Ambush on Wall Street
Ross Perot was had. . . and had in a big way.
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New York, N.Y.—every day except Sunday, A Gray Line sightseeing bus leaves Rockefeller Center on the hour and waddles south through traffic in search of Manhattan’s principal points of interest. After lingering briefly at Times Square, the Empire State Building and Greenwich Village, the bus arrives at the farthest and most congested outpost of its journey: Wall Street. Perhaps significantly, no one is allowed to leave the bus at this stop.
“Extending for a distance of seven blocks from Trinity Church to the East River, Wall Street received its name from the wall that used to run the length of the street. Erected by Governor Peter Stuyvesant in 1652 as protection against invasion by the British, the wall was torn down in 1699. On your left is the New York Stock Exchange, where more than $1 billion in securities changes hands every working day. On your right is the U.S. Subtreasury Building, where the first U.S. Congress met and where George Washington was inaugurated as President in 1789. Wall Street is the world’s most important financial center.”
And it is no place for a Texan.
The stock market has been wobbling downward since the Dow Jones Industrial Average hit its all-time peak of 1051 in January, 1973; there is some doubt that it will ever make a come-back. Brokerage firms have been disappearing as fast as independent gasoline stations, especially since the advent of negotiated (and thus usually lower) commission rates on large stock trades in 1971. Last year alone, member firms of the New York Stock Exchange collectively lost about $80 million. Employment on Wall Street has not risen appreciably in years. Salaries have, if anything, failed to keep pace with the cost of living in New York, which rose about half-again as fast as the national average last year. And there is general agreement that senior partners of leading brokerage and investment banking firms are no longer making the leisurely fortunes they used to.
For those reasons, Wall Street may not be the place for any young man to seek his fortune these days. But it has been particularly inhospitable to Texans. Or at least to the kind of Texan that many neurotic, alienated, oft-jostled, much-mugged and generally cynical Manhattan cave dwellers have come to cherish and admire. That Texan is canny and adventurous, as frank and friendly as a puppy dog. He (or she) need not be as rich as H. L. Hunt, but must be self-made, unpretentious, and not more than one generation removed from some dusty ranch out where the world is still flat. It is, of course, a stereotype; but one that was forged without malice, and one that bears vague resemblance to some occasional Texas visitors to lower Manhattan: Sid Richardson, Clint Murchison, Jimmy Ling and, more recently, Ross Perot (about whom more later). Texas businessmen and financiers, according to local myth here, have a style and scope that differs dramatically from the operative folkways of Wall Street. New Yorker writer John Bainbridge has described the Texas entrepreneur: “He shuns conferences, paperwork, consultations with lawyers, and other time-consuming activities that pass for accomplishment in the life of the ordinary businessman … In what appears to be an unquenchably lighthearted and casual mood, he is constantly in the process of extending his enterprises by buying, selling, borrowing, merging and trading. His transactions, always called deals, usually involve sums of at least seven digits; to save time in calculating, he customarily drops the last five.”
A bit overdrawn, perhaps. But even if your typical Texas operator is only one-tenth that stimulating, he would be as incongruous on Wall Street as a flowering barrel cactus. The spirit that moves Wall Street these days is caution, and the ruling elders of that gritty granite canyon tend to have rather narrow minds and mossy backs. The ethnography of senior partners at leading investment firms—as well of members of the governing boards of the major exchanges—holds no surprises: They tend to be male, white, and Protestant, or else second-generation immigrant Catholics and Jews who dress, act and think like WASPs. Many of them are self-made men these days; they are all intelligent and capable, to be sure. But somehow they seem to lack the creativity, gusto, style, panache and verve that characterizes much of life in New York. “There’s nothing about these guys that you could call ‘New York,’ ” says a 30-year-old from San Antonio who left a corporate finance job on Wall Street to enter the real estate syndication business uptown. “They all live way out some place like Greenwich, Locust Valley or Short Hills. They’re too suburban. That’s the trouble with Wall Street. It’s not New York enough, it’s too suburban. A lot of these guys wouldn’t know a bagel from a subway token. They’re dull, that’s all.”
They can also be smug, myopic and insensitive. In the long, hot summer of 1967, when the central precincts of a number of major U.S. cities were being laid waste by their unhappy residents, the president of a medium-sized brokerage firm, a man with two college degrees and a subscription to the Metropolitan Opera, asked me in all seriousness: “What’s so bad about living in a ghetto? What’s the matter with these people, don’t they have air conditioners?”
