Chapter 1: Crashing the Gates

At age twenty-two, when most young men are eagerly laying plans for their careers, Sandy Weill was facing failure. In one shattering night the future that he had thought would be his had utterly evaporated. His dreams of joining the family business were in ruins, his beloved mother was suddenly facing life alone, his classmates would soon be graduating without him, and the woman he desperately wanted to marry was being told to dump him. All because his father, Max Weill, went out for cigarettes one night and didn't come back.

For Sandy, the pain of failure was all the worse for how hard and long he had struggled to achieve even a smattering of success. As a child growing up in the Bensonhurst section of Brooklyn, short and chubby Sandy was an easy target for the bullies who often sent him scurrying to his mother's protective skirts. Shy and reclusive, he made no close friends at school and stood in fear and awe of his handsome, ebullient father, Max, who often scolded Sandy for not being more rough and tumble and not standing up for himself. His only real friend was his little sister, Helen, who worshiped her brother. During summers at their grandparents' farm, Sandy would dig worms so that he and Helen could fish in the pond and then dutifully bait her hook and remove any wriggling fish she caught. But even with her, Sandy kept his feelings to himself. The two could sit together for hours listening to New York Yankees games on the radio without exchanging a word.

All that began to change when fourteen-year-old Sandy was enrolled at the Peekskill Military Academy, a boarding school near his grandparents' farm. The school emphasized both sports and scholarship and kept students' days full of activities. At five feet nine inches Sandy was too small for the football team, but much to his own surprise, he honed his tennis skills, acquired during earlier summer camps, to win many school tournaments. He became captain of Peekskill's tennis team and even played in the Junior Davis Cup. The physical regimen of calisthenics every morning and sports every afternoon melted away some of the baby fat. At the same time Sandy realized he liked learning and was good at it. He would bang out his homework assignments in an hour or two and then nag his roommate, Stuart Fendler, to finish his assignments so the two could head for the school canteen for ice cream. Yet while excelling at both sports and academics, Sandy never became a leader on campus or even a very popular student. At graduation, when seniors predicted what would become of their classmates, no one predicted Sandy would do anything exceptional. He told classmates he planned to join his father's steel-importing business. In a school skit, Sandy even cast himself as the owner of Super Deluxe Steel Plating Co., with five plants across the country.

Max Weill's inaptly named American Steel Co. -- it dealt almost exclusively in imported steel -- was his second business venture. Like many young Jewish men whose parents had emigrated from Eastern Europe, Max first went into the rag trade, where his good looks, flirtatious ways, and free spending won him a strong clientele as a dressmaker. Etta Kalika, whom Max married in 1932, couldn't have been more different. Plain, conservative, and thrifty, Etta refused to wear the fancy clothes Max brought her and preferred to spend her time visiting her parents, who lived downstairs from Max and Etta in a three-family home the parents owned, and caring for her two children, Sandy and Helen. While the dressmaking business was successful, Max Weill, who treated himself to a weekly haircut and manicure, was always on the lookout for the next big opportunity. One opportunity he found -- to violate wartime price-gouging regulations -- earned him a $10,000 fine and a suspended prison sentence and prompted him to leave dressmaking for good. After an abortive move to Miami during the war, Max and Etta were back in Brooklyn by 1945, this time in the Flatbush neighborhood, and Max had set up American Steel.

Sandy's outstanding academic record at Peekskill opened the doors of prestigious Cornell University where, true to his intentions to join his father's business, he declared a major in metallurgical engineering. But as so many college freshmen discover, college is about a lot more than classes. With thirteen Jewish fraternities eager to sign up new pledges, Sandy found himself a hot property. AEPi was particularly interested in recruiting him, and Sandy wanted to make a good impression. The composure and confidence -- or at least the appearance of it -- developed in military school, as well as the free-flowing alcohol, helped him overcome his innate shyness. Though never comfortable in social settings, he found he could be sociable and even charming. His tennis skills, applied to the game of table tennis, impressed the fraternity brothers.

Once AEPi accepted him, Sandy fell into a common pattern: alcohol and parties at night, missed classes in the morning, and weekends full of dates. By Thanksgiving of his freshman year Sandy was on probation and realized that the rigors of metallurgical engineering were not conducive to his new lifestyle. A switch to Cornell's liberal-arts program enabled him to resuscitate his grade-point average without making a serious dent in his heavy schedule of dating, eating, and drinking. Indeed, it was during his freshman year that Sandy began to indulge what would become a lifelong passion: food. Sandy and his frequent Ping-Pong partner Lenny Zucker, who shared Sandy's obsession with eating, would plan weekends around where they were going to eat. It helped that Sandy had a car, a new yellow Pontiac convertible, and a credit card, both supplied by his father. Yet he wasn't extravagant. On the way to pick up their dates for a dinner at a famous Finger Lakes restaurant, Sandy warned Zucker to let the girls order first. "They'll order the liver, the cheapest thing on the menu, and then we can have steaks," a prediction that turned out to be dead on.

Despite his shortish stature and less-than-suave manners, Sandy had more than his fair share of dates at Cornell. He was especially adept at spotting and romancing the Cornell coeds who came from moneyed families. But when he was twenty-one and visiting home during his junior year, his aunt Mabel, a self-professed matchmaker, told her nephew about Joan Mosher, a student at Brooklyn College who lived with her parents in Aunt Mabel's neighborhood of Woodmere, Long Island. Overcoming an initial bout of shyness, Sandy telephoned Joan and came away from the call convinced he really wanted to meet this woman. Their first date, April Fool's Day, 1954, ended in the wee hours of the next morning as the two found one thing after another to talk about. Smitten, Sandy vowed to friends that he was going to marry Joan Mosher and, true to that pledge, he never dated anyone else. Joan's gracious poise, empathetic manner, and tall, slender figure were an irresistible package to the Brooklyn boy who was just about the opposite -- awkward, short, and stocky with a cockiness that tended to hide his shyness. To be closer to her, Sandy would spend weekends with his aunt Mabel, sleeping on her sofa during the few hours he wasn't with Joan. Joan's family lived in a new upscale development in Woodmere, in an upper-middle-class home with a large yard. Her father, Paul, was in public relations, and the family lived in a country-club milieu that Sandy had never experienced. While the Moshers didn't directly object to Sandy, it wasn't hard for Sandy to recognize that they weren't thoroughly pleased that Joan was getting serious with someone who didn't seem to be as ambitious or as polished as they might have liked.

While his brief foray into metallurgical engineering ended in near disaster, Sandy still intended to join his father's business. With that certain opportunity ahead, he thought little about career planning, unlike friends who were aiming for law school or joining professionally oriented groups on campus. He continued to coast through school, posting reasonable grades in easy courses while spending as much time with Joan as he could. By spring of 1955 the young couple began planning an elaborate wedding to be held shortly after Sandy graduated.

