The Warburgs

by Ron Chernow

  For all his career satisfaction in London, he was, in many ways, a frustrated man. Despite his great charm and curiosity about people, there was something, in the end, distantly cerebral about Siegmund. Sadness had settled over him, as in the later years of other Warburgs. He frequently quoted from The Magic Mountain how it was unthinkable “to have great joys on one side of the scale unless on the other side of the scale the pain and the suffering are just as high.”1 The melancholy was partly the dejection of the perfectionist who could never make peace with a slipshod world. It was also the weariness of a man still gripped by a relentless ambition, who couldn’t sit back and enjoy his achievement. He saw the world edged in black. When Ernest Thalmann died in 1962, Siegmund spoke eloquently in a funeral oration of “the fog and mist of our daily doings and the long trails of dark clouds among which we have to find our way.”2

  At Blonay, his monkish side grew pronounced. He slept on an extremely hard bed with hard pillows, drank sparingly, ate simply, and, except for the news, seldom watched television. He said “the older I am, the more I feel possessions are a burden rather than an asset. To make one’s life simple is for me a supreme urge.”3 Contemptuous of money-grubbing, he displayed no desire for a great fortune and showed scant interest in his personal finances. In 1970, he took fifteen thousand pounds in salary from his firm—less than many subordinates. Somebody else managed his money and he never followed the prices of his stocks. Charles Sharp, who oversaw his investments for several years, recalled, “I was always nervous to talk to Siegmund about details and these seemed to bore him tremendously.”4

  Siegmund could be astonishingly casual about money. When he telephoned the office one Saturday morning in the late 1960s, a new recruit named Geoffrey Elliott answered and Siegmund asked him to open a large envelope stamped “Strictly personal and confidential.” The envelope contained Siegmund’s tax returns. In a notable gesture of trust, he asked this stranger and newcomer to read him the results.5 For his seventieth birthday in 1972, his colleagues gave him what he really loved most: specially bound volumes of Goethe and a bronze statue of Mercury.

  At directors’ meetings, Siegmund made a point of eating a minute piece of chicken and a small lettuce salad. His frugality was matched by the uncles, who still worked ten-hour days. Even as they grew rich, they didn’t squander money. In one Charles Sharp sketch, a fictitious Henry Grunfeld chides him for writing and distributing his plays. “Do you know how much a page of foolscap-paper costs?” he asks.6

  Siegmund’s main indulgence continued to be doctors. Suffering from bronchitis and chest pains, he often stopped at consulting rooms en route to work. A notorious hypochondriac, he complained of so many maladies that Grunfeld and Geoffrey Seligman would nod and whisper to each other, “Psychosomatic.” He suffered from back problems that probably weren’t improved by toting his heavy black suitcase. His neck often stiffened from tension. Though he took oral medicine for diabetes, he disobeyed the strict diet and grew arteriosclerotic. When he suffered from anginal chest pains, he grew extremely worried. As the colossal energy began to ebb away, Dr. Goldman brought Siegmund back to life with vitamin shots before major meetings. Sometimes he still had the stamina of a much younger man. His main secretary, Doris Wasserman, would recall chasing him across Rockefeller Center, taking down rapid dictation as she struggled to keep up beside him.

  Siegmund must have felt his father’s darkness creeping over him as he endured fearsome headaches, sometimes two per week. Like his father, he got headaches when he was upset, and few dared to defy him in these black moods. After the tempest passed, he was tranquil again and acted as if nothing had happened. He scapegoated people for his headaches, and Eva always feared that she might inadvertently set one off. When Siegmund consulted Dr. Paul Sherwood about his headaches, the doctor diagnosed the problem as a spinal injury. After a time, Dr. Sherwood said, “In my opinion, you’re all right,” and Siegmund thundered back, “I’ll tell you when I’m all right.”7 Even with physicians, Siegmund had to run the show.

