The last tycoons: the secret history of Lazard Frères & Co (4 page)

NATURALLY, FELIX'S DESPERATE
effort to escape, which began in Vienna in 1935 and ended in New York City in 1942, seared into him an inviolate worldview. He is at once preternaturally pessimistic about the outcome of events, extremely conservative financially, and far less prone to excessive ostentation than most of his extremely wealthy investment banking peers. "My most basic feelings about money go back to 1942, in France, when my family had to smuggle itself over the Spanish border one step ahead of the Nazis," he told the
New York Times
in 1976, recalling one of his favorite stories. "I spent our last night in a hotel room stuffing gold coins into toothpaste tubes. We had been well off, but that was all we got out. Ever since, I've had the feeling that the only permanent wealth is what you carry around in your head." By the time of his
New Yorker
profile in 1983, this tenet had been condensed to: "That experience has left me with a theory of wealth which is that of a refugee. The only things that count, basically, are things you can put in a toothpaste tube or carry in your head." For European Jewish families of means, such a lengthy and complex voyage was not unprecedented, but far more typical, of course, was the journey to the Nazi concentration camps.

What set Felix apart from the many thousands of other immigrants to these shores was how quickly he took the place by storm once he arrived in New York, at the end of June 1942. His stepfather had been able to transfer some money out of France to a bank in New York, and part of that money was used to buy a small apartment. Felix wasted no time making up for all the interruptions in his education. He enrolled in the McBurney School, then on West Sixty-third Street, because it was one of the few high schools in Manhattan to offer a summer program. He also convinced his mother that another way for him to learn English more quickly--Felix has always had an enviable facility with languages--would be to go to the movies, "because they had these sing-alongs--you know, follow the bouncing ball," he said. He excelled at McBurney, graduating in two years at the age of sixteen. He had a particular aptitude for math, science, and tennis and played on the varsity tennis team his last year at the school. A college counselor recommended to Felix, though, that he attend a small college because of his relative youth. His mother concurred. After a little investigation, he discovered that Middlebury College, in Vermont, offered a "cooperative program" with the Massachusetts Institute of Technology whereby he could study physics and engineering for three years at Middlebury and then for two years at MIT. He also liked to ski. He applied to Middlebury and was accepted.

He may have been one of the only Jewish students in the school at that time. During his sophomore year, he joined the Alpha Sigma Phi fraternity, whose national chapter had a policy against admitting Jews and blacks. Alpha Sigma Phi was founded in 1845 by three Yale freshmen. One day, the national organization sent a corporate executive--Felix thinks he was a vice president from AT&T--"to try to talk us out of this heinous thing of pledging a Jew and a Black." Felix sat through the meeting. The man had brought with him a couple of cases of beer to try to appease the fraternity members. Felix explained: "And this guy kept saying, 'You know, don't misunderstand me. Some of my best friends are Jewish.'" Soon after, "we gave him the beer back, and we took him to the railroad station and we sent him on his way." The local chapter got kicked out of the national fraternity for allowing a Jew and a black to join.

Felix diligently pursued his studies in physics, but soon it became clear to both him and his favorite professor, Benjamin Wissler--the chairman of the Middlebury physics department--that he was reaching his limit of aptitude in the subject. Wissler recommended not only that he pass on the MIT curriculum but also that he take a semester off.

Since he had not seen his father since 1941, Felix decided to go visit him in France in the summer of 1947. He took a ship across the Atlantic, and his father picked him up in the French port city of Le Havre. His father had remarried and was still managing the brewery, which had been relocated near Paris. They spent the summer in the south of France. His father then asked him to spend the year working at the brewery. So Felix went to work in the Karcher brewery cleaning out the beer vats, having slimmed down sufficiently to be able to climb inside them. He also helped out in the bottling operation. He worked twelve hours a day, beginning at six in the morning. "I just stank from this stuff," he said. "And it was still a pretty hairy period where--I mean, here I was an American in a part of the city that was totally Communist, and all the unions working in the factory were Communist unions, and there were a lot of Algerians, too. So a couple of times a barrel came rolling by pretty close"--and here he chuckled to himself with the memory of an American Jew surrounded by Algerian Communists--"and I was never quite sure what it was. But I also remember when I would go back to the apartment and I was in the subway just stinking of this beer, people would look. I decided quickly this was not for me."

He returned to Middlebury for the second semester of 1948. He completed his degree in physics and graduated in 1949, thinking he might want to work at the nuclear laboratory in Oak Ridge, Tennessee.

Fortunately, though, with the help of his mother and stepfather, he also had been exposed to Wall Street. During the summers of 1945 and 1946, Felix was a runner and a stock transfer clerk at Jack Coe & Co., a small brokerage. He remembered celebrating VJ Day at the firm. He was paid about $20 a week and would occasionally be rewarded with baseball tickets to the Polo Grounds, on 155th Street. But to Felix, it was nothing more than a way to earn a few extra bucks, not unlike his previous summer jobs working in a drugstore and teaching English to Edith Piaf, the glamorous Parisian chanteuse. When he graduated from Middlebury, his stepfather helped again, this time getting Felix a job at Lazard Freres & Co. in New York. Plessner and Felix's mother had returned to live in Paris after the war. Plessner knew Andre Meyer through a foreign exchange and bullion trading operation that the two men had created somewhere between Les Fils Dreyfus, in Basel, and Lazard Freres et Cie, in Paris.

