The last tycoons: the secret history of Lazard Frères & Co (79 page)

Months passed and Felix sat in limbo, awaiting a decision from Washington that was not forthcoming. And then fate intervened. On February 5, 1997, Harriman died unexpectedly of a massive stroke just as she was getting out of the rooftop swimming pool at the Hotel Ritz in Paris. She was seventy-six years old. Her funeral was a state occasion. Just after it was over, Felix and Liz went to London for a long weekend. Felix had decided that if he wasn't offered the job in Paris soon, he would withdraw his name from consideration.

At ten-thirty on the night before the Rohatyns were to leave, he got a call from Bowles in the White House. Bowles told him: "There is still no decision on Paris, but the president wants you to go to Tokyo." Felix was dumbfounded. "After more than six months of hesitating whether to send me to Paris, the president wanted me to go to Tokyo?" he said. He spoke with Vernon Jordan. "Vernon suggested I speak with Bowles," Felix said.

Bowles was direct. "Felix," he said, "the president thinks you could make an enormous contribution by representing us in Tokyo. Japan is in terrible financial condition. They need help. They know you and they would listen to you. If you tell me that you are willing to go, I am authorized to tell you that the president will offer you the nomination to Tokyo tomorrow." I was speechless. "Erskine," I said, "I have spent a fifty-year career in finance, and of those fifty years I have not spent more than two weeks in Japan. Of two to three hundred mergers or so that I have negotiated, five at the most have involved Japanese companies. I do not speak a word of Japanese; I have practically no relationships there; I know practically no Japanese history. I am utterly unqualified, and I would embarrass myself as well as the president at a confirmation hearing." Bowles was unshaken. "The president thinks you can do the job." "What about Paris?" I asked. "Paris is very complicated; it is still a possibility, but it is a long shot. Tokyo is yours for the asking."

Before he spoke with Bowles next, Felix heard confidentially that Wisner intended to retire. And when he did speak to Bowles, he declined the Japan posting but said he was still interested in Paris. He said nothing about Wisner. The waiting continued. Finally, in April 1997, Sandy Berger called to offer him the Paris job. He could say nothing until after he was confirmed. As soon as he accepted the position, though, he had "really, really terrible" second thoughts about taking it. "What is this? What does one do as an ambassador?" he wondered, suddenly recalling his earlier supposition that ambassadors were simply glorified butlers.

On September 11, 1997, by the unanimous vote of 97-0, the U.S. Senate confirmed him as America's thirtieth ambassador to France. What the Senate also confirmed that late summer day, along with its vote, was what many keen Lazard observers suspected for years: that for all the incredible riches and prestige that Felix, the Great Man, brought to himself and to his partners during his long tenure as Lazard's chief rainmaker, because of his intransigence, his insecurities, and his imperiousness he, unwittingly or not, helped to preside over the slow demise and near destruction of this once-great pillar of the financial world.

BY MICHEL'S DESIGN,
the matter of succession at Lazard--meaning who would lead the firm after Felix and Michel were gone--was always convoluted and fraught with peril. Through the early 1990s, as Felix became increasingly less engaged, there was the perennial question of who could possibly succeed him as the senior deal maker at the firm. The discussion, such as it was, usually focused on finding a new rainmaker in New York, as the United States had historically been the biggest M&A market and the New York partnership was by far the largest of the three Lazard houses. But replacing a banker of Felix's caliber is not easy. Like Halley's comet, a banker with Felix's awesome level of production, year in and year out, comes along rarely--maybe even less than once every seventy-six years, especially in the recent Wall Street environment where the firm, writ large, is what matters, not the individual banker. Of course, in the few years before the
Vanity Fair
article about Steve appeared, Steve had often been mentioned as Felix's protege and likely successor. In the years after the article, though, such talk died down considerably. In its place was left some vague notion that a group of people--Steve, Ken Wilson, Jerry Rosenfeld, Ira Harris among them--could together serve to replace Felix. This concept appealed to some Lazard insiders--and even to Michel--because it considerably lessened the firm's dependence on the productivity of any one man. For Michel, Felix became like a drug addiction. Michel needed to find a way to wean himself from him.

