CHAPTER 12

THE FRANCHISE

On Java, the most populous island in Indonesia, there is a fable about a beautiful but deadly tree—known as the upas (the word means “poisonous” in Javanese)—that emits such noxious odors that nothing around it can grow. A Dutch physician who visited the island in 1783 and claimed to have seen the tree firsthand wrote of it: “Not a tree nor blade of grass is to be found in the valley or surrounding mountains. Not a beast or bird or living thing, lives in the vicinity.” No less an authority than Erasmus Darwin, grandfather of Charles, repeated the tale eight years later.

The effect of the upas is a useful metaphor to describe the fate of many, if not all, of the partners who toiled away in anonymity for Felix while he became an investment banking legend. His modus operandi was to have at least one, more junior, partner work for him on all of his important deals and be responsible for coordinating the larger team that did the actual deal execution—due diligence, crunching the numbers, putting presentations together, staying up all night, and so on—while he wisely focused his energy on coaxing along the principals and wowing the board of directors. But the landscape is littered with frustrated bankers who worked for Felix—no doubt thinking it was a ticket to stardom, only to be disappointed to find there appeared to be no limit to Felix’s own ambitions. “[Felix] has been cutting people off at the knees for years,” one man told New York magazine in 1996. “Anyone who has gotten close to him has gotten fucked.”

One of the best-known examples of this phenomenon is the well-documented story of the former Lazard partner Peter Jaquith. A graduate of Andover and Dartmouth, Jaquith joined Lazard in 1970 after having been an associate at Shearman & Sterling, the Wall Street law firm. He worked for Felix on many deals, including those for Seagram. “He was my chief lieutenant,” Felix told the New York Times in a lengthy profile of Jaquith. “When transactions needed financial and legal structuring, he worked on that.” Jaquith was one of Lazard’s best-paid partners and accumulated a fortune, with all the requisite toys, of some $20 million at one time. But according to the Times article, which chiefly described his sad descent into drug addiction and destitution, Jaquith began to resent his “secondary role” at Lazard. He remembered a closing dinner in 1981 for a Seagram deal, held at the “21” Club, where Edgar Bronfman, the Seagram CEO, singled him out for public congratulations. Bronfman’s father had been the man who, more than twenty years earlier, had advised Felix to get out of foreign exchange and work on mergers at Lazard with André.

Felix, sitting nearby, was not happy. “I think Felix was jealous,” Jaquith explained later. “Right after that, he took me off the account.” What’s more, after the Seagram dinner, Jaquith claimed, Felix increasingly shut him out of other deals. Fed up, he left Lazard in 1985. Felix rejected Jaquith’s assessment. “I was happy with his work and sorry to see him go,” he told the Times. After Lazard, Jaquith had successive jobs at Forstmann Little, at Bear Stearns, and even at his own investment firm, Tilal, an acronym for “There Is Life After Lazard.” His own arrogance and addictive behavior contributed mightily to his professional and personal demise. Finally, after years of struggle, at the end of 1997 he broke his addiction to alcohol and crack cocaine. He tried to return to Lazard. He made an appointment with Michel and went to see him at his new office in 30 Rockefeller Center. “We met at his office, and I told him I knew some of his executives had left and he might need someone,” Jaquith explained. But of course, it was not to be. Michel wrote him a letter, saying, “As you may know, we have always had a policy of not rehiring people who have left”—which wasn’t exactly true. In editorializing about this scene, the New York Observer wrote, “Mr. David-Weill apparently lacked the empathy to reach out even a little—not necessarily by hiring Mr. Jaquith, but certainly he could have done something that would give his former colleague some support. Mr. David-Weill may have inherited a fortune, but he seems to have squandered a more valuable asset: his character.” Jaquith now lives alone in a small apartment in Pasadena.

There are other, far less dramatic examples of the frustrations felt by partners who worked for Felix. David Supino, like Jaquith a former associate at Shearman & Sterling, also worked briefly for Felix. He recalled a deal early in his career at Lazard when Felix’s client Charles Revson wanted to buy a small private company in Boston. Felix asked him to go to Massachusetts and perform the due diligence. Once there, Supino understood that the CEO wanted a higher price for his stock than he wanted the other stockholders to receive. With his legal background, Supino quickly realized “this was illegal.” He reported the discussion to Felix. “Felix took in what I was saying, and the next day I was taken off the case,” he remembered, explaining that the deal never happened.

Supino, who speaks fluent French, also worked with Felix on a number of early Franco-American, cross-border deals. He recalled that Felix made it very clear that Felix alone would speak to the CEO and Supino would not. Once when the CEO called Supino and Felix was not around, word got back to Felix about the conversation. “That’s the way Felix liked to run things, and if in fact you departed from that stratification of duties, then he got very upset,” he said. “I remember one time he called me up and he said he had heard I had talked to [the CEO] and he said, ‘How could you do this? It is terrible.’ He was yelling at me.” Supino concluded that working for Felix was “very difficult because it was unrewarding. He never wanted you to get any credit with the client or for that matter within the firm. What I observed working for Felix was that Felix had a track record of having young partners or senior associates work for him and for one reason or another they fell out with him. He dismissed them from working for him, and thereafter their careers were stalled.” While Supino found the assignments “interesting” and “exciting,” he decided that working for Felix was “a dangerous position for me to be in at the firm” because it was “at best a dead end and at worst a death sentence.”

He decided that to survive at Lazard, he had “to engineer a way to get out from under Felix’s thumb.” In 1980, he got a call from Art Newman, then a partner at Ernst & Young, asking him to get involved with the financial restructuring of the White Motor Company, one of the largest American truck manufacturers. White, based in Cleveland, had recently filed for bankruptcy. Supino saw restructuring-advisory assignments as his ticket to getting away from Felix. He grabbed the opportunity and created one of the best restructuring practices on Wall Street. He forged a successful career at Lazard, away from Felix. Felix’s initial response to Supino’s decision? “David, I don’t understand why you are working in the cancer ward.” Supino described Felix as “a very insecure person” who “is the ultimate user. Once he has no use for you, he tosses you aside like yesterday’s stinking fish.”

Luis Rinaldini also knew this to be true about Felix, although since he is still a working banker he is more diplomatic about it than Supino, who has retired from Lazard. Upon joining Lazard as an associate in 1980, Rinaldini quickly perceived that Felix was always looking for bright, hardworking, ambitious associates to work for him. “He wasn’t interested in explaining things to people,” he said. “He wasn’t interested in training anybody, he wasn’t interested in mentoring people. He just wanted someone who could read his mind. So when he said, ‘Have you thought about that?’—like Radar on M*A*S*H—I said, ‘Yeah, here it is. Weren’t you going to ask me about this analysis?’ We just clicked and we got along and I ended up working on most of his things.”

It wasn’t quite that simple, though. Rinaldini recalled that Felix would often ask three or four people to do the same task. “I never really knew if this was on purpose or because he was not sure of where to go and was just starting four people going to see what they would come up with or because he had forgotten he’d given it to three guys and gave it to the fourth guy or because he was just actually starting four hares running just to see which one would run the fastest. But it was very sort of capitalistic in that sense. There was a bid and an ask, and if the bid and the ask were right, he’d buy.” He seriously doubted that Felix did this in a haphazard way, if only because he was so brilliant and so hands-on. “He could tell you the numbers,” Rinaldini recalled. “He could memorize. He had a great memory. He’d look at it once and memorize it. You’d go into his office with one analysis, and then come back with another, and he’d find a mistake. The EPS was $1.15 in the last presentation, and now it’s $1.17 in this presentation, and he’d say, ‘I thought this was $1.15, how could that happen?’” This being the days before computers were prevalent—not that Felix used a computer anyway even when they were—Felix “would literally take out his slide rule and check your numbers” and find the mistakes.

Mostly, though, Rinaldini credits Felix with teaching him that, like the rich, “CEOs are different” from you and me. Felix’s partners found him to be the most astute CEO “psychiatrist” they had ever seen. “What he really did is he managed the amount of information and the way it was communicated to the people he talked with,” Rinaldini said.

The only other person I saw who had the same kind of natural talent for doing that was Steve Rattner in the sense that you could see the change when he got on the phone. Because so-and-so was on the phone, Felix kept it concise. He edited well. He didn’t bring in all this extraneous shit. What I call this is synthesis. You take 170 different inputs and you don’t discard 167 of them and say what matters are these three, you say, taking it all together, these are the things that matter—this matters, this matters, and this matters, we’ve taken everything into account…. It’s kind of like Felix being Radar for them. And they say, “Fabulous, that’s what I need. I need a guy who can cut through all these financial equations…and tell me what matters for the decision I am trying to make.”

