The Warburgs

by Ron Chernow

  The hidebound Kuhn, Loeb partners didn’t see the world changing around them. Recruited in the Depression, they were inward-looking and unsettled by Siegmund’s international bent. After all, if foreign business superseded domestic, their own place in the firm might be devalued. It irritated Siegmund that they couldn’t see Europe reawakening. As a German Jew who had suffered the consequences of Versailles, he wanted to revive Germany and Austria and sedulously cultivated contacts while other bankers wrote off central Europe altogether. When Hermann Abs negotiated German debt in London in the early 1950s, he was still under a cloud, having been the most prominent German banker during the Nazi regime. Siegmund defended his friend Abs against critics and won Abs’s eternal gratitude. Having fled Germany, Siegmund would now become a major figure in its rehabilitation.

  Siegmund took pride in Kuhn, Loeb’s Jewish antecedents, but opposed ethnic exclusivity. He would say, “You know, Kuhn, Loeb will always be recognized as a Jewish firm, but shouldn’t be exclusively so.”14 This Jewish refugee steered Daimler-Benz and Bayer to Kuhn, Loeb at a time when German companies hungered for American capital yet faced hostility. In 1960, Siegmund arranged a London share quotation for the August Thyssen steel combine—the first listing of a German stock since the war. Since Fritz Thyssen had been an early business supporter of Hitler, Siegmund’s action occasioned grumbling in London’s Jewish community. S. G. Warburg & Co. also introduced Farbenfabriken Bayer and Hoechst on the London Stock Exchange, as well as the Discount Bank of Israel.

  Though Siegmund was never complacent about a potential Nazi revival, he thought prosperity and close Western ties the best way to forestall that. This was clearly seen in his advocacy of the European Coal and Steel Community (ECSC), a precursor of the European Community. For a century, Germany and France had sparred over the coal and steel of the Saar and Ruhr. To bind the two countries in amity, the French foreign minister, Robert Schuman, devised a plan in 1950 for a supranational coal and steel authority, hoping that such a visionary step would make war “not only unthinkable but materially impossible.”15 As a friend and admirer of Schuman and Adenauer, Siegmund believed the ECSC would submerge German nationalism in a European identity. For a German refugee who had lived through the breakdown of European civilization, it was an exciting venture.

  The leading theorist of European integration, Jean Monnet, was friends with Donald Swatland of Cravath, Swaine—the lawyers for Kuhn, Loeb. When the ECSC searched for New York financing, Swatland directed it to Kuhn, Loeb. Because he was a European partner in an American firm, Siegmund was a major attraction for the ECSC, and Swatland would regard him, André Meyer, and Jean Monnet as their era’s three leading figures in international finance.

  To sell the issue, Siegmund organized a road show of American steel, coal, and banking executives to study the ECSC firsthand. He had to conquer glib cynicism that provincial Americans couldn’t understand such a security. Most individual American investors vividly recalled the foreign debt defaults of the 1930s and shied away from the issue, forcing Siegmund to lobby insurance companies. He cleverly piqued the interest of a reluctant Metropolitan Life by likening the ECSC to New York’s Port Authority. Siegmund had an unsurpassed talent for selling issues by dramatizing their larger political dimensions. People felt they were purchasing a piece of history. Though mostly placed in Europe, Siegmund managed to sell 10 percent of the ECSC issue on Wall Street. This landmark transaction deal was the first long-term postwar dollar loan for a European institution sold in America. The ECSC would be Kuhn, Loeb’s foremost institutional client. Siegmund also brought in the European Investment Bank.

  Siegmund also lured the Republic of Austria. “Uncle” Eric Korner enjoyed a virtual lock on the country, which he nursed back to financial respectability. He made a bundle for S. G. Warburg by figuring out which defaulted Austrian and German bonds would be redeemed. In Vienna, Korner enjoyed unequalled stature. He delighted in sitting in the chairman’s seat at the Credit-Anstalt. “He loved the Vienna Opera, the Salzburg festival, staying in the Imperial Hotel in Vienna and attending concerts conducted by Karajan or Boehm, both having been undiluted Nazis,” recalled fellow uncle Charles Sharp.16 The appreciative Austrians later decorated him with the Order of Merit. Again, a Jewish refugee helped to revive his former country, poignantly refuting miserable old Nazi myths. On one trip to Germany, Korner was walking through the Dresdner Bank when he spotted the man who had turned him in to the Gestapo in the 1930s. Briefly, he considered telling his host, the bank’s senior director, but then decided to let sleeping dogs lie.

