Saul P. Steinberg and Reliance Insurance Co.

Brooklyn-born, Wharton-trained Saul P. Steinberg, who died last week, never achieved his ambition of being President or building America's dominant bank. Instead he squatted atop Philadelphia's Reliance Insurance Co. for more than 30 years, and used it to support his mogul's lifestyle, until he ran it into the ground, destroying thousands of jobs and costing solvent insurers, clients, investors and employees more than $3 billion. Here's how he did it. This account is adapted by Joseph N. DiStefano from his series in the Inquirer Magazine in December 2001.

THE EMPIRE BULIDER - New Yorker Saul Steinberg started to conquer the business world in the late '60s. His holdings - built on Philadelphia's Reliance Insurance Co. - now lie in ruins.

In his secret corporate takeover plans, Saul P. Steinberg used to code-name his targets after famous actresses. New York's snooty Chemical Bank was "Faye," for icy Faye Dunaway. Philadelphia's cash-rich Reliance Insurance Co. was "Raquel," for amply endowed Raquel Welch.

Faye fought him off. But after a short struggle, Raquel succumbed.

And for 33 years, Steinberg used Reliance's prized assets - its thousands of employees, millions of customers, and billions of dollars in customer payments and borrowing power - to support his princely Manhattan lifestyle; to bankroll his pet causes, including the
University of Pennsylvania's Wharton School; to finance his career as a bargain-hunting investor and corporate raider; and, finally, to fund his attempts to construct a global Internet financial-services empire.

Fast and funny, talking with his hands and rolling his eyes, fat-faced and squeaky-voiced, grandiose and self-deprecating, Steinberg exuded confidence in early interviews.

How did it feel to be the nation's richest businessman under age 30? "I'll own the world. I could even be the first Jewish president." Why did he want to buy Disney and cut it in pieces against management's wishes? "I have always had a fondness for children." How did it feel to be rebuffed by Chemical and excoriated on the floor of the United States Senate? "I always knew there was an establishment - I just thought I was part of it."

"He was ahead of his time. He was very aggressive - a visionary," said one of his former board members, retired Philadelphia banker Samuel H. Ballam Jr. "He did scare people."
But instead of owning the world, Steinberg indulged himself - and overreached. His empire has turned to ashes, leaving investors, banks, employees, the Commonwealth of Pennsylvania, and insurance policyholders across the nation to pay the cost, which reaches into
the as-yet-uncounted billions of dollars.

"There's no question he was hoping very much to be a benevolent despot," said Abraham Briloff, a retired accounting professor at Queens College in New York. "Only trouble was, there was too much greed on behalf of himself and his family. And there's a certain limit
to which any empire can be sucked." Briloff, who in 1977 won in a libel lawsuit that Steinberg filed against him, has written academic and business-press exposes of Steinberg's accounting methods over the last 30 years. 

To support his grand vision and lifestyle, Steinberg ran Reliance deep
into debt - and into high-risk ventures that went disastrously wrong.
The money ran out last spring, and the Pennsylvania Department of
Insurance was finally obliged to take Reliance away from Steinberg.
More than $5 billion in cash reserves, stock-market value, and loan
and bond payments had vaporized during the company's final 24 months.
Steinberg's empire became the biggest insurance company failure in U.S. history.

