The bankers that define the decades: The SG Warburg alumni interview

Euromoney never had the opportunity for an on-record interview with Siegmund Warburg. It may come half a century too late, but here is the next best thing: a discussion with three of Sir Siegmund’s closest colleagues, each of whom was a senior director of SG Warburg when Euromoney was launched in 1969.

Phil Moore, Euromoney It’s impossible to read through Sir Siegmund’s private papers without being struck by the genuine affection he inspired in so many people. What was it about Siegmund Warburg that generated such a level of loyalty and respect?

OL As a young man who was originally invited by his uncle Max to join the family firm – MM Warburg – in Hamburg at the end of the 1920s, Siegmund’s heart wasn’t really in banking. His original ambition was to go into politics and steer developments in Germany in the 1930s, but that was made impossible by the rise of Nazism.

When he left Germany at very short notice and set up the New Trading Company in London, he was motivated not by making money but by an eagerness to offer a first-class service and make a creative contribution to the banking industry and the broader economy.

He was a high-calibre intellectual first and a banker second. I’ve never met anybody who was as widely read as he was. If you visit St Paul’s Girls’ School where his library is housed, you’ll be amazed by the extraordinary range of books he read.

PS Everything we did had to conform to the haute banque standards Siegmund had been taught in Europe. I had never heard this expression before I joined Warburgs, but I quickly learned that it meant maintaining the very highest moral standards at all times.

OL He was also very tough and demanding. He was a perfectionist who could be extremely critical. He was especially upset by sloppy language and punctuation. He famously once called Peter Stormonth Darling [chairman of Mercury Asset Management from 1979 to 1992] at home on a Sunday morning to tell him that a paragraph in a report he had written ended without a full stop.

PS If I had to pick out a single feature that characterized Siegmund above all else it was that he genuinely cared about people – cared about them no matter how senior or junior they were. He had a temper, which was explosive at times and which he deliberately exaggerated at others, but he was very paternalistic towards his colleagues. Long before we became vice-chairmen, he would regularly take us out to the opera or to dinner at the Savoy. He could be a difficult man, but it’s fair to say that we loved him, although that may sound a strange word to use.

Euromoney Niall Ferguson uses the same word in his book [‘High financier – the lives and time of Siegfried Warburg’] when he says that Sir Siegmund inspired “a loyalty verging on love” among those around him. But surely charisma, a formidable intellect, force of personality and an encyclopaedic knowledge of Trollope can only get you so far. None of this necessarily explains his success in business or in banking. One of the many tributes at Sir Siegmund’s death said that: “Few can have done so much to sharpen up the City and enable it to keep its leading position”. How did he achieve this?

DS Siegmund was a psychologist, a mentor and a romantic, and incidentally a banker. But he was also a contrarian. Rather like Lloyd George, he only had to see a tide to swim against it. He was an iconoclast who was very resistant to what would be described today as groupthink in any country or community. Among his favourite expressions were, “always cry over spilt milk”, “always cross bridges before you come to them” and “wishful non-thinking”.

Euromoney Presumably there was no better example of this iconoclasm than the role Warburg played – successfully – in the battle for control of British Aluminium in 1958, which is recognized as the first-ever hostile takeover in Britain. According to Ferguson, Lord Kindersley of Lazard responded by saying he would never speak to Warburg again, while the Bank of England described Warburg’s behaviour as “monkey business”.

DS The firm was resented for never accepting established practices and for always exploring alternative or better ways of doing things. That suited Siegmund down to the ground.

OL But he was also a wonderful diplomat with extensive relationships among industrial and political leaders on the Continent. For example, he was very actively involved in the establishment of the European Coal and Steel Community (ECSC) in 1951 and he even persuaded his European partners that its headquarters should be in London. British politicians regarded this as being too pro-European and vetoed the proposal.

Of course, he also had very strong friendships in Germany, notably with Hermann Abs at Deutsche Bank and Paul Lichtenberg at Commerzbank.

DS He also insisted on very high client acceptability standards. [Financier] Bernie Cornfeld, for example, was never a client of ours, despite the eagerness of some of our colleagues to work with him. Neither was [media mogul] Robert Maxwell.

