life, Kohn-Speyer apparently believed that Siegmund had taken advantage of the Brandeis, Goldschmidt connection to build up his own business.25

  The Kohn-Speyer children claim that as soon as Paul died in 1942, Siegmund began to ingratiate himself with the widow Anna, who came to rely implicitly upon his judgment.26 The Warburgs thought Siegmund unfairly exerted his charms with the elegant Anna and gossiped about it. In April 1943, Eric warned his father, “Lola writes that Siegmund is playing as Executor his old Jew Süss game with Aunt Anna versus Eddy. If true: a rather nasty role!”27 To appreciate the venom behind Eric’s gibe, one must understand the allusion to Lion Feuchtwanger’s 1925 novel about Joseph Süsskind Oppenheimer, the unscrupulous Jewish financial adviser to the Duke of Württemberg. Jud Süss, as he was known, had exploited state monopolies, been arrested for subversion, exhibited in an iron cage, then hanged for high treason. The story became a staple of anti-Semitic narratives in the 1930s.

  After Paul Kohn-Speyer’s death, the family had to pay heavy death duties and Siegmund later claimed that Anna had begged him to take Brandeis-Goldschmidt off her hands. It took Siegmund four years to accomplish that feat. On May 22, 1946, the London papers announced tha
t Brandeis, Goldschmidt & Co. had been converted into a limited partnership with authorized capital of five hundred thousand pounds. Rio Tinto bought the controlling stake, and S. G. Warburg & Co., presumably to show confidence in the deal, took a minority interest; a few years later, Warburgs bought out the entire company. Siegmund always felt skittish and snobbish about the unpredictable trading business—it seemed a crazy arena where mob psychology ruled—but Grunfeld was experienced in metals and he later acted as chairman of Brandeis, Goldschmidt.

  After spending the war as an intelligence officer in the Royal Air Force, Eddy worked with the Control Commission in Germany, drawing up laws for the postwar occupation. On the day he was demobilized, the Brandeis, Goldschmidt sale was closed.28 “Eddy said that if he was there at the time, he could have prevented the sale of Brandeis, Goldschmidt,” said a coworker of Paul Kohn-Speyer. “He felt that it had been done behind his back. It must have been especially painful since he had been fighting while other people were making money.”29 What rankled, too, was that his father had given Siegmund his start in England. The Brandeis, Goldschmidt sale struck Eddy as base ingratitude. He got a three-thousand-pound severance check and was disinherited from his family firm. The only assets he managed to salvage were some badly bombed copper plants that Brandeis, Goldschmidt owned with National Lead in Germany.

  Eddy fervently believed that Siegmund had taken advantage of the Kohn-Speyers’ distress and the postwar situation to obtain the firm at a giveaway price. At the time, industry rumor said the sale price of Brandeis-Goldschmidt didn’t even cover estate taxes for Paul Kohn-Speyer. For many reasons, it is extremely difficult to judge the validity of Eddy’s weighty accusations against Siegmund. The price issue is a vexed one because the wartime market was dormant. As suppliers of a strategic metal, copper firms operated under government controls and could only make a fixed percentage on trades. Even after the war, metals firms were closely regulated, making it hard to price their worth.

  In addition, the value of a trading house lay less in quantifiable assets than in the realm of reputation and managerial skills. Paul Kohn-Speyer had been a legendary trader, but also an autocrat and one-man show. He left behind a number of mediocrities, including a head bookkeeper who turned out to be an embezzler. After Paul Kohn-Speyer’s death, the house needed to be rebuilt from scratch. It is, finally, impossible to establish the essential facts of the case since S. G. Warburg & Co. executives contend that no Brandeis, Goldschmidt files exist from before 1953.

  Paul Kohn-Speyer had effectively vetoed his son as a possible successor, and it was widely acknowledged that Edmund was inept and unpopular with the firm’s executives. With justice, Siegmund saw Edmund as a contrary, disruptive, mixed-up fellow who could sabotage the smooth working of any firm. By common consent, Siegmund and Henry Grunfeld did an outstanding job with Brandeis, Goldschmidt, improving its management and running it far better than Edmund could have done. Right after the war, with the metal exchange still shut down, Warburgs used idle Brandeis, Goldschmidt capital for financial ventures. Even in the early 1960s Brandeis still functioned as a major moneymaker for S. G. Warburg, earning more than Siegmund’s celebrated exploits in the Euromarkets.

  From a business standpoint, the takeover was a smart move for Siegmund, even if he begrudged the time that Brandeis demanded from Henry Grunfeld. But it meant inflicting severe pain upon the son of the man who had given him his London start. It took a certain intestinal fortitude to expel Edmund Kohn-Speyer from the firm associated with his father. Siegmund looked upon himself as a man of high ethical standards, and the words “courage” and “integrity” often figured in his vocabulary. He frequently quoted his mother as saying that one had to take the right path, however tough. This gave him honesty, but also a certain unbending severity in pursuing his goals. Like the young man so enamored of Nietzsche, he always felt he had the higher sense of mission on his side.

  Certainly, no single act in Siegmund’s career aroused more animosity among the Warburgs, who were doubtless happy to find a reason to taunt and malign their successful and often defiant cousin. Bettina Warburg never stopped seething about the incident, saying of Siegmund: “He had a horrible character. He did Eddy Kohn-Speyer out of his father’s business.”30 She clung to a more extreme view of Siegmund than most Warburgs. Yet the Mittelweg Warburgs, despite enormous respect for Siegmund’s success, would come to view him as a man of many masks, hidden agendas, ulterior motives. Even as he emerged as the most famous Warburg, he would remain the family black sheep, if popular among his Alsterufer relatives.