In the wake of Jaquith’s falling-out with Felix, Rinaldini became Felix’s new wingman. “He was Felix’s butt boy,” was the way the partner Ken Wilson described him. “He kind of treated him like dog meat.” The Time-Warner merger, the GE-RCA deal, MCA’s purchase of Geffen Records, the sale of SeaWorld to Anheuser-Busch, the sale of MCA to Matsushita, the infamous RJR Nabisco sale to KKR—all these, and more, fell to Rinaldini to execute. He was completely under Felix’s spell, a phenomenon Wilson found absurd coming from a firm such as Salomon Brothers. “I was really shocked, a senior guy like Luis doesn’t seem the guy who’d be running around, you know, at Felix’s beck and call,” he said.

But like those before him, after some ten years at Felix’s side, not surprisingly Rinaldini began to chafe and feel increasingly frustrated. “The only issue I had with Felix ever is that Felix was not able or willing to transfer his clients on to the younger people,” he explained. “So I would talk to him about that and say we ought to have a lunch with Jack Welch, or on this Warner stuff, let’s pick two or three areas where I can take charge. Otherwise, you don’t advance.” Like other homegrown Lazard bankers, he found that when he became a partner and was expected to bring in business, he was at a loss about how to do so, having worked for Felix all those years. What Supino knew intuitively, Rinaldini learned the hard way. “Clearly when I was made a partner, I wasn’t ready for the commercial side,” he recalled. “I could certainly act like a partner, talk to any CEO in the world, go to any board meeting. I knew I wasn’t ever going to embarrass myself…. I’d learned how to behave in grown-up company, but pitching new business and getting out, getting hired on my own without the Felix crutch, was very hard work.” It dawned on Rinaldini that “even though I was having a fabulous time” working for Felix on all of these landmark deals, “I kind of had to find a way to break off and do things on my own. And that was actually difficult because I was so involved with all of the things that he did that I probably didn’t do it very elegantly and I was clumsy about sort of breaking away from things.”

His frustrations with Felix came to a head at a dinner Michel held for a small number of partners in 1991 at his apartment at 820 Fifth Avenue. The idea for the dinner had been to clear the air of the frustrations felt by some of the younger partners toward the older partners, the thought being that the older partners, such as Felix, needed to begin relinquishing control of some coveted accounts so that the junior partners could develop commercially. Rinaldini, who grew up in New Rochelle, cultivated an image as a “fiery Argentine” after his father, a doctor, moved the family to Argentina when Luis was in college. Rinaldini is a fierce and well-regarded “gentlemen’s” polo player and once commissioned a six-foot-by-four-foot oil portrait of himself—costing upwards of $30,000—wearing his polo uniform and holding his mallet and helmet. At Lazard, Rinaldini was known to be emotional and capable of losing his considerable temper. There are stories of associates nearly being hit by one of his absurdly wide Gucci loafers after he chucked it in a fit of pique.

The dinner started out innocently enough with a discussion about how to help younger partners develop better commercial instincts, a subject Rinaldini had some strong opinions about. But he wasn’t the only one who had these feelings. Others did, too. As the Château Latour flowed at the dinner table, Damon Mezzacappa voiced his concern that the discussion hadn’t yet been frank enough. The group moved to the living room, and the debate sharpened. “I think Luis had one drink too many,” Mezzacappa remembered. “And he went off on a tirade. He attacked Felix a little bit and used a bunch of four-letter words, something we never did in the presence of Michel, frankly out of respect. Felix was sitting there. And well, that was the end of Luis.”

Rinaldini unloaded on Felix all of his pent-up frustrations during the past ten years. According to those who were there, it was a painful moment to endure. “It was difficult for me to get out from under Felix because every time I tried to go out and do things on my own, I’d get five things handed to me that I had to do,” Rinaldini recalled. “And they were important. So I was kind of living under the gun and pressure from Felix that you’ve got to do this, this, and this. The firm wasn’t doing anything to help on this front, and you can’t complain when you get to play for the Lakers, but you’ve got to understand there were pressures involved, too. It’s not all fun and games. I mean, there was zero career development, to put it in the simplest terms. I kept saying, ‘So, what am I going to do? Go to battle with Felix?’ I mean, fuck it. First of all, it would be horrendously stupid, and second, I would lose. So why do I have to make that choice?”

In retrospect, Rinaldini thinks he was being too forceful an advocate for change before Michel and Felix were ready to change, if ever. “I think for both Michel and Felix that was kind of too cosmic,” he said. “It was like, ‘What are you talking about? Go back to fucking work!’” For his part, Felix said he had no recollection of the evening or the incident whatsoever. Immediately after the dinner, though, he took Rinaldini off all of his deals. Rinaldini spent another ten years at the firm doing what deals he could on his own before leaving to join First Boston in London.

Jeffrey Leeds, a former vice president at Lazard who worked for both Felix and Steve on many deals during his six years at the firm, has an entirely different take on his time working for Felix. It was a more charitable view of what it was like working for one of the legends of investment banking, and it is a view shared by many of the younger nonpartner bankers who felt under less pressure from Michel to originate deals and fees. “Felix’s view,” Leeds explained, “would be, ‘Excuse me, what do you mean by loyal? You’re right I don’t have this sense of politics within the office. I’m just trying to do great work here, work that’s interesting. And if I ask you to work on this project with me, it doesn’t fucking mean that we just got married. I’m sorry but nobody told me that was the deal.’ He had no interest in mentoring. When I worked for him, as I said to him recently, ‘You weren’t nice, you weren’t charming, but I fucking learned a lot.’…But I didn’t really feel like I was owed anything. Some of these other people may have felt they were owed something.”

Younger bankers at the firm referred to Felix as “the Franchise” and would exclaim—perfectly seriously—“What a Franchise!” after Felix’s role on an important deal became known. Leeds elaborated: “I think it was clear to those of us who worked there that there was a hierarchy of talent and productivity. And other people on Team Lazard would score touchdowns, but that was only after Felix had carried the ball to the one-yard line or they would fake it to Felix and someone else would have an open field to carry the ball and they would spike it as if it were them. But you take Felix off the team, you suddenly find that you’re going nowhere and all there is is a cloud of dust.”

STEVE RATTNER, WHO was at the emotional partners’ dinner at Michel’s apartment, didn’t speak up. Rinaldini’s concerns were not his concerns. He had his own clients. And they were hiring him and Lazard to do deals, lots of deals. Bankers at all levels were increasingly cognizant of Rattner’s growing importance inside the firm. He had no intention of haphazardly stumbling into Felix’s orbit; if he and Felix were to work together, it was going to be on Steve’s terms and as close to equals as could be managed. Steve was able to pull it off because his deal-making prowess stood in bold relief to that of almost anyone else, and particularly when compared with Loomis’s less than robust contributions. Felix had assigned Loomis to, among others, ITT, International Paper, and Leslie Wexner and the Limited, but increasingly, the often difficult Wexner was taking his business elsewhere. Ironically, in earlier years, Loomis had ridden his singular success with the Limited to a Lazard partnership. In truth, only Felix and perhaps Ira Harris were bringing in as much business as Steve.

And the more junior bankers were clamoring to work for him, a sure sign in the Darwinian canyons of Wall Street that Steve was gathering some serious momentum. One of those, Peter Ezersky, had come to Lazard as a vice president from First Boston in 1990 as an M&A generalist. He arrived at Lazard exceedingly well informed about what it took to succeed there. “Kiss up, crush down” was how the junior bankers described his approach. By the first quarter of 1992 he was quietly discussing with both Rattner and Loomis his desire to join Steve’s media group. In March the matter was coming to a head. Loomis decided to put his thoughts on paper. It is not clear how helpful he was to Ezersky as he wrestled with the prospective move. “As a generalist who is both exceptional and just below the level of partnership, you find assignments complicated by your role vis-à-vis some of our partners in relationships which are complicated by their nature. Specifically, the partners only partially involve you in decision-making while leaving you fully to deal with the result…. As a positive incentive, you correctly observe that Steve Rattner combines remarkable ability, good communication and advice, a willingness to delegate, when appropriate, and important business.” Loomis conveyed his bias toward having Ezersky stay a generalist. Still, he said he would support Ezersky in his switch “provided that you think about it for a couple of weeks and have one more conversation” with Michel since “you are close enough to the point of consideration [for becoming a partner] that it would be foolish from your personal perspective to change your role without his support. And from the firm’s perspective, you also have an obligation, in such case, to explain the sources of your frustration in a candid and explicit manner with specific examples for illustration. You should not silently leave us with the unpleasant while you escape to the pleasant…. And you are Lazard, so you share responsibility with the rest of us.” Wow. What a heavy trip to lay on a young banker simply endeavoring to pursue a new area of interest. In short order, Ezersky had his conversation with Michel and moved to join Rattner in the media group. The buzz around Lazard was that the inhabitants of the two corner offices on the thirty-second floor had begun to take serious notice of Steve’s commercial success and the tilt of the firm toward him.