  S. G. Warburg was shedding the Jewish refugee character of early days. Sometimes the uncles themselves seemed to forget their antecedents. One day, Charles Sharp came back to the office after a reception for a Japanese company at the Dorchester. Amid general amusement, he boasted, in his heavy German accent, “There were hundreds of people there. I vas the only Englishman in the place.”8

  By 1970, more than a quarter of S. G. Warburg’s executive directors were younger than forty and the vast majority were now British. In 1967, Siegmund recruited the Austrian-born civil servant, Sir Eric Roll, whom he had met when Roll was in the Ministry of Agriculture. Having grown up on a farm, Siegmund stopped by to talk about agricultural policy. The son of a provincial bank manager, the erudite, multilingual Roll had written a history of economic thought, headed the Department of Economic Affairs, and represented Britain at the IMF/World Bank. He helped Edward Heath to negotiate Britain’s entry into the Common Market. Despite Roll’s illustrious résumé, Siegmund made him submit to a graphology test. In 1974, Roll became chairman of S. G. Warburg & Co., succeeding Henry Grunfeld.

  As a civil servant without a banking background, Roll’s appointment provoked dissent at S. G. Warburg. Some thought that Siegmund had picked a passive figurehead so he could secretly pull the strings. At first, people snickered at Roll, naming him Sir Echo, since his views frequently reflected what Siegmund thought. Sometimes Siegmund seemed to delight in teasing Roll by unexpectedly changing his opinion and leaving Roll stranded. But over time, Roll made believers of many skeptics. In the 1970s, as Warburgs specialized in advising Third World governments on their debt, Roll’s extensive contacts in foreign ministries helped to establish Warburg as preeminent in the field.

  Roll was an honorary uncle by background, who looked and sounded awfully British. By the 1960s, Siegmund devoted a lot of time to grooming a brilliant, heterodox group of young Englishmen to succeed the uncles. “The capital of the place goes away in the elevator every night,” he would say. S. G. Warburg was always the youngest merchant bank in the City, the quickest to promote ambitious recruits. Siegmund retained a pedagogical fascination with youth. “He revered people and enjoyed being revered,” said his cousin, Ruth Fleck.9 As a rule, he got more of that reverence from the young than from his peers, many of whom became more cynical about him with time.

  Unlike other bosses, Siegmund hired good people as they were spotted, not as needed. He gambled on offbeat types, preferring mavericks steeped in history and literature. Distrusting “popular” people, he preferred outspoken nonconformists in his own mold. “As a rule those with whom I am close in my firm are people with whom I can also talk about books, about music, about human beings, human problems.”10 This made the firm a mecca for smart young people. It also guaranteed that the firm got people who had not been tutored in somebody else’s style. The second generation was known as the “sons”—the nomenclature again reflecting the unfulfilled family cravings of these refugees.

  For the sons, Siegmund could be a stern taskmaster who succumbed to ungovernable sulks and rages. Yet he could also be the soul of benevolence. He could take people by the elbow, warmly slip his arm around them, and stroll down the hallway with them. He spurred disciples to new levels of achievement because of his personal interest. “People regarded him with enormous awe and respect,” said Dietrich Weismann, Gert Whitman’s nephew. “He was almost like a god. There was a sense that he had a perspective that went beyond the normal.”11 Their first encounter with Siegmund often left recruits euphoric. It was heady stuff for young people to receive the undivided attention of this tycoon.

  By the 1960s, S. G. Warburg was top-heavy with young talent. Like a fickle king, Siegmund wanted young courtiers to compete for his pleasure. Never a man of the middle ground, he was either thrilled with people’s performance or aghast. Siegmund and Grunfeld had no scruples about pushing aside people who disappointed them and employees talked about being on the “up” or “
down” escalator. If he saw an out-of-favor person approaching as he prowled the Gresham Street corridor, Siegmund would turn and stare away or slip into a office. Sometimes, he played the “Walking Enigma.” One day, he shuffled into the investment department, jingled coins in his pocket, and said, “Good morning,” to Charles Sharp and Peter Darling. After he left, a perplexed Sharp said, “But when Mr. Warburg said ‘Good morning,’ what did he really mean?”

