As 1986 opened, Sandy resolved to make something happen. One of the many stocks he had tracked from the first day after his ouster was BankAmerica Corp. The largest bank on the West Coast, San Francisco–based BankAmerica had long been a paternalistic bureaucracy overseen by a notoriously conservative board and management, headed by CEO Samuel Armacost. The bank had suffered years of declining earnings, but the situation had become very serious early in 1986. The bank posted a massive loss of $337 million for 1985 and eliminated its dividend payment. Federal regulators were pressing the company to increase its capital base because of growing loan losses. The bank responded with hefty assets sales and boosted its provision for future loan losses. As Sandy read one news report after another about the bank’s deteriorating situation, he hatched an audacious plan: He would provide BankAmerica with a $1-billion capital infusion in return for being named chief executive officer. To test the waters for his plan, Sandy called Charles Schwab, the famous founder of the discount brokerage firm that bore his name. Like Sandy, Schwab had been something of a renegade on Wall Street. And, like Sandy, Schwab had sold the firm he created to a bigger company—BankAmerica Corp., where Schwab was now a disgruntled director. Schwab loved the idea of Sandy Weill’s coming in to shake up the moribund bank and urged him to make his proposal directly to Armacost and the board.
By coincidence Sandy was headed to the West Coast at the end of January anyway to participate in his second Pebble Beach National Pro-Am golf tournament, an invitation he had received because of his position at American Express and his deep affection for the game. With Schwab’s encouragement, Sandy started laying plans. He called his old protégé Peter Cohen, who was running Shearson. “Look, you have to come out here,” Sandy said. “I have to walk in with something substantial to get the board’s attention.” His request: a commitment letter for $1 billion. “I’ll call Jim,” Cohen said. Despite the lingering ill will between Sandy and the two American Express executives, they were not about to turn down a chance to be involved in something as big as the takeover of BankAmerica. Cohen and Robinson flew to Pebble Beach, where they met with Sandy to draft the commitment letter, which Sandy intended to show the bank’s board before their February meeting.
Sandy made his first approach to BankAmerica Corp. quietly, calling certain board members to inform them of his plan and the commitment he had in hand for the $1-billion infusion the bank so desperately needed. But the stuffy board wanted nothing to do with Sandy Weill and, with the exception of Schwab, all the board members he contacted were noncommittal or rejected Sandy’s proposal outright.
Okay, if I can’t do this quietly, I’ll do it noisily, Sandy concluded. He would take his proposal public, hoping to bring sufficient pressure on the board from shareholders and regulators that they would have to accept his offer. On February 20, 1986 BankAmerica stock shot up 10 percent on rumors that Sandy Weill was pursuing a management shake-up. The bank confirmed the rumors and the stock went higher, eventually climbing 40 percent while Sandy’s offer was on the table. Despite the stock market’s endorsement of Sandy, the board remained unyielding. Board members branded Sandy’s offer a blatant attempt by the unemployed executive to find a job. Rallying around Armacost, the board delivered an icy rejection: “The outside directors unanimously agreed that they have no interest in considering you as a candidate for the chief executive officer’s position.”
Ending speculation that he might mount a proxy fight to have shareholders elect him over the objection of the board, Sandy called off his effort. BankAmerica stock promptly plunged 10 percent in two days. (The bank reported a stunning $640-million loss in its second quarter, and the board finally ousted Armacost later that year, sending him packing with an extremely lucrative severance package.)
When Sandy arrived back in New York, Alison Falls saw a man in terrible pain. He was stung by the blatant rejection, particularly the board’s attempt to paint him as a pathetic job applicant and a hostile suitor. Even worse, the rejection may have lain in the fact of his Jewish heritage. James Calvano told him as much during a golf game shortly after the failed bid: “Sandy, I don’t think the board was ready to have a Jewish person as the chief executive of BankAmerica.”
“You may be right,” Sandy acknowledged. “Other people told me that. They never let me in the door. They didn’t want to hear what I could do. Time will tell.”
Sandy’s failed bid had longer-term repercussions for him and his wife, too. Joan Weill had been seeing a New York psychiatrist, Robert Willis. Willis, whose office was located near the Weills’ Manhattan apartment, had been a sympathetic listener as Joan detailed the ups and downs of her husband’s career and the strains that career inflicted on their relationship. She had relied heavily on Willis’s counsel during the year that Sandy was in exile. And in the comfort of this confidential relationship, she also divulged information that Sandy had shared with her about his career plans. Weeks before Sandy went public with his intentions to take over BankAmerica, Joan had wondered in her sessions with Willis what would happen to her marriage and her children if Sandy really was able to pull off such a coup. Using the knowledge gleaned from their conversations, Willis quickly began buying BankAmerica Corp. shares and, after Sandy announced his intention to pursue the bank, sold those shares for a profit of more than $30,000. (Sandy and Joan did not become aware of Willis’s dealings until shortly before the doctor was indicted in July 1989 on charges of insider trading. In December 1991 Joan Weill filed a $5-million lawsuit against her former psychiatrist in the U.S. District Court in Manhattan, seeking damages for breaches of fiduciary duty, confidence, and contract, as well as malpractice, fraud, and infliction of emotional distress. The suit was eventually settled for an undisclosed amount. In January 1992 Willis, who faced up to ten years in prison, was sentenced instead to five years of probation and three thousand hours of community service and fined $150,000. The judge reasoned that his long-term patients would be harmed if he were jailed and unable to treat them.)