Loomis was clever enough to perceive the shifting sands around his feet but not fleet enough to move them. He needed much of the summer of 1992 to come to grips with what was happening. The opening salvo came in April 1992, when he once again returned to one of his favorite themes of the late 1980s: to wit, Lazard’s banking effort remained too irrationally organized to be maximally productive. Lazard’s corporate coverage effort was chaotic and lacked a central authoritarian to direct traffic flow. “The dilution of effort is greater when one takes into account differences in partners’ relative abilities to lead major business effectively,” he wrote Michel, Felix, Damon, and Steve. “It would be more commercially productive to agree on the universe of companies, the lead partners, and then have anything else subject to prior review and consent (with a negative bias).”

Once again, Loomis was not wrong. At Lazard, there was no central authority when it came to deciding how partners should spend their time. Any many partners liked it that way. So what if other firms were centrally organized and professionals were held accountable? Lazard was different. Bureaucracy was minimal, and despite Loomis’s repeated efforts—and best intentions—the resistance to his entreaties remained intense. There was a meeting a week later between Michel, Felix, Steve, Damon, and Loomis, who for a while formed a sort of informal executive committee. It was clear by this time that 1992 was going to be a tough year for M&A deals in general, and that meant that a tough year loomed for Lazard despite its increasing market share in M&A deals. This group of partners met to try to figure out what the firm should do, if anything, to address the situation.

Loomis returned to his favorite theme, that the firm needed to get more organized. “But Felix was part of the problem,” one partner recalled, “because he didn’t want to get more organized. He liked it unorganized.” After the meeting, Michel asked Loomis to summarize in writing what had transpired for use at a subsequent meeting. Agreeing may have been Loomis’s first mistake. Loomis quickly compounded his ongoing problems with Felix by trying to carve out a bigger role for himself at the firm, with more responsibility. He confessed his belief that “I have contributed to some of the progress of the firm internally” and then added, bizarrely, “As I believe other partners would say, I have been most successful when the contribution is a lot of little steps which are separately not very visible and not designed to credit me.” He recognized, though, what others had been whispering about him: for whatever reason, he wasn’t doing a lot of business. “There is a tension with how I can be effective with clients,” he wrote. “It is easier for me to help with a sales pitch, participate in some Nestlé discussions and join a partner for a board meeting, than it is for me to become the primary partner on six or more relationships and to be effective (and here) internally.” But as this was what partners at Lazard were supposed to do, he made himself vulnerable to attack from the ones, such as Felix and Steve, who were doing just that.

Nevertheless, he threw down the gauntlet. He said he doubted he could do “much more” running banking unless: “(i) There is consensus on what I term an ‘operating approach’ instead of changing theories and strategies; (ii) Felix is supportive instead of oscillating between support at one time and undercutting at another; this is less a matter of my feelings than of an impediment to my effectiveness; and (iii) Within Banking, and excepting those (including myself) on our committee, Michel has to be willing to have me set Banking partner percentages with him, and this needs to be known informally but broadly.”

He had touched the third rail of investment banking at Lazard. Although he worked well with Felix in his early years at Lazard on deals for the Limited and for Revlon, among others, when it came to matters of firm management, the two clashed repeatedly. Now Loomis had openly criticized Felix. Worse, he had attached to the memo a copy of Felix’s “Dark Ages” memo from nineteen years earlier, a crass document that reflected poorly on Felix and that one could easily have assumed would never see daylight again since many of those partners who had originally received it had long since left the firm. Predictably, Felix was incensed. No doubt Felix’s ongoing refusal to run banking himself and his not wanting anyone else to run it, either, contributed greatly to Loomis’s frustrations.

But Loomis had also, equally momentously, demanded the right to help Michel set compensation for the bankers in the firm, excepting the most senior. As this had always been solely Michel’s responsibility (and before him, André’s) and the major source of his ongoing relevance and power, this could only have been viewed as an attempted suicide on Loomis’s part. He must have sensed it, too. The memo concluded, archly: “Alternatively to all the thoughts in this memorandum, I am happy just to work on companies. I enjoy it; it is easier for me; and, in the ensuing disarray, I will have no difficulty attracting the best people to my projects. What I am unwilling to do is either lend my credibility to more futile organizational exercises or to try to do the difficult without your substantive support on a sustained basis. I am happy to have you meet privately on this subject.”

Since Michel spent the better part of every summer at his spectacular seaside villa, Sous-le-Vent, the matter seemed to go dormant for a few months while he was away. It was obvious, though, that Michel was not going to allow Loomis to have any role in setting compensation. Still, Loomis’s logic for asking to have this authority was impeccable. There was no other way, really, to get a banker’s attention and cooperation than to determine his pay. For Loomis to be effective as head of banking, this was a necessary authority and one held by other heads of investment banking on Wall Street. The opposite is also true. Without this authority, Loomis’s fate was sealed because he would have difficulty being effective. If Loomis had not been such a student of the firm’s history, his demand could be derided as foolish and naïve. Instead, it was the opening salvo in the increasingly impossible task of getting Michel not only to confront the larger question of his own future succession but also to address the smaller question of managing the firm more efficiently as it grew. “He never would give an inch,” Loomis said later of Michel. “And I’d say, ‘You know, how can I influence behavior in these people if they know not only that you solely decide their percentage but secondly that you solely talk to them at year end about what they’re doing?’” But this being Lazard, Loomis’s frustrations were not only with Michel’s viselike grip on authority but also with Felix’s incessant undermining. His feud with Felix had now bubbled up into the open, just as Steve and Felix were starting to get along well. “Bill wrote it down and Michel gave it to Felix and that was the end of Bill,” a partner recalled. Loomis kept pushing, though. “I would always say that I had responsibility without authority,” he said by way of explanation.

He now decided to take on Damon Mezzacappa, the head of Lazard’s small but highly profitable capital markets business, who had often been described as the third most important partner at the firm after Michel and Felix. In two separate and lengthy memos—over time some partners gave up caring what Loomis did, or did not do, just as long as he agreed to stop copying them on these long diatribes—during the first two weeks of August 1992, Loomis, under the guise of passing on an increasingly emotional set of other people’s views, in effect ratted out Damon to Michel (while he was in the south of France) by enumerating a fulsome list of problems that seemed to be engulfing the capital markets group: political infighting derived from Damon’s cocksure behavior, unjustified requests (in Loomis’s view) for additional resources, incompetence in pitching Lazard’s financing capabilities to clients, and a total lack of a “cohesive plan or organization to the overall effort.” He conveyed to Michel that he keeps being told by bankers asked to work more closely with the capital markets effort that “it’s a mess down there. Nobody who is already there really knows who they are working for or whether the partners agree on anything.”

But it was in “Capital Markets (II),” his second memorandum on the subject in as many weeks, that Loomis took off the gloves. He named names. In but one example of four, he explained to Michel that Felix had asked him to speak to Steve Niemczyk, then a senior vice president working for Ken Wilson in the FIG group, about the firm’s still uncertain role in a proposed IPO of Van Kampen Merritt, the former wholly owned money management subsidiary of Xerox. “After some fearful hesitation, Steve explained to me that a meeting to ‘pitch’ the business at Xerox should have been a formality, confirming the assumed lead role,” Loomis wrote. But “the oral presentation was a complete disaster. This was reportedly because of the inability to limit the number of participants (nobody can make a decision) and the lack of any prior discussion within Lazard of the oral portion. The subject matter was passed from one to another randomly. Thus, Xerox heard a rambling prologue from Luis followed by Jeremy, I believe, stating that we don’t risk capital, and so on, through the six Lazard participants.” Lazard eventually won a lead role on the underwriting, but Xerox decided to sell the company instead for $360 million to Clayton Dubilier & Rice, a buyout firm.

Then Loomis relayed a story about Joe Maybank, at that time a vice president in banking, who had been asked to join Lazard’s fledgling high-yield finance effort. Maybank had been concerned about infighting in the capital markets division. Loomis reported to Michel that Mezzacappa’s response to Maybank on this score was, “Look, it’s not important that these people don’t get along with each other because they all report to me, and that’s a problem I take care of.” Loomis followed this example with yet another about how Ken Jacobs, a young banking partner, had agreed at Loomis’s suggestion to spend some of his time talking to his clients about using Lazard for high-yield financing. But when Jacobs talked to Al Garner, then the head of high-yield finance at Lazard, Garner was dismissive of the potential assignment. According to Loomis, Garner told Jacobs, “How can we be sure we get paid for thinking about this? Can you assure me that they won’t take our ideas and shop them? Is this a real assignment? Why should we devote time to this instead of other stuff?”

