The last tycoons: the secret history of Lazard Frères & Co (6 page)

AN INDICATION OF how important Lazard and Altschul had become in the world financial markets arose in 1923, when the French occupation of the Ruhr, Adolf Hitler's failed Beer Hall Putsch, and the resultant international uncertainty led to havoc in the market. France found itself in a full-blown financial crisis. The value of the French franc fell by some 50 percent. In January 1924, the French Ministry of Finance summoned Altschul to Paris to hear his views on solving the French currency crisis. In a carefully prepared speech, which Altschul delivered in Paris on January 24, he called for the French government to undertake what he called an "experiment" designed to stabilize the plunging currency. "This would involve arranging credits for the government in the United States and perhaps in England, in round amounts," he told the French. "It is felt that a banking group could readily be formed in New York to extend the necessary facilities under appropriate guarantees on reasonable terms. The present ease in the New York money market and the fundamental friendship for and confidence in France make this appear likely." He averred that with the cooperation of the media--and without being able to judge its political feasibility--"the experiment could be made to succeed." Altschul, though, was adamant about one thing: that Lazard Freres & Co. be kept out of the press. "As we do not desire publicity for ourselves, it must be understood that our name is not to be mentioned under any circumstances in connection with the following," he said. "If you care to, you may say that you have been informed by an influential banking house that they have advices from abroad to the effect that steps have been taken in Paris which seem adequate to restore confidence in France and to protect the French exchange, and the situation appears well in hand."

The French government quickly adopted Altschul's plan and constructed a classic "short squeeze" of the speculators who had been betting against the value of the franc. Due to "the sensitivities of the French government," Altschul's partners in Paris were given the job of implementing his ideas. According to a discussion of Lazard's role in the 1924 franc crisis in
The Fortune Encyclopedia of Economics,
"Using a $100 million loan from J. P. Morgan, [the French government] bid the franc from 124 to 61 per dollar in a few weeks. Speculators who had sold the franc short in the expectation that its value would fall were hit by big losses." A month after Altschul's speech, with the Lazard-designed intervention looking successful, Christian Lazard, a partner in Paris and a son of one of the founding brothers, wrote him: "Things are looking better in Paris although the bears on francs will no doubt renew their attacks more than once. But I still feel that there is a great change in the situation now that the truth has been told. The people here are ready to pay their taxes, even the peasants."

In March 1924, Altschul wrote Christian Lazard, taking a bit of a victory lap. "My heartiest congratulations on the success of the experiment, which I consider no longer at all in doubt," he wrote. "The situation has been dealt with in admirable manner." In a postscript to the letter, Altschul confided a twinge of regret that the house of Morgan, instead of the house of Lazard, seemed to be garnering the lion's share of the accolades for the success of the rescue plan. "Of course it is a matter of keen regret to me personally that we were not associated with Morgans in name in an operation the seed of which would seem to have originated with L.F.," he wrote, actually crossing out the typewritten words "me personally" and inserting, in his own hand, the words "all of us" instead. "We take for granted, however, that we will receive some adequate compensation through Joint Account or otherwise for the accommodation extended through Loan Account No. 2 and for the not inconsiderable services rendered." He also suggested that someone should be awarded the French Legion of Honor for the accomplishment--which is exactly what Altschul and Blumenthal received two years later from the French government, beginning another long tradition of Lazard partners so honored.

Eventually the truth came out about how the franc crisis was solved, and Lazard Freres et Cie in Paris received many a tribute in the press and from the French government. "You can imagine what thrilling hours we have gone through," Christian Lazard wrote Altschul. "I do not think the Firm of L.F. & Cie, Paris had ever known a period like that one before." But he recognized that perhaps the real acclaim belonged with Altschul in New York. "All the time, I missed your presence here, because I remembered all our conversations and our visits [on the] Rue de Rivoli and I was sincerely sorry that L.F.N.Y. could not play, on your side, the prominent part to which they were entitled considering that the first idea of the whole scheme came from you." He also confided to Altschul
"a secret"
about how he had sold part of his equity portfolio to have plenty of francs around for the upcoming June 1924 sale of the highbrow art collection of Arthur Meyer, the Jewish owner of
Le Gaulois,
an important French newspaper. Included in the sale was a sublime haystack painting Meyer commissioned from Claude Monet in 1909. "I hope you won't be against me in the market," Christian wrote.

A subsequent, handwritten letter a few days later from Christian reiterated his thanks to the "sister firms" for the "brave manner in which they have fought the battle with us." He also answered Altschul's postscript about how Lazard in New York would be compensated for its role by explaining, "We have placed all our staff and all our brains at the disposal of the B. of Fr. without accepting any remunerization whatsoever and...all our own business has been practically stopped since that first day of the fight. We feel sure you understand our point of view. We believe that in cases like that one, when public interest is at stake, it is not only patriotic but also wise policy to refuse any remuneration. We firmly believe that our firms will sooner or later get their reward for their present attitude. I might add that our London house has spontaneously offered the Bank of France to return the commission they have received from the English banks."

