The last tycoons: the secret history of Lazard Frères & Co (58 page)

A brief
Times
article about Rattner's hiring explained he would head a new group "providing advice and financing in special situations, including restructurings, recapitalizations and leveraged acquisitions"--none of which sounded the slightest bit like advising media and telecom tycoons on their M&A deals. Rattner elaborated on his new assignment in the article and about why he moved from Morgan Stanley. "Lazard has been in the junk bond business for about a year," he said. "My mandate is to take that embryonic effort and turn it into a very successful group. Morgan Stanley is probably the best firm on the Street at what it does. But I just found the attraction of a small private firm, and particularly the job that was created, to be irresistible." To his new team, Steve quickly recruited from within the firm two experienced vice presidents, Tim Collins, one of the few people to ever leave Lazard and return, and Ken Jacobs, who had recently joined Lazard from Goldman Sachs.

But it was a classic bait-and-switch moment, whether intentional or not. One day early on, Felix, Michel, and Damon Mezzacappa decided that Steve had gotten control of too many of the firm's limited resources, and in any event they didn't really want to pursue the business that Steve described. Felix had always been an outspoken critic of Mike Milken and the use of high-yield bonds to finance takeovers, so for Steve publicly to commit the firm to that line of business, while innocent enough, rankled him. Quietly but definitively, Steve's "special situations" group was dissolved even before it began. Steve felt the firm had snookered him but quietly accepted his fate. "In two days the whole thing was gone, and I became just another partner doing my business," he said. "I kind of shrugged and went on.... I don't remember enough about it to know whether Bill was just trying to pat me on the head. I honestly don't remember. I also don't know whether Bill knew it was never going to happen and just wanted to get me there, which you know is the way of the world and I have no problem with, or whether he honestly thought it was going to happen and he got his legs cut out from under him by Michel or Felix."

It was his baptism to the ways of Lazard. Rather than stew or bolt, though, he got over the incident and quickly returned to calling on his old media clients, much to the consternation of his new partners Luis Rinaldini and Ali Wambold, who had been running Lazard's loosely focused media effort and had actually suggested recruiting Rattner to the firm as Wambold had known him well at Lehman Brothers. They felt the sharp edge of Steve's elbows. "What I didn't really understand is that Steve from a business point of view was a loner," Rinaldini said. "He didn't want to have a shared team in this area. I had done a lot of media business. I had actually done Comcast, and he had done it from the Morgan Stanley side, and initially I said to him, 'Why don't we sit down and figure out how we can work together and who does what.' And he kind of looked at me with a blank stare and said, 'Why would I want to do that?'"

Steve soon became the partner in charge of the firm's media and telecommunications banking practice. Or as one of his many freely available biographies puts it, "Mr. Rattner founded the firm's Media and Communications Group and was involved in many of the largest and most important transactions in the industry." Charitably, Rinaldini said he didn't feel Steve had pushed him out of media. "It's tough competition," he said, "which is different than being cut out. I wasn't going to be the media star, because we already had one of those--Steve--so you say, 'Okay, can't do that. Okay, I'm not going to be the star of the basketball team, I'll try football.'"

Steve's ability to overcome the initial confusion derived, in large part, from both his quiet confidence and his mighty ego, which is often a prerequisite for success in the competitive sea of investment banking. He had the confidence of a man who believed that the world would provide what he needed when he needed it. Steve had--and has--an unrequited ambition and an ability to manipulate and court the press that rivaled--and rivals--Felix's. His genuine friendship with Arthur Sulzberger Jr., the publisher of the
New York Times,
whom Steve has known since they were both young reporters together at the
Times
in Washington, has been much documented and is replete with multiple instances of public support of one for the other, often in Sulzberger's paper. In short, Steve had his own Great Man credentials and was determined to use them for his own advancement both at Lazard and beyond.