In October, Pennsylvania Insurance Commissioner Diane Koken abandoned
efforts to "rehabilitate" the company. Reliance, she said, will have
to be liquidated - and it will be months, or years, before her
department can figure out the cost of it all, she predicted.
The wreckage includes workers who have lost jobs and severance pay,
individuals and institutions whose stock investments collapsed, banks
and bondholders that Reliance stopped paying last year, insurers who
depended on Reliance's financial support, and consumers, who will pay
higher premiums because of lessened competition and the costs of an
industry-funded Reliance bailout.
Perhaps, in the end, the former billionaire himself may be asked to
pay for some of the damages.
In his long, dramatic reign over the Reliance cash machine, Steinberg
both heralded and exploited the powerful forces that transformed the
American economy - and Philadelphia.
His unsolicited 1968 bid for Reliance signaled the beginning of the
end of Philadelphia's old business aristocracy, and the city's
conversion from a major financial center into just another
branch-office town.
Likewise, Steinberg personified the rise of a swashbuckling era of
billion-dollar mergers and junk finance, when the people who run
America's biggest companies don't dare make a move without considering
how Wall Street investors will react.
Steinberg's dominion spanned a generation. It arose in the computer
tech-stock bubble of the late 1960s, and blew away amid the implosion
of the Internet tech-stock bubble in the last two years.
Along the way, Steinberg hired the nation's boldest and most powerful
financiers, including junk-bond king Michael Milken and the visionary
investment firm (Carter, Berlind & Weill) run by future Citigroup
chairman Sanford I. Weill, the world's most powerful banker.
Later, in the crucial years when he was gearing up for the disastrous
expansion that destroyed Reliance, two of Steinberg's lieutenants were
put in charge of two state watchdog agencies that were supposed to
prevent insurers from taking on too much risk. In 1994, after an
expensive election campaign supported by Steinberg and other Reliance
figures, Pennsylvania Gov. Tom Ridge named a Steinberg lieutenant,
Reliance vice president Linda Kaiser, insurance commissioner. The same
year, another beneficiary of Steinberg's campaign cash, New York Gov.
George Pataki, put another Steinberg aide, Reliance senior vice
president Edward J. Muhl, in charge of regulating that state's
insurers - including Reliance's most aggressive subsidiary, Reliance
National Insurance Co.
Why did the regulators responsible for ensuring that Reliance stayed
solvent allow Steinberg and his family to take millions in dividends,
stock options and executive pay from the company - more than $150
million during the 1990s alone - even though the company was hundreds
of millions of dollars in debt?
Pennsylvania's current insurance commissioner, a former insurance
lawyer who took office in 1997, defends her agency and her
predecessors. "We did everything that could be done, when we could, as
soon as we could," insisted Commissioner Koken, who finally shut
Reliance down - after it ran out of money.
Longtime observers say it didn't have to end this way.
"I look back with regret for Saul," said Philadelphia investor Paul F.
Miller Jr., a former Reliance director who fought and then
collaborated with Steinberg, and later saw millions in Steinberg
largesse go to the University of Pennsylvania while he was chairman of
its trustees.
"When he made the Reliance acquisition, he had a hell of a good asset
he could have exploited very, very well as a serious business," Miller
said. Indeed, during the Steinberg years, two old Reliance rivals,
Travelers and American International, grew into Citigroup and AIG, the
biggest and most profitable financial companies in the world -
something accomplished "with good management and good underwriting,"
according to Miller.
By contrast, Steinberg "did a piss-poor job of it," Miller said.
"Reliance was a great company, and he killed it. Saul was always too
impatient to get the buck in the till."
By his own account, Saul Steinberg "didn't leave a ripple" at the
Wharton School when he finished his studies in 1959, at the age of 20.
At the time, Wharton enrolled its share of immigrants' sons - many of
them, like Steinberg, the children and grandchildren of Russian Jewish
immigrants who thought of themselves as poor and outside the nation's
white Protestant business mainstream, even if, like Steinberg, their
parents were successful businesspeople.
"We both came from very modest and humble backgrounds. Everyone
doubted him, but he has always been a pioneer in creative thinking,"
said Steinberg's classmate, Jon M. Huntsman, the Idaho-born head of
Huntsman Cos., which calls itself the world's biggest privately owned
chemical company. As one of Wharton's few Mormons, Huntsman also
thought of himself as an outsider, and he and Steinberg became close
friends.
Steinberg's most often-told story about his Wharton days concerned the
nameless instructor who he said pushed him to write a paper about "The
Decline and Fall of IBM."
Steinberg said his research showed that IBM wasn't really in danger:
It was a money machine that enjoyed high profits, in part because it
rented and serviced computers - large mainframe units in the pre-PC
era - through expensive four-year leases instead of selling them at
more modest market prices.
Yet Steinberg also figured IBM could be outflanked - and that he could
do it - by purchasing its used computers after the leases expired,
re-leasing them to smaller companies at more affordable rates, and
extending IBM's four-year equipment depreciation charge to an
additional eight years, long enough to claim generous federal tax
benefits.
Steinberg went back to Brooklyn, where his father and uncle operated
the Ideal Rubber Products Co., which made bath mats. They lent him
$25,000 to start Ideal Leasing Co., where he put his Wharton-hatched
ideas to work.
That graduation loan was the basis of Steinberg's eventual
billion-dollar fortune. It also marks one of the few times Steinberg
or anyone in his family put their own money into his moneymaking
enterprises.
By 1967, the name had become Leasco, Steinberg had raised $750,000 at
an initial public stock offering, and the company could claim 800
employees and $74 million in assets. It didn't just lease computers.
"Shipping containers - that's what we used to finance," said Roger
Hillas, former head of one of Leasco's main lenders, Philadelphia's
Provident Bank. "And that's how Leasco made its money."
But shipping containers weren't sexy. In public statements, Steinberg
declared big plans for his computer business. Leasco quickly became a
darling of Wall Street pitchmen and the national business press: In
1967 Merrill Lynch put Leasco alongside IBM and General Electric among
50 major tech stocks - just as Merrill would equate ephemeral stocks
such as Internet Capital Group with GE and Microsoft during the
Internet stock mania a generation later.
At a time when popular culture was obsessed with youth and took for
granted the easy money of an economic boom, Steinberg represented
both.
But that wasn't enough for Steinberg.
He wanted to build an empire. And he knew Leasco alone wasn't big
enough to make that happen. Thanks to a visionary analysis published
the same year, Steinberg found a vehicle: Reliance Insurance Co.

