The video rolled to an end. Then Jacobs, sounding slightly nervous, said he wanted to show a movie clip that he thought summed up the relationship that had grown over the year between Prudential and Bache.
The television monitors lit up again. The executives watched, astonished, as they saw a film of a large bald man in a tuxedo, looking something like a classy Telly Savalas, dancing down a long, circular staircase. Thin wisps of violin music played, joined by an oboe and then a swelling orchestra. A short, redheaded girl joined the tuxedoed man on the staircase. Slowly, the two began to dance across the screen. By now, most of the executives realized that they were watching a scene from the just-released movie version of Annie, the musical. The bald man was Albert Finney, playing Daddy Warbucks and singing a duet with Aileen Quinn as the spunky orphan.
Bache executives were mortified as they began to understand Jacobs’s message: Prudential was Daddy Warbucks, and Annie was Bache. It seemed a bit sophomoric and horribly out of place. A number of executives snuck a peek at Prudential’s chairman to see his reaction. If Bob Beck could have let his mouth fall open in shock without attracting attention, he looked mortified enough to do it.
Daddy Warbucks and Annie then burst into the song “I Don’t Need Anything but You.” The discomfort in the room worsened as the executives listened to the words.
Together at last, together forever
We’re tying a knot they never can sever.
I don’t need sunshine now to turn my skies to blue.
Harry Jacobs approached the microphone and sang the last line, revised especially for the breakfast:
I don’t need anything but Pru.
Throughout the room, Bache and Pru executives sat, staring in amazement. It was so out of character for Jacobs. Worse, it was so embarrassing. Guy Wyser-Pratte, the head of arbitrage, was sitting next to Howard Elisofon, a lawyer who worked with Bob Sherman in the retail group. The two men looked at each other, and Elisofon leaned over to whisper in Wyser-Pratte’s ear. “Well, he’s gonna be fired tomorrow.”
In the executive offices of Prudential’s Newark headquarters in June 1982, Garnett Keith picked up the packet of materials gathered in the hunt for Jacobs’s replacement. The search had been going full-steam for months— in February, Prudential had retained Russell Reynolds Associates, the corporate headhunting firm, to look across Wall Street for the very best candidate. Prudential couldn’t stand Bache’s troubles any more. Its continued blunders were sapping whatever remnants of morale remained in the retail system. The firm was losing scores of top brokers. Bache’s history of feudal bickering continued unabated, and Prudential’s investment was already beginning to look like a disastrous mistake. Somebody needed to go in and shake up the place.
The people at Prudential knew that Jacobs would be devastated by the news. No one had yet hinted to him that his job was in jeopardy. In recent months, Keith had even praised Jacobs, saying how the people in Newark still stood behind him. Keith apparently did not think there was any reason to create problems before it was necessary.
Keith looked over the report from Reynolds. The headhunters were aggressively pushing one candidate, George Ball from Hutton. Keith knew Ball’s reputation well; Virgil Sherrill from Bache had tried to woo him to the firm a year or so earlier by offering him the chance to run the retail division. Ball had rejected the offer out of hand. But the headhunters said that he seemed very interested in the opportunity to run the whole place. They said he had the right attitude: Every time he found a new difficulty at Bache—and there were many—he’d act delighted about having another problem to fix.
Ball sounded like the perfect candidate to salvage Prudential’s investment. He had transformed Hutton’s weak sales force into a Wall Street monolith and pushed the firm into building huge new business lines. His aggressive pursuit of the tax shelter business had been particularly impressive. Hutton emerged from the ranks of the also-rans to become one of Wall Street’s undisputed leaders. If Ball could repeat that kind of performance with Bache, particularly given the strength in tax shelters already, the firm might turn around.
But even as Keith was giving the go-ahead to pursue Ball more aggressively, the facade of Hutton was starting to crack. A series of bad decisions was setting Hutton on the path to its own destruction. Keith did not know it, but if Ball was to save his reputation, he needed to get out of Hutton— and soon.
