Friedrich Flick’s next and much bigger Aryanization was already taking shape during his assault on Lübeck. In early November 1937, Wilhelm Keppler told Otto Steinbrinck that a number of other firms were also slated for Aryanization. These included German assets owned by the Julius and Ignaz Petschek conglomerates, which were originally established by the eponymous Petschek brothers, who were Czech Jews. By the time the two conglomerates caught Flick’s eye, they had long been separately owned and operated by the siblings’ sons, who weren’t on good terms with each other. The Nazi regime took an enormous interest in the Petschek heirs. Taken together, the cousins controlled about 65 percent of the brown coal reserves in eastern and central Germany, making them responsible for 18 percent of raw coal production in the entire German Reich. And this was just a small part of the Petscheks’ operations. The larger part was a range of coal mines in Bohemia and Moravia, Czech regions on which Hitler had already set his sights.
When Keppler told Steinbrinck that the Petscheks’ German interests were slated to be Aryanized, he confirmed something that Flick and Steinbrinck had heard from other sources: the Prague-based Julius Petschek group, the smaller of the two conglomerates, was already in talks with two companies to sell its majority stakes in two big German brown-coal firms. And these weren’t just any two companies vying for control of the Petschek’s German assets: they were Wintershall, the potash and oil giant that Günther Quandt owned a quarter of, and IG Farben, the world’s largest chemicals firm. If Flick could just get his hands on the Petschek brown coal interests in Germany, he could secure a fuel base for his main steel firm for decades to come. This was a “matter of life,” Steinbrinck told Keppler on November 3, 1937. Two weeks later, Steinbrinck reiterated to Keppler that the Flick conglomerate, “under all circumstances,” wanted to participate in the “liquidation of P.’s property.” The duo agreed on “making trouble for the Jewish element,” as Keppler called it.
The “Petschek or P. problem,” as Flick and his aides euphemistically called their Aryanization effort, became top priority. Flick and Steinbrinck began to lobby the Nazi regime and Petschek contacts in order to enter the negotiations in pole position. Many of these contacts were fellow members of Himmler’s Circle of Friends. Most notable among them was Herbert Göring, the Reichsmarschall Hermann’s half brother. Simply because of this family relationship, Herbert had gained a position as general secretary in the Ministry of Economic Affairs and then got appointed to various executive positions at major German firms. As one historian put it, Herbert Göring “created an outright parasitic position in the Third Reich by turning direct access to his powerful half-brother into cash.” Flick and Steinbrinck bought into the ploy, promising Herbert a big payout “in case of a solution to the P. problem.”
In a meeting with Steinbrinck, Herbert Göring said the Petscheks had the full attention of his half brother. Hermann Göring was in the midst of executing his “Four Year Plan” for Nazi Germany’s economy. His grandiose design aimed at the further rearmament of the country, but, most important, at making Germany an autarky: a self-sufficient state in all respects, no longer dependent on imports from foreign countries. The Petscheks’ brown coal reserves, owned by Jewish foreigners no less, would form a natural part of that. In a follow-up meeting with Flick, Herbert Göring confirmed that whereas the Julius Petschek heirs wanted to sell, the Ignaz Petschek group rejected all overtures. They would have to be dealt with later.
With backing from both Görings, Flick established a leading position at the negotiating table. In mid-December 1937, Flick informed Wintershall’s CEO, who was also Günther Quandt’s business partner and yet another member of Himmler’s Circle of Friends, that he was making a claim to Julius Petschek’s German brown-coal firms. The CEO responded with “angry silence.” Simultaneously, Herbert Göring told a Julius Petschek board member that the negotiations were to be handed over to a consortium under Flick’s leadership. The information was relayed to one of Julius Petschek’s sons, who promptly broke off negotiations with Wintershall and IG Farben, signaling their willingness to talk with Flick. But the process stalled. Julius Petschek’s sons, Czech citizens, had created a complicated ownership structure. They had long ago moved the main holding company for their German shares safely overseas. The shares now sat with the United Continental Corporation (UCC) in New York; its former chairman was John Foster Dulles, the future US secretary of state. Furthermore, Julius Petschek’s heirs wanted to be paid in American dollars, but Hermann Göring and the Nazi authorities didn’t allow this currency to be used for the purchase of German companies.