Why would a hot-stock operator like Steinberg want a Philadelphia insurer?
"Insurance is accounting. Its profitability is in the manipulation of
reserves. You can get away with all kinds of things until the house of
cards falls apart," said Hillas, the banker. "It's unbelievable what
you can do with the insurance world - even with all the regulators."
Dominic Frederico, chairman of Philadelphia-based Ace INA, which
traces its roots to the Colonial-era Insurance Co. of North America,
offers a similar take on the industry. "I work in the insurance
industry because, as a balance-sheet guy, there's a lot of junk you
can play with," he told a Philadelphia insurers' group this fall.
"If you work in manufacturing, there's only projecting obsolescence.
If you work in banking, there's only the loan loss reserve. But
insurance has referring agency costs, loss reserves," and many other
categories that can be subjectively reported, he said. "The fun you
can engineer into an insurance company's balance sheet is a lot more
fun than some others."

The "fun" was just beginning when Saul Steinberg set out on his novel
quest to build a financial empire on the back of an insurance company.
In the 1930s, Congress blamed the Great Depression on rampant
speculation by banks and insurers in the stock market and industrial
companies. The Glass-Steagall Act enforced separation of banking,
insurance, investment and industrial companies. Three decades later,
America was a country of more than 10,000 local banks and thousands of
state-regulated insurance companies whose investment portfolios were
swelling in a bull stock market - but these companies were strictly
forbidden from controlling nonfinancial firms.

In 1967, a young Wall Street analyst, Edward Netter of Carter, Berlind
& Weill, wrote a report asking: What if a nonfinancial holding company
could take over a financial company - and then redeploy its
investments into new businesses?

Netter suggested the creation of holding companies that would offer "a
one-stop, comprehensive financial institution servicing all of the
consumer's financial needs," funded by the cash generated by property
and casualty insurers like Reliance. For Reliance and other insurers,
he even estimated the millions in "surplus" investment cash available
to be tapped by creative new owners.