Then Max Weill sprang his stunning surprise. Leaving the house on the pretext of going for a pack of cigarettes, Max phoned his unsuspecting wife to tell her he had long been having an affair with a younger woman and now he intended to divorce Etta and marry his lover. Reeling, all Etta could think to do was call her son. The news floored Sandy. He had known his parents were very different from each other, but he had never even considered the possibility that they might divorce. As soon as he recovered his wits, Sandy jumped into his convertible, sped off to pick up his sister at Smith College in western Massachusetts, and then drove through the night to confront Max, who was living with his mistress. It was only then, as he and Helen tried desperately to convince Max to come home, that his father struck a second shocking blow: He had secretly sold American Steel months earlier. There was no steel business and no job for Sandy.

Defeated and despondent, Sandy returned to Cornell. His family was disintegrating before his eyes, and his long-held dream of setting up as a prosperous steel importer had evaporated, literally overnight. Yet more was in store. While he and Helen were comforting their mother in Brooklyn, Sandy missed a crucial exam in his accounting class. The professor wouldn't listen to explanations or excuses, and suddenly the shaken senior didn't have enough credits to graduate with his class. Joan's parents seized on the crisis as ammunition to foil the pending wedding. Their daughter's suitor wouldn't have a college degree. Worse, his parents were divorcing in a scandalous affair. "The apple doesn't fall far from the tree," Paul Mosher warned his daughter before offering her a trip to Europe if she wouldn't marry Sandy.

But Joan and Sandy had forged a bond that neither scandal nor parents could break. In a last-ditch effort to remove at least one of the Moshers' objections to him, Sandy convinced the Cornell administration to let him take a make-up exam for his accounting course. He took the exam on the Monday before the planned wedding and was notified he had passed on Thursday. Cornell wouldn't be issuing diplomas again until the next fall, but at least Sandy had graduated. The wedding went ahead as planned, despite the obvious tension between Sandy and Joan's parents and without the presence of Max Weill, whom Sandy had forbidden to attend lest his presence upset Etta. The elegant ceremony took place at the Essex House in Manhattan, across from Central Park. Sandy was ecstatic to be marrying the beautiful and graceful woman who had become his closest friend. And while Sandy was neither a debonair nor an elegant groom, Joan Weill recognized a diamond in the rough. She loved him for his loyalty, drive, and sense of humor -- and for putting her on a pedestal. The honeymoon took the couple to Florida for the entire summer, courtesy of Max Weill, who now lived there with his new wife. Sandy and Joan toured the state, putting their hotels and meals on his father's credit card. The expenses-paid honeymoon was more than Max Weill's wedding gift -- it was his effort at reconciliation with his still-angry son.

LEARNING THE BACK OFFICE

Usually Sandy got no further than the receptionists' desks. By the fall of 1955, Wall Street had gotten a reputation as a good place to make some money, and Sandy spent weeks trudging through Lower Manhattan making cold calls on the firms lining the narrow streets. Often he passed directly in front of the City National Bank, its facade decorated with a frieze called "The Titans of Finance." But with his heavy Brooklyn accent, cheap suits, and perennially sweat-soaked shirts, about all Sandy could persuade the receptionists to do was take his resumé. He knew it wasn't much of a resumé. A liberal-arts degree, even from a prestigious school like Cornell, didn't do much to prepare a guy for a job in what was then called "high finance." And his work experience consisted of two weeks selling the Greater New York Industrial Directory to local businesses, a job from which he was fired after making only one sale in those two weeks. What it took Sandy longer to realize was that the banks and securities firms crowded into the financial enclave considered themselves a culture operating in a world apart from other industries. Only the well-bred, the well-dressed, the well-off, and the well-connected need apply. For decades the Street had been dominated by firms like J.P. Morgan and Morgan Stanley, whose managing directors and brokers enjoyed memberships in the prestigious clubs along Hanover Square that openly or informally prohibited blacks, Jews, and women. Moreover, many of those men had attended the same prep schools and colleges and could trace their Protestant roots to the Mayflower. Certain brokerage houses and investment banks, such as Goldman Sachs, welcomed and promoted Jews, but only those descendants of German Jewish emigrés; they carried a distinct bias against the sons and grandsons of Eastern European Jews, like Sandy.

Pervasive as they seemed, Wall Street's prejudices were focused mostly among the brokers and managing directors, the "front office" that solicited and cared for clients, mostly wealthy individuals. The "back office," where the accounting, record keeping, and other mundane tasks of high finance were carried out, was a different story. And that's where Sandy finally got a break. More of a crack, really. Bear Stearns, very much a second-tier firm among Wall Street's powerful brokerage houses, needed another runner to deliver securities certificates to other firms. "Runner" wasn't really an apt description of the job. The brokerage firms preferred reliability over speed, and most of the runner jobs went to old men looking to augment their Social Security checks or to escape the boredom of retirement. But business was good for Wall Street, and the twenty-two-year-old Weill seemed reliable enough. The job paid only $35 a week, but it literally opened doors for Sandy. Delivering stock certificates around Wall Street, anchored by the New York Stock Exchange with its colossal Corinthian columns and marble-walled, gilt-ceilinged trading room, gave Sandy a chance to watch brokers in action. Each lunch hour was devoted to close observation as brokers slammed down phones, raced to fill out trading slips, and shouted to one another about the latest blip disclosed by the chattering Dow Jones News Service machines. The adrenaline rush he got from simply watching the action was addictive. Sandy had to be part of that club.

One day it dawned on Sandy that a detour might take him where he wanted to go. At Cornell he had been a member of the Reserve Officers' Training Corps -- ROTC -- an organization designed to prepare college students for a stint in the military as officers. Sandy's ROTC unit was affiliated with the U.S. Air Force. It wasn't a big leap, then, to calculate that serving four years as an Air Force pilot would give a guy -- even a guy of Eastern European Jewish descent -- a credential that could gain him admission to the broker training programs that had once rejected him. The plan might have worked. Pilots had to have fast reactions and good decision-making skills -- excellent prerequisites for a broker's job -- and military service carried some clout on Wall Street. But he never got the chance to find out. With the Korean War long since ended, the military was winding down and setting tough new standards for new recruits. An Air Force dentist examining potential recruits found a spot of decay on one of Sandy's teeth. Application denied.