In mid-January 1938, Steinbrinck wrote an extensive memo that Flick would use one week later in a presentation on how to solve the “Petschek problem.” On January 21, Flick spoke to an audience of one in Berlin: Hermann Göring. Flick suggested to the Reichsmarschall that a two-pronged Aryanization be undertaken. Flick alone would negotiate a deal with Julius Petschek’s sons, but a compromise on the issue of foreign currency would be necessary, the mogul said. Flick argued that he should be given the sole mandate to negotiate on this matter; multiple bidders would drive up the price and give the Petscheks a choice of the best offer. In turn, a voluntary sale would weaken the holdout position of the Ignaz Petschek heirs. Flick’s presentation was a major success. Hermann Göring signed a prepared document providing Flick with the exclusive negotiating mandate for both Petschek groups, albeit a nonbinding one with no commitment on the issue of foreign currency.
The representatives of the Julius Petschek heirs arrived in Berlin the next day. Their chief negotiator was George Murnane, a well-connected New York investment banker who had succeeded his friend Dulles as UCC chairman. Murnane wanted to create a “calming atmosphere,” but Flick directly drew a hard line in their first meeting, saying that he alone had been authorized to negotiate on “orders from top quarters [sic].” Dollar payments for German resources were out of the question. Without quick concessions from the Petscheks, Flick threatened that an involuntary takeover would be likely. But Murnane refused to budge on foreign currency and an asking price of about $15 million. Although not before expressing his sympathy for what he called the “German problem, namely the rearmament question and the Jewish question.”
After two more fruitless meetings, Flick abruptly broke off negotiations at the start of a new round on January 31, 1938. He lied, saying that his mandate to negotiate had expired that day. In the final passage from a statement that Flick cryptically read aloud in the meeting room, he made it clear that the Petschek heirs would be expropriated without a deal. The impervious Murnane, whom Flick had put under constant surveillance, called his bluff and said that he had already received an offer of $11 million from Günther Quandt’s Wintershall. Murnane then upped the ante: German companies in America could be “threatened . . . by the same problems as those that now preoccupied him in Germany.”
Murnane’s response set off alarm bells at the highest levels of Nazi economic leadership. Faced with this threat to German assets abroad, particularly IG Farben’s American subsidiaries, Hermann Göring and his lackeys gave up their opposition to a dollar payment. Flick, however, was in no rush to resume the negotiations. Hitler’s annexation of Austria was imminent, and Flick wanted to wait and see how it would affect his bargaining position. As it turned out, it had a very positive effect.
After Hitler annexed his home country, Austria, in mid-March 1938, and threatened that Czechoslovakia would be next, the Julius Petschek heirs were willing to lower their asking price significantly. More political pressure soon followed. In late April 1938, Hermann Göring issued several decrees intensifying the persecution of Jews. All sales or leases of an asset were now subject to state authorization if a Jew, German or foreign, was involved, and foreign Jews now also had to declare all their property in Germany to the authorities. Göring also outlined the possibility of state expropriation if it was in the interest of the German economy.
On May 10, 1938, Flick and the UCC, now represented by Murnane’s British associate Viscount Strathallan, resumed their negotiations in Baden-Baden, a chic spa town near the French border. In follow-up meetings in Berlin a week later, they hashed out a deal for $6.3 million, less than half of the shares’ market value and almost $5 million less than Wintershall’s offer and $9 million less than Murnane’s initial asking price three months earlier. The mood and the balance of power had shifted in Flick’s favor. Strathallan thanked Flick and praised “the spirit of all our talks.” Murnane cabled Flick from New York: “Wish express my admiration your ability and fairness in carrying out transaction and your skill in negotiating.” Flick responded in kind, attributing the success to “working together in mutual loyalty and we encountered on your side a broad understanding of German conditions.” (US investigators later accused Murnane of badly representing “the interests of his customers.” The Americans thought that “he played the Petschek-property into the hands of the nazis by giving way . . . in all points and by showing weakness.”) The Julius Petschek heirs managed to sell their remaining assets in Sudetenland to a Czech consortium just weeks before Hitler occupied the area. Then they immigrated to the United States and Canada.
Flick wasn’t done yet. He proceeded to sell some of the Julius Petschek brown coal mines to Wintershall and IG Farben. Flick ended up making a profit of almost $600,000 on the entire Aryanization, in addition to securing a fuel base for his steel firms free of charge. As a broker’s fee, Flick temporarily transferred one million Lübeck shares to Herbert Göring. The Reichsmarschall’s corrupt half brother could keep them until the shares yielded a dividend. Flick also gave him a loan to buy into a shipping conglomerate. According to Flick, Herbert Göring repaid the loan after making a “rather good deal” by selling the majority stake to Flick’s arms and steel competitor, the Krupp dynasty. Wintershall ultimately lost out in the Julius Petschek Aryanization, but Günther Quandt wasn’t deterred. He would have plenty opportunities in shady deals to come. And anyway, you win some, you lose some. Flick was about to learn that same lesson.