The Netter report, "The Financial Service Holding Company," ignited a
frenzy of attempts by financiers to acquire insurance-company assets.
It turned out to be a remarkably accurate blueprint for Citigroup,
AIG, Chubb, Berkshire Hathaway and other giant financial-service
companies, all of which have grown from insurers into multipurpose
financial and investment companies.

Among the early readers of Netter's report was Steinberg, who had his
staff draft a "Confidential Analysis of a Fire and Casualty Company."
It focused on one of Netter's potential targets: Reliance Insurance
Co. Netter estimated that Reliance had built up an extra-cash surplus
of $60 million. Steinberg's report estimated that more than twice as
much - $125 million - could be raised from Reliance.
Another man who read the Netter report was Reliance's chairman, A.
Addison Roberts.

Steinberg brought his dream of financial empire to Philadelphia at the
start of the tense summer of 1968 as a brainy, cheerful and utterly
unwelcome ambassador from the future.

Like the Black Power and Vietnam War protesters who threatened the
nation's political establishment that summer, Steinberg saw himself as
a representative of a new era. There was, he announced, "a whole new
financial establishment being formed in this country."

There was, of course, also an old financial establishment in
Philadelphia, largely Episcopalian, Presbyterian and Quaker, which
initially gave Steinberg the kind of welcome that a gang of drunken
halfball players might expect on barging into the Merion Cricket Club.
"In those days, there really was a Philadelphia business
establishment. They played golf together, they ate lunch together at
the clubs, they knew each other," said Miller, who ran what was then
the old Philadelphia investment bank of Drexel Harriman Ripley. "We
fought like hell to keep [Steinberg] out."
When Steinberg made his move in 1968, Reliance's board looked like a
Who's Who of corporate Philadelphia, and a museum of 19th-century
commerce.

There were the bankers: Ballam of Fidelity Bank, William G. Foulke of
Provident National, and William B. Walker, of First Pennsylvania.
There was Miller, the investment banker, and John B. Prizer, general
counsel of the Pennsylvania & New York Central Transportation Co., the
nation's biggest railroad, formed by the mighty but ailing
Pennsylvania Railroad's recent purchase of its Manhattan-based
archrival.
All those institutions traced their roots to the pre-Civil War
Republic. And all of them would be sold to out-of-town interests and
vanish from Philadelphia before Steinberg was done with Reliance.

As chairman of Reliance, the Virginia-born Roberts had brought an
outsider's vigor and energy to the corner office even as he recruited
board members from the city's best clubs. He joined the company in
1938 and took the top job in 1964, pledging to grow and diversify what
was already a national property, auto and business insurer.
By 1968, Reliance had bought 22 companies over the previous 20 years.
Yet the deal-making had ground to a halt because of the company's weak
- and vulnerable - share price. (Roberts blamed the slump on "property
destruction in the previous summer's racial rioting" and on hurricanes
and other uncontrollable events.)

Roberts continued to meet with New York investment bankers, looking
for deals. That's how he learned, in February 1968, that his own
company was being stalked. Steinberg's interest had become an open
secret on Wall Street. By May, "many mutual funds were buying this
stock" in the belief "we were going to be raided," Roberts, who died
in 1992, later told a federal judge investigating the Reliance deal.
Five months later, at Reliance's Four Penn Center headquarters,
Steinberg unveiled a radical plan to take over the company - with $400
million borrowed from its own shareholders.

Speaking fast, high and with his hands, the 29-year-old New Yorker
assured Roberts that Reliance's 8,000 workers would be more
productive, its 13,000 shareholders would be more prosperous, and its
$125 million in extra cash would be put to better use if they were
part of Steinberg's own tiny company, Leasco Data Processing Inc.
Roberts - who was given to writing anti-Communist tracts and praising
Confederate battle tactics while lunching under the portraits of
Northern generals at the Union League - gave his visitor a "rather
abrasive" initial reception, he later recalled in court.