PS It’s important to recognize the role played by Henry Grunfeld in building the Warburg business. He and Siegmund were two brilliant men with similar backgrounds, both of whom escaped Nazi Germany in the 1930s. They had completely different personalities, but each remarked on a number of occasions that neither could have achieved what they did without the other.

DS There was certainly an element of yin and yang about Siegmund and Henry. Siegmund was a master of what I would call backing into the limelight. But Henry never went anywhere near it and was adamant that the firm should not be called Warburg Grunfeld.

I agree that they were a formidable combination and I think we’d all agree that Siegmund couldn’t possibly have done it without his “beloved Henry”, as he used to call him. But when Siegmund said at his 70th birthday party that Henry could never have done it without him, Henry responded, cryptically, by saying “probably”.

Euromoney Was Siegmund an innovator? Was he what bankers might now call a financial engineer? He is generally recognized as the architect of the Eurobond market, but is that wholly accurate? [Warburg protégé] John Craven told me some years ago that it was Gert Whitman who did most of the work on the Autostrade Eurobond in 1963.

DS Siegmund was always trying to push the boundaries, always looking to explore ideas that were well ahead of his time. A good example was the project he initiated on a unified European currency, which he called the Euro-moneta, decades before the launch of the euro. He was passionate about that.

But there is no way that Siegmund would have remotely claimed to have invented the Eurobond market. The reason we were so prominent in that market was that there were five or six people in the firm – of whom Whitman was one – who were in their 60s and had worked in the international bond market before the Second World War.

In the Euromarket, it was Minos Zombanakis who really promoted the syndicated Eurodollar credit and Evan Galbraith who invented the floating rate note. Galbraith, who was at Bankers Trust at the time, called me to ask if we could suggest a client for a new big international financing; it was Siegmund who suggested ENEL, just as he had put forward Autostrade for the first Eurobond.

PS The ENEL deal was terribly complicated because there was a problem with differences in stamp duty in the UK and Italy. We had an all-day meeting in the office on a Sunday and we all flew out to Rome the following morning to hammer out the details with Guido Carli at the Bank of Italy, who was a very close friend of Siegmund.

DS Siegmund was certainly in the thick of things as the Eurobond market developed. In the mid 1960s he would often be at his desk late on a Friday night, personally placing bonds.

OL He was deeply involved in the detail. I remember when the Autostrade bond was launched, Siegmund would be on the phone every day to Robert Genillard to check how many bonds White Weld had sold. It obviously worked because I believe that in the end White Weld sold more of those bonds than anybody else.

Euromoney The first Eurobond deal was in 1963 and the famous British Aluminium takeover, which challenged established City practices, was even earlier, in 1958. Would it be reasonable to say that by the time Euromoney was established in 1969, Sir Siegmund’s finest years were behind him?

DS Perhaps. Warburgs had expanded hugely between 1963 and 1969. By the end of the 1970s, although he was still in very close touch with the firm, he was spending much more time in Blonay, and much less in London [Siegmund and his wife, Eva, acquired a property at Blonay, overlooking Lake Geneva, in 1966].

Euromoney In his book on the Warburgs, Ron Chernow says that New York was a formidable market to penetrate and that in attempting to do so, Siegmund “overestimated the mystique of the Warburg name.” Why was he never able to make his mark on Wall Street?

DS In August 1965, after having been at the firm for all of seven months, I was sent to New York to open our office in the Rockefeller Center, which was our first office outside Gresham Street. Dick Dilworth, who ran the Rockefeller family office in London, had introduced us to a banker at Chemical named David Mitchell whom we engaged to look after client development.

For several months, David and I ran the office along with a secretary and a telex machine. But David was really a customer-relations man with a background in commercial rather than investment banking, which was one reason why we didn’t have as much success as we had hoped.

PS I agree that if we had chosen the right man, we could have achieved so much more in the US. Mitchell was a charming man, but he was not a three-star merchant banker.

The Warburg name was held in very high repute in the US because it had been Paul Warburg who originally founded the Federal Reserve. But in my view, none of the British merchant banks ever got America right. I think the biggest mistake Warburgs made in the US was tying up with AG Becker, which had established an important commercial paper franchise but was not in the top league of US investment banks.

