Power, Greed and Glory on Wall Street Essay
Lewis Glucksman, the co-chief executive officer of Lehman Broth-ers Kuhn Loeb, a short, rumpled man with the face of a Russian general, who was disparaged by Wall Street blue bloods as a lowly ”trader,” Lew Glucksman would leave the lunch table determined to remove Peter G. Peterson, his imperious co-C. E. O. at the venerable investment banking house, from his job. The luncheon took place on July 12, 1983, and the fallout from the explosion it triggered carried the sto-ry from the business pages to the front pages.
Thirteen days later, Peterson, a celebrated success story – president of Bell & Howell at the age of 34, Secretary of Commerce under President Nixon and the man who had helped rescue Lehman from collapse in 1973 – would be forced out of the firm he had helped steer to five consecutive record profit years. Ten months later, Wall Street’s oldest continuing investment banking partnership, a firm that had survived for 134 years (box, page 31), would fail to survive the reign of Lewis L. Glucksman and would be sold to Shearson/American Express, one of the great whales that now dominate Wall Street.
This is the story of the fall of Lehman Brothers, pieced together over a period of 10 months. It represents some 45 hours of interviews with Peterson and about 30 hours with Glucksman. It also represents extensive interviews with all the members of Lehman’s board of directors, with 34 active or former partners, with numerous as-sociates, with employees and people on and around Wall Street. Many internal Leh-man documents and financial records were reviewed.
Descriptions of events have been confirmed by participants, including adversaries. What emerges is a modern melodrama, the tale of an irreconcilable conflict be-tween two men, a story of cowardice and intrigue, of greed for money and power and glory. In its broader implications, the fall of Lehman provides a window on the forces that are reshaping Wall Street and capitalism. When Glucksman challenged Peterson, Lehman Brothers was more profitable than it had been at any point in its long history, averaging $15 million a month in pre-tax and pre-bonus rofits over the preceding 12 months.
With capital of almost $250 million, the firm ranked as one of Wall Street’s largest investment banking houses, behind such names as Salomon Brothers; Goldman, Sachs; First Boston and Morgan Stanley. Unlike dozens of old-line firms that had already succumbed to the pressures of consolidation that had been reshaping Wall Street – W. E. Hutton; Loeb Rhoades; Hayden Stone; Hornblower ; Weeks; White, Weld; Kuhn Loeb, for example – Leh-man had rebounded strongly from its difficulties of the early 1970’s.
Business was booming – partners were, by most standards, rich, and some senior partners were making almost $2 million a year in salary, bonus and dividends from their Lehman stock. And yet, such is the volatility of Wall Street today that, in a matter of months, Lehman was hemorrhaging, losing money and partners. That selling the firm seemed to be the only way to save it raises questions not only about the leadership of the new management team but also about whether private investment partnerships are des-tined to become dinosaurs.
Business will go on, of course. And it can probably be said with confidence that the merged firm will offer a broader array of investment banking services to its cli-ents and that it might be managed more efficiently. What is lost is a connection to the past that stretched back 134 years and, like the persistence of daylight baseball at Wrigley Field in Chicago, rooted people to a set of shared traditions, a common memory.
John B. Carter, president and chief ex-ecutive officer of the Equitable Life Assurance Society of the United States, the na-tion’s third-largest life insurer, invited Pete Peterson, chairman and co-chief executive of Lehman Brothers, to lunch in a private room at Equitable’s corporate headquar-ters 38 floors above the Avenue of the Americas and West 51st Street. Peterson, who just eight weeks earlier had elevated Lew Glucksman to the status of co-C. E. O. , sug-gested Lew be invited as well. Peterson enjoyed taking credit for what he thought was the transformation of Glucksman.