Indeed, by the numbers, it looked as if Steinberg's flea were trying
to take over Roberts' dog. Reliance was a multinational giant, one of
the biggest American insurers of homes, cars and businesses. Leasco's
main business was leasing used computers at cut-rate prices. It was
one-tenth Reliance's size and nowhere near as profitable.
Yet Roberts couldn't brush Steinberg away: In a runaway stock market
whose obsession with unproven computer companies presaged the Internet
bubble of 30 years later, Leasco was a hot stock, having been dubbed a
"computer industry leader" by Merrill Lynch.

Steinberg had help from inside Philadelphia. Delaware Investments was one of the original U.S. mutual fund companies, registered under the 1940 Investment Company Act. Boss W. Linton Nelson was a canny trader who Steinberg hired to quietly amass shares to give Steinberg's group leverage, according to Thomas Egan, a veteran Philadelphia and New York investment banker.

Never mind that Leasco relied heavily on a dubious depreciation
schedule and tax write-offs. Or that Steinberg had no special
knowledge of computers, having dealt in newsstands and shipping
containers before applying his Wharton-concocted idea to rent out
second-hand IBM machines cheaply.

With investors seduced not only by Steinberg's growth projections but
also by glowing profiles in the hero-worshiping business press,
Leasco's stock-market value rose like an Apollo rocket, giving
Steinberg the financial leverage to go far beyond used computers if he
chose.
Under Steinberg's plan, Reliance shareholders would be given not cash
or stock, but certificates payable from future Leasco and Reliance
profits, at a price 50 percent higher than what Reliance had lately
been worth.
To Reliance, "the market for computer leasing looked pretty phony,"
and Steinberg's debt-financed takeover plan looked pretty shaky,
recalled Miller of Drexel Harriman Ripley.
Yet Roberts noted with mounting concern that a significant segment of
Reliance's shareholders - mutual funds and their managers - was
receptive to Steinberg's offer. They believed it would push the stock
price higher than Roberts' own expansion plans.
In proposing to take over Reliance, Steinberg threatened more than its
tight-knit, elite directors: He threatened Roberts' job.
"He was a king, and we were about to make him a baron," Steinberg
later explained to a federal judge investigating the deal. "It wasn't
friendly; we were taking over his company."
To prevent the unwelcome takeover, Roberts tapped allies on every
side. During the final week of July, the chairman:
Mailed a letter to Reliance share- holders dismissing Steinberg's
Leasco as a "highly speculative" little company whose "long-term
prospects are by no means as good" as its inflated share price would
make it seem.
Sent Reliance lawyers into federal court, accusing Steinberg's company
and his investment bankers - including Sandy Weill, future head of the
world's biggest bank, and Arthur Levitt, later President Bill
Clinton's top securities regulator - of "conspiring" to "manipulate"
Reliance's stock price based on "false and misleading information."
Secured the support of the most powerful Pennsylvanian on Capitol
Hill, Senate GOP leader Hugh Scott, who denounced Steinberg-allied
investors from the Senate floor for "touting" Reliance in "a highly
questionable manner."
The state government had already done its part by issuing regulations
that then Insurance Commissioner David O. Maxwell told The Inquirer
"would undoubtedly put a damper" on unwelcome insurer takeovers.
Roberts had even gone so far as to open competing merger talks with a
Leasco rival - Data Processing Financial & General Corp. DPF wasn't
any less ephemeral than Leasco later turned out to be - it was
eventually folded into the company that makes Wonder Bread and
Twinkies - but under the weird conditions of 1968, Roberts for a
moment considered it, with its inflated stock, as a white knight in
the battle against Steinberg.
To observers such as Maxwell, all these defenses looked formidable,
even forbidding.
But on Aug. 1, Roberts surrendered.
On that day, Roberts stopped his lawsuit, called off his allies, and
sent stockholders another letter, making plain that he was stacking