In hindsight many of Sandy’s acquaintances concluded that the BankAmerica bid had been a long shot, at best. Joe Wright, a longtime friend, asked Sandy over dinner one night why, if the odds were so long, he took the chance on BankAmerica.
“I’m shooting across the bow of opportunity,” Sandy replied. “I want everyone to know I’m still here. I’m a player, and I want back in the game.”
If Sandy’s sole purpose with his BankAmerica bid had been to attract attention, he succeeded thoroughly. The May 1986 issue of Fortune magazine featured a major article headlined SANFORD WEILL, 53, EXP’D MGR, GD REFS. Fortune described Sandy’s unsolicited and spurned offer to head up BankAmerica as “the definition of chutzpah.” But it went on to describe how he had transformed Shearson Lehman Brothers “from a minnow to a whale” and spoke glowingly of him as a “decisive, pragmatic, do-it-now manager.” Despite the BankAmerica debacle, it said, Sandy Weill had a reputation for executing a “strong turnaround plan and a strong sense of urgency.”
Fortune’s clever headline caught the eye of Robert Volland in Baltimore, Maryland. Volland was the vice president for finance at Commercial Credit Company, a consumer-loan outfit owned by the struggling computer maker Control Data Corp. For months Volland had been watching his company and its parent firm sinking into increasingly dire financial straits. Control Data had once been the world leader in the manufacture and sale of computer disk drives, one of the few technology companies to prosper in the huge shadow cast by International Business Machines. Control Data had bought Commercial Credit in 1968, intent on using it to help finance the sale and lease of computer systems. But Control Data had begun to encounter fierce competition from the Japanese in the early 1980s. At the same time, personal computers were starting to supplant the big mainframes for which Control Data manufactured disk drives. The new PCs used smaller, cheaper “floppy” disks that Control Data simply couldn’t manufacture cheaply enough. In the fall of 1985, Control Data defaulted on its bank loans and pledged the stock of Commercial Credit as collateral. The loss-plagued computer maker also borrowed heavily from Commercial Credit, creating concerns among the lenders who financed Commercial Credit. As Commercial Credit’s cost of borrowing rose, it was becoming increasingly difficult to compete profitably with other big consumer lenders like Beneficial Corp. and Household International Inc. Control Data put Commercial Credit up for sale, but the finance unit’s poor performance, high borrowing costs, and inefficient branch offices scared away suitors. With no takers, Control Data had begun paring away Commercial Credit’s assets. Volland was fearful his company would be liquidated out of existence to keep its parent from bankruptcy.
Volland took a few minutes to read the article about the out-of-work executive. Of course, he had heard of Sandy Weill. But he hadn’t realized that Sandy was basically unemployed and looking for work. He picked up the magazine and walked into the office next door where Paul Burner, Commercial Credit’s assistant treasurer, was hard at work.
“Have you seen this?” Volland asked, tossing the magazine on Burner’s desk. “This is the kind of guy we need. Let’s see if he’s interested.”
Burner skimmed the article and was immediately skeptical. “This is a man of great accomplishments in New York,” he told Volland. “What makes you think he’d even look at us down here in Baltimore?”
“But Fortune says he’s not that busy,” Volland replied.
“What could it hurt to call?” Burner agreed.
Before this moment neither Volland nor Burner had even entertained the notion of being negotiators of big deals. Indeed, they were initially surprised that they were even able to obtain Sandy Weill’s phone number from directory information in New York. Surprise turned to shock when Alison Falls answered the phone. And the two nearly fainted when she said, “I’ll put him on.”
A moment later they heard a pronounced Brooklyn accent bark into the phone: “This is Sandy Weill.”
Their voices shaking with nervousness, the two young executives huddled over a speakerphone to pitch Commercial Credit as a “great opportunity” for someone with Sandy’s background and skills. He was just the kind of leader the company needed, they said. With little discussion of Commercial Credit’s specifics, Sandy asked them to come to his office in two days. They hung up and looked at each other in stunned amazement. They were going to meet with Sandy Weill! This man saved a dozen securities firms in the 1970s, Burner thought. Maybe he can save us. The surge of adrenaline overpowered Burner’s simultaneous queasiness about going behind his bosses’ backs to appeal directly to Sandy.