Now desperate -- he and Joan were expecting their first child -- Sandy pleaded with his bosses at Bear Stearns to at least let him have a crack at taking the mandatory brokerage licensing examination. He would study on his own while continuing to do his daily chores in the back office. They consented: If he could pass the examination, he would get a shot at being a broker. In the meantime, whether to encourage or discourage him, they began giving Sandy more responsibilities in the back office. First they made him a quote boy, a post in which he worked directly for a boisterous trader named Cy Lewis, who would later become a legend among Wall Street traders. Lewis would yell for a price quote on some stock, and Sandy would punch the necessary symbol into the quote machine to get it for him. Next he became a margin clerk, keeping track of the loans Bear Stearns made to customers to allow them to buy more stock, which was in turn used as collateral against the loan. If a stock's price fell -- that is, the collateral securing the loan declined in value -- it was Sandy's job to let a broker know that his client needed to either put up more cash as collateral or sell the stock to repay the loan. Few brokers had any concept of how important these and dozens of other menial back-office jobs were to the smooth functioning of their firm. Fewer still had any idea about how to do those jobs. But Sandy was fascinated by the intricacies of the back office, even while studying for the exams that might let him move to the front office. Less than a year after his desperate plea, Sandy Weill passed his exams and became an officially licensed broker at Bear Stearns.

THE COINCIDENTAL PARTNER

It wasn't much as apartments go, a one-bedroom next to the railroad tracks in East Rockaway. But the monthly rent of $120 was affordable and the commute to the city was easy. More important, it let the young couple get away from Joan's parents and Sandy's mother, with whom they had been alternately living since returning from their Florida honeymoon. But the best thing about the new apartment was that they lived across the hall from Arthur and Linda Carter, another young Jewish couple. The two couples formed an instant bond. Linda, who had just given birth to the Carters' first child, offered comfort and advice as Joan neared the end of her pregnancy. Arthur had majored in French at Brown University and had considered a career as a concert pianist before joining the U.S. Coast Guard during the Korean War. As the war wound down, Arthur began looking for a job on Wall Street. Dressed in his Coast Guard uniform, he managed to secure an interview with Bobbie Lehman, the head of Lehman Brothers and grandson of one of the founders. A former army man, Lehman, who ran the firm as his own personal fiefdom, liked the urbane and handsome young man and hired him as a rookie investment banker in the department that advised industrial concerns. But Carter had no upper-class pedigree, no Wall Street connections, no family money, and he soon discovered he wasn't being paid as much as his colleagues. When the Weills moved in across the hall, Arthur Carter suddenly found himself with a neighbor who shared the brunt of Wall Street's prejudices. The two families often cooked dinner together, Arthur and Sandy rode the train together each day, and they frequently met for lunch, since neither was invited to join the private clubs to which other brokers belonged. The conversation always concerned business and the Street, and how they would run the place if they were in charge.

Sandy's brokerage career began in a decidedly different way from most others. Rather than making phone calls or personal visits to solicit clients, Sandy found he was far more comfortable sitting at his desk, poring through companies' financial statements to see how fast they were growing or examining the disclosures they made to the Securities and Exchange Commission about their business. He often found little nuggets of information that persuaded him a company's stock was a good buy or to be avoided at all costs. For weeks his only client was his mother, Etta. Joan, who knew very well Sandy's tendency to avoid public contact, managed to double his clientele one weekend when they ran across one of her old boyfriends, Michael Weinberg, at the beach and Joan persuaded him to let Sandy sign him up for a brokerage account. She began calling Sandy at the office each day, sometimes several times a day, to warn him to "get off your duff and make some calls." Her nudges helped Sandy overcome his shyness, and he began building a client base centered around his Brooklyn roots. The area merchants and professionals Sandy convinced to open accounts also became a source of new business as word spread about the successful stock picks he had put in their portfolios.

But there were limits to working at Bear Stearns. Bigger brokerage firms had a wider array of financial products, from mutual funds to hog bellies, to offer their clients. If a broker could sell two or three commission-generating products to each client rather than just one, each sales call would be far more profitable. With his track record on stocks and a solid, if small, client base, Sandy moved in 1956 to Burnham & Co., a Jewish firm run by I. W. "Tubby" Burnham. Each night as Burnham headed out the door, he could see young Sandy hunched over his desk, searching for tidbits of information in company reports or making cold calls to pitch new clients. With new products to sell to his old clients and the wide array of product offerings to attract new clients, Sandy grossed $25,000 in sales in his first year at Burnham and took home a third of it, or about $8,000.

While Sandy was building his brokerage business, Arthur Carter decided that he could further his career at Lehman Brothers if he had a business degree. Although Sandy argued against it -- Carter already had a job at one of the most powerful Wall Street firms -- Carter applied to and was accepted by Dartmouth's Amos Tuck School of Business Administration, his tuition to be paid by the government under legislation for veterans of the Korean War. When Carter left for school he gave Sandy $5,000 to put into a brokerage account for him. He called Sandy daily from Hanover, New Hampshire, to compare notes about stocks that might be good buys and to share some of the insights he was gaining from his classes and classmates. By graduation, Carter's investment, managed by Sandy, had grown to $60,000. Carter was right about what additional education might do for him: When he returned to Wall Street with his business degree, he joined an old-line investment banking firm, Lee Higginson & Co., that offered him 50 percent more money.

Despite their success, Sandy and Carter never stopped talking about how they would run a business. As 1960 dawned, the two men could do more than talk. They were experienced, they were earning good salaries, they had moved their families into bigger suburban homes in affluent neighborhoods (although Sandy and Joan rented rather than owned their home) where Jews were welcomed, and they had some money in the bank. The idea of starting their own firm was immensely appealing. If they owned the firm, they could keep all the fees and commissions they generated. But it was also frightening. Sandy's brokerage business would generate immediate commissions if, as he presumed, his clients followed him to the new firm. It was much less likely that the companies Carter advised at his investment-banking firms would follow him to a small new outfit. There was no way to know how long it might take for Carter to begin generating fees. One solution, Carter suggested, would be to bring in another broker who, like Sandy, could begin generating commissions immediately. And he had just the person in mind, an old friend named Roger Berlind, a Princeton English major working at Eastman Dillon. Like Sandy, Roger Berlind was Jewish and had endured the same humiliation trying to break into Wall Street -- thirty consecutive rejections before Eastman Dillon hired him -- and it wasn't hard to persuade him to join them. While his first impression of Sandy was of someone gruff and unsure of himself, Berlind recognized that Sandy knew the brokerage business thoroughly and was very smart. Berlind also suggested that they attempt to recruit his friend Peter Potoma, another broker at Eastman Dillon. Not only was Potoma married to money, he was an Italian, and so more welcome on the New York Stock Exchange floor than a Jew.