Having furnished these examples to Michel, Loomis then turned to what he categorized as the “underlying causes” of the problems, which he felt needed to be “addressed openly and with some friction.” Among these was his observation that “Damon is quite good at creating business units and talent…up to a certain point. He then falls back on three flaws,” which he was more than happy to describe. First, “he senses that you are fearful of capital exposure or losses and preys upon his perception of you and passes it on to the others under him as a fundamental premise.” Second, he resisted “shared responsibility and accountability” between bankers and his capital markets teams. Third, “it suits his own importance to have conflict, once business units or partners exist, for him to mediate as the sole mediator.” The other partners in capital markets, with a single exception, were described as “not that strong individually and feel beholden to Damon…. These are not brave men, but they are capable men if effectively led and woven into the fabric of the firm’s overall perspective on business.”

No surprise, Loomis described his relationship with Damon as poor. “I am viewed by Damon as a threat, active or in remission depending on the week or month, and only as an ally on a specific issue when he senses that I, at least partially, already agree with his own plans or conclusions,” he wrote. “(Having said this, I think that you could put Daffy Duck in my role, and Damon would be defensive, as I am sure I could get a dozen Morgan Stanley partners to agree.)” Loomis, who, after he wrote this memo, occasionally referred to himself internally as “Daffy Duck,” offered Michel two options for capital markets: do nothing or undertake a substantive revamp, the details of which were then undetermined.

To further illustrate his concerns, Loomis shared with Michel a copy of a memo he had asked the partner Kim Fennebresque to write about his recent experience on a financing project. Loomis had recruited the flamboyant Fennebresque to Lazard the previous year after First Boston had let him go “in the wake of difficulties the firm suffered in connection with a problematic bridge loan,” according to the New York Times. Fennebresque’s wife, Debby, and Loomis’s wife, Kirstin, were good friends, and the wives played an important role in bringing the husbands together. Not surprisingly, Fennebresque’s memo bolstered Loomis’s view that the capital markets effort at Lazard was badly broken. “Those responsible for the capital raising process at Lazard appear to view the protection of the firm’s capital as their principal function,” Fennebresque observed, in a concise summary of Lazard’s longtime strategy that Loomis seemed eager to change. “Having been at a firm which did not view that as its function at all”—First Boston—“I can readily appreciate that notion. However, as we appear to be in an era where capital raising is going to be an important long-term aspect of providing client service, perhaps, a more balanced view should be considered. Risking capital is a pejorative term here, and it should not be.”

For his part, Mezzacappa had no idea Loomis had written these critical memos to Michel about him and his department. The two men did not get along. Mezzacappa described Loomis as “an empty suit,” “a fraud” who was “full of shit,” and “in way over his head.” He added: “Loomis learned to talk in riddles. He learned to talk a language that only Michel could understand. And people thought there was deep meaning there, but it was all just bullshit.”

The tortured Loomis, whose political instincts were, if nothing else, finely tuned, must have known Sisyphus’s boulder was about to smother him. Apparently without having been prompted, he sent Michel a handwritten letter—the day before he sent the “Capital Markets (II)” memo—voluntarily reducing his prospective partnership percentage for 1993 to 1.8 percent, from 2.5 percent in 1992. He had been pondering the decision for two months. Aside from Felix, no other Lazard partner had ever voluntarily reduced his percentage, and Felix had done so to be assured of his freedom from internal politics while still feeling free to contribute to them. Loomis, on the contrary, seemed to be acutely frustrated and just plain angry. Reducing his percentage was a quasi protest vote—although he was not doing anything as rash as resigning and would still be making $3.3 million a year. “The purpose in telling you now is so that you can take it into account in your overall percentage calculations,” he explained to Michel.

In taking this unusual step, Loomis became preoccupied with how it would be perceived by the other partners, as the list of partner percentages circulated each January was proof positive of whose star was rising and whose was falling. “As importantly, I want you to know before you review your list further with other partners,” he continued. “This should not appear in September as an apparent outcome of any particular conversation. My decision is, in fact, independent of conversations and events this fall.” In truth, Loomis’s decision was hardly voluntary; he was shoved aside by the firm’s more powerful partners, whom he had systematically alienated. “There was a cabal that came after him,” one partner remembered. “I think Rattner was a part of that. Mezzacappa was definitely part of it. And Felix was part of it…. They thought he was a do-nothing partner who took a lot of money out of the place.”

Not the slightest inkling of this Sturm und Drang filtered down to the rank and file in the firm. Which is probably as it should be. Certainly, the associates knew the firm was basically dysfunctional, not as a commercial enterprise to be sure, but rather as a social community. Internal calls to peers would often go unreturned. There was little cooperation among the three houses. Partners always seemed to be angry at one another or rarely spoke. Partner meetings were infrequent and accomplished little. There was a widespread feeling among the bankers that Loomis played favorites, promoting his acolytes at the expense of those less attentive. “There absolutely was a cult of Bill,” Kim Fennebresque said, in a typical rendering of the “FOB” phenomenon. “I had drunk the Bill Loomis Kool-Aid big-time from the day I got there, and I thought everybody did, but it turned out that Bill had engendered some enmity, which surprised me.” Mezzacappa thought Loomis’s habit of playing favorites drove some good people to leave the firm. “I think Bill does have qualities of leadership,” he said. “But he punished people who didn’t support him, which was an extraordinarily mean thing to do if you are a leader. I remember when Bill took over banking there were certain guys who were in and certain guys who were out. Just extraordinary. You can’t do that.”

Habitually, like a swallow to San Juan Capistrano, Michel returned to Manhattan from Sous-le-Vent after Labor Day. His return signaled the start of the annual groveling about compensation. That was to be expected. What was unusual in 1992, though, was the terse, Kremlinesque memorandum Michel distributed to the banking group on September 22. “Steve Rattner and Kim Fennebresque have accepted, after consultation with Felix Rohatyn, to take on responsibility for coordinating the Banking Group,” the memo began. “Obviously this will be done in concert with Felix Rohatyn and Bill Loomis as well as myself. Bill Loomis has agreed to take on additional responsibilities regarding the coordination of the 3 Houses and international business, which is increasingly important to us. Bill will also devote more time to developing business. Because both Steve and Kim will continue to work with clients, it will be important for everyone to give them their fullest cooperation. I hope and expect that we will thus all meet the challenges of a relatively difficult period.”

Although plenty amorphous, this news shot through the firm like a bolt of lightning. In the imperious Lazard partnership, the always inscrutable and enigmatic Loomis was one of the few relatively accessible authority figures. Not only had he had a hand in hiring most, if not all, of the junior bankers then at the firm, but he also seemed to be one of the few partners who at least gave an impression of caring for them. But even this was a mirage. Whether it was Rattner, Fennebresque, or Loomis running banking didn’t much matter: pay for midlevel nonpartners continued to be relatively low compared with other Wall Street firms, and the grunts that passed for performance reviews were equally disappointing. Indeed, in 1991 more than one associate received no performance review at all from Loomis and was able to calculate the amount of his annual bonus only by grossing up for taxes his bank account balance after it was spit out of a Rockefeller Center ATM machine one late December day. “What the fuck was that all about?” Fennebresque remembered wondering at the time.

Indeed, there was always a Kafkaesque quality to the annual performance reviews, which merely added to the firm’s iconoclasm. Unlike other investment banks, Lazard never asked junior bankers (let alone partners) for a written self-assessment of performance in any given year, nor was it ever clear to the junior bankers whether the partners had ever been asked to put performance assessments in writing. Certainly, no such evaluations were ever shared. Rather, year after year the heads of banking always told at least one associate the same thing: You are doing an excellent job, but unfortunately you are working for the “wrong” partners—a message taken to mean that there were Great Men at Lazard, and not so great men, and that the poor soul had better figure out a way pretty darn quick to start working for the Great Men if he was ever to have a chance of becoming a partner. Of course, he had very little control over whom he worked for or on what assignments, and so was left with a bit of a political Catch-22, Kafka-style.

For his part, Steve took the news in stride. He recalled that after Felix “decided he was going to decapitate Bill,” there was a “big leadership vacuum,” and since “I had done a couple of big deals, they asked me to head banking. I said I wasn’t going to do it alone. Kim was very close to Bill and Bill wasn’t happy. I figured having someone with another set of relationships within the firm doing it with me would be a good thing.” He had not known Fennebresque very well at all up to that point, although now they are the best of friends. “While I wasn’t sure whether we would work well together, I felt that having a partner in this venture was more likely to lead to success than not. I think I was right about that but not right enough to make it work.”

