THE LAST PARTNERSHIPS Inside the Great Wall Street Money Dynasties phần 3 pdf

Schubert Theater Corp. A retail sales department was opened in 1927

by a salesman brought in from another retail-oriented firm, and the

company opened offices in Albany, Chicago, Philadelphia, Pittsburgh,

San Francisco, and Washington D.C., in addition to New York.15

By the late 1920s, J. & W. Seligman had ten active partners, with

Henry Seligman the most senior among them. Frederick Strauss was

also a senior partner, and in many ways the captain of the ship. He

numbered many industrialists and statesmen among his colleagues

and friends. One day a new receptionist at the office announced to

him that “there is some nut out here who claims he’s John D. Rocke￾feller and wants to see you. What shall I do with him?” The founder

of Standard Oil was shown into Strauss’s office.

In the years immediately preceding the Crash of 1929, corporate

underwritings continued at a brisk pace. Perhaps the best-known deal

the partnership underwrote was for the Minneapolis-Honeywell Regu￾lator Company, later known as Honeywell Inc., the future electronics

and computer company. Then in 1925, another partner, Francis Ran￾dolph, made a proposal that would have a profound long-term effect on

the House of Seligman. He proposed that the company sponsor an

investment company, today known as a mutual fund. Several years later,

the issue was raised again. In the interim, several hundred funds had

been established on Wall Street and the trend appeared to be growing.

The funds were not necessarily pitched at the very small investor but at

those with sizable assets and little experience with investing.

The new investment fund was an immediate hit. It was named the

Tri-Continental Corporation, since it invested on three continents,

not solely in the United States. The Seligmans hired full-time staff

and analysts to oversee it, not just market it to investors. The first

fund sold out very quickly, and the second was launched shortly

thereafter. Unfortunately, the second was launched on August 15,

1929, two months before the fateful market drop in October. In the

summer, however, the market was still very strong and euphoria pre￾vailed. Ironically, the first investment for the new fund was an order

for U.S. Steel, a stock that plummeted sharply when the market

turned down. It was also the same stock that J. P. Morgan would try to

prop up by asking Richard Whitney, president of the NYSE, to place

an order to buy as the Crash was occurring.

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The Crash provided a wrenching experience for the traditionally

small but influential Jewish-American partnerships. The Dow Jones

Industrial Average’s 10 percent collapse, the largest to date, signaled a

change in the market structure in the United States and would usher in

a new political era as well. In this respect, it was much more than just

an old-fashioned panic. It had all of the hallmarks of a radical change in

American society. The clubby atmosphere of the partnerships would

continue for another generation, but their smug attitude toward

investors and even the stock market would begin to change irrevocably.

By 1929, the Seligmans were certainly one of the firms with the most

patrician attitude. The day the market crashed, October 28, Jefferson

Seligman visited the floor of the NYSE for the first time. He was the

partner of the firm to whom the seat on the exchange was assigned, but

he had never been on the floor before. In fact, no partner of the firm

ever visited the floor in the firm’s history, although the seat had been

purchased in its early years. Fortune magazine commented that he was

there “to see what a market crash was like.” While the market was col￾lapsing in bedlam around him, Seligman watched bemusedly, dressed

in a frock coat and striped trousers with a bright flower in his lapel—his

usual business attire.16 While one of the New York afternoon papers

commented that his presence had a calming effect on the market, it was

stretching the point. Visits from senior bankers were not going to stop

the rout any more than buy signals from J. P. Morgan were. The day the

market dropped, society and Wall Street attitudes quickly changed with

it. In a sense, the days of the partnerships were already numbered,

although the cycle would not be complete for another fifty years.

Although the Seligmans were hurt by the Crash, the severity of the

impact was not as great as it might have been. The partners decided

to adopt a long-term strategy, in the hope that the market would

rebound. They trimmed their staff and then rehired many of those

employees shortly thereafter. But the market for shares of investment

companies took a severe beating during the latter months of 1929 and

into 1930. The travails of the investment trusts marketed by Goldman

Sachs were the best-known, but not the only, examples of funds that

behaved very poorly as the market dropped.

The postwar years brought prosperity to Lehman Brothers as well,

but the firm adopted a more aggressive game plan than did the Selig-

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mans. The corporate underwritings that began about 1906 proceeded

full steam after the war, but the manpower problem was similar. At

war’s end, Lehman had only five partners, including Philip, Herbert,

and Arthur. The first nonfamily member, John M. Hancock, was

admitted in 1924. Another nonfamily member, Paul Mazur, joined

shortly after and would become known for his writings on the retail￾ing industry, a neat fit with the firm’s underwriting history.

Philip Lehman kept the firm on an even keel by continuing to

finance the same sort of firms that the unofficial alliance with Goldman

Sachs had produced before the war. Retailers were brought to market

along with underwritings for automobile manufacturers and food com￾panies. While the Seligmans preferred bond underwritings, Lehman

underwrote both common and preferred stocks primarily. In fact, it

did not establish a bond department until 1922. The boom years of

the 1920s were not totally devoid of new bond offerings; in fact, much

of the underwriting business was devoted to them rather than stocks.

But the hefty fees were to be found in common stock issues, and that

is where the Lehmans shined. The increased profits finally led them

to occupy their own building at One William Street, replete with its

own entertainment and dining facilities, said to be the most lavish on

Wall Street.

Kuhn Loeb suffered the worst in the postwar years when it lost its

guiding light. Jacob Schiff died in 1920 at age seventy-three. His death

was a major event in New York, reported on the front page of all the

major newspapers. The day of the funeral, the streets were lined with

poor Jews from the Lower East Side who were not allowed into the

services, and Governor Al Smith and the mayor of New York attended.

At his death, Schiff left an estate of $35 million, less than half that of

J. P. Morgan, who had died eight years before.17 His death left the

firm with only four partners. Like the Seligmans’, the firm’s under￾writing track record was impressive, but was mostly for bonds rather

than common stocks. Kuhn Loeb did not tally the number of under￾writings done in a year and compare itself to others; it would total

them for a decade or twenty years. This was part of the firm’s empha￾sis on its long track record with its corporate clients. The best-known

partner after Schiff’s death, Otto Kahn, summarized the partnership’s

long-term approach to investment banking when he said, “It has long

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