When Sandy hung up, he briefed Dimon on the call and asked him to hunt down the latest SEC filings and other documents on Commercial Credit and Control Data. Sandy hadn’t needed to ask his callers much about the company because he was already familiar with it. As president of American Express, Sandy had reviewed—and rejected—the Baltimore company when it was first being shopped around by Control Data in 1984. Commercial Credit simply wasn’t in American Express’s league; it was a messy mix of mediocre financial services peddled to a largely blue-collar customer base. Yet two years later the ailing finance company didn’t seem so pedestrian to a jobless CEO desperate to get back into the financial-services industry. Given the trouble he had fitting into the elite management of American Express, maybe a more down-and-dirty business devoted to working-class families would be a better fit. At least it was worth a look.
As Volland and Burner set out from Baltimore to pay their visit to Sandy, they fretted that someone from Commercial Credit would discover where they were going and what they were doing. They worried about keeping the meeting a secret and feared they would be fired if anyone knew about it. But they also feared that their bosses would laugh at the idea of recruiting Sandy Weill to run the company. They convinced themselves that their mission was to save Commercial Credit. If they couldn’t save it, they wouldn’t have jobs anyway. And what the hell, they were going to meet Sandy Weill! The risk was worth it.
When they arrived at the Seagram Building a very nervous Volland and Burner braced themselves to meet a real power broker. But rather than the stern and forbidding countenance they expected, Sandy, puffing a cigar, greeted them warmly and ushered them into his office, where he introduced them to Jamie Dimon. He immediately got down to business: “Why do you think I should be interested in Commercial Credit?”
The Baltimore visitors acknowledged that their company didn’t seem that attractive at first blush. It’s saddled with several stray and underperforming businesses, they told Sandy and Dimon, including an equipment-leasing unit in Israel and a unit that leased cars to ex-convicts, some of whom made off with the vehicles without paying. It had a $316-million portfolio of questionable foreign loans, mostly to Mexico, Brazil, and Venezuela. And it had been losing money hand over fist in 1985.
But, Burner hastened to add, “it has some real jewels in its core business of consumer lending,” and the company’s financial performance had been improving in 1986, suggesting a turnaround was possible. “Come take over Commercial Credit,” Burner pleaded. “We need a strong executive with your impressive background.”
Finding hidden jewels, slashing unwanted assets, and being a strong manager—those were all things that Sandy Weill knew he did better than anyone else. He and Dimon bombarded the young Commercial Credit managers with dozens of questions, demonstrating a keen understanding of where the problems and the opportunities in a company like Commercial Credit could be found. Then Sandy assured them he would consider their proposal and walked them to the door.
All the way back to Baltimore, Volland and Burner marveled to each other about how “down to earth,” “practical,” and “just plain human” Sandy was. “He had no arrogance,” Burner told Volland, “and he thanked us for coming!”
When Volland and Burner made their pitch to Sandy, they simply wanted him to be the president of their company and to turn it around. They didn’t realize that just running a company like Commercial Credit wasn’t something that interested Sandy. He not only wanted to run something, he wanted to be the absolute ruler of whatever he ran. Unless Sandy and Dimon could figure out a way to free Commercial Credit from Control Data and be in full control of the finance company, this prospect would join the three hundred or so other financial companies on the waste heap of rejected ideas.
Sandy and Dimon immediately began brainstorming ways to make Commercial Credit independent as they evaluated it as a stand-alone business. They were pleasantly surprised that it wasn’t as dinky as they originally thought. The company had offices in twenty-eight states, annual revenues of $1.1 billion, and assets totaling $5.5 billion—“not much smaller than Shearson,” Sandy observed. Dimon constructed a chart plotting the ten-year financial performance of similar finance companies. Every decent company had a return on equity in excess of 15 percent and an annual growth rate of 10 percent or more. Not surprisingly, Commercial Credit ranked near the bottom with a measly 4 percent return on equity. But that was okay with Sandy and Dimon. All they had to do was to manage Commercial Credit so that it reached the industry averages on growth and return on equity. That would produce a powerful surge in the company’s earnings and, ultimately, in its stock price if it was independent. Dimon noted that Commercial Credit wasn’t expanding the number of loan offices it had and seemed complacent simply to serve existing customers. That prompted Sandy to begin calling the company Rip Van Winkle. “It’s been fast asleep,” he said. “It has six hundred thousand customers, and I don’t see why it can’t have five million.” What’s more, Commercial Credit was in an unregulated and largely ignored industry that was highly fragmented. While there were big players like Commercial Credit and its chief competitors, Household and Beneficial, most of the twenty-eight thousand consumer-finance offices around the nation were parts of very small firms. That made the potential for acquisitions enormous, a substantial attraction to a world-class deal maker like Sandy. As the builder of Shearson, he could see that the current state of the consumer-finance business closely resembled the brokerage industry of fifteen years earlier.