Fennebresque was positively stunned by—and considerably wary of—the news that his good friend Loomis had been demoted and that he had been asked to take his place. “Someone told me Loomis was going to be out as head of banking, and I was so not plugged in I said, ‘Pffft. Not a chance,’” he said. “I said it totally unencumbered by the facts, but I said it with some conviction because it was unimaginable to me that Bill would be out. But at one point, Michel called me into his office and said, ‘We’re going to make a change. Bill is going to go back to being just a banking partner, and I’ve asked Steve Rattner to run banking, and he has told me he won’t do it unless you do it with him.’” Fennebresque asked Michel if he could think about his answer; Michel gave him the rest of the day. He said he wanted to think about the new assignment because “I didn’t want to do it. I didn’t want to do it. I had been in management before.”

He knew Steve a little bit by this time. He had first met him when Steve was thinking about leaving Lehman and Fennebresque interviewed him at First Boston. And Maureen, Steve’s wife, had known of Kim from her days working at First Boston “because I was a colorful and funny guy,” he said. But for Fennebresque there was also the problem of his friendship with the now-deposed Loomis. “I used to go by and see him every day, literally,” Fennebresque said. “Just to smoke cigars and bullshit together. For all the acolytes and sycophants around Bill, I was his best friend in short order.” And there were concerns that Felix didn’t particularly like Fennebresque and resented the way Loomis had engineered his arrival at the firm. “I mean, what the fuck?” Fennebresque said. “I went to see Bill, and he said, ‘Kim, I told Michel I didn’t want to do this anymore. I told him this a month and a half ago.’ And of course, I didn’t know all the intrigue that led to that, but he said, ‘I don’t want you to give this a second thought. This is a good opportunity for you, and you should do it. I want you to do it. You have my blessing.’”

Fennebresque said he quickly left the building without speaking with Steve for fear that Michel would call him back and insist that he take the job then and there. He met his wife and another couple for dinner.

I was unbelievably morose at dinner, and no one could figure out why, and my friend said, “What’s wrong? What’s the matter with you?” I was just stunned. I was stunned by being there just eighteen months. I was shocked by Bill. The whole thing shocked me. It made no sense to me. So I told my friend what happened, and he said, “That’s great!” I said, “No, this is the beginning of the end of my time at Lazard.” He said, “Why?” I said, “Because it’s not the kind of firm, especially in banking, where management takes you anywhere. The guy who runs the firm has his name on the door. I’m not getting his job. I’m going to have this job, and then I’m going to get thrown out or thrown back into the population or leave because I’m miserable or something. But this dog is not going to hunt, and I don’t want to do it.”

Despite his better judgment and instincts, what choice did Fennebresque have? Michel wanted Steve to take the job, and Steve wouldn’t take it without Kim, so Michel basically insisted that Kim take the job. Not only had he been at the firm a brief time; he had not really produced much business, either. “Steve Rattner was a luminary and I wasn’t,” he said. He knew there would be a rash of undefined envy, especially from the Loomis loyalists. (“Kim used that position to aggrandize himself to an extent” was the typical refrain of one partner close to Loomis.) There was also the difficulty of the job itself. “I thought managing the Lazard partners was like herding cats,” he said. “I described it once to someone as when you are the managing partner of the banking group at Lazard, your job is to throw chum in the shark tank and try to stay in the boat.” And then there was the matter that although the press release read that Steve and Kim were co-equals, such was not even close to being true. “I had zero illusions about that,” Fennebresque said. “It was Batman and Robin. But Steve Rattner, to his credit, for which I will be undyingly grateful, always played it like we were equals.”

Since no one expected banking to change much regardless of who ran it, the two aspects of this unexpected news (unless you had been privy to the confidential memos) that really got people talking were, first, the acknowledgment of Rattner’s continued meteoric rise and, second, just who the heck was this guy Fennebresque, anyway? Rattner’s rise into this thankless role was not surprising given how much business he was bringing in; he exuded confidence and connectedness, and there was that inevitability to him. Steve had learned at Morgan Stanley the kinds of things the best firms did to get that way, and he was prepared to try to implement some of those at Lazard. “Virtually every reporter thinks he’d be a great editor and wants to be an editor because he thinks it’s more interesting,” Steve said. “And virtually every banker thinks he should be running something. I was not any different in that respect. I didn’t have huge ambitions, but I had been a banker for ten years at that point, and there was clearly a vacuum of leadership at the firm.”

Fennebresque was a different story. He seemed nothing more than a (most un-Lazard-like) stereotypical 1980s “Master of the Universe” banker: the tall, lithe, articulate Fennebresque, with a wicked sense of humor and permanently slicked-back hair, had spent fourteen years at First Boston, where, he said, “Bruce was king the whole time,” referring to Bruce Wasserstein, the firm’s M&A rainmaker. But behind that facade was not only a remarkably decent person but also one whose confidence had been badly shaken during the market meltdown. He had been named one of First Boston’s fifteen “franchise partners.” But in November 1990, First Boston fired him. “I got fired partially because I had a big mouth and partially because the place was hemorrhaging and coming apart and they wanted some blood and I was senior blood so they took me out,” he explained. He was forty years old, married, with kids—and terrified. When First Boston went private in 1988, he had been strongly urged to buy stock in the firm using a seven-figure loan from the company. The value of the stock quickly decreased, but the loan was still payable. He was in financial distress. “Everyone was dying,” he explained. “Every morning you’d pick up the paper and read that Merrill Lynch was laying off five thousand more people. It was awful. A terrible time to find a job.” He had been looking around for something new for only a short time but was increasingly depressed about his future.

Thanks to some behind-the-scenes communication between his wife and Loomis’s, though, Loomis called him that November and invited him to lunch at the China Grill on West Fifty-third Street. They discussed Fennebresque’s plight. When he got home that night, he found a long handwritten letter from Loomis waiting for him. “The letter was unbelievably touching,” he recalled. But he still thought there was little chance of his being hired at Lazard; after all, Lazard was an M&A shop, and Kim had focused on financing LBOs at First Boston—plus, he was unemployed. Two weeks later, Loomis called and told Fennebresque he had been speaking to Michel about him. “I wonder if you would like to come by and see him and spend half an hour?” Loomis asked. “I told him you were someone he should know and he’s someone you should know.” He told Loomis of course he would come by and see Michel but thought, “I need a courtesy interview like a hole in the head. I’m looking for a job and this is a bad time to find one and I can’t waste my time. But Bill Loomis has been unbelievably kind and I’m going.” As he walked across Fifth Avenue in front of Saint Patrick’s Cathedral from First Boston’s office on East Fifty-second Street, he ran into George Shinn, then chairman of First Boston. He greatly admired Shinn—“The only hero I’ve had in business,” he said—but hadn’t seen him in a few years. They had a conversation about Fennebresque’s new forlorn status during which Shinn told him everything would be fine, even though things at that moment looked particularly bleak. “I was raised Catholic,” Fennebresque explained. “I am no longer a Catholic, but as my wife says, ‘Once you are a Catholic, you are always superstitious.’” He walked into Michel’s office at the appointed hour “and I sit on his couch and he’s sitting in his chair and there’s a big, not elegant—especially for a man who is the personification of elegance—hardware store kind of clock on the wall. And I sit down at 4:30 and the clock starts going around and around and the next thing I know it’s 7:05 and I say to myself, ‘Here I am, an out-of-work stiff, spending two and a half hours with Michel Fucking David-Weill. What’s this all about?’”

After he told Michel up front he had been fired by First Boston (to which Michel responded, “Yes, I know”), they spent the rest of the time “talking about everything under the sun.” By the time he got home, Loomis had already called to tell him that Michel wanted him to become a partner at Lazard but first he had to meet with Felix and Damon. He did that the next day. “I went in and spent fifteen or twenty minutes with Felix, and Felix, as he always is, was unbelievably gracious, which I always find nice, and I met with Damon, and he said, ‘Don’t worry, I’ve been fired a bunch of times, too,’ and it was a very pleasant conversation. Next thing you know it was January 1 and time to report for work. The single happiest day of my life, I believe.”

The night before he started at the firm, he thought he should read the partnership agreement, a copy of which Loomis had sent him. Like so many others before him, he quickly discovered that the slim document gave all power to Michel, through section 4.1. “And it says such and such and such and such can happen only with the agreement of the partner in paragraph 4.1,” he said. “Paragraph 4.1 this and paragraph 4.1 that—I nicknamed Michel that: ‘4.1.’ And I remember the next day I walked into Bill’s office, and you know me, I’m a bit of a wiseass and people don’t know exactly how to read that, and so I walked into Bill’s office and said, ‘Who do I give my comments to on the partnership agreement?’ And you could see the blood drain from his face: What the fuck have I done bringing this asshole in here?”