Before the quartet made their final move, Sandy went to Tubby Burnham, who had started Burnham from scratch twenty-five years earlier. Would he support Sandy's effort to start a new firm by agreeing to handle the fledgling firm's back-office business? With Burnham's blessing, the four young partners each contributed $60,000 for a total of $240,000 -- enough to buy a seat on the New York Stock Exchange for $160,000, rent a tiny office, and hire one secretary. To fund his share Sandy went to Etta. She lent him $30,000 -- more than half of what she had -- and Sandy used all but $1,000 of his and Joan's savings, money they had set aside to buy a new house, to make up the rest. In May 1960 the new firm of Carter, Berlind, Potoma & Weill opened in a cramped two-room office at 37 Wall Street. The four partners shared one room; a secretary and reception area occupied the other. At the end of their first day in business, the firm, minus the secretary, took itself to a celebratory dinner at a fine French restaurant on Third Avenue. But without their wives -- the four didn't think they could afford to bring them -- the dinner wasn't much fun. Sandy felt the fear of failure gnawing at his gut. He was risking nearly everything he and Joan had.

DIGGING FOR DETAILS

New firms, even on Wall Street, don't just start minting money. True, Carter, Berlind, Potoma & Weill began with the customer base that the three brokers brought with them. But they knew that to survive, much less thrive, they would need something that brought them to the attention of the professional money managers and wealthy individuals who typically gravitated toward the well-known names of Wall Street. In 1960 Wall Street was still basking in the lucrative "fixed-commission" system, in effect a government-backed price-fixing scheme that forbade brokers from undercutting one another's prices to attract business. So like any other small firm trying to break into the near monopoly that the big Wall Street firms enjoyed, Carter, Berlind needed a gimmick. That gimmick turned out to be Sandy's brain.

Brokers at the big Wall Street firms may have come from good schools and respected families, but they weren't known for towering intellects. Life was easier if they wined and dined their clients, took them to baseball games or Broadway shows, and then recommended mostly big blue-chip stocks, instantly recognizable companies whose names appeared almost daily in The Wall Street Journal. After all, these big companies had a well-known history and provided familiar products or services. And if clients didn't want the big blue-chip companies, the brokers could offer them hot new technology stocks from companies in electronics, atomic energy, or space exploration. It wasn't necessary for a broker to build a detailed case for why an investor should buy any of those stocks. More to the point, the brokers' commissions were fixed: They would make the same amount of money regardless of whether they put in hours of tedious research.

But socializing repelled Sandy. He wasn't articulate or polished, and he hated making small talk. Let his partners take care of that. He much preferred sitting at his desk, a Te-Amo cigar clenched in his teeth, mining documents for information. Sandy's desk was always overflowing with sheafs of pink paper. The "pink sheets," as they were aptly called, were printed by the National Quotation Bureau, the forerunner of the NASDAQ market and a listing agent for companies that weren't big enough, profitable enough, or respected enough to be listed on the exclusive New York Stock Exchange. The pink sheets listed that day's "bid" and "ask" for individual companies whose stocks could be bought "over the counter," another way of saying that the stocks were handled not through a central exchange like the NYSE, but by individual brokerage firms that "made a market" in a particular stock. Sandy would spend hours poring over the pink sheets, looking for unknown companies with the right combination of growth rates, debt levels, profit margins, and other financial details that signaled a good investment. After he had identified a possible target, he would start checking other sources, including documents filed with the Securities and Exchange Commission and anything else that might give him some insight into the company's growth potential and its stock's value. One of the first little gems he discovered was a small company called Associated Transport Inc., a freight hauling company whose stock traded between $7 and $13 a share in 1960. Based on his research into the obscure company, Sandy concluded it had good growth potential both as a company and as a stock, and he began recommending that clients buy it. By 1964 the stock was selling as high as $43. Investors who followed Sandy's advice would have quadrupled their money in four short years.

But most wealthy investors didn't appreciate the benefits of research and didn't want to risk their money on the stocks of unfamiliar companies. They were content to accept whatever returns they could get from their big blue-chip stocks. Thus a firm like Carter, Berlind held little interest for them. And Carter, Berlind's one measly, unattractive office -- as opposed to a firm like Merrill Lynch with its vast network of branches -- wasn't exactly inviting to well-heeled individual investors. Fortunately, however, some fundamental changes taking place in the nature of investing in 1960 ensured that Carter, Berlind would prosper nevertheless. One of those changes was the growth of mutual funds, investment vehicles that pool the financial resources of thousands of individual investors to buy stocks and bonds in bulk cheaper, with more knowledge, and with less fuss than the individuals could do by themselves. Mutual funds had been around for years, but only in the 1950s did they become an important part of the investment scene. Incomes were rising fast enough to allow more families to save part of their paychecks, and the stock market's spectacular rise in the 1950s, when the Dow Jones Industrial Average tripled in value, lured increasing numbers of small investors who were not welcome customers at the big brokerage houses. Then, as now, mutual-fund companies competed against one another based on how much they could increase their customers' money. Consequently, fund managers began to look for undiscovered companies with quick growth potential.

One day in 1960 a Bostonian named Edward C. "Ned" Johnson III called the firm to discuss one of its highly detailed research reports. Ned Johnson was a research analyst at Fidelity Management & Research Co., which his father had founded years earlier to advise the Fidelity Fund, one of the earliest mutual funds. Soon the young Ned Johnson was picking the brains of Carter, Berlind in weekly phone calls and executing profitable trades following their research. With Fidelity as their first institutional client, the founders realized their research prowess could be a powerful tool to attract other institutional clients such as pension funds, for which they would execute much larger trades -- generating bigger fees -- without having to support a capital-intensive branch network. The firm, along with another upstart called Donaldson, Lufkin & Jenrette, quickly developed a niche as a "research boutique."

Sandy didn't confine his research to the office. One weekend in 1963 an acquaintance complained about all the overtime he was putting in at the Bulova Corporation factory where he worked. Bulova had just introduced a new watch called the Accutron, the first wristwatch to use electronics rather than springs and levers to keep time, and they were flying out of the stores as fast as they could be made. After grilling the man for more details about the new watch, what it cost to make, and what Bulova charged jewelers for the watch, Sandy came to the office the next Monday and told his colleagues to start buying Bulova stock for the firm's account and recommending it to clients as a "buy." Carter, Berlind's buying was so persistent that it soon attracted the attention of Bulova's assistant treasurer George Sheinberg, who began inquiring about Carter, Berlind. None of his fellow executives at Bulova had ever heard of the firm. Likewise, Sheinberg's contacts on Wall Street knew nothing about it. Finally Sheinberg called Sandy directly to find out why the firm was so eager to own Bulova stock. The two met over a chicken Kiev dinner and began a friendship.