Commercial Credit’s string of some four hundred lending offices typically consisted of four employees each, made personal loans averaging $4,000 and real-estate loans averaging $19,000, mostly at interest rates of 18 percent to 23 percent. “It’s better than banking,” chortled Dimon. “It’s a high-margin business with lots of small risks.” He noted that unlike banks, which borrow funds for short periods and lend them for long periods, consumer-finance companies mostly made short-term loans at high rates while borrowing for long periods at low rates. In practical terms, that meant that rising interest rates, which hurt bank earnings badly, wouldn’t be a significant factor for a consumer-finance company.
Sandy agreed: “It’s not the kind of business where you need big reserves to protect yourself from the unknown, because you write off a loan in six months.” In other words, Commercial Credit had the potential to be an enormous cash cow as long as it could borrow low and lend high. Of course, one of Commercial Credit’s major problems was that it couldn’t borrow low, because lenders were afraid Control Data’s cascading problems would mean any loans they made to Commercial Credit might not be repaid. The debt-ratings agencies had downgraded Commercial Credit’s credit rating several times. Thus lenders demanded much higher interest rates to make loans to the company, and those higher rates hurt Commercial Credit’s profits. Fixing the company’s credit rating was a must, Sandy knew.
Alison Falls took in all this excited analysis from her vantage point in the reception area. Finally, she couldn’t restrain herself. These two men, living in their pricey Manhattan apartments, driving expensive cars, and eating at the best restaurants, didn’t really grasp the essence of Commercial Credit and the exorbitant interest rates it charged borrowers who had no other place to turn. “Hey, guys, this is the loan-sharking business,” Falls interjected. “‘Consumer finance’ is just a nice way to describe it. My grandmother in Queens used to go there for a loan. My mother’s first refrigerator was financed through Commercial Credit.”
Immediately Sandy and Dimon leapt to the defense of their possible new employer. “This is Main Street, America,” Sandy scolded her, implying that anyone who thought finance should be restricted to the august corridors of Wall Street was a snob. Dimon, too, was indignant: “These customers are the same ones McDonald’s sells hamburgers to.” Suddenly Sandy was comparing Commercial Credit’s loan offices to Wal-Mart stores.
“That’s our model,” he told Dimon, noting that it was a huge company with a 30 percent annual growth rate that was built on selling stuff mostly to blue-collar workers in small communities. “Think of it as a platform,” Sandy said. “We need a financial-services company to grow from.”
Over the next several days Dimon and Sandy continued to analyze Commercial Credit, looking for any flaws that might make the company undesirable. Dimon placed numerous confidential calls to Volland and Burner, using their intimate knowledge of the company’s finances to test hypotheses and develop more refined analyses. Falls nicknamed the Commercial Credit duo “Deep Throat.” While the two men never disclosed inside information, they served an invaluable role in helping Sandy and Dimon identify which assets were vital to their developing strategy and which could be sold for cash.
Although Sandy had learned his lesson about keeping pending deals quiet after rumors spoiled his attempt to lead EF Hutton, he did want the input of one more person. Robert Lipp, one of three presidents at Chemical Bank, had been the architect of that bank’s very successful retail banking strategy and had ambitions for a bigger role. But those ambitions were likely to be blocked at Chemical by the bank’s chairman, Walter V. Shipley, who was only two years older than Lipp. When rumors about Sandy’s behind-the-scenes efforts to take over BankAmerica had begun sprouting, Lipp, who knew Sandy casually through New York charitable circles, had requested a meeting with Sandy to tell him that he might be available to help him if Sandy’s bold bid for the top spot at BankAmerica succeeded. Now Sandy wanted to hear what Lipp might say about Commercial Credit. He called Lipp and told him in confidence what he was thinking about and asked the banker to stop by the Greenwich house Sunday morning. When Lipp arrived, he was armed with several long sheets of yellow paper on which he had jotted notes and analysis while doing some independent research on Commercial Credit. Sitting on the back porch overlooking the garden, Lipp told Sandy and Dimon how Commercial Credit’s branch system could be run more efficiently and effectively. Sandy surmised during their conversation that Lipp might be interested in—and, more important, extremely valuable at—helping run the consumer-lending outfit. If Sandy could win it.
Soon after the back porch meeting, the Weills invited the Lipps to dinner at the Greenwich mansion. Knowing full well what was happening, Lipp told his wife, Bari, a fashion industry executive, that the evening would be the “requisite dinner” to see if Sandy and, more important, Joan thought the two men could build a partnership. “With Sandy, it’s not just business, it’s a personal relationship,” he told her. Dressed casually in sweaters and slacks, the two couples had drinks on the patio and enjoyed one another enormously. Lipp and Sandy shared the same hands-on, no-nonsense management style and a dry wit; Joan and Bari talked about their children—each couple had a son and daughter—and fashion. Bob Lipp passed the test.