  The story of Eddy Kohn-Speyer’s subsequent life is a sad one. After the Brandeis, Goldschmidt sale, he became a deeply depressed person, something of a misfit. In the drab atmosphere of 1946 Britain, he couldn’t find work and had to become a gentleman farmer. Several times in the 1950s, the Warburgs tried to make peace between Siegmund and Eddy, but both men were hardened in their self-righteous indignation. As Fritz wrote, “Siegmund Warburg is a red flag for Eddy, because he feels so badly treated.”31 Siegmund fancied himself the injured party, because “he feels that Eddy behaved too nastily toward [him] to become again involved in any negotiations with him,” as Ernst Spiegelberg said.32

  Till the end of his days, even when old and nearly blind, Eddy would buttonhole people and pour out his woeful tale of Brandeis, Goldschmidt. He nursed such an obsessive hatred of Siegmund that he wrote poisonous, obscene letters to Eva, warning her against Siegmund. He would tell people that if killing were legal, he would take a gun and shoot Siegmund.33 On his seventieth birthday, Eric invited the family to Kösterberg. At once Siegmund asked if Eddy would attend and declined when he learned that his nemesis would be there. When Eddy arrived at the house, he asked if Siegmund was there and grimly quipped, “I brought my shotgun along.”

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  As World War II ended, it became clear that fate had handed Siegmund a rare opportunity. The Holocaust had interrupted the preordained order of succession in the Warburg kingdom, allowing a new claimant to the throne. Not only had the Nazis swept away M. M. Warburg, but Max was now old and infirm, suffering from a bad heart and high blood sugar. If Siegmund acted swiftly, he could seize the Warburg name and initiative. For sheer brains and ambition, he had always felt, with justice, far superior to his Mittelweg relatives and he resented having to beg for scraps from Uncle Max’s table. Now in his mid-forties, Siegmund was ready to start life anew. With the war over, a German name for a London firm was no longer an impediment.

  Max automatically assumed that he would guide the postwar plans to refurbish the Warburg name. During the war, Eric periodically stopped in London and noted the awesome strides being made by Siegmund. After one dinner in December 1943, Siegmund and Eric talked late into the evening about New Trading’s future. Afterward, Eric, in alarm, told his father, “They are very active and I hope not too much so if peace should appear one day around the corner.”34 While in London in September 1944, Eric discovered that Siegmund planned to establish an Amsterdam pied-à-terre for New Trading after the war—without Eric or Max. This was a highly significant step, for the Warburgs regarded Amsterdam as the most strategic spot to spearhead their reentry into Europe.35 When Eric asked him to elaborate on his plans, Siegmund grew tight-lipped. “You have to add to that the New Trading’s expansive trend and my cousin’s personal ambitions and you have the picture, namely that they will under all circumstances create themselves such a pied à terre,” Eric wrote.36 To brake his cousin’s expansion, Eric pleaded with Siegmund to consult them before undertaking any plans in places where the Warburgs had operated before the war.

  Siegmund resented the insinuation that Max and Eric had some monopoly on the family name, which struck him as appalling hubris. No less proud of the Warburg name than they, he considered himself the best qualified to carry the banner forward and he didn’t intend to take a back seat to Eric again. All along, Siegmund had felt sharply conflicted emotions toward Uncle Max, who had started out as b
eloved uncle and surrogate father, then become the domineering boss partial to his son. Now Siegmund increasingly disparaged Max as pompous and arrogant, and with an inflated sense of his wisdom. Toward Eric, Siegmund had never felt warmly, finding him charming and amusing, but also a lightweight snob who lacked courage, guts, and drive.

  In Hamburg, Max had been a giant presence in the financial world, Siegmund a nonentity, a country cousin from the wrong side of the family. Now as he began to fathom the scope of Siegmund’s ambitions, Max derided him as an upstart who had forgotten his place in the Warburg universe. Max thought it absurd that his nephew should arise as the heir to and custodian of the august Warburg name.

  One can only imagine what old scores were being settled here. Many Warburgs believe Siegmund sought vindication, not just for himself, but for the entire humiliated Alsterufer branch, which had suffered such ridicule from the Mittelweg clan. “Siegmund felt very strongly that he was going to get that particular branch back into the mainstream,” said his cousin, Ruth Fleck. “He adored his father and wanted to set the record straight.”37 Siegmund had regarded the Mittelweg Warburgs as weakened and corrupted by money while he had worked himself to the bone. His revolt against Max was the ultimate revenge of the poor relation. His ascent would indeed represent a startling comeback for the Alsterufer Warburgs, a throwback to the glory days of his grandfather Siegmund.

  Siegmund denied that the rechristening of New Trading as S. G. Warburg & Co. in early 1946 had anything to do with Max or Eric. To be sure, custom demanded that a London merchant bank be named after its founder and principal figure, but, as Max and Eric pointed out, Siegmund wasn’t an important shareholder in New Trading. Siegmund cited a leading figure at the Bank of England who had urged him, “Siegmund, if you are going to start a new banking house, it must be with your name and nothing else.”38 His correspondence suggests that the timing of the name change related to Eric’s return from Germany to New York in late 1945. In early September, Max insisted that Eric stop in London to hold an emergency meeting with Siegmund about the name change. Both Max and Eric were disturbed by some of Siegmund’s shareholders, whom they saw as unsavory.39 (Since Siegmund’s major backers included Edmund Stinnes, the Petschek family from Czechoslovakia, and other highly reputable business figures, it is unclear to whom this refers.) Back in New York, Eric held long talks about the future with Max, who was ailing but still alert. Max kept dwelling on the theme that the Hamburg firm should rise again under the Warburg name.40