  If Siegmund’s deals stood out as milestones, they didn’t shake Kuhn, Loeb’s lethargy. The prevailing attitude was summed up in a letter Freddy wrote Eric in 1958, “We have been very busy with Siegmund’s ventures in Europe but now that he is back in London peace seems to be descending upon us.”17 What should have been an edge for Siegmund—his family link—worked against him. Siegmund had an entrepreneurial flare long extinguished among the American Warburgs and Schiffs, who were preoccupied with sports, charity, and society. The “Our Crowd” bankers knew that Siegmund came from the wrong side of the family and looked down their noses at him.

  Holding most of Kuhn, Loeb’s capital, John Schiff had a caretaker attitude toward the firm. He wanted to preserve his fortune without making waves. Tall and silver-haired, with a perennial tan, Schiff was called the “Most Handsome Man on Wall Street” and had the style of an English gentleman. His father, Morti, had died young in 1931, leaving behind an estate of twenty-nine million dollars, a thousand-acre estate in Oyster Bay, and the Kuhn, Loeb leadership. John married Edith Baker, the gentile daughter of banker George F. Baker, entered the Social Register, joined exclusive clubs, and aped the pastimes of British gentry, including polo and fox hunting. Like many in “Our Crowd,” he jettisoned his Jewish ancestry. Unlike his ultraliberal sister, Dorothy, John was a rock-ribbed Republican who spent the 1930s grumbling about “that man” in the White House.

  Schiff admired Siegmund’s verve and welcomed his enthusiasm. At least on an abstract level, he liked the idea that Siegmund would restore the firm’s historic overseas strength. But Schiff was a weak man who shrank from the skirmishing that any reform efforts provoked, and Siegmund was infuriated by his lack of follow-through. Every time Siegmund thought he had convinced Schiff of something, somebody would come along and undo all his work.

  Often that person was Freddy Warburg, Felix’s eldest son and John’s first cousin. Freddy was as easygoing as Siegmund was intense and they cordially hated each other. Freddy disliked anything too earnest and found Siegmund ponderous. As Sir William Wiseman warned Siegmund, he suffered “in the first place from a great handicap of family opposition.”18 Shrewd and funny, Freddy like the effortless, amateur pleasures of life. He could toss off clever poems and limericks. People would laugh so hard at Freddy that it sometimes bothered Frieda.

  A veteran prankster with a devilish sense of humor, Freddy shared many bachelor escapades with Eric. Freddy once accompanied Eric to a debutante ball in New York when the latter’s English was still tentative. Spying a lovely girl, Eric asked Freddy how to address her mother. Following Freddy’s instructions, Eric approached the mother, clicked his heels, and said, “Madame, I would very much like to screw your daughter.”19 Freddy’s humor could be less than endearing. Returning to Harvard for his twenty-fifth reunion, he addressed the class as follows: “It’s interesting that you classmates haven’t changed a bit. But what are you doing with these middle-aged women?”20

  Everybody at Kuhn, Loeb retailed Freddy’s witticisms. “What a cruel thing to force anybody to be in his own company,” he once observed. Of Long Island dinner parties, he complained, “You are liable to be seated next to some unknown girl who, when you toss her the ball conversationally, will promptly put it into her pocket.”21 Perhaps his most memorable retort was in response to a question about how many people worked at Kuhn, Loeb. “About half,” Freddy said after a pause.22 After
Felix died, Freddy had succeeded him as trustee of the American Museum of Natural History and helped to create the Felix M. Warburg Memorial Hall. As work on this exhibition space dragged on, Freddy sent the museum a note, saying drily that he had thought the hall was in remembrance of his father, not of him.23 Freddy would later have a rollicking funeral at Temple Emanu-el, with a long parade of friends recounting hilarious Freddy stories.