Meanwhile, Control Data was running out of ideas on how to unload Commercial Credit. Security Pacific Corp. took a good, hard look at the company but walked away after doing due diligence. With its access to fresh capital choked off, Commercial Credit was having to sell any business it could to meet maturing debts, and Charles Prince, the company’s lawyer, told his bosses there simply weren’t any takers for the core consumer-lending business.
Then along came Sandy Weill. Flying on the budget-based airline People Express to Minneapolis, Sandy, Dimon, and Morgan Stanley investment banker Robert Greenhill, a longtime friend and advisor to Sandy, called on Control Data chairman Robert Price. The offer they made was a variation on Sandy’s BankAmerica pitch: Sandy would become chief executive of Commercial Credit, and from that vantage point he would help Control Data spin off the company in a public offering. Under the plan the computer maker would sell an 80 percent stake in Commercial Credit, 70 percent to the public and 10 percent to the management group Sandy headed. Suddenly Price had a solution to the crushing problems facing his company. Desperate for the cash that the spin-off of Commercial Credit would make available, he agreed almost instantly to Sandy’s plan.
Within days Control Data’s board gave its consent to the deal and lawyer Chuck Prince was dispatched in utmost secrecy to thrash out the details with Sandy. Meeting in the conference room at Ken Bialkin’s law firm, Prince was shocked at how aggressively Sandy negotiated. It was as if every dollar would be coming directly out of his own wallet. While that wasn’t strictly true, it was a fact that Sandy would be putting up $6 million of his own money to buy Commercial Credit stock at a negotiated price of $18 a share. Dimon was included in the negotiations, too; he had managed to scrape together $425,000 to buy Commercial Credit stock. When Prince presented the entire agreement to Sandy, including the details of Sandy’s employment package, he joked that “I know I’m making at least one good hire in my life.” Despite the head-to-head negotiations they had just gone through, Sandy liked the young lawyer’s humor and attention to detail.
The time came to get a closer look at just what he was buying and to see if he and Commercial Credit’s current chairman had anything in common. He asked Falls to do a little research on Joe Minutilli, and as he prepared to leave the office for Baltimore he quizzed her about the man.
“Does he have a family?” he asked.
“No family,” Falls replied.
“How long has he been married?”
“Never married,” Falls said.
“Does he play golf?” Sandy inquired.
“Can’t tell,” she said.
“Do we have anything in common?” Sandy asked plaintively.
“He owns a restaurant somewhere,” Falls volunteered.
“Great, I love to eat in restaurants,” Sandy said on his way out the door.
Minutilli had not been informed of the negotiations between Sandy and Control Data until the deal had been agreed upon. At age fifty-eight Minutilli had already been planning to retire in the next few years after a thirty-five-year career at Commercial Credit that began as a repo man, chasing down deadbeats and repossessing their cars. With a partner Minutilli owned a fancy classic American restaurant called Kirby’s in a historic mansion in Lewistown, Pennsylvania. One of Minutilli’s hobbies was restoring historic buildings; the mansion that housed the restaurant had been one of his early efforts. He also owned a farm in Port Royal, Pennsylvania, and he had restored the large stone farmhouse that had been built in the 1820s. He loved fine wine and antiques.
Their meeting took place in a Baltimore hotel restaurant that Minutilli selected as a place where the two men wouldn’t be seen by local notables. Sandy, who normally made the wine selection for a dinner, left it up to Minutilli, who ordered a fine red to accompany their dinner of red meat. Both smoked voraciously during the meal, Sandy puffing a cigar and Minutilli inhaling one cigarette after another. Minutilli, a reserved man, was surprised at how much he liked the candid man who would replace him. Sandy, in turn, found that he liked and respected Minutilli, both for their shared interests as well as Minutilli’s grace in accepting the fait accompli presented him.
In subsequent trips to Baltimore in the early fall of 1986 Sandy and Dimon concluded that their ambitious plan to revitalize Commercial Credit would require more management horsepower than the company had available. The first call went to James Calvano. Sandy had first met Calvano in the summer of 1981 when the two were seated next to each other on American Express’s jet en route to a golf outing that the company sponsored for its travel-related clients at the famed Augusta National golf course. Calvano was president of Avis Rent a Car, and during the flight Sandy peppered him with questions about Avis’s staffing, expenses, and cost controls, interspersing his questions with grousing about American Express’s high overhead costs. When, later that summer, Sandy read news accounts that Calvano was leaving Avis for “personal reasons”—he had lost a battle with a major shareholder over Avis’s long-term strategy—he alerted his colleagues in American Express’s travel-related business that they might want to talk to Calvano. Gerstner hired him in October 1981, and Calvano rose quickly to become a vice chairman. But after Sandy’s departure, relations between Calvano and Gerstner deteriorated, and Calvano had resigned early in 1986.
“Meet me in Baltimore for lunch,” Sandy told Calvano. “I’ve found a place with great crab cakes.”
“Sandy, for Christ’s sake, Baltimore?” Calvano replied. “Why? What are we going to talk about?”