A better indication of the depth of smarminess among securities men is not what they say, but what they do—and fail to do. It has taken years for them to agree on creating a combined ticker tape that would carry stock quotes from a number of exchanges, allowing an investor to get the best available price for his stocks. (The agreement has been reached, but the tape itself may still be years away.) Wall Street continues to rely on those quaint, floridly engraved paper stock certificates, which have an irritating habit of getting lost and which almost drove the industry to collapse during the famous back-office paperwork crunch of 1968 and 1969; IBM cards would probably be cheaper, safer and more efficient. And when trading volume and profits began to turn down a couple of years ago, the brokerage community responded by raising commission rates. As my West Side neighbor Jesus Ortega, who sells pretzels at the corner of Wall and Broad streets and is a trusted source for many financial journalists, put it so irrefutably: “Man, if I tried to get more business by raising my prices, I’d have a hell of a lot of pretzels to eat every night.”
Into this hotbed of financial genius, this street paved with gold, this world capital of capitalism, strode Ross Perot in 1971. What happened to him after that should serve as a warning to any honest, ambitious young Texan who might be entertaining thoughts of a career in lower Manhattan. Ross Perot dropped nearly $100 million on Wall Street. It would be one thing if he had lost it honestly on some dog of a stock, or in one of those periodic market slides colloquially referred to as “corrections.” Yet there is a quiet suspicion among some of the more candid and thoughtful residents here that Ross Perot was a victim of the small-minded schemings of the men who run Wall Street, and the casualty of a subtle, snobbish Manhattan xenophobia. In short, that Ross Perot was had.
Perot, as even many non-readers of financial pages know by now, is the cattle-trader’s son from Texarkana who made a billion or so dollars in the computer software business in Dallas, and then in 1971 bailed out duPont Glore Forgan, a failing Wall Street brokerage firm, with a timely infusion of capital. Last July, Perot began pouring money into another troubled firm, Walston & Co., the nation’s second largest brokerage (after Merrill Lynch). He partially merged the two firms, gave Walston the retail stock-trading operation and let duPont Glore Forgan handle customer accounts, stock clearing and other record-keeping tasks with data processing techniques that Perot imported from Dallas. Like many of Perot’s ideas for remodeling the securities industry, that arrangement held considerable promise. But the two firms continued to show red ink, and Perot announced last January that he was closing Walston. Since Walston was duPont Glore Forgan’s only data processing customer, it too is expected to fold. Altogether, Perot invested about $98 million in the brokerage business—much of it his own money, some of it borrowed. He’ll be lucky to get back ten cents on the dollar.
The circumstances surrounding Perot’s arrival on Wall Street were, to say the least, unique. The industry was still beset by its aforementioned paperwork problems, the stock market was just picking itself up off the floor, and a number of brokerage firms were teetering on the brink of insolvency. Goodbody & Co., at that time the nation’s second largest brokerage, had just announced its imminent demise. Merrill Lynch quickly agreed to take over Goodbody, averting certain panic. But Merrill Lynch officers demanded that the New York Stock Exchange indemnify them for up to $30 million in losses from any legal suits over Goodbody’s assets, and said that they would back out of the deal if any other major brokerages collapsed before the rescue operation was finished.
Fine. Except that two months before the Goodbody takeover would have been completed, there was trouble at duPont Glore Forgan. Some claimed, among other things, that the firm’s vaults held about $15 million less in securities than its customers claimed they owned. The implications were clear: if duPont went under, then Merrill Lynch would not save Goodbody, and about a half-million customers of the two firms would lose their savings. Congress had not yet approved formation of the Securities Investor Protection Corp., which would insure customer accounts for up to $50,000 in case a broker went bust. Indeed, NYSE officials had been persuading legislators to support the SIPC bill by testifying that there would be no major brokerage firm collapses in the near future. Further, if the two firms went under, people would know that Wall Street’s paperwork problems were serious. And all that was coming just when investors were beginning to return to the market. If there is anything as valued on Wall Street as money, it is confidence; that commodity was ebbing fast.
Just about this time, Ross Perot was making headlines by flying to Hanoi in an attempt to get North Vietnam to release American prisoners of war. It was not the first time Perot’s name had been cast in hot lead outside of Texas. There was a steady stream of publicity almost from the day his computer firm, Electronic Data Systems, Inc., went public in 1968, making Perot an instant millionaire. Because EDS earnings were growing fast, investors snapped up the stock. When it hit $162 a share in 1970, Perot became one of the richest men in the world, with a net worth on paper of some $1.4 billion. Perot began to acquire a unique reputation in the East: He was at least as rich as the hard-shell reactionaries like H. L. Hunt and Clement Stone, but he was relatively non-political. Better yet, the Hanoi mission showed him to be patriotic and humanitarian. Just the man for the job.