The Lazard ethos had always been predicated on a Great Man coming along to sustain the firm or reinvent it. So while Michel could rest more easily knowing that the crop of younger bankers he had recruited in the late 1980s and early 1990s were now becoming increasingly productive, he had not yet found someone of Felix's stature to replace him. While Michel may have been searching for the null set, he did continue his quest. There had been the somewhat halfhearted attempt to recruit Pete Peterson when he was leaving the Nixon administration in the early 1970s. Peterson went to Lehman instead and later started the Blackstone Group. There was the short dalliance with both Bruce Wasserstein and Joe Perella when they were thinking about quitting First Boston in 1988. Instead, they formed Wasserstein Perella & Co. In 1993, Michel tried again to recruit Perella when he was leaving Wasserstein Perella. But the chemistry between Michel and Perella was never great, and so it was no surprise when Perella ended up at Morgan Stanley. (Perella denied that he ever considered going to Lazard in 1988 or in 1993.) In the spring of 1995, Michel tried to land John Thornton, one of the top M&A bankers at Goldman Sachs, but Thornton quickly lost interest after Felix disabused him of the notion that he would be running the firm anytime soon. He went on to become a co-president of Goldman.

But this romancing of Great Men had been for the purpose of finding a potential successor to
Felix.
There was still the very important matter, rarely discussed or even speculated about, of who would succeed
Michel.
Michel and his family were the ones who primarily
owned
the firm--ownership also resided with Pearson PLC, the heirs of Andre Meyer, a French holding company, a couple of the French partners, such as Antoine Bernheim and Jean Guyot, and a handful of the older partners in New York, but without question it was Michel, and pretty much Michel alone, who
controlled
the firm. The working partners were extremely well paid each year, but their percentages referred only to what slice of the pretax profits Michel would agree to give them each year and from what house--New York, Paris, or London--rather than representing an ownership stake. After all, as the longtime partner Frank Pizzitola was fond of reminding everyone, "Lazard is not a partnership. It's a sole proprietorship with fancy profit sharing." Most partners, including Felix, owned nothing. So there was always the question of who would
own
the firm after Michel died, just as he took over ownership after the death of Pierre David-Weill, who owned the firm after the death of David David-Weill, who owned the firm after the death of Alexander Weill. Michel did not have a natural heir to fit into this historical construct, which had served everyone so well for almost 150 years.

Which is why when Michel's thirty-eight-year-old son-in-law, Edouard Stern, at once brilliant and ruthless, joined the firm as a partner on May 1, 1992, speculation intensified in the threadbare corridors that Michel had brought the dashing Edouard in to be
his
designated successor. Not as the successor to Felix, deal man extraordinaire, but to succeed the Sun King himself as owner-operator. Regardless of what Michel may have been thinking by inviting the highly combustible Edouard into the firm, the decision made many of the already insecure Lazard partners very nervous indeed--even by the cutthroat, Darwinian standards of Lazard, Stern's reputation for being both brilliant and abrasive caught people's attention--and set the firm on a ten-year odyssey to solve the succession curse. David Braunschvig, a Lazard partner until recently, grew up with Stern in Paris and was one of his closest friends. Apparently, the two shared a love of racing motorcycles, playing golf, and chasing girls. Even then Braunschvig could tell there was something special about his friend. "He had immense charm," Braunschvig explained. "It was almost irresistible. When he went into a room and started talking, it commanded people's attention. Not because of the seriousness of his intent, but just, you know, there are people who have a compelling presence. Charisma. He had that from the earliest years."