his weapons, standing aside, and letting Steinberg take over.
He had cut a deal.
What had happened?
Three years later, ruling in favor of a complaint by a small group of
angry Reliance shareholders, Judge Jack Weinstein concluded: "Peace
was made on that date at a considerable financial gain to Roberts."
The chairman had made a personal deal with the buyer he was publicly
resisting.
That wasn't what Roberts told shareholders at the time. Instead, he
announced that a modified offer by Steinberg represented a better deal
for them.
Indeed, the new offer appeared to be worth slightly more - $412
million, versus the original $400 million. But the new offer - in
preferred stock instead of bonds - was taxable. For private investors,
it actually wasn't as good a deal as the original offer, though it
remained above the going price for Reliance stock.
But the new deal had major benefits for Roberts. Steinberg promised to
leave him and his team in control and not to interfere with the
management of Reliance's insurance business for the next five years.
Roberts also got an option to buy Leasco stock at a 70 percent
discount (which he exercised, for a quick profit of $435,000) and a 25
percent raise in his base salary, to $100,000 a year, among other
sweeteners.
Having accepted Steinberg's offer, "Roberts was no longer concerned
with details such as tax consequences to [Reliance's] own
shareholders," Weinstein wrote.
The chairman's "tacit abandonment of his duty to shareholders [came]
in return for personal benefits," he said. Roberts had come to believe
"it was better to acquiesce - advancing his personal fortune in the
process - than to incur the displeasure of the raiders."
Weinstein also found that Roberts and Steinberg had both hidden from
Reliance shareholders a key reason for the takeover: $125 million in
Reliance cash, which would now be available for Steinberg to invest.
If they'd known, Weinberg ruled, investors might have held out for a
better offer.
He ordered Steinberg's company to pay a belated 12 percent takeover
bonus to Reliance shareholders who had sold their shares between
Leasco's 1968 takeover and the stock-market collapse the following
year.
But Weinstein's ruling came in 1971 - far too late to affect the
course of the deal.
"It's the story of Philadelphia in recent years," says Ballam, who now
lives in a Main Line retirement community where his neighbors include
the heirs to the John Wanamaker and Quaker Lace fortunes, two more
local stalwarts sold to outsiders.
"I guess that we were not aggressive enough to get our [share prices]
up to defend ourselves," Ballam said. "Those people who are investment
bankers are always looking at wounded ducks!"
Philadelphia "is a nice place to live ... but it does not have the
reputation of being a growth city," Ballam added. "You know the
saying, 'Corrupt and contented.' That's how they see us."
As it was, in 1968 Steinberg was a hero. He had made more money by age
30 than anyone else in America, according to Forbes magazine. And he'd
done it through computers - the business of the future.
If it was good to own an insurer, Steinberg and his advisers reasoned,
it would be great to own a bank.
At the beginning of 1969 he settled on Chemical Bank New York Corp. -
which boasted more than 10 times the combined assets of Leasco and
Reliance.
But Reliance had been 10 times bigger than Leasco, and "the minnow had
swallowed the whale," as insurance observer David Schiff put it.
Bank shares were slumping, as insurance stocks had been when Steinberg
bought Reliance. As with Reliance, he prepared to offer convertible
securities in return for a 30 percent premium on Chemical's stock.
Like Philadelphia's Reliance, New York's Chemical was big,
traditional, and undervalued by recent stock-market trends.
Like Reliance's Roberts, Chemical chairman William Shyrock Renchard
came out swinging, once news of the bid was leaked to the press. "We
intend to resist this with all the means at our command," he
announced. "And these might turn out to be considerable."
In Chemical's case, the means included allies such as New York Gov.
Nelson Rockefeller and U.S. Sen. John Sparkman of Alabama, both of
whom promptly proposed antitakeover laws.
Steinberg wasn't cowed, and Leasco went on buying Chemical stock -