DS In some ways we had a similar experience in Germany. Because Siegmund was very keen to rebuild the bank’s business in Germany, we acquired an interest in a Frankfurt-based organization named Deutsche Effecten und Wechselbank.

Grunfeld was sceptical about the firm’s American as well as its German adventures. He believed that there were very deeply entrenched interests in the banking industries in both countries, which were highly unlikely to leave the sort of gaps that Siegmund and Henry had identified with such great success in the London market.

OL My personal view is that the Americans are very inflexible about their own identity and nationalism. The idea that somebody could come along from London and start dictating to them was very hard for the Americans to accept.

DS That remains the case today. After the 2008 crisis, it became very clear to us that the Americans regarded investment banking as a proprietary US product, which nobody else was going to take away from them.

Euromoney But to return to the point about Mitchell and to what Peter said about AG Becker, was it also the case that Siegmund was unlucky with his representatives and partners in the US? In particular, he seemed to become very disenchanted with his relationship with management at Kuhn Loeb, whom he regarded as lazy. Anecdotally, when a partner there was once asked how many people worked at Kuhn Loeb, he replied “half of them”.

DS It’s true that even though it had a very important position in Wall Street history, Siegmund was not very impressed by Kuhn Loeb.

OL Historically, Kuhn Loeb had had a leading role in the management of US domestic bond issues. But it lost its way when it chose not to become involved in bond trading in any significant way. When the big trading houses like White Weld, Salomon Brothers and Dean Witter began distributing bonds to institutional investors in the US, many clients began to question why they were paying management fees to Kuhn Loeb when all they were doing was organizing a syndicate.

So Kuhn Loeb refused to move with the times, which I don’t think is something that could ever have been said about Warburg. There is no doubt that SG Warburg was streets ahead of others in anticipating the significance of Big Bang in the UK. Our investment in Akroyd & Smithers together with our acquisition of Rowe & Pitman ensured that we had an efficient trading and distribution business in place well in advance of Big Bang.

Euromoney But Big Bang was in 1986. So this all happened well after Siegmund’s death in 1982, didn’t it?

OL Of course. But the point is that Siegmund would definitely have approved of the way the firm prepared for Big Bang, because he was forward-looking and dynamic.

Euromoney More generally, was it that forward-looking philosophy that defined Siegmund’s global expansion plans elsewhere?

DS I never heard him say this explicitly, but looking back it is clear that when the firm moved on from acting as a vehicle to help refugees from Nazi Germany, Siegmund and Henry identified several opportunities created by gaps in the market.

The first of these arose from the complacent sense of entitlement among the established merchant banks in London. Henry quickly became the go-to banker for relative newcomers such as television companies, press groups and supermarket operators, which had been pooh-poohed by the old-established banks, which preferred steel companies, engineers and miners.

The other notable opportunity that was identified early by Siegmund and Henry was the trio of countries which they believed would recover strongly after the war: Germany, Italy and Japan. Again, this was a contrarian view back in the 1950s.

PS Siegmund grasped the potential of Japan long before most other bankers in Europe. A delegation of five or six merchant bankers from the UK was invited to Japan in 1962. One of the key people they met there was Jiro Shirasu, who was educated at Clare College, Cambridge, and always wore his Hawk’s Club tie when he came to the UK.

Shirasu became a great friend of Siegmund, who, unlike the other delegates, came back from that trip determined that we should become active in Japan. He also developed very strong relationships with Nomura and Bank of Tokyo.

The year after Siegmund’s visit, Ian Fraser and I were sent out to Japan where we later arranged the first Eurobond issue for a Japanese borrower, Toyo Rayon, or Toray as it was called later.

DS Siegmund’s friendship with Shirasu was very important. He and Siegmund had a lot in common, because Shirasu was also a contrarian who had retired to his farm in 1941 when it became clear that Japan was going to play an aggressive role in the war. Siegmund was professionally promiscuous and was forever looking out for similar friendships with bankers in America and on the Continent, but with less success.

Euromoney What about domestic consolidation? How close did Warburg come to merging with Hill Samuel or NM Rothschild?