The next year Bulova needed more working capital to expand its production of Accutron watches. To raise the money, the company hired Goldman Sachs, a prestigious and powerful firm whose senior partner, John Weinberg, sat on Bulova's board. Goldman would be in charge of putting together a syndicate, a group of Wall Street firms that would buy bonds from Bulova, then resell them to investors. Typically the syndicates were composed of a dozen or so well-regarded Wall Street firms. Sheinberg, however, suggested that Carter, Berlind be included in the syndicate. Weinberg checked with his colleagues at Goldman Sachs, who told him that Carter, Berlind was a firm of "nobodies" and shouldn't be part of the syndicate. But Sheinberg was adamant; without Carter, Berlind's heavy purchases of Bulova stock and research reports recommending that their clients buy it, too, Bulova's stock would not be nearly so high and raising money would be much more difficult. Goldman relented and let Carter, Berlind into the syndicate, but only for a minuscule 1.9 percent of the deal. Still, it was the first time the firm had been admitted into a syndicate run by one of Wall Street's old-guard firms. Goldman made sure, however, that the upstarts at Carter, Berlind knew who was in charge: The name of the tiny firm was left out of the standard "tombstone" ad announcing the deal in The Wall Street Journal.

In their first year in business the three brokers each brought in about $75,000 in commissions, reinvesting all but their meager -- at least by Wall Street standards -- $12,000 salaries. Each of the three had a different approach to the business. Sandy let his thinking do his selling. It was his ideas and roll-up-the-sleeves analysis that attracted clients who made money on his smart though often obscure stock picks. Because of his unease in social settings, he preferred letting the other partners do the client hand-holding. His colleagues happily obliged because they feared Sandy's disheveled working-class appearance and his habit of endlessly smoking or chewing cheap cigars would drive away clients. At their urging, he bought a hat like one he had seen President John F. Kennedy wear. But it looked absurd on the chunky twenty-seven-year-old, and he wore it only once.

Roger Berlind, a tall, thoughtful, soft-spoken man with horn-rimmed glasses, was almost the antithesis of a fast-talking stockbroker. His blood didn't pulse with the market gyrations as did the others'; he simply went into the business after his first love of writing show tunes didn't pay the bills. He was the most pleasant of the four to be around, the most presentable, and therefore the most likely to meet with the institutional clients such as Ned Johnson. His sweeter disposition made him an easy target for his hard-charging colleagues, who deemed him "barely Jewish" because of his tony Princeton degree and his Gentile wife and friends.

Peter Potoma was the wild card among the four founders. A savvy stockbroker, he could sell stocks better than either Sandy or Berlind. But Potoma frequently disappeared for days at a time. The partners let him get away with it for longer than they should have, primarily because his rich father-in-law sent Carter, Berlind a significant chunk of business.

While the three brokers worked the phones, Arthur Carter, the aspiring investment banker, was quietly assuming control of the firm, even though the partners never elected him or anyone else to be the head. Precisely at 5:00 p.m. each day, Carter brought out the firm's ledger book, in which he had meticulously recorded the number of shares traded by each of the three brokers and compared their commissions against the day's cost of operating, creating a daily profit-and-loss statement. If one of the brokers had an especially good day, he would leave the office after the daily ledger review feeling like the king of the mountain. A bad day, however, made whoever experienced it feel like the world's worst loser. Carter's domineering and dry personality reflected his worries about the down-and-dirty nature of the firm that bore his name. Fancying himself a graphic designer of sorts, he fashioned the stationery and business cards for Carter, Berlind, Potoma & Weill. The design was elegant, crisp, and traditional, an effort to make the hole-in-the-wall firm that no one had heard of look like one of the mainstays of the Wall Street Club.

But the outlander firm was faced with a crisis in credibility early on. In the winter of 1962 the New York Stock Exchange notified Carter, Berlind that it was bringing disciplinary proceedings against Potoma for violating the exchange's rules. The troubled broker had engaged in a pattern of "free-riding" in his and his wife's accounts by buying stock on its way up without paying for it and then selling later to cover the original purchase price. Having a partner disciplined by the New York Stock Exchange could destroy the firm, especially among the institutional clients it was so ardently courting. Moving quickly to save themselves, the other three partners took over Potoma's New York Stock Exchange seat, forced his resignation, and dropped his name from the firm. When news of Potoma's suspension moved over the Dow Jones news ticker that July, there was no mention of the new firm of Carter, Berlind & Weill.

BUILDING A TALENT BANK

The mid-1960s were a golden time on Wall Street. Known as the "go-go" years, it was a time when the public experienced one of its periodic love affairs with stocks. Wall Street firms large and small scrambled to open new offices and hire new brokers and researchers to meet the booming demand. The trend was evident in Lower Manhattan, where opportunistic builders began throwing up nondescript modern office buildings among the area's imposing monuments to capitalism. The new buildings were quickly occupied by firms short on history but long on greed and guts. Among them was Carter, Berlind & Weill, which used some of the capital its partners had plowed back into the firm to rent a full floor at 55 Broad Street, one of the primary narrow streets that make up the southern tip of Manhattan. The three founding partners continued sharing an office, although the one they now shared was fully forty feet long. The rest of the office space was decorated with gray carpet, chrome and red upholstered chairs, and fake wood desks. Maps and tip sheets covered the walls, and a pervasive fog of cigarette and cigar smoke hung over it all.

The firm also began to use its growing capital to hire more brokers and research analysts, typically young opportunists like themselves who were rejected by the establishment firms. Among their first hires was a well-spoken young man with piercing blue eyes named Arthur Levitt Jr. Levitt had worked as a newspaper writer and had dabbled at the fringes of Wall Street, acting as a salesman for cattle that were used as tax shelters for rich individuals. He had been rejected by all the old-line brokerage houses despite the fact that his father had long served as New York State's comptroller. His family background, polished style, and persuasive presentation all impressed Sandy. But Levitt wasn't at all sure he wanted to go to work for a "peanut firm" like Carter, Berlind & Weill. First, he quickly noticed that these men didn't treat their work as a job. Rather, it was their life. Second, he was stunned that the partners didn't associate with -- indeed, didn't even know -- Wall Street's richest and most powerful figures, people like Billy Salomon, from the founding family of Salomon Brothers, and John Loeb, a founder of Loeb Rhoades, whom he had met in his tax-shelter dealings. But Carter, Berlind & Weill, he saw, was counting on performance, not connections, to be successful. Finally, there was the matter of salary: $25,000 annually, a lot less than people he knew were getting when they started at the bigger firms. But it was the only offer he had, so he took it.