CHAPTER 6
THE MIDDLE-AGED BUTLER walked into the executive kitchen at E. F. Hutton. He picked up a silver tray laden with a heavy tea set and ambled toward the office of the firm’s president. Without a word, he stepped into the office and placed a white Ginori china cup on the table in front of Bradford Ryland, a Hutton broker. Ryland watched as the tuxedo-clad butler picked up the matching pot and carefully filled the cup with tea. The aroma permeated the air as a second cup, filled with coffee, was set in front of Ryland’s host, George Ball.
Ryland smiled as he leaned forward to pick up the cup. I’ll say this for him, he thought. Ball’s got style.
That had always been Ball’s talent, going back to when he and Ryland were undergraduates together at Brown University. No one was better at projecting the right image or making people feel at ease. Who else would have taken the time to hunt down the Ryland family’s coat of arms and send it to him? If Ball had not worked on Wall Street, he almost certainly would have headed into politics. Sometimes Ball even spoke wistfully of using his skills to seek office, maybe as a governor or perhaps a senator.
Ball was chatting amiably, asking Ryland about his family. They had no particular agenda that morning in September 1981. Ryland, who worked at a Hutton branch in California, had been vacationing in East Hampton, Long Island. While he was there, he decided to travel into Manhattan and drop by Ball’s office. Ryland loved talking with him. Whenever Ball asked for input, he always seemed to take Ryland’s suggestions seriously. Probably, Ryland thought, it was because he was not afraid to be blunt.
Ball picked up his coffee and blew on it slightly, to cool it down. There were some really exciting things going on at the firm, he said. The firm had figured out an idea that was making it lots of money. All Hutton had to do, Ball said, was fiddle with the “float”—the vast amounts of uncollected checks in transit between its various bank accounts. Usually banks would take advantage of the float by keeping the interest on deposited money while checks cleared. For an individual bank customer, the amount of money was piddling. But for Hutton, with hundreds of bank accounts and thousands of checks deposited each day, it was in the millions. With this idea, Ball said, Hutton simply overdrew its accounts against uncollected funds. By purposely writing checks for money not in the accounts, Hutton could take back the float and earn money on what amounted to interest-free loans. The idea was working out fabulously for the firm, he said.
Ryland sipped his tea as he listened to Ball’s description. As excited as Ball was about this overdrafting idea, it left Ryland uneasy. He could not imagine that banks—and regulators—would look kindly on a company writing checks for money it didn’t have. The whole thing struck Ryland as awfully illegal.
“George,” he said, “that sounds like kiting a check.”
Ball smiled. “Brad,” he said, setting down his cup, “don’t be so negative.”
The answer was pure Ball: always seeing the bright side, always confident, always plowing straight ahead. But Ryland was right, as Ball would soon find out. The great idea was about to backfire and destroy everything Ball had worked for.
THE REAL George Ball had always been something of a puzzle. The people who worked for him inevitably described him as friendly, open, and a fabulous communicator. He engendered loyalty and a drive to perform. But in truth, Ball struggled to create that image. Boyish looking, with light red hair, Ball’s effusiveness was a mask he developed to cover his painful shyness. At times, his nervousness seemed too close to the surface; whenever excited or stressed, his childhood stuttering problem reemerged. But in th
e gleam of his intense blue eyes and his eagerness to please, Ball’s obsession with success was palpable. His frantic energy was almost boundless. This charming, handsome man, with his willingness to work punishing hours, struck almost everyone who met him as someone who would go a long way.
The son of a college professor, George Ball was born in the Chicago suburb of Evanston, Illinois. When young George was about ten, his father, Lester, took a job as superintendent of schools in Millburn Township in New Jersey’s horse country. With that change, the Ball family began living in Short Hills, a wealthy suburban enclave popular among financial executives. It would be where George Ball would spend most of his life.
Ball lived a pleasant suburban childhood in New Jersey. Early on, in playing baseball, tennis, and ice hockey, Ball developed a fierce sense of competition and a desire to participate. He was never a particularly good loser, but he always preferred to play—even when he lost—rather than sit on the sidelines.
