Business

Finance Elite Mourn A Banker, And A Vanished Wall Street

Ace Greenberg’s thrifty and magical career, down to the cheap casket. “Ride winners, take losses.”

Jim Zirin TV / Via youtube.com

Before former Bear Stearns CEO and Chairman Alan “Ace” Greenberg died from complications due to cancer on Friday, he wrote to his wife Kathy that “when the inevitable happened,” he wanted his funeral to be held at Temple Emanu-El, the great headquarters of prosperous New York Reform Judaism across the street from Central Park.

“I think it’s awful for people to stand around at a funeral, Temple Emanu-El should be big enough,” he wrote.

Greenberg’s friends, family members, business associates, fellow magicians, bridge players, philanthropists, and members of the New York Jewish community were seated in the temple’s large main sanctuary to pay tribute to a man who was an icon of the generation that built Wall Street’s greatest banks — and then watched them collapse, get absorbed by their rivals, or limp on.

CBS CEO Les Moonves, hedge fund manager Nelson Peltz, Bear Stearns’ last CEO Alan Schwartz, its last chief financial officer Sam Molinaro, and Gristedes owner John Catsimatidis were all in attendance. Donald Trump came in late through a side door. The synagogue’s massive limestone building, high walls, soaring arches, and bronze doors matched the stability that Greenberg sought to bring to Bear Stearns during his almost 60-year tenure with the firm.

The service started at exactly 11 a.m., and was over only 58 minutes later, in keeping with Greenberg’s frequent admonitions to start on time, get to the point, and keep it short. It was, his friend of more than 50 years and former Vice Chairman John Rosenwald said, “vintage Ace.”

The eulogies, delivered by the temple’s rabbi emeritus Ronald Sobel, Rosenwald, and his son Ted Greenberg, didn’t just mourn the man who helped build Bear Stearns “from nothing” — as Schwartz described it — into a 14,000-person investment banking giant competing with Goldman Sachs and Morgan Stanley. This was also a funeral for an investment banking culture that valued street smarts, abhorred losses, and was populated by firms that were stewarded by partners for life. (Greenberg’s predecessor, Cy Lewis, died at his 1978 retirement party.)

Greenberg, who was still a vice chairman emeritus at JPMorgan when he died, joined Bear Stearns in 1949 as a clerk, became chief executive in 1978, chairman in 1985, and stepped down from heading the company’s board in 2001. In March 2008, when the bank’s clients and lenders abandoned it because of doubts about the value of its mortgage-related assets and it was bought by JPMorgan at a fire-sale price, he was the head of its executive committee, the role he took when his successor as CEO, Jimmy Cayne, took over as chairman.

Rosenwald said in his eulogy he could still see Greenberg “seated at the head of the trading desk in the huge Bear Stearns trading room, with his neatly tied bow tie; it was here that his mantra ‘ride winners, take losses’ was born.”

Rosenwald recounted how Greenberg confronted Bear’s senior partner, Cy Lewis, telling him, “Cy, you’re the senior partner of the firm, and you can commit this firm to buy any security you want. But if it goes down, I’m in charge of selling it.” Rosenwald said this conversation “was not an easy one” but that it “cemented Ace and unquestionably saved the firm.”

“That lesson — ride winners, take losses — was one that thousands in our industry should have learned,” Rosenwald said.

Although Rosenwald only once mentioned Bear’s collapse, he and Greenberg’s son Ted returned again and again to the values of partnership, thriftiness, quick recognition of losses, and conservatively holding on to a firm’s capital, so losses wouldn’t quickly wipe it out.

One year after Greenberg gave up the chairmanship to Cayne, Bear Stearns had about $16 in debt for every dollar in equity; by 2007, its leverage had gone up to 38 to 1. Its rival Lehman Brothers was driven into bankruptcy in part because of its CEO Dick Fuld’s hope that the firm’s problems were only temporary.

Rosenwald said that when he first met Cayne in 1954, they both lived in the same apartment building on Lexington Avenue and 94th Street, and they would drive to work every day with John Gutfreund, who would later go on to become the senior partner at Salomon Brothers. Rosenwald recalled that one morning in Gutfreund’s convertible, they read in the Wall Street Journal that Kuhn Loeb’s senior partner had to write a $12 million personal check to cover the firm’s commitment to a client. Because Kuhn Loeb was a partnership (like Bear Stearns), its partners took home profits at the end of the year, leaving it with only a little bit of capital.

“Ace turned to me —” Rosenwald said, “Johnny, we can never let that happen to Bear Stearns.” The firm then put in a rule that partners would leave their capital with Bear Stearns: “This turned out to be another critical factor in Bear Stearns remaining a business long after so many of our competitors disappeared, another moment of Ace saving the firm.”

Not once did Rosenwald mention the firm’s 1985 initial public offering, which turned it from a partnership funded by its profits and its senior employees to a public company dependent on its shareholders.

Greenberg’s son Ted in his own eulogy drew an implicit contrast between how his father led the firm compared with the banks he competed with (Bear was the smallest of the “big five” investment banks on Wall Street before its collapse), saying that Greenberg helped grow the firm from 120 employees when he arrived in 1949 to 10,000 when he resigned the chairmanship, without a single acquisition of a firm larger than 30 employees.

This was in contrast to its competitors, which grew into behemoths thanks to merger-hungry chief executives. This was in addition to its policy that executives donate 4% of their salaries to charity and their reluctance to fire employees was “more characteristic of a family than a corporation.”

Greenberg was also famously thrifty, telling his employees in a memo to save paper clips. He had a small office and mainly worked at a desk on Bear’s trading floor, and asked his wife to be buried “in the simplest casket available,” his son Ted said, reading from his father’s instructions.

“I think spending money on an expensive casket is a waste of money, if you can’t find one cheap enough, let me know and I will build one in my workshop in the Hamptons,” Greenberg wrote in his funeral instructions.

This too was an implicit contrast to the lavishness that marked pre-crash Wall Street, like when Merrill Lynch CEO John Thain reportedly spent $1.2 million when he took the job in December 2007. Less than a year later, Merrill Lynch was nearly bankrupt and had to be rescued by Bank of America.

Greenberg was laid to rest in a $600 finished nutmeg casket. “Sorry, Dad, we couldn’t do it,” his son said. “We’ll try to make it back at the Harmonie Club shiva.”

At the beginning of the service, two members of the American Society of Magicians, of which Greenberg was a longtime member, broke his wand.

“When he was initiated into the magic fraternity, he was presented with this wand, an ancient emblem of mystery and power,” Jerry Deutsch, a friend and fellow magician said, holding the wand. “However, when a magician dies, the wand has no further meaning, no authority. It becomes just a piece of wood, and the spell is broken.”

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