Levitt regretted his decision almost immediately. He was the odd man out among the office staff. The three partners would sit in their big office speaking their own shorthand and using obscure hand signals to carry on conversations amid the ringing phones and clattering quote machines, leaving Levitt to guess at what they meant. Walking in on big laughs that ceased in his presence, he got the impression he was the object of their jokes and jeers. After a few months of such tension, Levitt was at a crossroads. He would have to leave unless he could get their attention and respect. One morning he puffed himself up, strode into the partners' office, and announced, "I'm the syndicate manager." Startled, Sandy, Berlind, and Carter looked at Levitt, then at one another. They didn't have any such position. With a few exceptions like the Bulova deal, Carter, Berlind & Weill wasn't invited to join any syndicates. But if Levitt wanted to be the syndicate manager, then he could be the syndicate manager. The three immediately resumed their staccato repartee. Levitt, neither challenged nor endorsed, went back to his desk at least mildly satisfied. He had upped the ante for himself at Carter, Berlind & Weill. Indeed, his bid for status left the partners impressed with their new colleague. He has chutzpah, Sandy concluded. And it wasn't such a bad idea. Levitt's superior contacts and his confident, diplomatic demeanor might actually get the firm into a few syndicates.

Something of a renegade, Carter, Berlind & Weill wasn't reluctant to break some of Wall Street's unwritten "rules," one of which was that blacks had no place on the Street. In the early '60s, there were almost no African Americans employed in the downtown brokerages. Only one black-owned brokerage house operated in that decade. Special Markets Inc., however, couldn't get office space on Wall Street because landlords refused to rent to the fledgling firm "run by and for Negroes." As the 1960s progressed, the number of African Americans working for the New York Stock Exchange grew quietly, with an estimated forty black men serving as floor carriers by 1969. The job, taking used punch cards from traders and sticking them into mechanized reading devices to register trades on the ticker, was hardly emblematic of any positive recruitment effort; more middle-class white kids simply preferred to go to college rather than serve as clerks. The first black to actually trade securities on the Exchange floor was thirty-one-year-old Joseph Louis Searles III, who purchased a seat in 1970. He was completely ignored, even having a remote seat designated for him in the Big Board's lunchroom. Searles braved the hostile treatment with tremendous ambition to succeed, but he lost his seat a couple of years later when the market downturn wiped out his firm.

Clarence Jones received his law degree from Boston University in 1959 and soon became counsel to the man he most admired in the world, the Reverend Martin Luther King Jr. Jones acted both as an advisor to King on legal matters -- he helped negotiate a settlement with the City of Birmingham, Alabama, over civil rights demonstrations aimed at desegregating department stores and public accommodations -- and as a draft speechwriter, brainstorming with King the night before the civil rights leader's "I Have a Dream" speech and securing its copyright afterward. But Jones also had a taste for business and sensed that huge opportunities lay in America's black population, then largely ignored by most big businesses. With another lawyer and an insurance manager, Jones set up an insurance company to focus on the black middle class. When the up-and-coming company needed more funds, a friend suggested that Carter, Berlind & Weill might be more hospitable to Jones than the old-line investment banks. Sandy and his partners didn't just find a source of funds, it found a company -- Colonial Penn Group of Life Insurance Companies -- that wanted to buy Jones's company outright. Of course, that meant Jones lost the helm of his concern, but Carter, Berlind & Weill promptly offered him a job. The partners had been so impressed with Jones's business plan, his Rolodex of contacts, and his charismatic personality that they gave him a phone and a desk, and told him to put his skills to work. Soon Jones brought in big union accounts, including the National Maritime Union and various locals of the International Brotherhood of Teamsters. Even Muhammad Ali stopped by Carter, Berlind & Weill for business meetings with Jones. Jones felt a tremendous kinship with Sandy and the other Jewish partners. He got the feeling that Sandy wondered, "Imagine if I were a Negro."

Women didn't find Wall Street nearly so inhospitable. In the 1960s more women were going to work, either to supplement their families' incomes or because they were waiting longer to marry. But while Wall Street was receptive to women, it invariably steered them toward such menial jobs as secretary, receptionist, and switchboard operator. One catchall job in many Wall Street firms was "gal Friday," a job that involved doing whatever the bosses wanted done, from bringing back lunch for deskbound traders to making restaurant reservations for the bosses and their wives. Mary McDermott was a twenty-one-year-old graduate of Catholic girls' schools when she applied for a gal Friday position at Carter, Berlind & Weill. Her father, an accountant, had checked with his friends in the financial district and warned her that "no one has heard of this dinky outfit. You're going to work for a bucket shop." But McDermott figured it might be more fun than the alternative, teaching high school English, and she took the job to see what she could learn. For a young woman in her first job, surrounded by swirling cigar smoke, verbal epithets, and lots of male posturing, McDermott proved remarkably observant. When new recruits joined the firm, she gave them this summation of the major players: "Arthur Carter runs the place and has at least one secretary in tears every day. Roger Berlind wants to write Broadway songs; he's miscast in this business, but he's the stabilizing influence. Arthur Levitt is smooth and well connected. Sandy Weill is quiet, stays in his little corner, and looks at the tape all day. You can stand on this desk and take off your clothes, and he won't even notice."

It didn't take McDermott long to realize that there was a bigger role for her in the firm. Hearing the men discuss investment ideas, she realized that while the ideas were good, they weren't being very well articulated. With her language and writing skills McDermott could translate those abstruse ideas into plain English, making it easier for investors to understand. The partners saw the value in easier-to-understand reports, and so McDermott became the firm's first "research editor." That often meant following the analysts around, jotting down notes, then retreating to an office to figure out the best way to explain the idea in simple terms, but it was a major step up for a woman working on Wall Street.

The most important early hire, however, was a brassy, pudgy Harvard Business School graduate named Marshall Cogan. A born salesman, Cogan had put himself through business school selling cars for a Boston-area dealership. After rejections from Goldman Sachs and Lehman Brothers, Cogan came to Carter, Berlind & Weill through an employment agency. His arrogant spiel during interviews with the partners would surely have offended the old-line Wall Street executives, but it didn't bother anyone at Carter, Berlind & Weill.

"If he can do half as much as he says he can, he'll be terrific," Carter told his colleagues.

With his experience selling cars, Cogan was a natural to become the firm's first auto analyst, and his real-world expertise quickly paid off. His research indicated that among the Big Three automakers Chrysler was undervalued as a stock. Sure enough, delighted clients soon found Chrysler's stock moving higher. But Cogan was brimming with too much energy to spend his days doing stock research. His nervous tics bothered his colleagues, and they were a little afraid of him, not the least because he would literally bite pencils in two when he got excited about an idea. And one of the ideas that most excited him was the business of mergers and acquisitions.

