The Go-Go Years (32 page)

And so, in a fine American paradox, childlike simplicity had its hour or two a day at the bottom of the canyon of Wall Street, at the very time when in offices far above, people obsessed with adult abstractions and symbols were riding toward general disaster precisely because they had lost touch with the concrete and the simple, with joy and wonder.

CHAPTER X

Confrontation

1

Spring of 1969—a time that now seems in some ways part of another, and a more romantic, era—was in the business world a time of Davids and Goliaths: of threatened takeovers of venerable Pan American World Airways by upstart Resorts International, for example, and of venerable Goodrich Tire and Rubber by upstart Northwest Industries. As we have seen, such brazen challenges to the long-established and mighty by the newly arrived and aggressive were made possible by a vast, if temporary, popularity in the stock market of the shares of young and fast-growing companies; whether the threatened takeovers represented, on the one hand, constructive efforts to bring legitimacy to vested power, or, on the other, irresponsible acts of unprovoked assault by ravenous treasury raiders, is still being debated. Undoubtedly, though, the David-and-Goliath act of early 1969 that most caught the popular imagination was an attempt upon the century-and-a-half-old Chemical Bank New York Trust Company (assets a grand $9 billion) by the eight-year-old Leasco Data Processing Equipment Corporation of
Great Neck, Long Island (assets a mere $400 million), a company entirely unknown to almost everyone in the larger business community without a special interest in either computer leasing, Leasco's principal business until 1968, or in the securities market, in which its stock was a star performer. In that takeover contest, the roles of Goliath and David were played, with exceptional spirit, by William Shryock Renchard of the Chemical and Saul Phillip Steinberg of Leasco. It would be excessive to call their short, intense confrontation the stuff of classic tragedy. But enough of the famous Aristotelian elements of tragedy were there, along with certain elements of farce, to show that Wall Street, in what might prove to have been its last years, could still fill its old role of stage and proscenium for interesting and moving human drama: not just life, but something rather larger than life.

2

William Renchard, the leader of Chemical, grew up in Trenton, New Jersey, where his father served as an agency manager for the New York Life Insurance Company. Trenton in the nineteen twenties, when Renchard was in his teens, was a characteristic old city of the Eastern Seaboard, already dominated in numbers by recent immigrants and light industry, yet in power and influence still controlled by an American squirearchy looking backward with nostalgia and pride to a historic past (Washington's crossing of the Delaware; the rout of the Hessians at the Battle of Trenton; the march to Princeton). The city's backward-looking aspect manifested itself in monuments and museums and stately old brick row houses; its forward-looking aspect, in brisk new plants and skyscrapers and freeways. It was a John O'Hara town, its privileged given to the starchy celebrations of country-club life. Above all, perhaps, its quality was provinciality: Trenton was constantly derided for
the huge sign on the Delaware River bridge, TRENTON MAKES THE WORLD TAKES—but with stubborn pride it kept the sign in place year after year. Chief among the things it made and the world took were fine china and rubber contraceptives. Even on West State Street, where stood the town houses of the well-to-do and long-established, as well as on Gouverneur Avenue where the Renchards lived in more modest respectability, milk was still delivered every morning by a horse-drawn wagon. After graduating from Trenton High School, Bill Renchard, like most reasonably well-off Trenton boys, aspired to go to Princeton, the famous university lying on the Jersey horizon twelve miles to the northeast; unlike many high-school boys in the days when Princeton still leaned strongly toward preparatory-school graduates, he made it. At Princeton he shared a room on campus with his brother John, quietly did his academic work, joined one of the many eating clubs, and took no part in the extracurricular activities—athletics, the
Daily Princetonian
, the Triangle Club, the humor magazine
The Tiger
—that were the recognized pathways to standing on campus. In his senior classbook it was recorded that “Renchard is undecided as to his future occupation.”

Perhaps the Renchard brothers felt somewhat disadvantaged at Princeton and consequently withdrew into themselves. Indeed, they
were
disadvantaged, in spite of being presentable and Protestant, first by their high-school background and secondly by the fact that they came from nearby Trenton, which in those days was generally regarded by Princeton students as a town good chiefly for getting drunk in. At any rate, by all accounts Renchard at Princeton was the sort of self-contained student whose peers, if they thought about it at all, probably considered him unlikely to amount to much, then or in the future.