Patrick Gerschel, Andre Meyer's grandson, believed another reason that Felix was given a coveted spot at Lazard was that Andre was having an affair with Felix's mother. "It was about money and sex," Gerschel observed. "When has it ever been any different?"

CHAPTER
2

"TOMORROW, THE LAZARD HOUSE WILL GO DOWN"

A
fter two days of eerie silence following the earthquakes and fires that devastated San Francisco in the early morning of April 18, 1906, an unnamed bank officer of the London, Paris, and American Bank--the California outpost of Lazard Freres & Co.--was able to make his way through the rubble to a Western Union office and cable a staccato and desperate message back to his Lazard partners, three thousand miles away in New York City: "Entire business totally destroyed. Calamity cannot be exaggerated. Banks practically all destroyed. Our building completely destroyed. Vaults apparently intact. All records and securities safely in vaults. No lives lost among friends. Will wire fully upon..." The message ended tantalizingly. For the next few days, similar pleas for succor were sent to New York and the other two Lazard offices, in Paris and in London. These appeals met their own, inexplicable stony silence from the Lazard brethren, even though the capital needed to open these three offices had come from the ongoing success of the San Francisco operation.

A week after the initial calamity, on April 25, another, most emphatic missive was sent: "It is hardly necessary for us to say to you that this is the time for the London, Paris and American Bank, Ltd. to show all the strength that it may be able to command." Finally, the Lazard partners in New York responded and wired $500,000 to San Francisco and arranged for an additional $1.5 million line of credit to help resurrect their sister firm. The rescue financing allowed the San Francisco bank, operating from the basement of one of the partner's homes, to survive the disaster. This was not the first time--or the last--that the great bank came close to collapse.

BY THE TIME of the great earthquake of 1906, Lazard had been around, in one form or another, for fifty-eight years. The story of the firm's humble origins as a dry goods store in New Orleans in 1848 has been buffed to such a high gloss it is no longer possible to determine if the tale is true. As a literal translation of the firm's name suggests, though, at least two Lazard brothers--Alexander, twenty-five years old, and Simon, then all of eighteen--likely in search of both a refuge from certain military conscription and better opportunities for Jews in America, moved to New Orleans in the early 1840s to be with an uncle, who had already been "making money in commerce" in the Big Easy. Once this beachhead had been established, the two brothers sent for their eldest sibling--Lazare Lazard--and he soon joined them. Together, on July 12, 1848, the three brothers founded Lazard Freres & Co. as a retail outpost for the sale of fine French clothing.

These three Jewish brothers had emigrated from Frauenberg, three miles from Sarreguemines, in the Alsace-Lorraine region of France. Their grandfather Abraham had probably walked to France through Germany, from Prague, in 1792, with the hope of seeking greater political freedom. At that time, France appeared momentarily more progressive in its treatment of Jews than did the surrounding countries: there were some forty thousand Jews in all of France then, with twenty-five thousand of them in Alsace-Lorraine (but only five hundred in Paris). Abraham became a farmer. His son Elie was born in Frauenberg. In 1820, Elie married Esther Aron, a banker's daughter who brought to the marriage a considerable dowry. Together they had seven children, among them five sons, including Lazare, Alexander, and Simon, the founders of the New Orleans store. When Elie Lazard died, Esther married Moise Cahn. Together they had another four children, including Julie Cahn, who later married Alexander Weill, the Lazards' cousin and Michel David-Weill's great-grandfather.

WHILE REVOLUTION WAS sweeping across their homeland and reaching into other parts of Europe, the Lazards' New Orleans store was an immediate hit. Some of the profits were sent home to France--beginning a long Lazard tradition of sending the firm's profits around the globe.

Sadly, great calamities were not atypical in New Orleans, either. Fires destroyed huge swaths of the city in both 1788 and 1794. When a fire struck the city again in 1849, the Lazards' storefront was destroyed, only a year after the partnership started. The family was able to salvage much of the inventory, though, and in an act of prescience, the brothers moved the whole operation to San Francisco and set up a new store in the Wild West, selling their imported goods. The journey to California was arduous and took many months; Lazare and Simon nearly died from malnutrition. They survived to find San Francisco a bustling if somewhat disappointing frontier city where the prices of land, housing, and food were rising precipitously, along with the population. They realized quickly, though, that there was money to be made catering to the new arrivals, among them a wave of gold miners and speculators that had descended upon the city soon after a sustained vein of gold was found, also in 1848, on the edge of the Sierra Nevada. The Lazards' California operation (they were now joined by a fourth brother, Elie, named after his father) became the leading wholesale dry goods concern on the Pacific coast, and an increasingly important exporter of the gold coming out of the mines.

By 1855, "business was so brisk" that the Lazard brothers sent for their twenty-two-year-old cousin, Alexander Weill, to come from France to join the firm as the fifth employee. Weill served as the bookkeeper for his cousins' operation. "Gradually, the business became involved in financial transactions, first with its retail clients and then increasingly with others," according to a limited edition--only 750 copies were printed--of Lazard's 1998 self-published 150-year history. "Most often these dealings involved the sale of gold and the arbitrage of the different dollar currencies then in use, one backed by gold and the other by silver. Weill was the driving force taking the enterprise further and further into finance."