Mergers had been around for a long time. Indeed, some of America's biggest companies -- U.S. Steel and General Motors, for example -- had grown through the early 1900s largely by buying and absorbing other steel companies or automakers. But the merger business in the late 1950s and early 1960s was shaping up to be something different: Big companies weren't buying smaller companies in the same business; they were buying big companies in different businesses. The idea behind these "conglomerates" -- conglomerations of different businesses -- was very simple: Just as individual investors were urged to own several stocks in different industries to diversify their portfolios and protect against any single stock plunging in value, the conglomerates wanted to own a diversified portfolio of businesses to protect against a downturn in any single business. An additional motive was that the stocks of some companies could be bought very cheaply, especially if the companies were having a hard time, with the conglomerates' high-priced shares. A conglomerate typically would buy an ailing company, oust the management, and replace it with managers loyal to the new parent company. Often such routine functions as accounting or personnel would be taken over by the parent company's staff, making it easier for the newly acquired company to make a profit. All this was made possible by the public's captivation with stocks, which made it easy for brash entrepreneurs to raise the money to assemble conglomerates. The men who assembled these vast but disparate empires became the celebrities of the 1960s financial world. Charles "Tex" Thornton put together Litton Industries, which held electronics companies, a shipyard, and various other assorted businesses. Harold Geneen, who in his teens was a Wall Street clerk, launched a massive expansion of International Telephone & Telegraph (ITT) beyond its basic business of making telephones to acquire such diverse brands as Avis Rent a Car, Hartford Insurance, and Sheraton hotels.

Carter, Berlind & Weill got its share of the conglomerate business, attracting as major clients a couple of the most aggressive players, including Charles Bluhdorn, who masterminded the growth of Gulf + Western Industries. Bluhdorn aggressively sought big names, such as Paramount Pictures, or cash-rich companies selling cheaply that he could milk for funds. Marshall Cogan got the firm most involved with James Ling, who parlayed a business of supplying electrical components into an aerospace concern called Ling-Temco-Vought, later renamed LTV Corp. The two men fed each other's ambitions as they sought bigger deals, eventually taking LTV into the meatpacking and steel businesses as well. Cogan made sure that one of his assistants was in almost daily contact with the flamboyant Jimmy Ling, even sending someone weekly to LTV headquarters.

A CHANGE AT THE TOP

The value of good research was rapidly becoming clear to everyone at Carter, Berlind & Weill. Clients who bought or sold stocks based on the firm's recommendations made money. And entrepreneurs like Bluhdorn and Ling used Carter, Berlind & Weill's research to find companies they could target for eventual acquisition. In both cases, the firm profited from commissions and fees. But no one at Carter, Berlind & Weill had any inkling that a single research report would be the genesis of the company's biggest triumph and its ultimate undoing.

The report was the product of Edward Netter, Sandy's friend who had worked as an actuary for Metropolitan Life. He had joined Carter, Berlind & Weill as an insurance analyst and spent a year studying the property and casualty industry. Stocks of companies in that business were trading at less than the apparent value of their assets. That wasn't surprising, because technology and other exciting sectors were much more interesting than insurance stocks. But Netter discovered a little secret about the industry: "surplus surplus." His lengthy report, turned into English prose by Mary McDermott, revealed that many of these fundamentally boring companies were hoarding huge cash reserves. The cash poured into the companies as policyholders paid their regular premiums, then the companies put the cash aside to cover future payouts on claims. Actually there wasn't much of a secret about it. The facts were there for anyone willing to dig into the companies' financial statements. But the implications of surplus surplus were stunning: Anyone who purchased one of the companies at or near the price of its stock could largely recoup the purchase price by simply raiding the acquired company's trove of cash. Basically, someone could buy one of these companies for nothing! Netter drew up a chart of the ten largest property and casualty companies listing their low returns on equity, trading prices below book value, and overcapitalization -- their surplus surplus. Then to confirm his analysis, Netter befriended the chairman of one of these companies, Continental Insurance, and visited its headquarters to fine-tune his untried idea that companies could be acquired for less than the sum of their rich assets.

Carter and Cogan, the firm's aspiring investment bankers, instantly realized that Netter's discovery could be a windfall for one of the acquisitive conglomerateurs building their empires of miscellaneous businesses. They also knew that a successful deal would be a windfall for Carter, Berlind & Weill, too. They had just the acquirer in mind to do the deal: Saul Steinberg, the head of a computer leasing company called Leasco Data Processing Equipment Corp. The twenty-nine-year-old Steinberg -- young, brash, Jewish, and from Brooklyn -- was a Young Turk like them. Steinberg's lawyer Kenneth Bialkin, a rising securities attorney, had gotten to know Arthur Levitt through his work for the Jewish Guild for the Blind. Both young and ambitious, Bialkin and Levitt had an instant rapport, chatting about Wall Street and deal makers. They sensed that although Steinberg liked to brag about being a self-made man -- his perennial claim was that his business "wasn't started by my grandfather" -- like the partners of Carter, Berlind & Weill, he yearned for acceptance by the financial establishment.

The next step was picking the right target. Reviewing Netter's list of prospects, the partners chose an old Philadelphia company, Reliance Insurance Co. -- stodgy, unsuspecting, ripe for the picking -- and code-named the project "Raquel," after the actress Raquel Welch: highly desirable and very well endowed. Carter, Berlind & Weill quietly began buying up Reliance shares as they pitched the stock to institutional investors. In May 1968, rumors began circulating that Leasco was trying to secure a position in Reliance; Leasco's stock shot up more than $16 a share to close at a new high of $167 on the day of the speculation. Reliance's chairman and CEO told Dan Dorfman, writing The Wall Street Journal's "Heard on the Street" column about the trading activity in Reliance stock, that he had an idea who was buying a stake and promised that Reliance wouldn't just roll over and play dead in the face of an unwanted suitor.

Soon after, SEC disclosures showed that Steinberg's Leasco paid $4.6 million for 3 percent of Reliance's outstanding shares. Steinberg told The Wall Street Journal that he had been "studying companies in the fire and casualty insurance field in which Reliance is engaged" -- basically Carter, Berlind & Weill's groundbreaking report. Yet when Leasco launched its formal and hostile tender offer for all the remaining shares of Reliance, it used established investment bankers -- Lehman Brothers and White Weld & Co. -- not the upstart firm that gave Steinberg the bold idea. Carter, Berlind & Weill appealed to Steinberg and his lawyer Kenneth Bialkin that it should get at least a place in the tombstone ad, which White Weld was fighting tooth and nail. The outsiders can get a fee, but not get into our lofty realm, the elite bankers argued. But Carter, Berlind & Weill wanted prestige as much as profit.

Ultimately, the scrappy firm's involvement got Wall Street's attention. To combat Steinberg, Reliance sought a white knight, Data Processing Financial & General Corp., to make a competing offer. But Data Processing didn't match Leasco's 3 percent stake. More decisive, however, came the revelation that Carter, Berlind & Weill, identified as Steinberg's investment advisor, controlled more than 30 percent of Reliance. By August 1968, Leasco sweetened its tender offer for the insurer and offered its management five-year contracts if Reliance would abandon its opposition.