Later in his childhood, Ball met Captain R. Claude Robinson, a former member of the Bengal Lancers, the British cavalry regiment. Robinson would prove to have an enormous influence on Ball’s life. He founded Adventures Camp for Boys in northern Wisconsin, and young George Ball attended every summer. The camp was spartan, with no water, no electricity, and no flushing toilets. Robinson demanded much from his boys, always urging them to run faster, jump higher, and push themselves past the point of exhaustion. To underscore his philosophy, Robinson told tales of endurance with the Bengal Lancers: He described officers jumping horses bareback with their arms crossed and told of his own experience being buried alive for days in a common grave after his company had been wiped out by artillery fire.
Although perhaps fanciful, the stories made a mark on Ball. Combined with Robinson’s demands for rigorous performance, they led Ball to believe that no one ever reaches his full potential. He thought anyone could always push harder and get further. The philosophy launched Ball on his lifetime pursuit of self-improvement.
Ball’s first taste of Wall Street came in the summer after his freshman year at Brown. Hoping to find a job, he spoke with Les Talbot, a boyhood friend’s father who worked as a floor broker with Edwards & Hanley. Talbot was a mannerly, thoughtful sort from a gentlemanly generation on Wall Street. He often told young Ball about his days at the New York Stock Exchange. The culture in the financial world seemed foreign to Ball. That summer, Ball asked Talbot for help in finding a job in the business. Edwards & Hanley had a business relationship with E. F. Hutton, a more prominent and faster-growing brokerage firm. Talbot pulled a few strings and found Ball a job there. He was hired as a quote clerk, assigned to track down prices of stocks for brokers in an era before desktop computers made those readily accessible.
The job was far from prestigious. Only a few people worked alongside Ball as quote clerks, including a retarded man and a renowned thief. Still, Ball was fascinated by the business. The excitement of watching the harried brokers barking orders into their telephones, the frenetic energy of the traders on the floor of the exchange thrilled him. Here was the heartbeat of American capitalism, and Ball was right there to hear it. He could see himself remaining in the business for the rest of his life. For the next few years, he returned to Hutton, taking a different type of clerking job each summer. By his senior year, Ball had a strong knowledge of the sales business from his work at Hutton.
In 1960, Ball graduated from Brown with a degree in economics and signed up for a two-year stint in officers’ training with the navy. Stationed in Maryland, he proposed to Mary Frank, whose family was from the New York City suburbs. While Ball was still in the navy, Frank became his first wife.
When Ball was released from active service, Wall Street beckoned. He immediately returned to Hutton in hopes of finding full-time work. The timing could not have been better: Arthur Goldberg, a young and methodical Hutton broker, had recently been given responsibility for creating a broker training program. Goldberg set up a branch at 61 Broadway in Manhattan, staffed entirely by trainees. The hopes were that the specialized branch would create a flow of young talent. Ball landed a spot as a trainee. The job paid $135 a month, enough to let Ball and his young wife scrape by.
Despite the vast knowledge he built up during his summers at Hutton, Ball’s skills as a broker were not the best. But because of his work experience, Ball’s fellow trainees began to turn to him with questions and problems. Soon Goldberg noticed that the trainees seemed to flock around the desk of the intense young redheaded man who knew all the answers. That gave Goldberg an idea. If people turned to Ball as a leader, he may as well be trained as one.
Ball became Goldberg’s protégé, following him up the corporate ladder through a succession of rapid promotions. In the fall of 1967, Ball was asked to open up a new Hutton office in Newark, just a few short blocks from the offices of Prudential Insurance.
The assignment was a tremendous challenge. The branch would be the first business to open its doors in Newark since the race riots a few months earlier. The atmosphere was frightening, and Ball feared that he would have great trouble attracting brokers to the new office. But eventually he decided to turn that fear to his advantage. He told his evening sales staff that he would pick up the cab fare to the train station for every broker who opened a new account. Brokers who preferred not to walk through the tense streets of Newark opened new accounts quickly.