  With Siegmund, the craving for the lost father was converted into a yearning for the lost son. To become a surrogate son was risky business. A new favorite could be golden boy one moment, then cast into outer darkness the next. Siegmund had a widespread reputation for using up sons and throwing them away. If people stood up to him often and didn’t give way, he would villainize them and blow up peccadilloes into major gaffes. One Wall Street executive remembers walking through Hanover Square when Siegmund suddenly clapped his hand on his shoulder and called him “My son.” Afraid of the sequel, the man stopped calling Siegmund on subsequent trips to London. With his exaggerated expectations, people always disappointed Siegmund in the end. He converted the world into a test of how people treated him. To succeed required infinite tact and finesse, a constant catering to his smallest whims. One misstep could destroy the hard work of many years. This was more than just a tyrant’s vanity. Siegmund was extremely sensitive and disappointments tapped into some deep well of loneliness, producing almost unbearable pain.

  Almost all of Siegmund’s friends and associates went through a banishment phase. They would do something that upset him and then he was suddenly unavailable when they called. The ostracism might last for months, even years. Then one day, the telephone would ring and Siegmund would be saying sweetly on the other end, “My dear so-and-so, how are you? It has been so long since I heard from you. Why don’t you come round and have a cup of tea?” If the person mentioned the cold-shoulder treatment, Siegmund might admit it or profess astonishment. This behavior had its advantages for Siegmund: It made people extremely reluctant to cross him, for once out of favor, it was hard to reenter his good graces.

  In the 1960s, the foremost son and heir apparent was Peter Spira, who was referred to Siegmund by the chairman of the Financial Times. Spira trained as a chartered accountant, joining the firm in 1957. Spira was a nonobservant Jew with a Jewish wife. Since Siegmund fretted that there weren’t more promising Jewish employees, this augured well for Spira. Also, he excelled in Siegmund’s favorite areas of corporate finance and international securities issues.

  Spira didn’t fathom how sensitive Siegmund could be, as became clear when he was named a director in 1964. Siegmund was afraid that Spira, with four children, might be distracted by financial worries. So he magnanimously gave him a large block of Mercury shares from his personal holding. Very grateful, Spira also knew that he would be liable for a large death-duty bill if Siegmund died within seven years. So he asked Siegmund if he could take out an insurance policy on his life, which meant that Siegmund would have to take a medical examination. Because the Mercury shares had a tiny dividend, Spira also asked if he could switch them into higher-yielding gilts. Siegmund acceded to both requests, but inwardly seethed. For years he nursed this wound in silence and only told Spira at a 1980 lunch how hurt he had been.12

  Spira’s error precipitated a fall from grace. It didn’t help that Imperial Chemical Industries was so pleased with him that they wanted him to handle their account—the sort of thing that always aroused Siegmund’s paranoia. Gradually Siegmund’s adoration began to turn into anger, especially when Spira openly differed with him at meetings. In job interviews, Siegmund stressed that he wanted people who would stand up to him, but he preferred such courage in the abstract. “On minor issues, Siegmund liked disagreement,” said Spira. “But if it were a major matter, he absolutely loathed it.”13 Everybody noticed Spira’s exclusion from Siegmund’s affection. One day, Eric Korner said to him, “Spira, you are still under a cloud, but it is no longer raining.”14 In fact, it never really stopped raining. By 1974 Siegmund no longer spoke to Spira, who resigned as an executive vice-chairman and became financial director of Sotheby’s. It was shocking treatment of a person often touted as a possible successor to Siegmund.

  Another son was the handsome, precocious John Craven. Educated in South Africa and trained as a chartered accountant, he had a remarkable instinct for snaring new business. Two years after joining Warburgs as a trainee in 1967, he was made a director while still in his twenties. By 1972, this young hotshot ran much of the international side. He cooperated on many Eurobond issues with White Weld, which offered him a lucrative deal to handle its London operations. When Craven presented his decision to defect to the rival firm as a fait accompli, Henry Grunfeld told him to clear out at once. Grunfeld’s reaction typified the inbred Warburg culture, which demanded loyalty unto death. Even after they left, people were supposed to refrain from chasing Warburg clients. Craven briefly returned to the firm in the late 1970s but couldn’t get used to being in a subordinate role again and left.

  Peter Spira steered to Siegmund the real heir to the throne, David Scholey. The son of a partner at Guinness Mahon, he was a young man of eclectic musical, literary and artistic tastes, who enjoyed hunting and golf. After a year at Oxford (where he ran an illegal roulette game) he worked at Lloyd’s and at Guinness Mahon. He also did a stint in Canada and married the daughter of the former leader of the Conservative party there, George Drew.