  Although Freddy had Passover Seders and attended synagogue on High Holy Days with Frieda, he had a faint Jewish identity, was never a Zionist, and didn’t wish to visit Israel. From homage to Felix, he raised money for the Federation of Jewish Philanthropies, but devoted more time to the Boy Scouts, sports, and Middlesex School. In 1946, he married a tall, funny, formidably blunt lady named Wilma Shannon. On Jewish holidays, he was always in a quandary about whether to work or not. If he stayed out, he felt hypocritical; if he went in, he felt guilty. All the same, he didn’t deny his Jewishness. One day, he refused to take a call from Clarence Dillon because the Dillons had changed their name from Lapowski, supposedly to conceal their Jewish ancestry—an unpardonable sin in Freddy’s eyes.24

  As a businessman, Freddy was definitely an underachiever, preferring to play tennis or ride at his horse farm in Middleburg, Virginia, where he accumulated a thousand acres. He bought Connecticut property with John J. McCloy and spent many weekends there. Freddy exemplified the American Warburgs, who had taken on the sedate style of old money, while their German relatives again had to hustle for a living. Like John Schiff, Freddy was too wealthy to exert himself and preferred to keep the status quo at Kuhn, Loeb. He was never terribly energetic, but he was a great door-opener. Through his friendship with pilot Eddie Rickenbacker, Kuhn, Loeb got the Eastern Airlines account and Freddy also got the firm into the big Ford Motor underwriting of the 1950s.

  John Schiff trusted his cousin and confided in him. Beneath his nonchalant air, Freddy was shrewdly alert and always had Schiff’s ear. Sharing the disdain for Siegmund prevalent among many American Warburgs, Freddy became his unyielding foe. He found Siegmund too smart, too competitive, and too eager to assert control and he resented his efforts to be one of the family. The American Warburgs patronized Siegmund and mocked his nervous gestures, such as his unconscious habit of wringing his hands. Once, when Siegmund’s name arose at a dinner party, Piggy exclaimed, “Siegmund Warburg is a horse’s ass!”25

  Having apprenticed at M. M. Warburg, Freddy was close to Eric and saw the Warburg family feuds through his eyes. When Rudolf Brinckmann visited Kuhn, Loeb, Freddy called him “Brinckie” and treated him with a sardonic, back-slapping familiarity; Brinckmann cringed with each slap.26 When Eric invited Siegmund on the Brinckmann, Wirtz finance committee, Freddy voiced strong disapproval. “This I would warn you against because after he has ‘settled’ in you will find yourself indebted to him and that isn’t good,” he told Eric.27

  Siegmund was always fond of Frieda. Instead of delighting Freddy, this annoyed him. Ever since the 1920s, Siegmund had taken a derisory view of Felix’s children who richly repaid his disdain. One day, Siegmund stopped by Freddy’s office and said, “Do you realize that tomorrow is your mother’s birthday?” Freddy said sardonically, “Listen, Siegmund, when I need you to tell me that tomorrow is my mother’s birthday, I’ll ring for you.”28 Both men could be petty and vindictive with each other. Siegmund was once aghast to find Freddy with his arm around a woman in his office. The American Warburgs, in turn, saw hypocrisy in the puritanical Siegmund, since Frieda had learned about his affair with Alexandra Danilova in the 1930s.

  In dealing with Kuhn, Loeb, Siegmund couldn’t escape family feuds. Freddy had been bitter about the failure of the German Warburgs to repay the 1931 bailout loan, which he held against Siegmund.29 Eric had also given Freddy an earful about the Brandeis, Goldschmidt affair. One day in 1958, Freddy dredged up this ancient history and threw it in Siegmund’s face. To make matters worse, he cited Eric as its source—Eric who had just put Siegmund on the Brinckmann, Wirtz finance committee to help with the name change! At once, Siegmund sent off a blunt note to Eric:

  “As far as I could understand his sweeping indictments Fred W expressed the opinion that when I started my London activities through New Trading that was entirely based on general and financial support by MMW & Co. and that subsequently I ‘took over’ [sic Fred W] New Trading, simultaneously eliminating MMW & Co. Fred W amplified this statement by pointing out that I had likewise ‘taken over’ Brandeis Goldschmidt, depriving Eddie Kohn-Speyer of his position there. With these and similar remarks Fred W tried to demonstrate the dishonest and dishonorable manner in which I had acted.” Siegmund told Eric that he couldn’t believe Eric had ever made such statements and demanded a prompt response.30

  Through Freddy’s outburst, Siegmund had probably learned Eric’s true feelings toward him. Bound by mutual need if sometimes separated by mutual disgust, Siegmund and Eric were never honest with each other because they couldn’t afford to alienate each other. Eric now beat a quick retreat and retracted his statements. Within three days, he wrote to Siegmund:

  “What you write regarding a conversation between you and Fred W. is therefore altogether incomprehensible to me—on general grounds and consequently regarding particular remarks, two of which you specifically mention. M.M.W. & Co. never had any interest to speak of in New Trading; the difficulty of making use of Eddie K. S. in any kind of business is a topic which I remember that we discussed in years gone by, and always agreed upon! In closing I can assure you that I have but one wish: namely that the basis of real mutual trust which has steadily grown between us should never be destroyed.”31 Both Eric and Siegmund deplored falseness in the other, yet each had stored up so many grievances against the other that candor would only have created paralysis in their dealings.