While in Paris to work his magic in the franc crisis, Altschul seized the opportunity to introduce to the French partners his idea to move Lazard in New York into a wholly new business: a closed-end investment fund. At the outset, David David-Weill agreed to put $1 million "at the disposal of the Trust." But David-Weill's other French partners were more cautious and wanted to know both George Blumenthal's opinion of the venture and how Altschul intended to divide the profits of the fund between Paris and New York. Altschul and Christian Lazard had some correspondence on the subject, but Altschul believed that Christian was pushing the idea too far, too quickly in Paris.

AT THE END of December 1925, the feared and venerated George Blumenthal retired from Lazard, after twenty-one years as the senior partner, to pursue a life devoted to philanthropy and art collecting. The news made the
New York Times.
Two years earlier, Blumenthal had transferred--by a vote of "13 white, no black"--his New York Stock Exchange seat to Frank Altschul, who was then thirty-six years old.

Blumenthal's departure coincided with--or perhaps facilitated--two major turning points in the turbulent history of Lazard to that time: Altschul's now unfettered pursuit of his desire to create the investment trust; and David David-Weill's now unfettered pursuit of a short, stocky powerhouse currency trader, Andre Meyer, later known as the "Picasso of banking." Although Meyer grew up in the Marais--Paris's old Jewish quarter--both of his parents were from Strasbourg, the Alsatian city hard on the German border. Jules Meyer, Andre's father, was said to be "some sort of printing salesman" or "small businessman."

Andre Meyer attended school in Paris but was an indifferent student and left his secondary school, College Rollin, in July 1913, before graduating. He needed to earn money for his struggling family, as his itinerant father spent more time gambling than working. Andre had always shown a keen interest in the Paris Bourse, the French stock exchange, and was said to know, by heart, the prices of all the stocks listed there. He quickly found a job as a messenger at the Bourse, and soon thereafter a position at a small French bank, Baur & Sons. Andre was exempted from military service in World War I because of a "weak heart" and because of his important role in supporting his family.

At Baur, he quickly learned the art and science of trading currencies as well as of government and corporate obligations. "It called for a quick mind, which the teenager certainly had," his biographer, Cary Reich, wrote in
Financier,
"a hardheaded sense of values, which he was fast acquiring; and boundless energy, a prerequisite that the nervous, fidgety boy had no problem fulfilling. Already as a youth he was awakening daily at four in the morning to study the financial tables of the newspaper and plot out his moves of the day. During family meals in the cramped apartment, he put his telephone on the dinner table and chattered away about the market between bites."

Like other traders at the time, Andre would dutifully report to the Bourse during the trading hours of one to three-fifteen every business day to conduct Baur's trading. "So it is with a clear head, alertness and quick action that a foreign exchange broker in Paris can, by the manipulation of a very few million francs routed via London and America, drop the Paris currency several points," the
New York Times Magazine
reported. "He can as quickly in a few short rounds jack it up to his eventual profit." Andre's success as a trader at the Bourse during and after the franc crisis of 1924 brought him to the attention of David David-Weill, who asked him in 1925 to come to Lazard's Paris office, at Rue Pillet-Will, for a job interview. "He just took everybody to the cleaners," his grandson Patrick Gerschel said of Andre's trading ability. But the exacting Andre, then twenty-seven, drove a hard bargain with David-Weill. He wanted to know when, precisely, he would become a Lazard partner. But at first David-Weill would not commit to a timetable. Andre walked out and returned to Baur. (Other accounts have David-Weill "dismissing" Andre.)

A year later, David-Weill tried to get Andre again, and this time he succeeded by promising him that if his performance was up to David-Weill's considerable expectations, Andre would be made a partner of the French firm. Andre joined Lazard as an associate in 1926, in part because he had been so impressed by the gutsy trading positions Lazard had taken during the franc crisis. Within a year, David-Weill kept his promise and promoted Andre to a partner of Lazard Freres et Cie, at the same time he named his son Pierre David-Weill to be a partner as well. Andre, with his financial genius and forceful personality, would dominate Lazard for the next fifty years.

AT THE START of 1927, Altschul turned his attention to establishing General American Investors Company as the nation's first closed-end mutual fund. And in May 1927, with Lazard and Lehman Brothers as its principal investors and owners, the fund opened for business to "acquire, hold, sell and underwrite securities of any nature, both foreign and domestic." Another fund, the Second General American Investors Company, was started on October 15, 1928. On September 5, 1929--a month before the Crash--the first and second General American funds were merged into one fund, which at the end of 1929 had $33 million in assets. General American would remain one of Altschul's passions for the remainder of his long life, but would lead to a permanent and irrevocable rupture of his relationship with Andre Meyer.

In New York, it is clear from Altschul's correspondence with his new partner Albert Forsch, there was increasing concern in Lazard's offices during the summer leading up to the stock market crash of 1929. "It seems to me that the cycle through which we are passing has not run its course, and aside from a slight change in the sentiment I fail to detect any indications of any betterment," Forsch wrote Altschul, who was in Paris. "The construction figures are certainly most discouraging. The automobile business if anything is worse, commodity prices have not changed their trend, and unemployment shows not only no signs of improvement but seems to be on the increase, and I think we shall see real distress this winter for the first time in many years."