Fennebresque said it took him all of “thirty seconds” to figure out the Lazard culture. “If it takes longer than that, you’re really, really stupid…. It comes at you like a fire hose—it’s cold and powerful and it didn’t bother me at all. I think the human condition is that people like to be led.” What he had figured out instantly, of course, was that Michel made all the decisions, it was his firm, and “we were all staff.” The only possible exception was Felix, an insight he got when he went to a meeting with both of them shortly after his arrival and they started talking in French to each other. “He wasn’t in the family,” Fennebresque said of Felix, “but he gets to eat with the family.”

FENNEBRESQUE TOOK THE co-head of banking job, despite his misgivings. When Annik, Michel’s secretary, called him the next day and asked him to come see “my boss,” he joked with her: “Aah, it’s not a good time for me.” As he feared, Michel insisted he accept the job. “There was nothing about it I wanted,” he said, looking back. “There was no glory to it. Nothing.” With it, he moved his office right next to Steve’s on the thirty-second floor of One Rock, and he received a raise. When he arrived at Lazard in 1991, his partnership percentage was 0.65 percent (worth about $860,000 that year), fairly modest as a comparative matter. (Steve’s was closer to 4 percent, or some $5.3 million.) “Jeez,” Loomis told him, “that’s kind of low.” Fennebresque concurred. At the end of his first year, Michel raised him up to 0.966643 percent. Now that he had been asked to become co-head of banking, he insisted on getting another raise. “Can you take it to 1 percent?” he demanded, with a smile. Michel gave him 1.1 percent, worth about $1.4 million in 1992.

The first thing the dynamic duo had to absorb was the deaths of two of the more important senior partners in the New York firm: the sudden one of Jim Glanville, sixty-nine, as a result of injuries suffered during an automobile accident in Houston, and the not unexpected one of Tom Mullarkey, fifty-nine, the longtime consigliere, who had had a stroke in 1987. Although Mullarkey had returned to work after a few months, the effects of the stroke were obvious. He roamed the barren halls of the firm like a character out of a Dickens novel. He died of brain cancer at his home in Locust Valley. He had devoted the last years of his life to philanthropy, a not unnatural extension of his responsibilities at Lazard, where for years he had saved the partners from one near-death experience after another—from the numerous ITT-Hartford-related investigations right up through the sentencing of Robert Wilkis for his role in the Dennis Levine insider trading scandal. That task now fell to Mel Heineman, the former lawyer and associate on the ITT-Hartford deal, who had been Mullarkey’s apprentice for years. He would have his hands full.

For his part, Glanville was the last member still at Lazard of the original Gang of Four Lehman partners Michel had recruited in 1978. Glanville had been fairly productive at Lazard but could never adapt to the parsimonious culture. And his anti-Semitic bent rightly made him an enemy of Felix, never a good thing for anyone working at the firm. His most enduring legacy, it turned out, was the indefatigable Loomis, despite the recent turn of events. Loomis delivered the eulogy at Glanville’s funeral. He said that Glanville had taught him that investment banking was about judgment and understanding people with “a little arithmetic tossed in.” He acknowledged that Glanville did not fit well with the Wall Street community. “Fiercely blunt, Jim was a great intellect mixed with equally great emotions and encrusted with character.” To illustrate, Loomis repeated one of Glanville’s favorite stories: “There was a fella with a dry hole and some limited partners who weren’t too happy. One of the limited partners said to him, ‘You have to understand that for $10,000 I can get a New York lawyer to tie you in knots for five years.’ And the Texas fella said, ‘No, you have to understand that for $25 I can get a Mexican to blow your head off…right now.’” Glanville, Loomis said, understood the dry-hole business.

Meanwhile, Corporate Partners, Lazard’s white knight fund, was itself learning rapidly about the dry-hole business, an education that would shortly prove further detrimental to the firm’s reputation. The fund got off to a rough start. It was originally slated to be $2 billion when the fund-raising began before the 1987 market crash, but Lazard decided to stop the fund in August 1988 at $1.55 billion, when money for such efforts all but dried up. Then Lester Pollack, the fund’s chief executive, tested his investors’ patience by not making the fund’s first investment until Christmas 1988, more than a year after the money had been raised. Around that time, Corporate Partners announced a $200 million convertible preferred stock investment in Transco Energy, as part of Transco’s acquisition of a gas transmission subsidiary of CSX. It turned out that Lazard had advised Transco, a Glanville client, on the acquisition and received a fee for its advice. This was the exact opposite of the kind of deal Corporate Partners said it was in business to do—first, the Transco deal with CSX was friendly, so no thwarting of an unwanted interloper was necessary, and second, Lazard had received an advisory fee. Pollack, though, denied any conflict of interest or deviation from the fund’s strategy. “They asked us to consider this, not the other way around,” he said. (Corporate Partners’ actual investment in Transco ended up being $120 million; the fund made a $65 million profit on the deal.)

The fund’s next investment came six weeks later—$300 million of preferred stock, convertible into a 7.7 percent stake of Polaroid. This was more like it. Polaroid had been under attack from Shamrock Partners, Roy E. Disney’s investment fund, which was trying to get control of the instant-film company. The combination of the investment by Corporate Partners, the sale of another chunk of stock to an employee fund, a stock buyback program, and a favorable court ruling led to Polaroid’s successful rebuff of Shamrock. But it was a Pyrrhic victory, for Polaroid shareholders would have been better off with the Shamrock cash: Polaroid filed for bankruptcy in 2001 after the advent of digital photography made its business untenable. Corporate Partners did well, though, realizing a $215 million profit on its Polaroid investment.

More than another year passed before Corporate Partners made its third investment, in June 1991—$200 million for a 17 percent stake in Phar-Mor, a private Ohio-based deep-discount retailer (the fund ended up investing $216 million). The fast-growing Phar-Mor then operated 255 stores in twenty-eight states and had revenue of more than $2 billion. This investment, too, was outside the fund’s stated mandate. Phar-Mor was private and claimed to need the new capital to grow, not to rebuff an unwanted suitor. From the outset, though, there was speculation that Phar-Mor actually needed the Lazard money to pay its vendors, who had been complaining about late payments from the company. Corporate Partners rejected the thought that Phar-Mor was financially distressed. “You should view our investment as a vindication of the company,” David Golub, a vice president at Corporate Partners, said at the time. The Lazard partner Jonathan Kagan agreed to go on the board of Phar-Mor and quickly deflected questions about when Phar-Mor would go public—something other investment bankers had been urging the company to do—by saying that Phar-Mor “clearly chose to work with us because it’s not eager to go public at this time.” A year later disaster struck. On August 4, 1992, the company abruptly fired its founder, Michael Monus, and its CFO and announced that the FBI and the U.S. attorney had started a criminal investigation. Two weeks later the company filed for bankruptcy protection and announced that Monus and three other executives had systematically defrauded the company of more than $400 million “in a fraud-and-embezzlement scheme dating back to 1989.” Corporate Partners sued, among others, Coopers & Lybrand, Phar-Mor’s auditors, claiming that the accounting firm had participated in the fraud by certifying inaccurate audits. The head of Coopers at the time said Corporate Partners was “trying to shift the blame for their inadequate due diligence and judgment.” Regardless of who was to blame, the fact remained that Corporate Partners had made a terrible investment, and all but $77 million of the $216 million was lost. The next investment, $83 million in Albert Fisher Group, a U.K. food distributor, also proved troublesome. The fund lost all but $37 million of the original investment.

Then, fortunately, Corporate Partners’ performance began to improve. The fund invested $146.5 million in First Bank System, which in 1997 bought U.S. Bancorp and took its name. The fund made almost $700 million on that investment. Good fortune struck again when, through Steve Rattner’s relationship, Corporate Partners invested $300 million in Continental Cablevision. When the US West Media Group bought Continental in 1997, the fund made nearly a $600 million profit. In total, over its initial twelve-year existence, Corporate Partners invested $1.35 billion in nine companies and received in return $2.99 billion, for a profit before fees and carried interest of $1.64 billion. Private-equity funds are judged on how well their investments perform over time, a calculation known as the internal rate of return, or IRR. Corporate Partners’ IRR during its existence was 15 percent, net of fees and carried interest; investors received an annualized return of 15 percent per year. That placed its performance in the top quartile of such funds.

BILL CLINTON’S VICTORY in the 1992 presidential election handed Lazard another unexpected problem: a glum and cranky Felix Rohatyn. After twelve years of Republican Party rule, Felix rejoiced in the election of a Democrat to the White House. But Clinton’s election soon became bittersweet for him, when he came to the realization that he was not going to be named Treasury secretary, the one government post he had long coveted.