After Steinberg's conquest, the insurance industry report by Carter, Berlind & Weill became a hot commodity, essentially a playbook for other deal makers. Thereafter, eight of the ten insurers in the report were taken over, including Loews Corp.'s purchase of Continental Insurance and American Express's buyout of Fund American Cos. The trend provoked an outrage about raiding the nation's insurers, sparking congressional and SEC hearings as well as New York and American Stock Exchange inquiries. Carter, Berlind & Weill was called before each panel. The famous surplus surplus strategy was stopped, but its purveyors achieved a newfound notoriety. Emboldened and flush with cash, Steinberg quickly shook the financial establishment again with an audacious but unsuccessful attempt to take over Chemical Bank, the nation's sixth-largest commercial bank.

Steinberg's raid on Reliance was a stunning victory for Carter, Berlind & Weill. The deal reaped the firm $750,000 as a finder's fee and $47,000 in commissions from its initial purchases of Reliance stock. Moreover, it forced even the biggest investment firms to sit up and take note of the brash young firm that had identified the opportunity and set the deal in motion. But it also set up a deep conflict within the once close partnership that ran the firm. Arthur Carter's skills as an investment banker were finally beginning to come to the fore, and he wanted the firm to get out of the hurly-burly of brokerage and focus exclusively on the more urbane -- and potentially more lucrative -- business of finding and doing deals like Reliance. If he couldn't transform Carter, Berlind & Weill, Carter decided he would leave and start his own investment banking firm. Carter had other changes going on in his life, as well. He had divorced his wife and married an aspiring singer and actress, a Southerner named Dixie Carter. He also had been elected to the boards of four companies, including the automaker Studebaker.

But Reliance had a huge impact on Sandy Weill as well. As a broker, Sandy had to always be on the lookout for the next trade, the next deal, the next client. His firm had been instrumental in doing the Reliance deal, but here was twenty-nine-year-old Saul Steinberg at the head of a huge company, while Sandy was still working the phones and digging into research reports to keep his stable of clients happy. Maybe, he thought, it would be better to work on building a company than simply being just the outside deal person who found companies for others. The revelation gave him a focus he had lacked before. Suddenly he was intent on building a real Wall Street firm, not just working on the fringes of the Street.

For eight years the three partners, who together had collected some one hundred rejections from Wall Street firms, had been united in proving that their brains and chutzpah could beat the pedigree and connections of the clubby financial establishment. Now, however, the camaraderie was wearing thin. Arguments broke out frequently over who was making the most money for the firm. Carter would warn his two colleagues that they weren't "scratching the pad enough," stock trader lingo for taking buy or sell orders from clients. Worse still from the viewpoint of Sandy and Berlind, Carter was clearly favoring the strong personalities and financial contributions of Arthur Levitt and Marshall Cogan, both of whom had joined the three founders on the executive committee. Levitt's connections had brought the firm its first acquisition, a small investment-management firm called Bernstein-Macaulay in 1967, and Cogan was clearly becoming a star deal maker with his high-profile transactions. Neither Sandy nor Roger Berlind confronted Carter, but they were becoming deeply resentful of his imperious attitude toward them. After all, if it hadn't been for their early successes in attracting clients to buy and sell stocks discovered by Sandy's research, there wouldn't even be a Carter, Berlind & Weill.

Arthur Carter was questioning whether he wanted to stay in the brokerage business or take the firm in another direction. He had discussions with both Cogan and Levitt, suggesting that the three of them use their majority votes on the executive committee to slash his cofounders' shares of the firm to a mere 1 percent, a level that would surely force them to leave. Neither Cogan nor Levitt committed themselves to the coup, but neither did they outright reject it.

When Carter called an executive committee meeting on September 10, 1968, the five men gathered in a conference room. Carter began to set the stage, telling Sandy and Berlind "you aren't pulling your weight." But before he could make his motion to weaken the two men's hold on the firm, Arthur Levitt stepped in with a motion to adjourn for a brief recess. Levitt drew Sandy and Berlind aside and told them what was about to happen, that Carter was setting them up for the firing squad.

"You've heard it with your own ears," Levitt warned the two men. "If Arthur will do this to you, it's just a matter of time before he pulls the same stunt on me." He told the stunned pair that he had hurriedly consulted with Bialkin, who reviewed the firm's charter and bylaws and concluded that the partners could override Carter. "I propose we kick Carter out and do it today," Levitt said. Sandy resisted, his long friendship with Carter balanced against the man's duplicity. Perhaps they should warn him to start looking for another job, Sandy suggested. But Levitt pressed his point: "I'm telling you, if you keep Arthur in the firm, he'll be like a wounded animal who'll come back to kill us all."

When the meeting reconvened minutes later, Levitt took the role of executioner. "You're out," he told Carter. "You're either out at three-thirty today or we issue a press release that you're fired."

Carter stared for a minute at the colleagues he had so long dominated. "Okay, fine," he said and left.

The next morning's Wall Street Journal reported on page sixteen that Carter had made "an amicable parting." Arthur Levitt was quoted as saying "This wasn't a shake-up." And the thirty-six-year-old Carter, characterizing his departure as "friendly," explained that he had resigned "because basically I wanted to do something else. And that something else was to become involved in the operations of a publicly owned concern." Indeed, within a month Carter had founded his own investment banking firm and soon took it public.

The remaining partners summoned their more than fifty employees, and Berlind and Levitt explained briefly that Arthur Carter had left the firm. No further details were forthcoming. Sandy, traumatized by the sudden turn of events, stood quietly in a corner during the meeting. He realized that this was an opportunity to fill the leadership void, but he couldn't muster the courage. I'm afraid to be out front, he thought, where people can see my mistakes.

The break between Carter and Sandy Weill, the original founders who plotted over dinners with their wives and little boys, was especially hard on Sandy. After the shocking disappointment he had experienced years earlier at the hands of his father, Sandy valued loyalty deeply. And Carter would come to realize that his cold demeanor meant the end of his good friendship with Sandy.

Although the restructuring of the firm went swiftly, Sandy was scared. None of the partners had any experience managing what had become a decent-sized firm. Sandy, Berlind, and Levitt knew they needed Cogan, who had become the firm's biggest revenue generator. To prevent him from leaving -- Carter tried to entice him away to join his new venture -- they offered him top billing in the new firm. He agreed and Cogan, Berlind, Weill & Levitt was born. Soon afterward the Weills and Levitts went out to dinner together, the wives trying to relieve their husbands' worries by bantering about ways they could save money, including buying just one set of Bar Mitzvah clothes that their sons could share. But Sandy couldn't make light of the firm's suddenly perilous future. He had been shaken to the core. Practically his only comment that evening, made over and over: "God, can we survive?"

Copyright © 2003 by Monica Langley