“You’ll love the crab cakes,” Sandy demurred.
“I don’t happen to like them,” Calvano said, urging Sandy to spill the beans.
“I can’t tell you until I see you in person,” Sandy said. “Just get down here.”
Assuming that Sandy had something cooking that might be worth talking about, Calvano drove from his New Jersey home to Baltimore. At lunch Sandy told him about his plans for Commercial Credit.
Calvano’s initial reaction was laughter. “Who? What? Commercial Credit?”
For two executives who had been at the apex of the finance industry to be talking about making comebacks through a consumer-finance company at the bottom of the food chain struck Calvano as ludicrous. “Sandy, this just doesn’t compute. Are you really serious?” he asked.
Wincing at the put-down, Sandy persevered. “Commercial Credit is just like any other financial-services business—you take care of customers, build distribution, cut costs, develop a brand.” Calvano still didn’t seem convinced, but Sandy kept pressing. “We can make money with this company. It can be a good platform.” The rest of the lunch was spent discussing how they could build and grow the company.
On Friday, September 12, 1986, Control Data announced its agreement with Sandy Weill to spin off Commercial Credit. The computer maker’s chairman praised Sandy’s ambitious plan and his proven track record and predicted a great future for Commercial Credit. That forecast was endorsed by the bond ratings agencies: Both Standard & Poor’s Corp. and Moody’s Investors Service promptly raised Commercial Credit’s debt ratings, making it instantly easier for the company to borrow much-needed cash to finance operations.
The press coverage of the announcement focused more on Sandy than on the ailing Control Data. “Top executives at Merrill Lynch & Co. and EF Hutton Group can breathe easier: Sandy Weill finally got a job,” wrote BusinessWeek. The fifty-three-year-old wasn’t returning to the business he knows best, the magazine noted, but rather the “comparatively unglamorous field of consumer finance.”
The following Tuesday, Sandy, Dimon, and Bialkin swooped into Baltimore to meet Commercial Credit’s managers, all of whom had been furnished a package detailing Sandy’s background as “one of America’s most distinguished financial-service executives.” Chuck Prince, who was the only manager besides Minutilli and Sandy’s two “Deep Throat” sources to have met the new boss, sensed his colleagues’ excitement at being liberated from their overbearing parent company by this “A-team” from the financial capital of the world.
With the public sale of Commercial Credit stock pending, Sandy told his new staff that SEC regulations forbade him from giving out details about the plans he had for the company. “My lawyers told me all I can say is that I’m happy,” he said. “I’m happy, believe me, I’m happy.” Then he tried to convey some measure of how happy he was by recounting his management philosophy. “We’re all going to have a heck of a lot of fun doing this and be proud of what we build,” he concluded. “Let’s not do this because we have to do it for the paycheck. Let’s do it because we love it.”
When Sandy returned to New York City, he found an office transformed from lethargic to lively. “The phone calls have started, baby,” Falls chirped to Sandy when he walked in the next morning. Now that he was a fully employed executive again, Sandy was getting congratulatory calls from executives around the country. But the person he really wanted to talk to was the man who had sought him out when he seemed to have no friends: Bob Lipp. On the evening of Rosh Hashanah, Sandy called Lipp at home, where he was entertaining guests. “I just want to wish you a happy new year,” Sandy told Lipp, “and to tell you how much I would love for you to join me at Commercial Credit.” Lipp didn’t have to be sold. He jumped at the chance to be downwardly mobile in return for the upside potential of helping build a financial conglomerate from scratch and reaping big financial rewards.
A public company with all its constituencies and regulations is a very different animal from the partnerships that Sandy used to run. Thus he wasn’t able to offer Lipp, Dimon, Calvano, and others he quickly recruited to his management team huge stakes in the company, because the shares weren’t his to offer. But he did try to create something like the entrepreneurial environment that can make partnerships so effective. He asked each of his new executives to take pay cuts, which could be offset by generous stock options potentially worth millions. “If we do this right, we will all do very well,” Sandy cryptically told Calvano, who had agreed to join Sandy despite his early reservations. Sandy structured the spin-off so his executive ranks would own 10 percent of the company at a discounted price, a huge incentive to think like partners and work to increase the price of Commercial Credit stock.