If they so thought, they were wrong. However self-contained, Renchard was a tall, alert young man with an emergent air of command, and he was among those late bloomers who in adult life humble the social winnowers and sorters of their undergraduate classes. After graduation in 1928, he went to New
York City and landed a job as clerk with the National Bank of Commerce. In 1930, he moved to the Chemical Bank and Trust Company, as it was then called, where he served successively as a clerk, an assistant secretary, and an assistant vice president. By 1946, when he was thirty-eight, he was a full-fledged vice president; in 1955 he became executive vice president; in 1960 he was made president, and in 1966 chairman of the board of the same institution, which was by this time called the Chemical Bank New York Trust Company. Name changes resulting from mergers did not alter the institution's prestige or venerability; founded in 1824, it had been a national banking leader by the time of the Civil War (and in the years soon after, it was Hetty Green's bank, where she had a room assigned for her private use in which she liked to sprawl on the floor surrounded by her mortgages and certificates; later she moved on after she became convinced, erroneously, that someone at the Chemical was attempting to poison her). In 1966, when Renchard became Chemical's chairman, the bank had $9 billion in assets—one of the nation's largest capital pools—and was the nation's sixth largest commercial bank.

Renchard's rise to this pinnacle of American banking had been accompanied by marriage to a pretty and sociable woman; a move to New York banking's favorite living quarters, the north shore of Long Island; directorships in half a dozen large corporations; trusteeships of various hospitals and civic groups; and membership in a substantial list of metropolitan and country clubs, including the famous Creek Club in Locust Valley, of which he became president. In 1969, at sixty-one, Renchard was a large, handsome, well-set-up man with iron-gray hair, regular features, and candid eyes that suggested both flinty authority and a certain fatherly capacity for kindness. He carried with him a whiff of the outdoors—the scrubbed outdoors of well-kept lawns and clipped privet; he laughed easily and naturally and he had a penchant for brief, rather intimidating jokes. He seemed entirely at peace with himself—not in the least apologetic about enjoying, and joshing complacently about, his wealth and success at a time of violent social change. Once, he not only appeared
with his wife at an epitome of the ancien régime, the annual Diamond Ball for a well-chosen four hundred at the Plaza Hotel (a benefit, of course—for the Institute for International Education), but, according to
The New York Times
, won “the honors in the glitter competition” by wearing as shirt studs three diamond stickpins as big as quarters—all of them obviously fake. A rather heavy joke, perhaps? But if anyone could carry it off, Bill Renchard could. He seemed to have become the prototypical old-style Princetonian, radiating the essence of gentlemanly aggressiveness, of polite personal and professional leverage.

Saul Phillip Steinberg, no relation to the celebrated Roumanian-born American artist Saul Steinberg, came from a background similar to Renchard's in only one respect—the families of both were firmly entrenched members of the American petit bourgeoisie. To begin with, Steinberg was a full generation Renchard's junior. Born in Brooklyn in August 1939, the son of Julius Steinberg, proprietor of Ideal Rubber Products, a small-scale manufacturer of such objects as kitchen dishracks, Steinberg, at high school in Lawrence, Long Island, was an unexceptional boy—an average student, an enthusiastic dater of girls, a competent but less than dedicated athlete—who was set apart from his classmates chiefly by the fact that he was a precocious subscriber to and regular reader of the
Wall Street Journal.
After high school, he went to the Wharton School of Finance and Commerce at the University of Pennsylvania. At Wharton—a senior at nineteen, precocious, brash, with a round babyface—Steinberg experienced a species of commercial epiphany. One of his instructors suggested that he write his senior thesis on “The Decline and Fall of I.B.M.”—about as maverick an idea as might be imagined, because, by 1959, I.B.M. had already become the corporate Apollo of the modern business pantheon, generally regarded by friend and competitor alike as an organizational masterpiece. “My instructor was sure I.B.M. was some kind of fandangle,” Steinberg told the writer Chris Welles a decade and many millions of dollars later. “And he wanted me to go out and prove it. I was the kind of student who was
prepared to believe anything was bad, so I accepted the assignment. After I had gotten into it and done a lot of research, I discovered that … I.B.M. was an incredible, fantastic, brilliantly conceived company with a very rosy future. But when I told him this, he wouldn't believe me. He wouldn't even look at my research. So I ended up having to write on another subject.”