  —

  In the mid-1950s, Kuhn, Loeb left its historic building at 52 William Street and moved into more anonymous quarters at 30 Wall Street. Trying to be modern, the firm got rid of its grandfather clocks and other relics, but seemed to lose its élan vital as well. By 1957, Siegmund was deeply frustrated by his lack of apparent progress at Kuhn, Loeb, which he likened to a 1910 Rolls-Royce. Aside from a few deals, he told Schiff, “I have wasted my efforts; my working capacity in the firm has been reduced through lack of professional surroundings and in some cases through clear obstruction and procrastination.”32 Siegmund wanted to replace the separate fiefdoms with a central structure to coordinate services to clients, merging the department that hunted new business with the one that distributed securities. Business opportunities were slipping away from lack of internal communication. To eliminate opposition, he also proposed a new rule that would shunt Kuhn, Loeb partners older than sixty into a nonexecutive role.

  In a great breakthrough, Siegmund got John Schiff to name J. Richardson Dilworth as a managing partner who would integrate the business of all departments. In the bright, extremely gracious Dilworth, Siegmund found a kindred spirit who thought the firm would either change or wither. Siegmund functioned as his “charlady,” hovering over his work. Dilworth believed so implicitly in Siegmund’s mission that it didn’t bother him if Siegmund wanted to incorporate Kuhn, Loeb into S. G. Warburg & Company. He felt the patient needed radical surgery and Siegmund was just the man to wield the knife.33

  It was a doomed effort. Suspicious partners saw Dilworth as a stalking horse for Siegmund. One particularly hostile partner, Henry Necarsulmer, constantly warned Schiff that Siegmund was pulling the wool over his eyes while plotting to take over Kuhn, Loeb.34 When Siegmund was in London, his Kuhn, Loeb enemies took out their aggression on the unaided Dilworth. By spring 1958, despairing of any real change at Kuhn, Loeb, Dilworth left to manage the Rockefeller family money.

  In time, this Rockefeller connection would yield momentous benefits for Siegmund, who at once told London subordinates to treat Dilworth with special care. For the moment, however, he was distraught over Dilworth’s departure. Siegmund should have l
eft at this point, but reinvigorating Kuhn, Loeb had become an idée fixe for him, much as had the name change for Eric in Hamburg. He couldn’t resist Kuhn, Loeb’s alluring client list and historic Warburg associations. Having restored the family’s luster in Europe, he was convinced he could save it on Wall Street.

  Each Sunday, Siegmund spent hours on the phone with Schiff, trying to arouse him to decisive action. In Churchillian tones, he warned about the “appeasement of arbitrary attitudes and undisciplined habits which have been allowed to creep in and grow over a long period of time.… Appeasement leads in the end always to disaster, and the right course is not temporizing, but speedy action.…”35 It was for naught.

  From Montego Bay, Sir William Wiseman watched the mounting conflict between Siegmund and his partners. Even though he had recruited Siegmund, he now told John Schiff that Siegmund and his reform scheme could only succeed if Schiff fired three or four intransigent partners and gave Siegmund unlimited control. “In the first place you wouldn’t do this,” said Wiseman, “also it might be a great mistake.”36 Siegmund was the perfect person to found a firm and stamp it with his own personality. What he couldn’t do was submit to the culture of an existing firm with its own mix of personalities and history. He was too strong a figure to submit to compromise or an auxiliary role. He also had a rare capacity to arouse full-blown paranoid fantasies among less secure colleagues.

  What Siegmund didn’t know was that he was on the brink of two breakthroughs in London that would lift him into the upper echelon of world finance. He had entered Kuhn, Loeb as a figure of subordinate status, hoping to bask in the reflected glory of the old firm. Now he was about to become a star in his own right. After the battle for British Aluminium and the rise of the Euromarkets, he wouldn’t need Kuhn, Loeb anymore. During the 1960s, S. G. Warburg would steadily rise while Kuhn, Loeb would drift, falter, then finally disappear.