The last tycoons: the secret history of Lazard Frères & Co (5 page)

As the French were the chief trading partners for the Lazards, on or around July 20, 1858, the prospering firm opened an office in Paris under the name of Lazard Freres et Cie. With the Paris office up and running at 10 Rue Sainte-Cecile, the Lazard brothers returned to France. Alexander Weill remained in San Francisco in charge of the American outpost. Twelve years later, in the midst of the Franco-Prussian War of 1870-71, the family opened a third office, in London--christened Lazard Brothers & Co.--as a way to continue the importing and exporting of gold bullion after the French government curtailed all payments of foreign debts by domestic firms. The London office was considered a branch of the Paris office, but by enabling Lazard to continue to pay its bills as they came due, the London office added immeasurably to the firm's overall reputation at a time when other financial firms were defaulting on their debts.

By 1874, the firm was doing sufficiently well to be included in an article about the new breed of San Francisco millionaires.

In 1876, the partners made the "momentous" decision to sell their dry goods inventory at auction and refocus their business entirely on banking. On July 27, 1876, a new fourteen-year partnership agreement was drawn up between the four Lazard brothers, Alexander Weill, and the Lazards' half brother David Cahn, creating the Banking House of Lazard Freres, to be known as Lazard Freres et Compagnie in Paris and as Lazard Freres in San Francisco. (London remained a branch of the Paris office.)

IN 1880, ALEXANDER Weill left San Francisco for New York with the intention of opening an office that would be a leader in the exporting of gold to Europe and spent four years in New York building the business there. In 1881, Lazard was named the treasurer of the Sutro Tunnel Company, a California gold mining concern that controlled the Comstock Lode, the Brunswick Lode, and a tunnel into Mount Davidson. Soon thereafter, Lazard vastly increased its export of gold to Europe. In March 1884, Lazard exported $500,000 of gold, some in bars, some in double eagle coins. Only Kidder Peabody, a once venerable old-line investment bank, at $1 million, exported more.

On August 30, 1888, Lazard Freres & Co. joined the New York Stock Exchange, with seven partners. While non-family members started to join Lazard at this time as "partners," ownership of the firm remained within the founding families.

The three Lazard houses, in New York, Paris, and London, continued to grow and thrive, mostly from successful foreign exchange and trading. The fact that by the turn of the twentieth century there were indigenous houses in the world's three most important financial centers made Lazard absolutely unique. No other fledgling banking partnership had a presence much beyond its country of origin, with the possible exception of the powerful J. P. Morgan & Co., which was developing pockets of influence across continental Europe and in England. Still, Lazard had something that even the omnipotent J. P. Morgan did not have: Lazard was an American firm in the United States, a French firm in France, and a British firm in the U.K. "The intellectual horizon at Lazard was, what do we make of the world," Michel explained at the time of the firm's 150th anniversary. "How do we understand it with the great privilege of being able to try to understand it from several points of view?"

One of the key ways Lazard maintained this aura of indigenousness was to engage in a form of loose primogeniture, with fathers passing to sons their coveted partnership seats. This occurred at each house. There was also, at least among the French families, a proclivity for arranged marriages and intermarriages. "The great strength of this family," observed the late writer Arnaud Chaffanjon, "is to have married between cousins, in the same clan. The Weill, Lazard, Cahn and Aron have married their first cousins. It's the best way to keep money within the family." This decision kept the growing fortune from getting dispersed. By the time Simon Lazard died, his son Andre and his nephew Michel were "already learning the business of banking in the Paris house." Alexander Weill brought his San Francisco-born, Paris-educated son, David Weill, into the firm, and he became a partner in 1900. In the late 1920s, David Weill would officially change the family name to David-Weill--he became David David-Weill--in an utterly successful effort to establish the family in French aristocracy, not the easiest thing to do at that time for immigrant Jews in socially stratified France. Pierre David-Weill would follow his father and assume the position of senior partner. And in due course, Michel David-Weill took over from Pierre as senior partner.

In London, the office was muddling along rather ineffectually as a bank or "bill office," regulated by the Bank of England. All of the partners in Paris were partners of the London branch, which accepted deposits, but mostly from other immigrant banking houses, such as the Rothschilds' and the Barings'. By 1905, Lazard Brothers wanted to develop more of a commercial and corporate business rather than simply being a bank to other banks. To that end, a year before his death, Alexander Weill searched for a well-regarded Englishman to bring into the firm, eventually enlisting Robert Kindersley, a highly successful and well-known City stockbroker--the City being London's equivalent of Wall Street--as a full partner in Lazard Brothers with the French. Kindersley joined Lazard Brothers in 1905 and quickly brought it to prominence. He was the first Lazard partner to focus on the business of advising corporations, not only in foreign exchange and commercial loans but also in the little-known world of mergers and acquisitions.