In November, 1970, while Goodbody and duPont teetered, Perot began getting calls from his old friend John Connally, then in Washington as Secretary of the Treasury. “The President would consider it a decent and patriotic act,” Connally said, “if you would intervene in the duPont mess and help save the country from economic chaos.” Perot subsequently received the same message in calls from Attorney General John Mitchell and Presidential Assistant Peter Flanigan. Perot denies that Nixon personally asked him to intervene. But the two men had spoken often before, and Perot was a trustee of the Richard Nixon Foundation. It is likely that the Texan would want to hear the call to patriotism from the horse’s mouth before committing huge sums of money. In any case, Perot began flying to New York for conferences with Lazard Frères partner Felix Rohatyn, head of the NYSE’s surveillance committee and the man charged with finding a bridegroom for duPont.
Perot was chary at first. “Does it really matter if Wall Street fails?” he asked a reporter. Perot had been to New York several times in the past to get financing for EDS expansion, and he held the securities industry in considerable contempt for what he considered its slipshod practices. Indeed, EDS had just been called in by duPont a couple of months earlier to help straighten out its computer operation, so he knew the problems firsthand. As Perot put it: “You just can’t expect people on Wall Street to be as disciplined as they are in the computer business.”
Yet Perot also saw a need to protect his EDS contract with duPont, then worth about $8 million a year, as well as an opportunity to use duPont as a showcase to win other data processing contracts on Wall Street. He asked Rohatyn for the same kind of indemnification that Merrill Lynch got for rescuing Goodbody; Rohatyn said sorry, but the NYSE no longer had that kind of money. Perot decided to go ahead anyway, and figured that it would cost him about $5 million.
A few days before the deal was to be signed, the results of duPont’s annual audit showed that it would take not $5 million, but $10 million to save the firm. Perot angrily asked for another audit, but Exchange officials explained that there wasn’t time, that they would have to suspend duPont before the figures would be in. Perot said what the hell, and loaned duPont $10 million. Over the next few months, the Social Security Administration approved payment of five government data-processing subcontracts with EDS that had been held up for as long as a year because some Social Security officials thought they were too lucrative for EDS. And leading Wall Street personalities began assuring the press that Perot had been given a good deal. Indeed, it did not look bad at the time. In return for Perot’s cash, duPont’s general partners agreed to raise another $15 million in new capital on their own. If they could not, then ownership of the firm would go to Perot.
Trouble was, the partners were unable to raise the new capital, and it turned out that duPont’s needs were far more than Perot’s initial $10 million plunge—three or four times more. Before long, the young man from Texarkana found himself the owner of a money-losing brokerage house.
To his credit, Perot made the best of it. He brought up his best EDS executives from Dallas and installed them as top officers at duPont, established a marvel of a broker training school in Los Angeles, and set out to woo the small investor back to the stock market with some imaginative advertising. Last July he seized an opportunity to attract more small investors by merging duPont’s sales force with that of Walston, which specialized in small accounts.
Yet Perot never enjoyed much gratitude for his efforts. Indeed, as soon as he took over Walston, the same brokerage executives who had applauded his rescue operation wasted little time in raiding his sales force. Within three months, some 500 of Perot’s top producers had been spirited away, and Perot had to go to court to stop any further theft. The day after Walston’s closing was announced in January, two competitors—Dean Witter and Blyth Eastman Dillon—reportedly sent recruiters out to Perot’s Los Angeles training school to sign up as many brokers as they could find.
Almost from the moment Perot set foot on Wall Street, there was a sotto voce campaign to denigrate his actions, his statements and his style. The older partners and officers who call the shots in the industry frankly did not like the way that Perot was racing around the country criticizing the industry for lethargy and drumming up publicity for his new ideas. They disliked the ideas even more, especially Perot’s notion that brokers should be rewarded on the basis of how much money they make for their clients, not how many shares of stock they turn over. Moreover, there was a sour suspicion in many boardrooms that Perot had taken over duPont and Walston largely to set up juicy data processing contracts for EDS; indeed, EDS was grossing about $20 million a year, with 18 percent of its revenues from Wall Street back-office work.
Beyond all that, many people on Wall Street were turned off by Perot’s folksy, champion-of-the-little-man manner. “He alienated a lot of the schmucks in the industry, so they started talking him down,” recalls a leading computer-stock analyst who has followed Perot from EDS’s infancy. Concludes Barren’s columnist Alan Abelson, probably the Street’s leading commentator: “He tried to impose his provincial attitudes on some pretty sophisticated people here, who consider themselves to be every bit as energetic and entrepreneurial as he is. And his style left something to be desired. He came across as a super-Boy Scout.”