There were at least three facets of the Stern biography that bedazzled his new partners. First, there was the somewhat mythical story about how at the age of twenty-two he had kneecapped his own father as head of Banque Stern, the family's merchant bank, founded in 1823 to cater to "the needs of the French aristocracy." The Sterns were said to be from the same Jewish ghetto--Francfort-sur-la-Main--as the Rothschilds. For a while, the Stern family had similar aspirations. They lived in a sumptuous mansion near the Eiffel Tower. But Antoine Stern, Edouard's father and the lackluster steward of the bank, was said to be a dilettante who pranced around Paris. He hosted an annual partridge, pheasant, and duck shoot in the Paris environs. But he failed to run the firm as a proper financial enterprise, preferring to use it as a source of his own social aggrandizement. By 1977, the firm was near bankruptcy.

To Antoine, the solution was simple: sell the bank to the Rothschilds, for all of $600,000. Not so fast, Edouard said. Fresh from ESSEC, one of Europe's premier business schools, a black belt in karate, and a chess champion, Edouard--with Andre Meyer's help--convinced his two uncles Philippe and Gerard and their mother, Alice, that he could run the bank better than his unmotivated father. His uncles and grandmother decided to throw their support behind Edouard, and the sale to the Rothschilds was wisely abandoned. Edouard recruited Francois Caries, then the CEO of Banque Rothschild, to become chairman of Banque Stern, and Edouard became vice chairman. "I knew this was the way to learn exactly the business," he said later. But he was branded an enfant terrible by the French press for supposedly kicking out his father, for whom he reportedly had much disdain. "To read the papers, he was just this monster," a family friend said. When asked about what happened at the bank, Edouard, who generally shunned the press, told
Forbes
in 1995, "True, it was the family bank begun by my ancestors in 1823. True, too, it was nearly bankrupt. So what had to be done was done."

The truth, according to Edouard's longtime attorney Kristen van Riel, may be somewhat less sinister. "Everyone said Edouard stole the bank from his father, but he couldn't have," he explained to the writer Bryan Burrough in 2005, "because he didn't own a single share of stock. It was the grandmother and the two brothers who did it! They threw him out! His father was already on the way out when Edouard was brought in to save the bank! Which is what he did." Still, he didn't speak to his father for the next fifteen years; the two reconciled only when his father was dying.

Together with Caries, Stern turned the bank around, in dramatic fashion. By 1982, revenue had increased to about $110 million from around $6 million. When Caries left that same year, Edouard recruited, to replace him, Claude Pierre-Brossolette, an old family friend and former special assistant to the French president Valery Giscard d'Estaing. Other leading French businessmen and financiers were recruited as well. In 1984, he sold the bank to a Lebanese investor for the equivalent of around $60 million today. He retained for himself the right to continue to use the Banque Stern name. That same year Edouard, then twenty-nine, married Beatrice David-Weill, then twenty-seven, the oldest of Michel's four daughters. She was an art historian at the Louvre and said to be stunning. She had apparently been madly in love with Edouard from the time she was fifteen. When she divorced her first husband, it was possible for the two of them to marry. Edouard was "the person she had loved all her life," Michel explained. "She always loved him."

With his personal life squared away for the moment, he quickly set about building a new bank under the Banque Stern moniker. In this new entity, he sought to offer M&A and investment advice, not unlike his new father-in-law's more famous firm--but in a far more aggressive and ruthless way. One of his associates at the time recalled: "Edouard was like a tornado when he came into the office every morning, wondering, 'Who's blood can we spill today?'" In one infamous maneuver, he attempted a hostile takeover of Groupe Rivaud, a sleepy conglomerate owned by two French aristocrats. He failed to get control, but still pocketed $30 million in profit. By 1987, the new Banque Stern was sufficiently vital that Edouard decided it was time to sell. "I thought we were on our way to becoming a big investment bank," said his associate Jean Peyrelevade, who headed the bank from 1986 until its sale. "But it wasn't Edouard's temperament. He was in a hurry." Stern quickly arranged for Swiss Bank Corporation, now part of UBS, to buy the
new
family firm for a reported $337 million, of which the then-staggering sum of $170 million came to him personally. He moved to Geneva to avoid French taxes. From August 1988 through July 1989, Stern met with a number of Lazard partners, including Bill Loomis and Robert Agostinelli, about the possibility of joining Lazard as a partner. He also talked with Swiss Bank about becoming an M&A adviser there.