After almost 21 years at Lehman, Glucksman, a volcanic yet successful securities trader for the firm, had become a calmer executive; Peterson congratulated himself for the fact that Lew had shed about 70 pounds and rehabilitated a wardrobe once dominated by light suits and wide ties. Besides, Peter-son needed him. For three years, Glucksman had managed the day-to-day business of the firm; all of the departments reported to him, and his knowledge of Lehman’s af-fairs was vast. Peterson was hoping eventually to interest Equitable in a joint venture of some kind, and Glucksman’s expertise might be needed.
Glucksman and Peterson arrived separately, exchanged perfunctory greetings and then mingled with the other seven guests at opposite ends of the room. It wasn’t until they were ready to sit down that Glucksman began to seethe. Peterson had been seat-ed next to Carter at the head of the table, while Glucksman was far down the side of the long table, the equivalent, to him, of being seated in the bleachers. Then came ”the speech,” as Glucksman derisively called a Peterson presentation. He always knew it was coming, he says, when Peterson began to drop names.
The ”A” list usually included ”Henry” (Kissinger), whom he worked beside in preparing the 1972 Nixon-Brezhnev Summit meeting; ”Paul” (Volcker, Chairman of the Federal Reserve Board), whom he consulted on the international debt crisis; ”the Prime Min-ister” (Nakasone of Japan), with whom he lunched; ”Art” (Buchwald), with whom he played tennis. Glucksman’s pale blue eyes narrowed as Peterson talked about the menace of bur-geoning Federal deficits, about how Americans, unlike the Japanese, consumed too much and saved too little. He had heard ”the speech” so often he could recite it.
Noisi-ly, Glucksman fidgeted with the silverware and banged his chair against the table. Pe-terson, aware of the din from Glucksman’s end of the room, attempted from time to time to include his partner in the conversation. Glucksman would respond, according to others present, with his own mini-filibusters. ”John Carter and I both remarked after the luncheon that Lew strove to have the concluding comment on every subject,” says Equitable’s executive vice president, Robert M. Hendrickson. ”It seemed apparent there was a fair amount of tension be-tween Glucksman and Peterson. ”
Lew Glucksman had spent a lifetime accumulating resentments. The son of lower-middle-class Hungarian Jews, Glucksman constantly inveighed against the ”Our Crowd” Jews in his business – symbolized in his mind by the Lehman family. He thought of them as WASP’s, not as fellow Jews. ”All my life I resented it,” Glucks-man says, referring to the bigotry that he felt had kept Eastern European Jews and other minorities off Wall Street for so long. He sometimes interpreted adversity as a snobbish rejection of his ancestry. He still remembered the exact number of black-balls – 17 – he had received when he had tried to join the New York Athletic Club.
He attributed to condescension the fact that many at Lehman wanted to sack him in 1973, when his trading department had suffered large losses. Although Pete Peterson was the son of Greek immigrants, his ties to the Estab-lishment, his patronizing manner, made him one of them in Glucksman’s eyes. Peter-son was, in Glucksman’s opinion, too much the Washington ”insider,” cultivating cli-ents over expensive meals, dropping names, worrying about his own press notices, behaving as if investment banking were still about old-school relationships rather than market-responsive transactions – acting, in other words, like a banker.
In part, the animosity between Peterson and Glucksman flowed from the antago-nism that had grown up at Lehman and all over Wall Street between ”bankers” and ”traders. ” Essentially, a trader buys or sells securities – bonds, stocks, options, financial fu-tures, commercial paper, certificates of deposit, Treasury bills, Eurobonds – either for clients (collecting a fee), or gambling directly with the firm’s own money. The trader must make quick, firm decisions, often by consulting a jumble of numbers on a cath-ode-ray tube during and after hurried phone calls.
Bankers, on the other hand, usually have a longer horizon, serving as financial consultants to corporations and earning fees on the putting together of new issues, mergers and providing advisory services. Ten or 20 years ago, sales and trading activities were subordinate to banking, of-fering supplemental services to banking clients; in recent years, as interest rates have fluctuated wildly and new financial products have blossomed, sales and trading have become a profit center, accounting for hefty portions of the revenues of most major investment banking firms.