Steinberg's scorned and discarded research left him with the conviction that I.B.M.'s method of doing business allowed a shining opportunity for a bright, ambitious young man to make a lot of money, and that he was the young man. The basic question involved was the effective life of industrial computers before they became obsolete, and the opportunity lay somewhere in the fact that nobody precisely knew the answer. I.B.M., which dominated the computer-making business, took the sort of conservative view that is characteristic of giant corporations riding the crest of a wave. Assuming that any given computer would become obsolete sooner rather than later, it offered its customers short-term leases, usually cancellable on short notice, for high rental rates. Steinberg proposed to offer computer-using corporations the opportunity to save money by gambling that I.B.M.'s equipment would have a longer useful life than I.B.M. itself appeared to assume. He would borrow money and buy I.B.M.'s immensely expensive computers outright; he would then lease them out—long-term and uncancellable—at rates that would be substantially below I.B.M.'s own rental charges, but still high enough so that he would recover most or all of the cost of the computer during the longer, uncancellable term of its initial lease. Thus, in the simplest terms, Steinberg would have got his purchase money back and still have the purchased computer itself left over to sell or lease again.

As simple as that, and as ingenious. With his bright idea conceived at Wharton, Steinberg gave birth to a new industry, independent computer leasing—an industry that produced no product; one that I.B.M. could kill at its pleasure by changing its leasing policies; one that the leading investment analyst John
Westergaard would later dismiss as mostly “an accounting gimmick”; and one of which its founder himself, Saul Steinberg, would later say only half-jokingly, “Computer leasing? It's just a way of getting free computers”—yet still an industry that, before the end of the decade, would shake American finance and banking to its foundations.

After graduating from Wharton in 1959, Steinberg spent a couple of years working for his father; meanwhile he put in further study on the computer-leasing idea, and conducted a small side business in streetcorner newsstands. Then in 1961, with $25,000 supplied by his father, he started his computer-leasing business in a Brooklyn loft, with his father and his uncle as nominal partners, and his company name—Ideal Leasing Company—cribbed from his father's rubber-goods business. Banks, however wary of his extreme youth and his too-bright-schoolboy manner, liked his scheme and were willing to advance him money to buy computers provided he had leasing customers for them. Finding the customers was another matter. It took him three months to get his first lease; he interrupted his honeymoon to come home and sign it. Ideal Leasing was incorporated in 1962; at the end of its first corporate year it had net income of $55,000 on revenues of $1.8 million. In 1964, when earnings were up to $255,00 and revenues to $8 million, Steinberg decided to go public. In June 1965, the company's name was changed to Leasco Data Processing Equipment Corporation and a public sale of Leasco stock brought in $750,000.

The computer business was booming, I.B.M. continued charging high rates for cancellable leases, and Leasco's assets leaped from $8 million in 1965 to $21 million in 1966, while profits in 1967 were more than eight times those for 1966. Meanwhile, the stock, traded first over the counter and later on the Amex, soared upward. Leasco began to be talked about in Wall Street as one of those interesting little situations. As might be expected of a young company with ambition, a voracious need for cash, and a high price-to-earnings multiple, Leasco became acquisition-minded. In 1966, Steinberg hired Michael A. Gibbs, a young whiz from the management-consulting firm of Booz,
Allen and Hamilton, as vice president for corporate planning, and gave him the specific assignment of hunting up candidates for merger. In 1966 and 1967, Leasco increased its corporate muscle by buying several small companies in fields more or less related to computers or to leasing: Carter Auto Transport and Service Corporation; Documentation, Inc.; and Fox Computer Services. These acquisitions left the company with $74 million in assets, more than eight hundred employees, larger new headquarters in Great Neck, Long Island, and a vast appetite for further growth through mergers.