Was Perot snookered into saving Wall Street, and then double-crossed by the very people he had saved? To be fair, his downfall was caused as much by the reticence of small investors to put their money in a floundering stock market as it was by any Eastern Establishment plot. Yet there are some people who think that Perot may have been used. They wonder why apparently no wealthy Easterners were enlisted to perform the “decent and patriotic act” of bailing out duPont.
They also wonder whether Perot faced the implicit threat of a sudden and mysterious drop in the price of EDS stock if he refused to play ball. Perot might have been reminded of the fate of Leasco Corp. after its upstart chairman, Saul Steinberg, tried to take over Chemical Bank a few years ago; the financial community retaliated by selling off Leasco stock, driving it down from 135 to 99 within three weeks. In addition, skeptics wonder how NYSE and duPont officials could have so wildly underestimated duPont’s capital needs—until Perot was safely aboard, that is. ‘“I’m sure he feels he was had,” says Charles Stillman, a Manhattan investment counselor who ran a securities firm in Houston for a number of years. Adds John deMott, prize-winning senior editor of Institutional Investor: “Perot was had. The stock exchange guys went shopping for a savior, realized they couldn’t talk a Rockefeller into doing it, and said ‘Let’s try some of those super-patriots out west.’ That’s why they based their pitch purely on patriotic grounds. Anyway, Wall Street people don’t like outsiders. They said ‘What’s this Perot fellow think he’s doing, coming up here on his white horse and trying to tell us how to do things?’ Wall Street was out to destroy Perot from the beginning.”
For the moment, Perot is refusing to comment on his expensive Wall Street education. “My interest in the situation is merely that of an investor,” he has said, with considerable understatement. Perot has returned to Dallas, where he will no doubt concentrate on running EDS. The firm continues to be profitable; net income was up 21 percent in fiscal 1973 to $15 million on record revenues of $112 million. Another healthy increase is expected in 1974. But EDS has lost the 18 percent of its business that used to come from Wall Street contracts, and the price of EDS stock has slid from its 1970 high of 162 to less than 15 by mid-February. As a result, Perot’s holdings have shrunk to about $130 million—not bad for a young man of 43, but nothing like the fortune he had before going to Wall Street. One thing is clear: Perot will probably not be seen around lower Manhattan for some time. “People up here chortled when he took that bath,” says one young Texan in the investment counseling business here. “They’re calling him a dumb son of a bitch. But he had some damn good ideas. Some day they’re going to wish he was back.”
What about the other Texans on Wall Street? Aside from the ones that Perot brought with him from EDS, no Texas securities men here have been reported missing from their desks in the wake of his departure. On the contrary, Texans form a highly visible minority on Wall Street. No one knows just how many there are. Of the 4859 members of the New York Society of Security Analysts, only 26 hail from Texas. But analysts are the bookish fellows who turn out brokerage research reports, and tend to be of a particular ethnic derivation. (The society is uncharitably known among many non-analysts as the Guild for the Jewish Blind.) Texans seem to be more numerous in the corporate finance departments of large banks and investment firms. “People from Texas are just naturally enthusiastic about things,” explains a Houstonian at Morgan Stanley. “That’s important in corporate finance, because raising money for a client is really a matter of inspiring enthusiasm in people. When you bring out a new stock offering for Digital Datawhack, you better fire up some people to help you get rid of the stuff, or you’re in big trouble.”
No firm on Wall Street is considered to be characteristically Texan, as some are known to be predominantly Jewish or old-line WASP. However, Morgan Guaranty Trust Co. is thought to have an impressive number of Texans manning its far-flung empire; a University of Texas alumnus was until recently in charge of recruiting for the firm and liked to visit his alma mater every year. In addition, Lehman Brothers shelters a number of Texans, including two important senior partners, James Glanville and Joseph Thomas; Lehman is also one of the first important New York investment firms to do a considerable amount of business in Texas.
Much of the credit for that volume goes to Joe Thomas, who is something of a legendary figure on Wall Street. Raised in Odessa and Bowie, Thomas arrived on the Street shortly after the Crash of 1929 and has probably helped launch more major U.S. corporations than any other investment banker. Today, 67 years old and suffering from emphysema, Thomas has his potato-shaped nose in more deals than most men half his age. Earlier this year he talked the executives of Halliburton, Inc., the Dallas oil-drilling service company, into going public. That took some talking, since the stock market had been particularly unreceptive to new issues in recent months. Yet the Lehman-managed deal raised $176 million for Halliburton, the largest industrial common stock offering in a decade.