  After joining S. G. Warburg in 1965, this future chairman was placed in the high-pressure room between Siegmund and Grunfeld. “It was known as either the nutcracker suite or the fall-out shelter,” he said.15 “Working for Siegmund was electrifying, enthralling—nothing was new yet everything was fresh.”16 In 1977, Scholey was named deputy chairman, then chairman in 1980. He won out for several reasons. Urbane and charming on the outside, he was very tough underneath. Patient, hardworking, he had a broad background in traditional banking and an encyclopedic memory for facts. Most of all, he was a deft diplomat who never committed major blunders or offended the sensibilities of superiors. He had extraordinary self-control in a place where an unguarded moment could be costly. In the end, he was the last survivor left on a battlefield of bloody corpses.

  Besides rivalry among the sons, there was also generational friction at S. G. Warburg. The often aristocratic young Britons were more vocal and free-wheeling than the secretive gerontocracy at the top. Some thought Siegmund misjudged the British. Ian Fraser wrote, “Hating inefficiency and complacence, he often mistook English informality for sloppiness and English reticence for self-satisfaction. Consequently some of his judgments on British businessmen and politics were flawed.”17 Inevitably, his young turks grew restless. “A number of us found that when we were in our mid-forties, although one might be in a senior position, one began to find that the seventy-year-olds were beginning to look immortal,” said Peter Spira.18 London firms would be seeded with Siegmund’s disciples. Ian Fraser would head Lazard Brothers and John Craven Morgan Grenfell. Except for Scholey, the sons all left and would look back on their mentor with a mixture of pain and affection.

  In a 1980 interview with Institutional Investor, Siegmund called David Scholey and Ira Wender his adopted sons. Siegmund was extremely careful in choosing words and the expression seemed needlessly cruel to his real son, George. Scholey privately expressed profound discomfort with it. In his later years, Siegmund and Eva were dining at a hotel outside Frankfurt with another adopted son, James Wolfensohn, and his wife. Wolfensohn was a young Australian Jewish financier and lawyer whom Siegmund tried to hire in the 1960s. From the blue, Siegmund suggested that he might legally adopt Wolfensohn. Silence fell over the dinner since Wolfensohn didn’t think Siegmund was joking. He changed the subject and they never discussed it again.19

  Siegmund always wanted to repair relations with George, who had formed his own firm in 1963. Far from feeling dismayed by the “adopted sons,” George was relieved that these other youn
g men gave his father pleasure and relieved him of some paternal pressure. In late 1969, Milo Cripps—the nephew of Sir Stafford Cripps, former chancellor of the exchequer—defected to team up with George. A multifaceted S. G. Warburg executive, Cripps had run the investment side, and Siegmund didn’t like losing him. The two defectors set up a small merchant bank called C. W. Capital Ltd. They had excellent ideas. They floated investment trusts to invest in small American companies and also acted as agents for regional American banks in the Euromarkets. Their profits and staff grew as George thrived away from the uncomfortably large presence of his father.

  In January 1973, the two young men decided to capitalize on their famous names and rename the place Cripps Warburg. After browbeating Eric for not removing the Warburg name in New York, Siegmund was mildly shocked by George’s step. Yet, for once, he was forbearing. In cooler moments, he acknowledged that he was an extremely strong father and that it might be a good idea for George to strike out on his own. To George’s surprise, Siegmund raised no objection to his using the name. In a gracious gesture, S. G. Warburg even took a small symbolic stake in the new firm, thus giving it the seal of approval.

  It all ended badly when Cripps Warburg got into difficulty. It never exactly went bust since its main shareholder, Williams and Glyn’s Bank, came to its aid. What pained Siegmund was why the firm ran into trouble. The ever-cautious Siegmund had largely refrained from risky property or shipping loans, unless combined with long-term financing from an insurance company. Right before the real estate bust that rocked London in the early 1970s, George and Milo had poured thirteen million pounds into unsalable real estate loans. With his inordinate pride in the Warburg name, Siegmund was devastated by this failure, which became a taboo topic at Gresham Street.