The new interest-rate environment has pushed bankers and traders to work more closely together, forming hybrid functions such as ”capital markets groups” – teams of bankers who both work the trading floor and provide companies with advice on fi-nancing possibilities. But the war of stereotypes between bankers and traders persists – ”like cowmen and farmers in the West,” observes Andrew G. C. Sage 2d, Lehman’s most senior partner in terms of service.
Traders are often depicted in banker cartoons as poorly educated drones with digi-tal minds, robots hunched over Quotron and Telerate screens, barking orders, think-ing of the moment, not the long term. Bankers, in turn, are often portrayed as elitists, as Ivy League preppies in suspend-ers who rise late, take leisurely lunches and massage contacts but do not produce a product. This polarization was particularly acrimonious at the House of Lehman, where – unlike Goldman, Sachs or Salomon Brothers – there was no history of significant trading prior to Glucksman’s arrival in the 1960’s.
Until 1980, when Peterson moved the Lehman main offices from the firm’s Italian Renaissance-style building at 1 William Street to more corporate-style quarters at 55 Water Street, the trading operation was not even in the same building as banking. Pe-terson says that when he suggested consolidating Lehman’s headquarters in a single location, the banking department resisted. ”The toughest decision I had to make was the move to Water Street,” he recalls. ”The investment bankers hated it. They didn’t want anything to do with that group.
They found them a lower form of species. They were the elite. Those guys over there were referred to as ‘animals,’ as ‘crude,’ as ‘short term. ‘ ” It gnawed at Lew Glucksman that traders were, he thought, still treated so shabbi-ly. Trading activity, on The Street and at Lehman, was up. Commercial paper and eq-uities – trading and sales functions that he had built almost singlehandedly at Lehman – were up. The banking division’s share of Lehman’s profits was declining, generat-ing, in 1983, less than a third of the firm’s profits.
And yet – bankers still held 60 per-cent of Lehman stock, still permitted nonbanking departments only 35 of the firm’s 77 partners. And bankers still had their own man, Pete Peterson, on top. Glucksman was not like them. He arrived at his desk before 6 A. M. , his tie already loosened. Soon, his trousers would be sprinkled with cigar ash, his hands blackened by newsprint from ripping out newspaper articles to review with ”my team,” as he liked to refer to his staff. He almost always ate lunch at his desk on the trading floor instead of in Lehman’s elegant 43d-floor partners’ dining room.
Instead of a windowed office overlooking New York’s East Side waterfront, he had private quarters off the trading floor that were windowless and cramped. It was dubbed ”the chart room” because Glucksman, who loves boating and fishing, had hung navigational charts on the walls. On the trading floor, Glucksman worked in a glass-walled office known as ”the fishbowl,” where his people could see him, feel his presence, hear him bellow profan-ities, watch his round face redden with rage, see him burst the buttons on his shirt or heave something in frustration, watch him hug or kiss employees to express apprecia-tion.
‘Lew managed people the way Lyndon Johnson did – through a combination of fear and love,” observes then-Lehman vice president Ralph L. Schlosstein, a capital-markets-group banker who worked on the trading floor and respected Glucksman. This combination, along with Glucksman’s shrewdness in anticipating the flow of stock prices and interest rates, forged a trading operation much envied on Wall Street. According to Peterson: ”Lew built commercial paper into an $18 to $20 billion busi-ness.
Even his more ardent critics will tell you that he was one of the best in the busi-ness at credit analysis. ” Now that trading was achieving its day in the sun, Glucksman feared that Peter-son was angling to sell the firm (for a substantial premium) within a few years. He believed that Peterson was ”greedy,” and, because partners were required to begin selling back their stock when they reached 60, he worried that the chairman, then 57, had a secret plan to sell the firm before his 60th birthday.
