The last tycoons: the secret history of Lazard Frères & Co (68 page)

In coming to the decision to abdicate his position as head of banking, Steve had an obvious role model at Lazard: Felix. Through all the changes taking place on Wall Street generally and at the firm specifically, Felix remained the embodiment of the Lazard culture and ethos, and he had never chosen to manage anyone or anything. Aside from Michel, he was the highest-paid partner at the firm. He just did his deals and anything else he wanted. True, Felix tended to thwart the careers of the young partners who worked for him, but Steve didn't care about that. He would be different: he had his own clients, and he had shown a willingness to bring
Felix
into major deals (for instance, AT&T's acquisition of McCaw Cellular, which generated a $20 million fee) as often as Felix had brought him into deals. Felix actually seemed to
like
and
respect
Steve, and he even started to acknowledge around the firm and in New York social circles that Steve appeared to have the potential to match, one day, Felix's business-getting acumen. And since Michel valued what Felix did more highly than what anyone else at the firm did, it wasn't difficult for Steve to figure out what he should do, not only at the firm but also beyond it.

Fennebresque put Felix's continuing importance to the firm in perspective. He remembered being called by a reporter in 2004 who was writing a story about Bob Greenhill on the eve of the incredibly successful IPO of Greenhill's eponymous investment bank. "And this guy didn't know what he was talking about," he recalled. "And he referred to Greenhill as the best investment banker of his time. And I said, 'You could have the opinion that he was in the top echelon, but you can't say anyone was the best banker of his time if they lived when Felix Rohatyn lived. You just can't say it. You can say he's in the top echelon. You can say he's in the pantheon, but you can't say he's the best.'"

What makes Felix's singular success as a banker so remarkable is that he has sustained his relevance to corporate executives for so long and across so many industries. It seems not to matter to Felix or to his clients whether he understands their business. This fact is so profoundly counter to how every other major Wall Street firm designs its investment banking business--which is to have far younger deal makers specialize by industry and by product--that Felix had become an anachronism, the exception that proves the rule. Lesser bankers at inferior firms have attempted to imitate Felix's style and generalist approach with predictably disastrous results. His edge is his extraordinary level of deal experience and his consummate judgment--plus a killer Rolodex. It is nearly impossible to ignore a phone call from Felix Rohatyn--regardless of whether you are a CEO, a politician, or even one of his former partners. Indeed, simply seeing "Rohatyn, Felix" on the caller-ID screen caused the men (and a very few women) of Lazard in their forties, fifties, sixties--themselves earning millions of dollars per year, thanks, in large part, to Felix--to shudder visibly, interrupt a phone conversation with a client, and scurry down the threadbare, tan-carpeted hallways to Felix's lair. It was not unlike how a misbehaving middle school student reacts upon being summoned to the principal's office--with a predictably similar outcome.

Befitting his status, lesser partners sought him out as a sounding board on deal ideas--and, of course, to see if they possessed the right stuff to be a Great Man, too. In one particularly humorous example of this testing, Michael Price called Felix and suggested that the Agnellis, the Italian industrialists who controlled Fiat, might want to think about acquiring the then-struggling Chrysler. Price then contritely choked into the phone, "Dumb idea? Okay," and hung up. Adapted from the cynical French moralist Francois La Rochefoucauld, the Lazard credo--"It is not enough for you to succeed; others must fail"--had Felix's fingerprints all over it. He charmed his partners--to say nothing of his clients--and rewarded them with a meaningful percentage of the profits when he needed them to execute his prodigious deal flow. At the slightest whiff of resentment, disloyalty, or burnout, Felix would dispatch them to irrelevance and excommunication, in some out-of-the-way hovel, before shining his beacon and affections on the next rising Lazard star. He was immensely feared around the halls of Lazard--just as his mentor, Andre Meyer, had been--but could not even for a moment be ignored, so long as he continued to produce 80 percent of the deal flow and profits. No one at Lazard had anything like Felix's client list, CEO access, or annual revenue production. Felix spent his time where it could be used most profitably. Being such an effective banker and of such enormous importance to Lazard's profitability meant that he was fabulously well paid. By 1995, the rumor mill pegged Felix's compensation at more than $15 million, all cash--which even for the top bankers in the frothy 1980s and 1990s was an attention grabber. But in truth, he could easily have demanded even higher compensation--and gotten it--because he was that good and that important to the firm, a fact that Felix belatedly came to realize but never did anything about.