Before Rattner's arrival at Lazard, the firm had quite purposefully not made group-head designations by industry despite Loomis's urging. Michel had the long-held view that specialist groups would balkanize the firm. True, there was a small, world-class effort advising companies in, or near, bankruptcy, led by the brilliant longtime partner David Supino, but that effort obviously cut across all industries. Lazard bankers had always prided themselves on being generalists, with no specific industry expertise and with world-class M&A execution skills. Furthermore, if a client wanted to raise debt or equity capital rather than, say, make an acquisition, the client's Lazard banker would execute that transaction regardless. It was also a given that Felix would lead the charge on the firm's big deals (because more likely than not he would have received the client's call in the first place) and then rope in acolytes as needed. It was also gospel that by his own choice, Felix would have no administrative responsibilities in running the firm's banking operation: He would only do deals. Period. Of course, Felix didn't want anyone else running the firm, either, a doctrine that made Lazard somewhat out of control operationally, as Loomis had the scars to prove.

Steve's hiring exacerbated the long-overdue metamorphosis inside the firm toward industry specialization--a change other firms had long ago adopted--a process that would hasten his blowup with Felix as the two clashed repeatedly over roles and responsibilities on the firm's high-profile media deals. So, in addition to Supino's restructuring group (which the firm disbanded in 1992 despite its being arguably the best on Wall Street), at the urging of Ira Harris the firm hired on its second try, in January 1990, Ken Wilson, a onetime Salomon Brothers partner, to start, run, and build up the so-called FIG group (coverage of financial institutions, such as banks and insurance companies). Michael Price was hired a little before Steve, also from Morgan Stanley, to focus on technology and telecommunications. Previously, of course, Michel had poached the Lehman Brothers gang, led by Jim Glanville, in 1978, to focus mostly--but not exclusively--on oil and gas clients. And there had always been "industrial men," such as Frank Pizzitola and Donald Cook, at Lazard. These hires were all in addition to the seemingly random, so-called Felix hires, generally a group of his former clients or high-level political acquaintances with little banking experience whom Felix convinced Michel to hire. None of these men remains at Lazard, a testament to, among other things, Felix's transient loyalty and their own shortcomings, in many cases, as bankers.

The creation of these new industry groups necessitated, of course, the hiring of additional bankers to be part of them; on Wall Street, it was simply inconceivable to be a group head without a group. Lazard was starting to grow its historically modest head count. As with nearly everything else at the firm, though, the hiring process at that time was antiquated and convoluted. In early 1990, Michel had urged his partners to hire people based on their "human qualities" rather than just their professional qualifications. "Intelligence...spark...humor...wit...and a paradoxical mind...boring people are bored here...unhappy people remain unhappy however diligent or skilled they may be technically," he said. There was also the acknowledgment at the time that Lazard had never been very good at nurturing. "The firm has been relatively unsuccessful with those who want a lot of guidance, structure and rationality," the partners observed. Nevertheless, despite Loomis's efforts, there was no "hiring on campus" as with other investment banks, meaning that no Lazard professionals appeared at the top business schools to interview slates of eager MBAs. Nor did Lazard retain executive search firms to fill positions. Rather, the way to be hired at Lazard as a neophyte was through enlightened nepotism or luck--or both. If you knew someone who worked there, you had a shot, although not a very good one. (Not so long ago, the lucky few who managed to somehow wrangle an interview often heard nothing back from the firm afterward.) This explained, in part, the presence at the firm of people such as Thomas Pompidou (whom peers took to calling "Thomas Pompidant"), grandson of Georges, the former French president; Lou Gerstner III, son of the former CEO of IBM; Gregory Salinger, son of Pierre, John F. Kennedy's press secretary; Anne Bevis, granddaughter of Dwayne O. Andreas, the founder of ADM; Mike Dingman Jr., son of the CEO of Wheelabrator-Frye; and Lyle Wilpon, son of Fred, the owner of the New York Mets.

Steve had moved with Eric Gleacher, a former marine and later the founder of the M&A boutique Gleacher & Co., to Morgan Stanley from Lehman in the spring of 1984, primarily because Morgan Stanley was then, and today still is, considered the bluest of the blue-blood investment banking firms, with the best and most loyal clients. In 1984, Gleacher was hired from Lehman to run Morgan Stanley's new M&A department. Steve went with him. For Steve, the Morgan Stanley business card would certainly prove that the Jewish kid from Great Neck and former reporter had begun his ascent of the investment banking summit.

