Separation : Part 9

The Real Deal: My Life in Business and Philanthropy
by Sandy Weill, Judah S. Kraushaar

(Page 9 of 9)

Schweitzer initially responded positively to our request for help in buying the seat, and we soon signed a contract that gave us two weeks to come up with the $160,000 purchase price. Suddenly, though, Arthur's father-in-law changed course and declined to give us the financial support he had promised. By early 1960, the market had turned soft and so, too, had Mr. Schweitzer.

It was a terrible quandary as, by now, we had all given notice to our employers, and we felt on the hook legally with our contractual commitment. I got especially cold feet and even offered at one point that we should sell the seat, take a loss, and wait a couple of years before trying again. Yet our luck turned when Peter's wife's family and Roger's mother and mine pitched in and committed to help us pay for the seat. As a Delacorte, Peter's wife came from substantial means and helped him step up his initial contribution. I didn't have wealthy family connections on which to draw, but unbelievably, my mother gave us $30,000, which was fully 60 percent of all she owned following her divorce. It was an act of complete selflessness. In contrast to Peter Schweitzer, who was probably worth $50 million and gave us nothing, my mother, with her $50,000 net worth, went to the mat for her son.

Altogether, we raised $250,000, which was enough to pay for the seat on the exchange and still have enough left over to defray the cost of our office space and our other operating costs. Each of the four partners actually had contributed different amounts, but we decided we'd still each have an equal ownership share as we knew we were all pulling together. We decided to pay ourselves $12,500 apiece in our first year, which helped us have something left over after our other costs to reinvest in the business.

That payout amounted to a 50 percent cut from what I had been earning at Burnham, but the drop didn't bother me as I felt proud to be in business on my own. Joanie was also incredibly supportive and willing to pinch pennies and sacrifice. While many of our friends were then buying their first homes in fancy North Shore neighborhoods on Long Island, we plowed our savings into the business and moved into a garden apartment rental in Baldwin, a middle-class neighborhood on the South Shore.

As we got closer to setting up shop, the market downturn of early 1960 intensified. Everyone we knew began to question whether we really wanted to take on such a risk. People like Arthur's father-in-law asked, "Who are you guys to think you can do this successfully?" In fact, we could only point to two similarly oriented firms which had successfully started up in the 1950s, Donaldson Lufkin Jenrette and Faulkner Dawkins.

Nonetheless, none of us would countenance backing out now. After all, we knew what our costs would be and the commissions we'd need to be profitable. Given our past production, we felt it wasn't as big a risk as everyone seemed to think. We were also reassured by Tubby Burnham's willingness to have Burnham & Company settle our trades, which we all took as a vote of confidence. In the end, we figured we had plenty of room to cover our costs even factoring in the risk of a sharp falloff in commissions.

As I look back on that period now, I marvel at our naïvet& and our inherent optimism. We were young and infused with energy and had gained our first business experience during the mostly dynamic 1950s. There surely were economic fluctuations in those years, but for the most part it was a time of rising prosperity, healthy economic growth, and empowerment for American investors. The end of the Korean War initially unleashed the country's potential, and the economy grew steadily through most of the decade.

By the 1957 launch of Sputnik, the Space Age burst onto the scene and spawned a slew of new companies built on technological innovation. Between rising personal incomes and the explosion in innovation, the fundamentals underpinning the stock market were very positive indeed. Between 1955 and the end of 1959, the Dow Index surged 40 percent to nearly 700 while trading volumes jumped 25 percent to three million shares a day, a whopping number at the time even if it's laughable by today's billion-share standard. Equally important, individuals were coming to realize how they might diversify their savings by investing in stocks and bonds. As we opened our doors, there were about fifteen million individuals in the United States actively buying stocks- that number was less than 10 percent of the country's population but was up sharply from only about five million at the start of the 1950s.

We may have started Carter, Berlind, Potoma & Weill with uncomfortably small quarters and little more than our collective optimism, yet we instinctively felt that we were in a business full of promise. From the start, we worked incredibly hard to build our new company, and looking back, it was a tremendously exciting time in my life. I loved going out and visiting companies I thought might represent good investments and then pitching the ideas to our clients.

Each day, we'd listen to the sound of the ticker tape for a sign of the markets' direction-a loud tape meant stronger trading volumes and typically higher prices while a quiet tape meant we had to redouble our client-calling efforts to generate business. And all of us tried as hard as we could to build relationships with companies, which we hoped might lead to an eventual payday from an investment banking transaction. We rarely thought too much about the big picture, but in our hearts we felt as though the capital markets were wide open and poised for tremendous growth.

In retrospect, I didn't know the half of it!

Copyright © 2006 by Sanford I. Weill

About the Author

Sanford I. Weill is Chairman Emeritus of Citigroup Inc., the diversified global financial services company formed in 1998 through the merger of Citicorp and Travelers Group. Mr. Weill retired as CEO of Citigroup on October 1, 2003, and served as Chairman until April 18, 2006.

Judah S. Kraushaar, the former director of the Global Financial Services Equity Research team at Merrill Lynch, has been consistently ranked as the banking industry's top securities analyst by investor surveys from The Wall Street Journal, Institutional Investor, and Fortune. He and his wife, Michele, and their three children live in Westchester County, New York.