In late October, 38 million shares of Commercial Credit were sold to investors in one of the largest offerings in the nation’s history. Sandy and Joan Weill went to the floor of the New York Stock Exchange for the market’s opening. At Sandy’s insistence, Joan, for good luck, bought the first share of Commercial Credit stock, traded under the new symbol CCC. Sandy was giddy with excitement to once again be at the helm of a public company, and lots of other investors seemed giddy at the prospect as well. Many of the investors who placed orders for CCC that day knew little or nothing about the obscure lowbrow company. Instead, they were betting on Sandy Weill, roughly the equivalent of betting on a jockey rather than a horse. Many of the 5,700 brokers at Shearson Lehman, staunch believers in their former boss, bought millions of shares for the portfolios of their clients. The offering raised $850 million and, with the stock selling at $20.50, Sandy had an immediate paper gain of nearly $700,000 on the 273,733 shares he had purchased just a week earlier for $18 a share. But he wasn’t thinking short term. He knew that with his options to purchase another 3.3 million shares in the future at $19.48 a share, he would make $3.3 million for every dollar Commercial Credit stock rose. As chairman, Sandy had the power to award options to his executives as well. Dimon, his loyal assistant through exile and the new chief financial officer of Commercial Credit, was given the second greatest number of options. Shocking the banking world with his departure from Chemical, Lipp took a 50 percent pay cut from his $680,000 salary to become Commercial Credit’s executive vice president in charge of consumer finance. He received slightly fewer options than Dimon.
As the head of the newly public company, Sandy wanted to throw a party for his troops when he planned to visit the next week. He called the human-resources director, Barry Mannes, who recommended that the meeting be held in the cafeteria, the biggest room in the building. “Let’s have it at five-thirty,” Sandy suggested. “Then we’ll have cocktails and have it catered.”
“Sandy, five-thirty is too late,” Mannes replied. “Baltimore is not New York. There’s no subway system. If employees don’t catch their bus at five, they might be here until nine o’clock.”
Bewildered at this rush to leave work, Sandy agreed to start the party at four. But when he hung up, he knew that kind of clock watching would be a thing of the past for anyone who wanted to work under his regime.
The next week found Sandy nervously pacing the executive floor of Commercial Credit’s 1950s-vintage headquarters in downtown Baltimore. The party would start in a few minutes. “I just want to make sure I say the right thing,” Sandy muttered to no one in particular. Michelle Krabbe, the executive-office manager, overheard the remark and thought to herself, My god, here is this man who just took us public and he’s scared to death to speak. She was relieved. He’s human after all, she thought.
Many Commercial Credit employees weren’t as sure as Krabbe that their new boss was human. All week long the workers had been circulating old press clippings about Sandy—the ruthless cost cutter, the hot-tempered tyrant, the insatiable deal maker. The rank and file were thrilled that Commercial Credit was getting a second chance under Sandy Weill, but overlaying the thrill was individual terror for their own jobs. The afternoon of the party a steady stream of employees found excuses to visit the executive floor, just to catch a glimpse of Sandy. With his portly profile, he didn’t look too ominous; in fact, he wasn’t very impressive looking at all, they whispered. Around the water coolers and in the bathrooms that afternoon, a consensus developed. “Commercial Credit is in desperate shape,” George Hupfer, a tax manager, told his colleagues. “If we don’t get behind Sandy, we’re all cooked anyway. We have to throw in our fates with his.”
When Sandy entered the bare-bones company cafeteria for the party, hundreds of employees gave him a hero’s welcome. Because nearly every person at headquarters was crammed into the cafeteria and spilling out the doors, the Formica tables and chairs had been shoved against the walls, which were decorated with huge banners declaring INDEPENDENCE DAY. Minutilli, the previous chairman who would be put on the new board of directors, presented Sandy with a big black T-shirt with Sandy’s face silk-screened on the front. Emblazoned around Sandy’s smiling face were the slogans the Commercial Credit managers had discerned as Sandy’s philosophy: WORK HARD! HAVE FUN! BUY COMMERCIAL CREDIT STOCK!
With the crowd cheering, Sandy pulled the T-shirt over his dress shirt and tie. Still a terrible and frightened speaker, he got out a few words. “I believe most of all we should be a team. We’re working together,” he said. “We’re here to help each other, not to hurt each other.” Then he told everyone, “Call me Sandy. No calling people Mr. This or Mr. That.” The employees cheered. Trying to bring his speech to a close, Sandy asked if anyone had questions for him.
The head of the strategic planning department took the microphone and asked: “Sandy, can you share with us your philosophy of strategic planning?”
“I get up in the morning, I read The Wall Street Journal, and I make a strategic plan for the day,” Sandy responded. The department head looked stricken. This was someone who created massive books of five-year plans, and it was painfully clear the new boss would have no use for all those plans. After several other questions, a longtime employee from the accounts-payable department took the microphone.
“Mr. Weill, tell us the truth. You’ve come here from New York to rape us,” she said as everyone stood in stunned silence. “You will scrunch us down and then sell us to the highest bidder.”
“That’s absolutely wrong,” Sandy snapped. “I have built one empire in my life—which was Shearson. And I want to do it one more time before I retire.”
His forceful answer drew more cheers. He offered a toast to Commercial Credit’s new status as a publicly traded and independent company. Then Sandy and Minutilli cut the three-foot-long “freedom cake,” ending the official presentation. Employees began circling around Sandy to introduce themselves and shake his hand.