In short order and true to form, Steve attracted attention at Morgan Stanley. He recalled later for
Vanity Fair
how "soon after I got to Morgan Stanley, I wrote a memo saying that one of our major objectives had to be to handle a significant sale of a major television station. This was the sine qua non." He was a vice president, head of the firm's media and communications group, and worked on a number of increasingly high-profile media deals, including those defending CBS from the hostile entreaty of Ted Turner and helping the Pulitzer family evade A. Alfred Taubman's unfriendly advances toward the
St. Louis Post-Dispatch.
He also--per the script--advised Henry Kravis and the investment bankers who owned KTLA, an independent TV station in Los Angeles, on its sale to the Tribune Company for $510 million, then the largest amount ever paid for a single television station. The station's owners doubled their money, at a profit of $255 million, three years after buying it from the movie star Gene Autry. The
New York Times
included Steve in a story about Wall Street's "upstarts," and
Channels
magazine featured him in a story. He spoke of the "big money" to be made from companies "ripe" for deals and of the "frightening" similarities between M&A advisory work and reporting. "I used to develop sources, now I develop clients," he said.

He was also the subject, in 1986, of a revealing and lengthy profile in Charles Peters's iconoclastic
Washington Monthly,
"Hello Sweetheart, Get Me Mergers and Acquisitions: The Rise of Steven Rattner." Steve said he was worried about the appearance of the article--"nothing good was going to come of this," he explained--but decided to cooperate after a few months of stonewalling the reporter. "If something is going to get written, you're generally better off cooperating than not cooperating," he said in acknowledgment of his journalistic roots. Although less fawning than the profiles of Felix in
The New Yorker
or the
New York Times Magazine,
the
Washington Monthly
piece was a watershed nonetheless, for it tried to capture the gestalt of what was luring the best and brightest minds of a generation into the then-obscure profession of investment banking. Here for public consumption was the story of Steve Rattner, the well-off oldest son of successful New York businesspeople, who was willing to chuck away his career at the top echelons of journalism for Wall Street. Of course, Steve had chosen to cooperate with the magazine; he had agreed to allow himself to become this iconic figure. Word was, though, among some Morgan Stanley associates working with Rattner at the time, that Steve bought up all the copies of the magazine in the vicinity of the Morgan Stanley building on Sixth Avenue (whether out of embarrassment or pride is not clear). In any event, this was not your usual investment banker. The buzz was he was making about $1 million annually, a staggering sum at the time for a young banker.

Aside from his legendary drive, the Rattner resume is fairly straightforward, without any of the Sturm und Drang Felix experienced. Yet there is a certain inevitability about him, in a John P. Marquand
Point of No Return
kind of way. He is the eldest of three siblings, with a sister who is a gynecologist and a brother, Donald, who is an architect. His parents owned and operated Paragon Paint, a Long Island City paint manufacturer, before its liquidation in the late 1990s. His father ran the business successfully for forty years. When his parents divorced, his father left Paragon Paint, and his mother took over its day-to-day operations. (The business had been in her family originally.) In short order, she ran it into the ground after trying to bust the company's small labor union and after being cited repeatedly by the National Labor Relations Board for malfeasance.

But the Rattners prided themselves on their intellectual bent as well. Selma, Steve's mother, had a graduate degree in architecture. In the 1980s, she was an adjunct professor at the School of Architecture and Planning at Columbia University and taught at the New York School of Interior Design. She was very knowledgeable about the work of James Renwick, the architect of Grace Church, at the edge of Greenwich Village, and of Saint Patrick's Cathedral, on Fifth Avenue. Steve's father wrote nine "serious plays," including one,
The Last Sortie
, that was staged as part of T. Schreiber Studio's 2000-2001 theater season on West Twenty-sixth Street alongside a production of Wendy Wasserstein's
The Heidi Chronicles.