Felix relished his Great Man status as much as he relished having nothing to do with the day-to-day running of the firm. The poorly lit, unadorned, dingy corridors became his stage. When he would stroll with intent past Deirdre Hall and Catherine Cronin, his double-barreled secretarial guard, he was all Great Man, in his off-the-rack suits, blue and white Brooks Brothers oxford cloth, buttoned-down shirts, and Hermes ties. He was always completely in character, as if he were a larger-than-life Mickey Mouse making his entrance into Disney World. Generally speaking, it was no fun being the end point of one of his journeys. So, while he was impossible to avoid when he wanted you, he became expert at evading your gaze in the narrow One Rock hallways, pretending not to have heard a "Hello, Felix" from a lesser partner or junior professional, preferring instead to stare ahead icily--unless of course you happened to be one of the few attractive young women rarely in Lazard's employ. Then Felix could be exceptionally fine-tuned to your presence. Rumors abounded of his occasional indiscretions with the younger female professionals. But they were mostly unfounded. He was just a notorious flirt, and his conversation could be jam-packed with innuendo.

CHAPTER
13

"FELIX LOSES IT"

N
o doubt Steve's evolving mimicry of Felix received a significant boost on November 10, 1993, when the
Wall Street Journal
published a story--written, the paper said, without the help of Steve, Felix, or Michel--on the front of its third section with the headline "Rattner's Star Rises as a Deal Maker at Lazard Freres." In exploring the question of what happens when Felix, then sixty-five, "slows down," the
Journal
concluded, "The clouds are parting just a bit with the emergence of Steven Rattner, a 41-year-old specialist in the type of media mergers driving the current acquisition boom." There was the view, espoused by an unnamed "observer," that Steve was now "sharing Felix's aura." Steve was said to have generated for the firm the second-largest pot of fees after Felix--and twice as many as his nearest rival--while also continuing to serve as co-head of banking and to chair the Monday partners' meetings when Michel was away (all while seeking to abdicate the role). His pay was said to top $5 million a year, enough to easily afford, the
Journal
revealed, his Dakota co-op overlooking Central Park, where the walls "are studded with prints by Andy Warhol and Roy Lichtenstein"; his "country house" in Kent, Connecticut; and his eight-seat Cessna that he flies to his "beach house" on Martha's Vineyard. The paper reiterated Steve's "media savvy" and described his close friendship with Arthur Sulzberger Jr., including their now legendary workouts at the gym and a scuba-diving vacation on Little Cayman Island in the middle of the recently commenced battle for the hand of Paramount Communications--with Felix and Steve advising--between Viacom and QVC Network. Steve's "my best friend," Sulzberger repeated. The
Journal
reported that Steve punctuated his obvious wealth with "regular-guy touches," such as taking his twin boys to school at Temple Emanu-El on the "crosstown bus" and attending parents' night there while at the same time "juggling calls" on his cell phone from Marty Davis, the CEO of Paramount, at a crucial moment in the deal.

In the unwritten--but well-known--rules of Lazard, the
Journal
article about Steve was just the kind of self-aggrandizing publicity that only Felix, and occasionally Michel (since not even Felix could squash that), were allowed. The risks for other bankers who dared swim in these waters were great indeed. Steve, though, "did not obviously completely appreciate the extent to which Felix had no interest in anyone competing for his oxygen," one former partner explained. But he was prepared to try to swim in the riptide anyway. At least, in this instance, Steve could claim not to have spoken to the
Journal
's reporter, although some of the personal details in the article would seem hard to know unless Steve had confided them. The article also conveyed the risks to Steve "of having a high profile" at Lazard and not being Felix or Michel. "Most other senior Lazard bankers labor in obscurity, by their own choice and the firm's," the article said. Accordingly, Damon Mezzacappa told the paper, Steve's rise had engendered a "predictable amount" of "jealousy and resentment" around the firm. A hint of Felix's reaction to the
Journal
story appeared in
The New Yorker
a few days later. Under the title "Felix Rohatyn in Autumn," a swan song to the man who a few weeks before had stepped down--once and for all--as head of MAC after eighteen years, Felix acknowledged there was the lingering question of what would happen at Lazard when its "biggest rainmaker" decided to slow down. Over breakfast of dry toast in his Fifth Avenue apartment, Central Park spread before him, Felix confided to the reporter that "while he has left MAC and no longer suffers well all the details of investment banking, he has no intention of fading from the scene."