A large number of Texans have been imported into lower Manhattan to make money for their employers at those arcane disciplines for which the Lone Star state is perhaps best known: oil and cattle. Unfortunately, there is a subtle tendency at some firms to channel Texans into those quintessentially Texan industries whether they like it or not. Says one 30-year-old former Dallas resident who passes his days syndicating oil-drilling deals: “One of the reasons I left Texas was because the only way to make real money there is to go into oil or cattle. So I come to New York, and where do you think these bastards put me?”
Not everyone objects to that arrangement. “After all, Texas is a pretty important state in terms of the U.S. economy,” says John E. McFarlane of Palestine, who raises money for large cattle-feeding and oil-drilling undertakings at Drexel Burnham. “It never hurt anybody to know something about cattle. In fact, I rather enjoy mastering a subject that not many New Yorkers understand. Most people here wouldn’t know cow patties from peanut butter.”
Regardless of what task they are assigned, most Texans who come to New York do not last more than a few years. Indeed, many arrive with the intention of staying only for lunch, picking up experience and a new entry for their resumes, and then moving on. “It’s a game a lot of us play,” says a 26-year-old University of Texas graduate who has been trading government bonds on Wall Street for a year now. “You make a name for yourself here, flirt with the firms in Texas and make them break the bank to get you back there.”
Other Texans come with the intention of staying for supper. But they usually learn to loathe the place, largely because living conditions are incontestably inferior to just about anything in Dallas or Houston, and twice as expensive. Example: A two-bedroom apartment in the East 70s, a relatively safe and pleasant neighborhood, now fetches from $450 to $950 a month, and probably comes with cockroaches. Says McFarlane: “I love New York, but I can see why a lot of people prefer Texas. New York is a good place for two kinds of people: the rich and those who intend to be rich.”
Texans are probably coming to Wall Street in fewer numbers these days. Joe C. Ondrey, placement director for the University of Texas College of Business in Austin, figures that less than 5 percent of this spring’s graduating class will end up in New York, a figure that has been dwindling steadily over the years. More and more business graduates are heading for provincial capitals like Chicago, Denver or San Francisco, where salaries have in some cases eclipsed those on Wall Street, traditionally the highest-paying financial district in the nation. New York salaries are still about 10 percent to 20 percent higher than those in Texas; a newly minted MBA who can start at $14,000 in Dallas or Houston can expect to make $16,500 a year in New York, Ondrey says.
Those figures are misleading. Not only are local taxes and living costs higher in Manhattan, but Texas-based investment firms are usually smaller than their Wall Street counterparts, and allow a beginner more responsibility—and sometimes better perquisites. Dallas real estate promoter Trammel Crow, for instance, hired a half-dozen Texas B-school grads last year at the unimpressive salary of $12,000 a year, but gave them unlimited expense accounts. Even Joe Thomas thinks the bloom is off Wall Street’s rose: “I’d never advise any young man to come to Wall Street today. It’s the twilight of the gods here as far as making money is concerned. You’re better off staying in Texas.”
The decline of immigration from Texas to Manhattan could be a minor catastrophe for Wall Street. For one thing, it will deprive many home-grown financiers of the opportunity to observe Texans close-up. As a result, the Manhattan xenophobia that victimized Ross Perot—and, some say, Jimmy Ling when his LTV empire got too big and complex for Wall Street to understand—may spread and deepen. “People here still think all Texans are rich as hell, fly around in private jets and wear vicuna coats from Neiman Marcus,” laments Thomas. “Sometimes I get pretty upset with people in New York who think that this city is America. Hell, New York is no more America than East Berlin is.”
The twilight of the Texan on Wall Street also means the diminution of a crucial input of talent, enthusiasm and vitality—qualities that are in short supply in that dismal district. Without the inspiration of people like Ross Perot and a long line of other unorthodox operators, the securities industry may become even more languid and unresponsive than at present. “The biggest thing that makes Texans on Wall Street different than other people there is that they have more guts,” says Mike Thomas, son of Joe, and a Manhattan financial consultant in his own right. “Also, Texans have tremendous enthusiasm for things Texan. When they get up here they transfer that enthusiasm to whatever they happen to be working on. You go down to Houston and they’ll tell you that they’ve got the best this, and the best that—well, it’s the same thing here. A Texan on Wall Street will tell you he’s working on the best deal that ever was. The amazing thing is that, for him, it really is the best deal ever. I’m afraid that what happened to Ross Perot is going to make a lot of Texans think twice about coming up here. And that would be unfortunate for all of us.”