During the Reagan and Bush years, he had become a national figure, saved New York City, and, through his ubiquitous writings, led the lonely crusade against any number of Republican fiscal and monetary policies he deemed misguided. But he also made a few political mistakes that seem obvious in retrospect but were in keeping with his worldview. First, he supported Ross Perot, his former client at EDS. This was done partly out of loyalty and partly because Felix believed in much of what Perot had to say. To this day, though, Felix disputes the extent of his support for Perot and believes the press and the Perot campaign overstated it. In any event, he was not as early and as loyal a supporter of Clinton’s (although he certainly came around) as were the expert fund-raisers Roger Altman and Bob Rubin—who together had, for instance, raised 20 percent of the money raised privately for the Mondale campaign in 1984—and this hurt him politically when the short lists were shortened even further. Felix’s real political Achilles’ heel, though, was his complete disinterest in political fund-raising. He was happy to give money to the Democrats—and lots of it—but could not be bothered to raise the mother’s milk. What others were willing to do, he was not. No fund-raisers at his Fifth Avenue apartment or Southampton home. No dialing for dollars or putting the squeeze on his wealthy friends for a politician.

His thinking was admirable enough, but the disconnect was also painfully obvious: in a political age when plum cabinet positions are often the reward for the hard work of a campaign, to try to play by different rules was not a winning strategy. For one of the world’s best strategists not to comprehend that simple reality was stunning. Rattner remembered Felix coming into his small office, where he had moved so that he and Fennebresque could be nearer each other. “Felix liked to walk the halls, which was one of his good qualities,” Steve said. “He came in my office one day after the election of 1992 and he said, ‘You know, I used to think that being a policy guru and saving New York was enough to become Treasury secretary, but I found out that you really have to be in the mix and you really have to raise money. It’s not going to happen for me.’ I felt sorry for him.” If Steve learned anything from Felix’s misfortune, it was the old saw about money and politics; he and his wife, Maureen, have since become among the most effective fund-raisers in the Democratic Party. He also took up his pen again. Soon after Clinton’s election, Steve wrote his first New York Times op-ed piece, “Short-Term Stimulus? Long-Term Error.” He admitted he was a Democrat (although he gave $500 to Dole for President in October 1987) and urged the new president to focus on crafting long-term economic solutions, such as encouraging investment and increasing productivity.

AS IF THE foibles of the Phar-Mor investment and Felix Rohatyn weren’t difficult enough for the firm to digest, two investigative reporters for the Wall Street Journal chose the same moment to focus an unwanted spotlight on Lazard’s tiny—but suddenly quite potent—municipal bond underwriting department. Ever since Felix had helped solve New York City’s fiscal crisis, Lazard had been asked to help other cities with financial difficulties. For these advisory assignments, the firm received monthly fees.

Naturally, Felix himself didn’t have the time or the inclination to personally work on all of these assignments on a day-to-day basis, so at Michel’s urging, Lazard hired a cadre of people into the banking group for this purpose, the most prominent being Eugene Keilin, the former executive director of MAC, and Franklin Raines, who would later become Lazard’s first black partner and the CEO of Fannie Mae (where his reputation would be badly tarnished by scandal). An offshoot of the business of providing advice to municipalities was the business of underwriting their bond issues, which raised money from the market to build hospitals, schools, and roads or was used for a municipality’s “general obligations.” From the outset of Michel’s management of the firm, he sought to build up the municipal finance department—both by hiring traders who bought and sold municipal securities and by hiring bankers whose job it was to win underwriting mandates from state and local governments (although in those days if Lazard was hired as a financial adviser to a municipality, the firm was precluded from acting also as an underwriter). The effort remained small but profitable, in the typical Lazard mold.

That began to change in 1985, when Felix decided to hire Michael Del Guidice, the chief of staff to New York’s governor, Mario Cuomo, to run the municipal finance business. Felix obviously knew Del Guidice well from his work with MAC and his numerous interactions over the years with Governor Cuomo. And certainly Del Guidice knew his way around the corridors of political power on the state level and knew how municipal underwriting assignments were awarded. Of course, he had never before worked on Wall Street or managed a group of bankers, but that was a minor detail; Lazard was well known (as were many other Wall Street firms) for providing a warm bath to former government officials with no prior Wall Street experience. “Del Guidice was really more of a political operative than he was a banker, and if anything, he took some pride in the fact that he wasn’t a numbers guy, that he was more a relationship guy, a connections guy,” observed one Lazard partner. Del Guidice, whom Mezzacappa, his boss, described as “a nice guy who was in way over his head,” set out quickly to hire some new bankers with close ties to state government officials, figuring correctly that this was the way to win underwriting mandates. He was, after all, one of those guys himself. Among his hires were Richard Poirier Jr., a cigar-smoking six-footer from Prudential Securities, and Mark Ferber, then thirty-four, a supposed superstar municipal finance banker in Boston who had previously worked for First Boston and Kidder, Peabody.

Soon enough, the marketing skills of these two men became apparent to their colleagues in the department. “Ferber and Poirier were two of the most productive bankers in the country,” recalled one partner, “doing some of the biggest deals ever done. They were very aggressive guys in seeking business. Poirier was more ‘I’m gonna go through that brick wall and get that business, and if you’re standing in front of that brick wall, I’m going through you, too.’ Ferber was much smoother. Ferber was more ‘How can I get the most leverage I can out of the system?’” Both of them knew the municipal finance business far better than Del Guidice did and by the early 1990s had started operating independently of their titular boss. “Del Guidice had two guys that were bigger guys than he was,” one Lazard partner remembered.

Just how much bigger became clear in a surprising, twenty-eight-hundred-word front-page Wall Street Journal article in May 1993 that focused on how Poirier, who joined Lazard the same month as Rattner, was able to make Lazard the top underwriter of municipal securities in New Jersey in 1992, when as recently as two years before Lazard had not underwritten a single bond for the state. The article credited Poirier’s stunning success in New Jersey to his political connections, particularly with Joseph Salema, the chief of staff to Governor Jim Florio, and with Florio himself.

Florio appointed Salema’s brother-in-law, Sam Crane, to be state treasurer at just the same moment that Lazard was chosen to lead a $1.8 billion “general obligation” bond issue that the previous state treasurer had opposed both issuing and choosing Lazard to manage. Lazard made $10 million for its role in the underwriting. The article also described Poirier’s ability to win a slew of state hospital underwritings, despite little experience in that discipline and despite the recommendations from hospital officials that other firms be hired instead. “We had selected Prudential,” one hospital executive told the paper, “but then all of a sudden we got a call. It was obviously controlled by the governor’s office.” Poirier also won for Lazard the coveted role of advising the state’s turnpike authority on the sale of $2.9 billion of bonds in 1991 and 1992. New Jersey paid Lazard a $2.3 million fee for that advice.

The article revealed, though, that the SEC and the U.S. attorney’s office in Manhattan were investigating Poirier’s actions in relation to the sale of the turnpike bonds. Poirier’s success in New Jersey notwithstanding, the Journal reporters also pointed out that his previous interactions with officials in Florida and Kentucky had gotten both him and Lazard into hot water. Lazard’s lead underwriting of an $861 million bond offering for the Florida State Board of Education quickly turned sour amid charges that it had mispriced the deal. The outcry led to an inquiry about how Lazard had been chosen in the first place, and the answer—Poirier’s political connections—led Governor Lawton Chiles to ban Wall Street firms that make political contributions to state officials from underwriting state bonds. In Kentucky, Poirier’s handling of a $250 million turnpike bond caused state officials to write a “blistering” ten-page memo accusing him of “lying, making unauthorized trades on the state’s behalf and overcharging the state by more than $1 million.” Poirier’s “attitude was antagonistic,” and the deal “recalled many of the boilerroom tactics of an era we hoped was behind us.” Poirier refused to be interviewed for the article. At least one of his former partners at Lazard believed that the highly damaging Journal article appeared because a number of competitors and colleagues, including Ferber, were just “getting even with Poirier” because he was so aggressive.

When the Journal next appeared the following Monday, there was a letter to the editor from “Lazard Frères & Co.” complaining about the article’s portrayal of both Poirier and the firm. “We are dismayed by the article that appeared on page one Friday about the work of a partner in our Municipal Finance Department, and we take issue with its tenor as well as its specifics,” the firm wrote. “Our review of the matters discussed in your article has not brought to our attention any evidence of illegality. Our code of conduct, subscribed to by everyone from our more senior partners to our most junior employees, states clearly our policy that all business affairs be conducted on the highest ethical level. Nothing falling short of this will be tolerated.” The letter pointed out that the firm had met with the Journal reporters as they were preparing the article but that Lazard’s input did not make it into the paper. “The day-to-day efforts of individuals in our firm to formulate innovative responses to the extremely complex financial issues that confront our state and local authorities were disregarded in exchange for the drama of unproven insinuations of improper influence,” the letter concluded. Before long, the firm would rue the day these words were written.