The Newark office flourished, and its profitability increased each year. With Goldberg’s support, Ball was winning some attention from the firm’s senior executives. In 1969, he was promoted to regional vice-president, with responsibilities for supervising all of the branches in the New York area. A year later, after some vicious internal fighting that led to Goldberg’s resignation, Hutton named Bob Fomon, the former head of corporate finance on the West Coast, as the firm’s chairman.
The turn of events looked bad for Ball at first. Not only had he lost Goldberg, his mentor, but Ball had openly thrown his support to the losing candidate for the job. He expected to suffer serious consequences as a result of backing the wrong horse. And at first, he did; some of his responsibilities were transferred to another regional vice-president who had supported Fomon. But the new chairman was smart enough to know that he needed Ball’s skills with brokers. So Fomon sought out Ball and grew to like his style. Within a matter of months, in 1970, Fomon promoted Ball to the post of Hutton’s national sales manager. Seven years later, Ball was named president.
Ball’s relationship with brokers was almost magic. He traveled around the country, visiting every branch and speaking personally with every big producer. He knew virtually thousands of brokers and stunned most of them with his uncanny ability to recognize them on sight. But Ball took that one step further, asking each manager and big producer detailed questions that showed an astonishing knowledge about their personal lives. Rare was the broker who was not flattered to hear Ball ask about each of his children—by name and age. But the personal attention Ball lavished on his team was not spontaneous; it required a lot of rehearsal. Before visiting any branch, he ordered up reports on the managers and their top producers. For days, he studied their names and the names of their family members, their birth dates, their alma maters, and their interests. As Ball scurried about his office, readying himself to leave, his secretaries would hold up pictures of brokers, and he would call out their names and backgrounds. What seemed like familiarity at times was little more than the result of an old-fashioned cramming session.
Even if it was rehearsed, Ball’s apparent chumminess was an effective managing tool. He built up a personal following among the brokers, for whom Ball was their biggest cheerleader. To them, he was always “George.” Big producers knew that they could call him personally with any problems, something they would never have dared do with more aloof executives like Fomon. When not speaking to them in person, Ball was churning out rambling, personal memos to the firm. These memos, called “Ballgrams,” reflected Ball’s quirky mind-set, com
plete with made-up words affectionately known as “Ballisms.” In the world of the Ballgram, a pitched internal battle was “Starwarsian” and the New York Times was “the Great Grey Blab.” Ball turned himself into one of the most prolific memo writers in Wall Street’s history, covering topics from new business to old deals to his daughter’s horseback riding. Sometimes they were educational, sometimes they were entertaining. But almost always they were strange.
Brokers who weren’t won over by Ball’s effusiveness could not help but be captivated by his eagerness to open the firm’s wallet. Promising big signing bonuses and huge commissions, Ball recruited heavily for Hutton among all the top producers on Wall Street. The large payments—including as much as 30 percent of a broker’s annual commission up front— pushed Hutton’s compensation costs into the stratosphere and led to a massive growth in its size. By 1980, the firm had ballooned beyond anyone’s wildest expectations. It had grown from 1,450 brokers in 1972 to 6,600. And almost all of them were loyal to Ball, the man who had brought them on board.
IN 1980, sitting in his plush office on the top floor of Hutton headquarters on the southernmost tip of Manhattan, Ball reviewed the numbers showing that his firm was in trouble. Profits had peaked that year, and the operating performance was deteriorating. So were relations in the executive suites. Despite Ball’s proximity to Fomon—whose cavernous office, with its rubberized floor, was directly opposite his own—the two men had begun drifting apart. Fomon was pulling away from the business, as if he were uninterested in the nitty-gritty of the firm’s workaday tasks.
As Ball looked out his office window at a view of the East River and the seaport, he knew that he faced a deep business challenge. With costs still climbing, revenues were harder to come by. The deregulation of commission rates five years earlier was still creating intense pricing competition. And high interest rates made investors reluctant to go into the stock market. He had repeatedly called executives into his office to discuss ways to boost revenues, but without much success. Ball knew how to spend money, but he seemed unable to decide on how to cut back. With the meager business unable to cover those costs, Hutton’s profitability sank. Ball had created an unwieldy expense monster. He had to find a way to boost earnings.
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