OL There were certainly discussions about closer cooperation with Rothschilds. Siegmund was a great admirer of Jacob, who ran the international part of NM Rothschild. Had Jacob rather than Evelyn taken over the business in 1976, something more concrete may have happened between Rothschild and Warburgs. We were very supportive of Jacob when he established his own business, which went on to be immensely successful [as St James’s Place].

Euromoney Sir Siegmund was especially interested – and involved – in politics in the Middle East, wasn’t he? How significant was the close friendship he developed with the Egyptian president, Anwar Sadat?

PS Very. I don’t think Siegmund was ever given enough credit for the work he did as a mediator between Sadat and Menachem Begin, whom he disliked enormously.

DS That’s very true. Siegmund was ostracized by the Jewish community in Britain after he wrote a letter to The Times in 1978 urging Israel to respond more constructively to Sadat’s peace proposals. This was another example of how contrarian he was prepared to be.

Euromoney How serious an impediment to business was the inclusion of SG Warburg on the Arab blacklist of banks regarded as sympathetic to Israel in the mid 1970s?

OL Being on the blacklist was quite a nuisance because so much of the world’s investment capital in the 1970s originated in the Middle East. We fought very hard against our inclusion. Siegmund would personally call upon banks that were tempted to exclude Warburg from a syndicate because of a misplaced belief that this would make them ineligible to do business with the Arabs.

With the help of Claude de Kemoularia, who was senior counsel to the chairman of Paribas and a great authority on the Middle East, we were ultimately able to prove that we had absolutely nothing to do with financing arms for Israel.

Euromoney We can’t let our discussion about politics pass without reflecting on what Siegmund would have made of Brexit, the apparent re-emergence of nationalism in Europe and Donald Trump’s ascent to the White House. He would have been appalled by all these developments, wouldn’t he?

OL I think he would be very unhappy about what is happening in Europe today, because it was his sincere hope that Britain would play an important leadership role in the EC.

DS If Siegmund were alive today he would be spending all his time in Whitehall and Westminster, bending every ear he could find on the subject of Brexit. Today, he would probably be described as a prodigious networker, but not just for the sake of client development. He believed that a private banker could and should play an integral role in national and global affairs, although he abhorred forums like Davos and Bilderberg.

Euromoney What would Sir Siegmund have made of the other notable – and in many cases regrettable – developments that have shaped the banking industry and the capital market since his death?

DS He would have regarded the industry today as an inferno, which he predicted many years ago. One of his favourite expressions was “perverted capitalism” and he would have seen today’s market as an extension of perverted capitalism writ large. He would have been especially dismayed by the bonus culture and the pursuit of personal enrichment among bankers today.

Euromoney What would he have thought of the creation of derivatives with no obvious social or economic purpose, like CDO squareds?

DS I’m not sure that Siegmund would have been terribly interested in the technicalities of that sort of thing.

Henry on the other hand was the most detailed, precise and meticulous person you could imagine. When instruments like CDOs started to come into fashion, he asked one of our younger traders to step into his office and explain them to him. He listened for an hour and a half, and then said: “I see. We create instruments we don’t understand and sell them on to people who understand them even less than we do.”

Euromoney Finally, there are one or two things about him that people might find distasteful today, such as his faith in graphology as a means of assessing the suitability or otherwise of applicants for jobs at SG Warburg. I think it would even be regarded as discriminatory these days. But even back in the 1960s and 1970s, wasn’t it something of an intrusion into people’s privacy to send their handwriting to Theodora Dreifuss [a Zurich-based graphologist, psychologist and close friend of Siegmund] for analysis?

DS Absolutely not. Nobody ever objected when they were asked for a sample of their handwriting and Siegmund was perfectly willing to pass Theodora’s analysis on to any of the subjects who asked for it.

OL One of the reasons we used graphology was to assess how compatible people might be as partners and colleagues, and it was often extraordinarily accurate. On one occasion we identified a candidate with expertise in a new area of the market and sent his handwriting on to Theodora. Her assessment was that he was highly intelligent but that he was also a loner who was unlikely to interact well with others. We thought this would be something we could cope with, so we appointed him. Within six months he had to leave because he refused to communicate openly with his colleagues.

DS Of course it would be impossible to use graphology today, because so few people write by hand these days.