As it turned out, the
Journal
article was only the opening salvo in Rattner's sophisticated media assault. At the same time that the troika of Michel, Felix, and Steve were supposedly
not
speaking with the
Journal,
they were fully engaged in helping the writer Ed Klein, the former editor of the
New York Times Magazine
, put together a profile of Steve that would appear in the January 1994 issue of
Vanity Fair.
Apparently, the idea for the article came about when Klein happened to run into Felix after the announcement of the AT&T-McCaw deal and, after Klein congratulated him for it, Felix charitably and accurately gave full credit for the origination of the transaction to Steve. Before cooperating with Klein, though, Steve knew he should get Felix's approval. Steve discussed with Felix what Klein had in mind. "He said, 'You've worked very hard. You deserve some attention, and you should do it,'" Steve remembered. "And what I didn't understand is that he didn't mean it, and even if he thought he meant it, he didn't mean it."

The front-page machinations of the then-raging battle for Paramount Communications provided the perfect amber to examine the vicissitudes of the--until that moment--symbiotic father-son relationship between Felix and Steve. Atypically, Felix was incredibly gracious--up to a point--in his comments to Klein about Steve, being more laudatory about his younger partner than he had ever been in public about any of his Lazard partners. The resulting article, titled "Paramount Player," was the first time the firm or any of its partners had been featured in the gossipy
Vanity Fair.

Needless to say, though, the Klein piece caused a sensation and set in motion a series of events that would forever change Lazard. Right from the opening blurb, the article foreshadowed trouble. Next to a full-page picture of Steve, arms folded, eyes piercing, in his Lazard office, the theme of the article was revealed: "Among the financial wizards involved in the Paramount takeover is a New Age breed of Wall Streeter: 41-year-old Steven Rattner, the former
New York Times
reporter who, as a partner at Lazard Freres, is fast becoming the most prominent investment banker of his generation. Bosom buddy of Arthur Sulzberger Jr. and whispered successor to the legendary Felix Rohatyn, Rattner regularly commands multimillion-dollar fees and bonuses, but, he tells Edward Klein, he isn't in it for the money." As the curtain rises, Klein rapidly brings together the globe-trotting Paramount protagonists for a hastily scheduled Saturday morning strategy session in the Columbus Circle office of Marty Davis. Viacom had just revised upward its original offer for Paramount. Felix was there, as was Dick Beattie, the head of the prestigious New York law firm Simpson Thacher. But the focus of the vignette was Steve. The scene included the requisite description of the opulent Paramount offices, of Felix huddled with Davis awaiting Steve's and Beattie's arrival, and of Steve giving some advice to the Paramount executives about a technical aspect of Viacom's revised offer and whether it would stand up to scrutiny in the face of rival bidding from Barry Diller at QVC. There was also some novel reportage from inside the Paramount board of directors meeting of presentations Felix and Steve were making just as Viacom decided to raise the cash portion of its offer. The article noted that the Paramount board swiftly endorsed the new Viacom deal.

Missing from this mise-en-scene was Ira Harris, the Chicago-based Lazard partner who had known Marty Davis from the Bronx and who had worked with Felix--and Davis--in 1989 on the $3.4 billion sale of the Associates from Gulf+Western (thereafter renamed Paramount) to Ford Motor Company. Inside Lazard, bankers noted with interest Felix's decision to exclude Harris from the Paramount deal and replace him with Steve. "Paramount was Ira's relationship," Mezzacappa said. "But before you knew it, Felix and Steve were carving it up, and I think Ira felt that it happened to him on two or three occasions and he was pretty angry about it. When he came in, I think he thought it was going to be the Felix and Ira show and it wasn't." For his part, Harris told his partners: "Everybody in the firm knows who brought in the Paramount relationship. But life goes on."