The same day the firm’s letter appeared in the Journal, Rattner wrote Michel a memo suggesting that he was already tiring of the job as co-head of banking—a mere eight months after his appointment. He had run the weekly partners’ meetings, given reviews to some of the junior bankers, and tried to give input to Michel on the partnership percentages, a process he called “tinkering with tenths,” a reference to his minor role in trying to influence Michel’s thinking. “If you go back in time (and it was before my time), no one was running banking,” Steve explained. “Bill was the first one to try to run banking. He was quite good at it in a certain way, but—and Bill would be the first one to admit it—it still had a long way to go to really be effective. Kim and I were trying to take it to the next level. We met with enormous resistance from all the old guard, although Felix was relaxed about it,” since what Steve and Kim were attempting rarely affected Felix. And of course, Felix was then still fond of Steve and his successes. Steve’s frustrations, and even some of his thoughts, were curiously reminiscent of many of Loomis’s feelings about being head of banking. “You asked that I try to articulate the key elements of my coordination responsibilities and what might be done to arrange them in a way that satisfies everyone’s needs,” Steve wrote. “Let me reiterate at the outset that my first choice is to be relieved of all of those responsibilities for the reasons that we have discussed. While I understand why this might not make sense for the Firm, I’m not concerned from my own standpoint about any reverberations.” He recommended nothing less than dismantling much of the internal banking infrastructure that he and Loomis had so carefully constructed in the past decade. He was immensely frustrated and thought the time had come to “eliminate my efforts to influence decisions as to the direction of the Firm. The many conversations that I have had with you, Felix, Damon, Mel and others and the several significant analyses that have been prepared regarding size, profitability, productivity, etc. have taken an extraordinary amount of time. At this point, I’ve expressed everything that’s on my mind so it would be relatively easy to relieve myself of this activity.”

Despite this diatribe, which few knew about, once again not much changed outwardly. Summer was right around the corner anyway, and that meant Michel’s departure for Sous-le-Vent and the general disappearance of most other partners to their fancy homes in the Hamptons, the Vineyard, the Hudson Valley, Litchfield County, or Wyoming, among other places. After Steve had written the memo, Fennebresque remembered one “summer evening” when he and Michel were “bullshitting” in Michel’s office and the topic of managing the banking group came up. Michel had been doodling on a piece of paper, and then he said to Kim, “The problem is, you know, that you and Steve want to manage the banking group and the banking group is really the heart of the firm, and it’s really my firm.” To which the startled Fennebresque responded, “‘I’ve got that message, pal. I get it. My foot’s coming off the accelerator.’ So, um, that was quite a telling moment.” From that evening on, Fennebresque said, he was far more low-key about his already subdued efforts to run banking. “I didn’t see any reason to increase the enemies list or make the enemies list,” he said. He resolved to let Steve be even more out front managing the banking partners than before. Together, they continued to interview some big-name M&A bankers, such as Geoff Boisi, Roger Altman, Joe Perella, and Tom Hill, about coming to Lazard (all of whom declined), but mostly they focused on doing deals.

Like the few before him, Steve had quickly discovered the frustrations and the thanklessness of the task Michel had given him. He was frustrated with his inability to get things done with Michel’s incessant micromanaging and undermining. He felt he was wasting his time and energy on trying to reform a system that would not be changed, at least not as long as Michel retained the power of the purse and Felix was free to meddle. He decided he was spending his time unwisely on internal matters when he could spend it far more profitably with clients.

In coming to the decision to abdicate his position as head of banking, Steve had an obvious role model at Lazard: Felix. Through all the changes taking place on Wall Street generally and at the firm specifically, Felix remained the embodiment of the Lazard culture and ethos, and he had never chosen to manage anyone or anything. Aside from Michel, he was the highest-paid partner at the firm. He just did his deals and anything else he wanted. True, Felix tended to thwart the careers of the young partners who worked for him, but Steve didn’t care about that. He would be different: he had his own clients, and he had shown a willingness to bring Felix into major deals (for instance, AT&T’s acquisition of McCaw Cellular, which generated a $20 million fee) as often as Felix had brought him into deals. Felix actually seemed to like and respect Steve, and he even started to acknowledge around the firm and in New York social circles that Steve appeared to have the potential to match, one day, Felix’s business-getting acumen. And since Michel valued what Felix did more highly than what anyone else at the firm did, it wasn’t difficult for Steve to figure out what he should do, not only at the firm but also beyond it.

Fennebresque put Felix’s continuing importance to the firm in perspective. He remembered being called by a reporter in 2004 who was writing a story about Bob Greenhill on the eve of the incredibly successful IPO of Greenhill’s eponymous investment bank. “And this guy didn’t know what he was talking about,” he recalled. “And he referred to Greenhill as the best investment banker of his time. And I said, ‘You could have the opinion that he was in the top echelon, but you can’t say anyone was the best banker of his time if they lived when Felix Rohatyn lived. You just can’t say it. You can say he’s in the top echelon. You can say he’s in the pantheon, but you can’t say he’s the best.’”

What makes Felix’s singular success as a banker so remarkable is that he has sustained his relevance to corporate executives for so long and across so many industries. It seems not to matter to Felix or to his clients whether he understands their business. This fact is so profoundly counter to how every other major Wall Street firm designs its investment banking business—which is to have far younger deal makers specialize by industry and by product—that Felix had become an anachronism, the exception that proves the rule. Lesser bankers at inferior firms have attempted to imitate Felix’s style and generalist approach with predictably disastrous results. His edge is his extraordinary level of deal experience and his consummate judgment—plus a killer Rolodex. It is nearly impossible to ignore a phone call from Felix Rohatyn—regardless of whether you are a CEO, a politician, or even one of his former partners. Indeed, simply seeing “Rohatyn, Felix” on the caller-ID screen caused the men (and a very few women) of Lazard in their forties, fifties, sixties—themselves earning millions of dollars per year, thanks, in large part, to Felix—to shudder visibly, interrupt a phone conversation with a client, and scurry down the threadbare, tan-carpeted hallways to Felix’s lair. It was not unlike how a misbehaving middle school student reacts upon being summoned to the principal’s office—with a predictably similar outcome.

Befitting his status, lesser partners sought him out as a sounding board on deal ideas—and, of course, to see if they possessed the right stuff to be a Great Man, too. In one particularly humorous example of this testing, Michael Price called Felix and suggested that the Agnellis, the Italian industrialists who controlled Fiat, might want to think about acquiring the then-struggling Chrysler. Price then contritely choked into the phone, “Dumb idea? Okay,” and hung up. Adapted from the cynical French moralist François La Rochefoucauld, the Lazard credo—“It is not enough for you to succeed; others must fail”—had Felix’s fingerprints all over it. He charmed his partners—to say nothing of his clients—and rewarded them with a meaningful percentage of the profits when he needed them to execute his prodigious deal flow. At the slightest whiff of resentment, disloyalty, or burnout, Felix would dispatch them to irrelevance and excommunication, in some out-of-the-way hovel, before shining his beacon and affections on the next rising Lazard star. He was immensely feared around the halls of Lazard—just as his mentor, André Meyer, had been—but could not even for a moment be ignored, so long as he continued to produce 80 percent of the deal flow and profits. No one at Lazard had anything like Felix’s client list, CEO access, or annual revenue production. Felix spent his time where it could be used most profitably. Being such an effective banker and of such enormous importance to Lazard’s profitability meant that he was fabulously well paid. By 1995, the rumor mill pegged Felix’s compensation at more than $15 million, all cash—which even for the top bankers in the frothy 1980s and 1990s was an attention grabber. But in truth, he could easily have demanded even higher compensation—and gotten it—because he was that good and that important to the firm, a fact that Felix belatedly came to realize but never did anything about.

Felix relished his Great Man status as much as he relished having nothing to do with the day-to-day running of the firm. The poorly lit, unadorned, dingy corridors became his stage. When he would stroll with intent past Deirdre Hall and Catherine Cronin, his double-barreled secretarial guard, he was all Great Man, in his off-the-rack suits, blue and white Brooks Brothers oxford cloth, buttoned-down shirts, and Hermès ties. He was always completely in character, as if he were a larger-than-life Mickey Mouse making his entrance into Disney World. Generally speaking, it was no fun being the end point of one of his journeys. So, while he was impossible to avoid when he wanted you, he became expert at evading your gaze in the narrow One Rock hallways, pretending not to have heard a “Hello, Felix” from a lesser partner or junior professional, preferring instead to stare ahead icily—unless of course you happened to be one of the few attractive young women rarely in Lazard’s employ. Then Felix could be exceptionally fine-tuned to your presence. Rumors abounded of his occasional indiscretions with the younger female professionals. But they were mostly unfounded. He was just a notorious flirt, and his conversation could be jam-packed with innuendo.