Money Magicians

THE MERCHANT BANKERS by Joseph Wechsberg. 365 pages. Little, Brown. $6.95.

London's dynastic Hambro family, the world's biggest merchant bankers, started their moneymaking art two centuries ago, when a Hambro sea captain got word that the Queen of Denmark had died in Paris; he promptly cornered the market for crape in Copenhagen. Britain's Baring banking clan made a great leap forward by arranging an $11,250,000 bond issue for Thomas Jefferson's Louisiana Purchase. The Rothschilds of Paris and London grew to prominence by smuggling millions in gold through Napoleon's line to Wellington's forces in Spain. Such are the foundations of the fortunes of the most prosperous and least known of all businessmen, the merchant bankers.

In this series of essays, New Yorker Correspondent Joseph Wechsberg examines seven of the world's leading merchant or investment bankers. Though he is himself the son and grandson of bankers, Wechsberg ignores a lot of the basics of the business and, with the exception of a chapter on Wall Street's Lehman Brothers, shortchanges the potent U.S. bankers to concentrate on those of London's City. But his stories have a richness of color and some details of remarkable deals that have turned money into factories, jobs and useful products for everybody's compound interest.

Big Funds, Long Terms. Unlike commercial bankers, who take deposits and specialize in short-term loans, modern merchant bankers are intermediaries between those who have big money to invest and those who need it, often for long terms. They finance entrepreneurs and foreign governments by selling bonds or other securities to the public or to such wealthy institutional investors as insurance companies, pension funds, and even the Church of England.

The merchant banker's prime asset is his experience in sizing up situations, measuring men and calculating risks down to one sixty-fourth of 1 %. But very often, as Wechsberg notes, he relies on instinct. One day in 1932, Swedish Match King Ivar Kreuger tried to interest the Lehman Brothers in a complicated financial deal. Kreuger talked and talked about his grandiose schemes, while Philip Lehman made a few notes. Then Lehman turned him down: "I have a rule, Mr. Kreuger. If I cannot understand something by reading my notes on the subject, I won't buy it. You are too complex for me, Mr. Kreuger." A few months later, as his swindles collapsed around him, Kreuger shot himself.

Courage is as common as caution. Working behind the scenes during World War II, Hambros Chairman Jack Hambro helped harass the German economy through black market operations in Nazi-occupied countries. Sometimes the rewards of courage are handsome. When California's Jergins Corp. was up for sale in 1950, nobody wanted to buy it--nobody but Lehman Brothers, which formed a group that picked up the company for $29 million, renamed it Monterey Oil. Within two years, the Lehman group paid off the full amount by selling some of the company's assets, yet still kept most of the property. The Lehman men built up that property and in 1960 sold it to Humble Oil for $119 million--all profit.

Brokers & Fighters. Today the Rothschilds are backers of 100 major ventures as varied as the Transalpine Pipeline and the Churchill Falls Hydroelectric Project in Canada (TIME, Oct. 14); the Barings help to bankroll such clients as Britain's Courtaulds textile empire and the government of Portugal. Merchant bankers are the business world's greatest merger brokers and proxy fighters. Nobody profits more from this than London's Siegmund Warburg, German-born dollar scion of the 400-year-old banking clan, who in 1958-59 counseled Reynolds Metals in its successful fight with Alcoa for control of British Aluminium Ltd. So highly is Warburg's advice valued that he is retained simultaneously by Britain's two leading press tycoons, Cecil King and Roy Thomson.

Wechsberg's main point is that the merchant bankers nowadays are increasingly branching out of traditional finance to become all-round consultants and father-confessors. Germany's Hermann Abs, for example, is a director of 24 companies. The Lehman bankers, besides sitting on 200 corporate boards, have an investment advisory service handling accounts worth $2 billion. Nobody with less than $500,000 need apply.

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