After a few hours of greeting and drinking, Sandy headed up to the executive floor. He just stood there for several minutes, looking at the offices and out the window at Baltimore’s Inner Harbor. Rose Wilz, an executive secretary, ran into him as she fetched her bag to go home.
“Congratulations,” she said. “It looks like everything is going well.”
Sandy looked at her tentatively, still uncomfortable with small talk. “I have a job!” he blurted.
“Well, good night” was all Wilz could respond to such a curious statement.
As the most tumultuous year in his life drew to a close, Sandy had the business title he craved: chairman. And he also had finally obtained the title that would mark his arrival among the cream of New York City’s society circles: benefactor. When Sandy agreed to cochair with James Wolfensohn the $50-million effort to restore Carnegie Hall, he knew that he would have to put his money where his mouth was. He determined early on to make a bold statement about his intentions to be part of New York’s elite. Wolfensohn had already contributed $1 million to the restoration fund. Social doyenne Brooke Astor had upped the ante to $2 million. Then Sandy Weill stepped forward and pledged $2.5 million, the single largest contribution to the hall since Andrew Carnegie had funded construction of the magnificent auditorium in 1891 with a gift of $3 million.
Sandy’s contribution paid enormous dividends. The debut of the refurbished hall in a gala concert on December 15, 1986, also marked the debut of Sandy among New York society. On this crisp wintry night, Sandy and Joan, along with a distinguished group of New York dignitaries, arrived at Carnegie Hall in a parade of horse-drawn carriages. As they walked down the red carpet under the floodlit marquee of the newly resplendent hall, Sandy and Joan were greeted by television cameras and the blinding flash of strobe lights as photographers captured Manhattan’s most prominent entertainers, moguls, socialites, and politicians. Once inside the glitziest social event of the season, the Weills sipped champagne alongside Rockefellers, Astors, Vanderbilts, and Kennedys. As the concertgoers made their way to the new red velvet seats, the Weills were shown to one of the prime locations in the hall—a first-tier box, front and center. Other titans of business and industry, including Armand Hammer, Rupert Murdoch, John Gutfreund, Carl Icahn, and William S. Paley, sat in boxes along the side. A glimpse around him told Sandy that his seats were even better than those of fashion designers Oscar de la Renta and Ralph Lauren (who designed the new red-and-black uniforms for the hall’s ushers), actor Gregory Peck, Dallas star Larry Hagman, Maureen Reagan, Beverly Sills, and Mayor Ed Koch.
In the packed auditorium, Sandy and Joan Weill bumped into George Sheinberg, the former American Express treasurer who had rejoined Shearson after falling out with Sandy over the purchase of IDS. Sandy had cut off all contact with Sheinberg. Now they awkwardly stood face-to-face for a moment.
“I guess I should thank you for helping revive Carnegie Hall,” Sheinberg stammered. Sandy gave him an icy stare and moved into the crowd. Turning to his date that evening, Sheinberg said, “I used to be that man’s best friend.”
With his newfound appreciation of classical music, Sandy thoroughly enjoyed the four-hour concert, featuring the New York Philharmonic under the direction of Zubin Mehta. The orchestra performed Wagner, Haydn, and a new piece written especially for the event by Leonard Bernstein. Pianist Vladimir Horowitz gave a surprise performance, followed by cellist Yo-Yo Ma, mezzo-soprano Marilyn Horne, and virtuoso violinist Stern. After the intermission, Frank Sinatra, accompanied by the Peter Duchin Orchestra, sang crowd favorites including “Mack the Knife” and “Theme from New York, New York.” But not even such bountiful and beautiful music could compare with the thrill that Sandy had felt when the concert opened with “The Star-Spangled Banner” and he was brought to center stage and publicly thanked by Isaac Stern for heading the effort to restore the hall to its former splendor.
After the concert, the Weills were guests at Petrossian restaurant at a small, exclusive supper for the celebrity performers. Dining on caviar, smoked salmon, medallions of veal, and French pastries, along with plenty of Veuve Clicquot champagne, Sandy relished his star treatment until three o’clock in the morning.
With $2.5 million, Sandy had secured the recognition usually accorded Brooke Astor and David Rockefeller. Carnegie Hall even named the restored and smaller recital hall for Joan and him. His gift had purchased a significant niche in the upper reaches of the New York philanthropic and cultural world. From now on, references to Sandy wouldn’t include solely his Jewish and Brooklyn roots, but also his new place in New York’s establishment.
A media hound, Sandy was thrilled to see his photograph in New York’s Newsday the next morning. But when he read the caption, he realized he still had a way to go in gaining the recognition he craved from the press. The caption mistakenly identified him as the opera singer Sherrill Milnes. But then he read something even better than he could have imagined. The Chicago Tribune’s article on the gala mentioned him in the same paragraph with the Rockefellers and Astors! Sanford Weill was identified as one of the “modern-day equivalents of Carnegie, Mellon, and Morgan.”
He knew he had better work miracles at Commercial Credit to live up to that billing.