Glucksman, also 57, picked up hints to this effect, but never anything concrete. Peterson is an attractive man, with a thatch of striking black hair; his deliberate manner, trim figure and deep voice convey authority. Instead of pictures of fish or navigational charts, his office walls were hung with signed lithographs by Jasper Johns and Robert Motherwell and autographed photographs from former Soviet Premier Leonid Brezhnev and from Presidents Nixon and Ford. At the firm, Peterson was Mr. Outside; Glucksman was Mr. Inside.
Peterson accepted and enjoyed an ambassadorial role – with clients, competitors, governments, the press and public. And he had a social life outside of Lehman. He and his third wife, Joan Ganz Cooney, president and founder of the Children’s Televi-sion Workshop, which produces ”Sesame Street,” enjoyed the riches of New York, attending art and theater openings, making the rounds of East Side dinner parties. Glucksman’s life, on the other hand, revolved around Lehman. His two daughters were grown and his marriage was shaky.
He rarely saw, outside of the office, even those he considered his closest friends, and when he did, it was usually to conduct business. At the end of a long day, Lew Glucksman would often scoop up some memos or a tool catalogue and have his driver wait outside as he dined alone in a Chinatown restaurant. Peterson derived his strength from his contacts, his considerable intelligence, and the aggressive preparation he did before meeting a prospective client, which could be dazzling. His skill at bringing in new business staggered even his detractors, like Lehman partner Henry R. Breck: ”The leavings from Pete’s table were enough to run a good little investment bank. ”
But the attention Peterson could lavish on clients was rarely turned toward his partners, much less to those who worked in the trenches. One of Peterson’s Lehman admirers, partner Stephen W. Bershad, says: ”He would set his mind on something and see nothing else. He would walk down the hall with a stack of letters, read the mail, write replies and just throw them over his shoulder, as-suming someone would be there to pick them up. ‘
He would call partners at all hours, summon them to ride uptown in his chauffered Oldsmobile and then ignore them as he talked on the telephone or scanned a memo-randum. Many partners thought him self-centered, haughty, unfeeling, uncaring. Glucksman found other things annoying. ”Over the last five years, Peterson didn’t play an active role in the management of the business,” he says. ”I brought him up to date. We played a charade with him” – pretending he was in charge. It galled Glucks-man that Peterson got all the credit for Lehman successes. ‘I got sick and tired of Pete always saying the same thing,” says Glucksman.
”Pete was a guy totally obsessed with the world hearing the name Pete Peterson. ” To Glucksman, the way he was treated at lunch at Equitable was the final indigni-ty. He returned to Lehman Brothers that afternoon in a rage. One of those he turned to was partner James S. Boshart 3d, then 38, a 6-foot 5-inch former basketball star at Wake Forest University whom Glucksman had recruited 13 years earlier, partly to improve the Lehman basketball team.
Boshart’s role at the firm had expanded from clerk in the money market division to chief administrative officer of Lehman. In his various jobs at the firm, Boshart worked directly with Lew Glucksman. Jim Boshart was a staff man. Unlike his more aggressive partners, he was a superb listener. Over the years he had become the son Glucksman never had and a bridge be-tween Glucksman and Peterson. Peterson felt comfortable with this arrangement; he liked Boshart’s modest, Jimmy Stewart wholesomeness, his decency.
He felt Boshart could decipher and interpret Glucksman’s true feelings, could serve as a translator be-tween the top men. By Peterson’s count, they met at least three times daily. It did not appear to bother the chairman that his eyes and ears within Lehman belonged to a man more devoted to Glucksman than to him. Boshart recalls what Glucksman said to him after the Equitable lunch: ”He de-scribed the meeting and said he really felt he hadn’t been viewed with respect com-mensurate to his role in the organization. ‘
Glucksman was even more blunt with fellow board member Robert Rubin, his closest friend at Lehman since both had become partners in 1967, and the man he called ”my consigliere. ” Rubin recalls Glucksman saying of Peterson: ”I couldn’t believe his performance. I’m going to talk to Pete. This can’t go on. Something’s got to change. ” THE PHONE IN PETERSON’S OF fice began ringing early the next morning. ”Has Mr. Peterson come in yet? ” Glucksman asked Melba Duncan, Peterson’s princi-pal secretary. She explained that Peterson was attending a breakfast meeting outside the office.
