Financial History Issue 132 (Winter 2020) | Page 36

When American Express bought Shearson, Loeb Rhoades, the new Shearson Ameri- can Express became “an independently operated subsidiary” and continued to buy other firms. In 1982, it bought Robinson Humphrey Co. and Foster & Marshall, among others. In July 1983, it bought Davis, Skaggs & Co., a San Francisco brokerage house, and in 1984 it bought Investors Diversified Services from Alleghany Corp. Amid these changes, Weill was named president of the parent company in 1983. The following year, Shearson American Express changed its name again when it bought Lehman Brothers, Kuhn Loeb, a prestigious firm with 19th century roots. Shearson Lehman/American Express Lehman Brothers, Kuhn Loeb was itself the result of a 1977 merger between two historic firms, Lehman Brothers and Kuhn, Loeb & Co. Weill had actually approached Kuhn, Loeb about buying the firm in 1977, but Kuhn, Loeb turned him down. Similar to Weill’s initial reception by Hayden Stone and then Loeb Rhoades, Kuhn Loeb saw any merger with Weill’s firm, then Shearson Hayden Stone, “as a clash of cultures.” As Stone and Brewster stated, Weill was distinctly “New Crowd,” meaning “the sons of working-or-middle class Eastern European Jewish families headed by a typically self-employed father, while the Kuhn, Loebs were “Our Crowd,” the tradi- tional German Jewish elite. Instead Kuhn, Loeb chose to merge with Lehman Broth- ers, a firm with a similar pedigree, and they seemed to have a successful partner- ship. But shortly after, the firm ran into trouble, starting at the top. In 1983, the firm’s co-chief executives, Peter G. Peter- son, the former Secretary of Commerce under Richard Nixon, and Lewis Glucks- man, an expert on commercial paper and corporate finance, engaged in “an internal power struggle” and Peterson was ousted from the firm. At that time, Shearson/American Express’s chairman and CEO was Peter A. Cohen, who was Weill’s protégé. Cohen began working with Weill in 1971, became his personal assistant in 1973, stayed at Shearson Hayden Stone until 1978 and then returned to Shearson in 1979. In 1982, Cohen became vice chairman and COO of Shearson/American Express, and in 1983 he became chairman and CEO of the unit when Weill became president of American Express, Shearson’s parent company. Cohen was neighbors with Ste- phen A. Schwarzman, who had become a partner at Lehman Brothers in 1972. In the summer of 1984, the story goes that Schwarzman was jogging and went over to Cohen’s house to talk to him about merging Shearson/American Express and Lehman Brothers, Kuhn Loeb. Buying Lehman Brothers, Kuhn Loeb was a major coup and established Shearson as a power player on Wall Street. Accord- ing to The New York Times, “The acquisi- tion, the latest in American Express’s drive to expand its financial services operations, [lifted] Shearson from third place among securities firms to second, behind Merrill Lynch & Company and ahead of Salo- mon Brothers Inc. in terms of total capi- tal.” Cohen became chairman and CEO of the new firm, which was renamed Shear- son Lehman/American Express. Lewis L. Gluckman, who was the chairman and CEO of Lehman Brothers, and Robert S. Rubin, who was the president of Lehman Brothers, became consultants to American Express. Weill did not stay long, however, to enjoy Shearson’s success. In 1985, after clashing with James Robinson III, Ameri- can Express’s CEO, he decided to leave the company. The New York Times reported, “the corporate culture of American Express and the maverick mentality of Mr. Weill did not mesh.” Shearson Lehman Hutton Even without Weill, Shearson Lehman/ American Express continued its merger trend. In 1988, the year after the firm went public, Shearson announced that it was going to buy the firm of E.F. Hutton & Co. 34    FINANCIAL HISTORY  |  Winter 2020  | www.MoAF.org The firm had approached Hutton about a merger, which was rejected. After the stock market crash in 1987, Hutton changed its mind. In 1988, the firm became Shearson/ Lehman Hutton Inc., though the Hutton name was dropped in 1990. In 1992, Fortune reported that Ameri- can Express had a “boardroom coup” led by board member Rawleigh Warner, Jr., the former chairman of Mobil, and Robinson was removed as CEO. Warner and the firm denied the story. Robinson had been chairman and CEO since 1977. A Harvard graduate and the son of a banker, Robinson “led American Express with a style emblematic of the 1980s, when Wall Street’s financiers and corporate chiefs recognized no limits to their ambitions.” Problems at the Shearson Lehman divi- sion and other subsidiaries and losses on the American Express Optima card led to a crisis of faith in Robinson’s leadership by the early ’90s. When he was ousted, “the company’s stock rallied to a 52-week high.” According to The New York Times, Robinson was “the latest victim of a new militancy among major shareholders and board members that has also contributed to the downfall of top executives at General Motors and…at Westinghouse and IBM.” Robinson’s successor was Harvey Golub, who was at the time the president of American Express. Weill had hired Golub, previously at McKinsey & Co., in 1984. Like Weill, Golub was a Brooklyn native, though he had grown up in Long Island. After Golub was named chairman and CEO of American Express, he was able to turn the firm around. In contrast to the diversification that the firm had sought since the 1960s, Golub divested the company’s “non-core business” and re-established American Express’s place in the credit card industry. One of the firms he shed was Shearson Lehman. The Return of Sandy Weill The year after Weill left American Express in 1985, he had become CEO of Commer- cial Credit, a Baltimore-based consumer