Kindersley helped to recruit badly needed new blood to the London house. Lazard Brothers' reputation had advanced sufficiently that by 1914, at the outbreak of World War I, the firm was named one of England's accepting houses and served on the Accepting Houses Committee, one of about seventeen such financial institutions so honored, an indication of how far Lazard Brothers had come from its origins as a lowly outpost of the French firm. In London's financial circles, this was a big deal.

Kindersley also had more than a passing business relationship with Weetman Pearson, a major British international financier and industrialist. At some point between 1910 and the dawning of World War I, Kindersley introduced Pearson to David Weill, and Pearson made a small investment in Lazard Brothers. After World War I, the Bank of England developed strict new regulations about the degree of foreign ownership it would permit in the English banking system. As a result, Pearson, now known as Lord Cowdray, and S. Pearson & Son Ltd. increased its stake in Lazard Brothers to 50 percent, with the other half being owned by Lazard Freres et Cie. The consequences of the Pearsons' stake in Lazard Brothers would reverberate through the three houses for years, finally coming to a head some ninety years later.

AS HAD BEEN preordained, Frank Altschul, whose father, Charles, had emigrated from London to San Francisco during the gold rush and become one of the first nonfamily partners of Lazard, joined the New York office after graduating from Yale. He became a partner the same day his father retired--July 1, 1916. Except in the case of the descendants of Alexander Weill and, for a time, some of the Lazard family, the passing on of the partnership seat was not the same as passing along an ownership interest in the firm.

Still, the profitability of the Lazard partnership was even then an invitation to vast riches, and Lazard partners became among the wealthiest men in their respective countries, regardless of whether they had an ownership stake in the firm. Frank Altschul became fabulously wealthy at Lazard, too. During his lifetime, which spanned ninety-four years, he donated millions of dollars to Yale, his beloved alma mater. In 1913, Altschul had cemented his position in the upper reaches of the Jewish financial hierarchy of New York by marrying Helen Lehman Goodhart of the Lehman Brothers banking fortune. His sister married Herbert Lehman, the former Lehman Brothers partner who would later serve as the governor of New York and its U.S. senator. Over time, Altschul also contributed $500,000 to Williams College and $1 million to Mount Sinai Hospital. He also donated hundreds of thousands for the legal defense of Sacco and Vanzetti, an effort being led by Felix Frankfurter, then a Harvard law professor and eventually a Supreme Court justice. One day Frankfurter showed up at Altschul's office at Lazard, eager "to see what kind of man in Wall Street could be sending money for Sacco and Vanzetti." Thereafter, Frankfurter and Altschul remained lifelong friends. Altschul lived at 550 Park Avenue, at the southwest corner of East Sixty-second Street, and owned a 450-acre estate--named Overbrook Farm--outside Stamford, Connecticut, where in 1934, in an abandoned pigpen, he started Overbrook Press, known for the graphic and technical excellence of its elegant publications.

ONE OF THE first issues Altschul confronted after he became a Lazard partner, as early as October 1917, was the growing possibility that the French families would decide to liquidate and shutter either Lazard Brothers in London or Lazard Freres in New York. This was yet another life-threatening crisis for the fledgling firm. During a multiweek visit to Paris in October 1918 (as part of his war service in the U.S. Army), where these matters were discussed "in some detail," Altschul became well versed in the views of the French. In a three-page, single-spaced letter to George Blumenthal, the New York office's senior partner, Altschul was happy to report that the French partners were now far more sanguine about the prospects for a three-house firm: "There is a very real desire to continue both L.F. and L.B. & Co., and a very strong belief that the Trio is in an excellent position because of their name, their connections, and their general lay-out, to play an increasingly important part, in the after-war development." He continued, "As they say, the firm had a first rate name before the war; the reputation of the house has if anything been enhanced during the war; and it should be possible to use our name and credit to greater advantage." Crisis averted.

When he returned to New York after the war, Altschul began to assume, from Blumenthal, more and more of the day-to-day responsibility of running the firm. But Altschul's authority extended only so far, as he still regularly deferred to the more powerful Blumenthal about matters such as negotiating annual partnership percentages, the reprimanding of partners who were deemed to be lazy or underperforming, and the proper accounting of costs among the three houses. Like his father, Altschul had numerous interests outside of Lazard, one of which was international affairs. In 1920, he helped to found the Council on Foreign Relations in New York, and from the start he hoped the council would be able to influence U.S. foreign policy--one of the organization's continuing goals.