When Peterson arrived around 10 A. M. , Miss Duncan told him of Glucksman’s calls. Peterson jotted a few notes on a yellow legal pad and walked down the two flights to see Glucksman. ”I just thought it would be one of our weekly meetings,” says Peterson. Quickly, he noticed that Lew ”seemed a bit tense, as if he were psyching himself up. ” Peterson put down his pad and, like a doctor talking to a patient, peered at his co-C. E. O. Both men agree on the exchange that followed. ”What do you want out of life, Lew? ” asked Peterson. ”I’ve been giving a lot of thought to my life,” answered Glucksman.
‘You know how important boats and cruising and ships are to me. Kind of in the same way I have satisfaction when I’m in charge of a boat, I’d like to do the same thing at Lehman Brothers. ” Peterson was astonished. He remembered how happy and honored Glucksman had said he was when Peterson had volunteered to make him co-C. E. O. eight weeks earli-er. He could not imagine that Lew Glucksman, a trader, an inside man who displayed little fondness for the client side of the business, who was hardly known to the out-side world, would think he could run Lehman Brothers.
Peterson is a man of many talents, but few associates would say that sensitivity to people is among them. He was unaware that many of his partners, including some he felt close to, while respecting him, did not like him; they had tired of his one-sided conversations. Nor had it occurred to Peterson that Glucksman felt demeaned by him and longed to run Lehman himself. What, Peterson asked, did he mean about ships and Lehman Brothers? ”This is my whole life,” said Glucksman. ”I really don’t have alternatives. It seems to me that with all of your talents and associations, you have options.
You’ve talked of other things you can do. Are you at the point in your life where you’re ready to do other stuff? ” ”Lew,” said Peterson, ”let me see if I understand what you’re saying. Are you say-ing you want to run the business alone? ” ”Well, there are things I want to do differently,” said Glucksman. ”It’s time to heal the wounds at Lehman Brothers. ” ”What wounds? Heal wounds with whom, Lew? ” ”You’ve had this problem with Bob Rubin. ” ”Yes, I’ve had problems with Bob Rubin. ”
Robert S. Rubin had joined Lehman in 1958, after Yale, an M. B. A. from the Har-vard Graduate School of Business Administration and service in the Army. As a member of the banking department, Rubin had been singled out as a comer early on, a man who might one day preside over Lehman. Rubin had been on the Lehman board since 1972 and served as co-chairman of the pricing committee, which deter-mined the firm’s position in pricing securities before they were sold; he also served on the important commitments committee, which decided on the clients Lehman would do business with. But Bob Rubin’s star had faded.
He and Peterson were not on good terms, and it was no coincidence that Rubin had been shunted aside as head of the banking division in 1977, or that his office was on the 41st floor, next to the trading department. His responsibilities, apart from shepherding the RCA account, were vague. The only person reporting to him was his secretary. Rubin was a loner, a tense, taciturn man whose nervous manner made colleagues uneasy. Nevertheless, partners – including Peterson – freely consulted Rubin on a range of issues, for his financial acumen was legendary.
Around Lehman he was known as ”the senior partner for judgment. ” Like Glucksman, he was revered by some partners and disliked by others. To Peterson, Rubin was a negative man, a ”pas-sive” banker, who rarely left the office, who resisted the merger with Kuhn Loeb in 1977 and objected to many of Peterson’s new business-development and marketing efforts. To Glucksman, Rubin was an outsider, like him, and this strengthened the bond between them.