most of it through Reliance, which already owned 1 percent of the New
York bank before bidding began.
But if Steinberg thought Chemical would fold the way Reliance did, he
had misjudged his prey.
"It was very, very close," says Maurice Hartigan, a young Chemical
officer at the time, and currently head of the Philadelphia-based Risk
Management Association. The Princeton-educated Renchard "led a mighty
battle. He lined us up and said, 'I'm going out to run the war. I want
you to stay inside and run the bank.' "
Steinberg, for his part, rolled out a new weapon - Reliance's A.
Addison Roberts, who, having cut his deal, set his past criticism
aside and went to work lobbying Chemical on Steinberg's behalf.
Roberts called on Renchard, as a Philadelphia executive talking to his
New York equal, to suggest the benefits of a takeover by Saul
Steinberg.
But Renchard was not interested.
"I told [Roberts] he was off his rocker," Renchard later told the New
Yorker. "I said computer leasing had nothing to do with banking. He
said the Leasco-Reliance merger hadn't hurt Reliance. I was
disappointed in him."
Around that time, Leasco shares began dropping dramatically, cutting
deeply into the value of Steinberg's offer for Chemical. The drop
remains mysterious; Steinberg later told a congressional committee
that he suspected but could never prove that Chemical had urged its
Wall Street friends to dump the stock.
The U.S. Department of Justice began inquiring into Steinberg's plans.
Federal Reserve Chairman William McChesney Martin and several members
of the Senate Banking Committee condemned the deal.
In February, even before he completed his formal bid, Steinberg
surrendered, renouncing any interest in Chemical. For the moment, he
had reached a limit on his power of persuasion.
Chemical went on to prosper over the next generation. It would
ultimately acquire a string of its powerful rivals, appropriating the
names as well as the assets of J.P. Morgan and Chase Manhattan.
And Reliance resumed its colorful march under Steinberg.
Steinberg's first career as the progenitor of a new kind of financial
empire had ended with the wreck of the Chemical deal and the
relentless waning of the 1960s bull market that had propped up Leasco.
But if Steinberg saw it, he refused to admit it, at first.
In April 1969, he returned to Philadelphia. Meeting with investment
managers at the Barclay Hotel, he had the crowd chuckling, thanks to
his self-deprecating humor and uplifting pronouncements.
"The common complaint seems to be that I am too ambitious," he told
the crowd. "Why, that's one of the qualities that made this nation
great - we'd have never gone past the Appalachians without it."
To the mostly sympathetic audience of Philadelphia money managers,
Steinberg made great claims for Leasco and said he'd need to invest
more money in expansion.
Instead, in August, Steinberg took one of his first steps in
separating Reliance Insurance from its extra cash, declaring a special
bonus dividend to shareholders. As the biggest shareholder, he was the
biggest beneficiary of that dividend. For all of 1969, Reliance
dividends to shareholders jumped to $52 million, from $10 million the
year earlier.
Steinberg had pledged he'd use Leasco's cash for acquisitions that
would expand both his computer business and his insurance business. He
told investors he planned to offer time shares on his computers - and
to take the business international.
But somehow Steinberg never found the time or opportunity to make the
big investments that he acknowledged a successful expansion would
require.
Insurance companies make most of their money from investments. With
the stock market down, Leasco and Reliance lost $61 million on
investments in 1971.
Yet Reliance continued paying dividends. And Steinberg continued to
spend money - even if it wasn't on his companies' operations: He moved
his headquarters from Long Island to Park Avenue. And he moved his
wife and their three young children to a 29-room Long Island mansion.
He decorated the walls with Picassos.
Meanwhile Leasco's original business was running out of gas.
Steinberg was one of the first and most spectacular victims of Moore's
Law - the principle, enunciated by Intel Corp. founder and
computer-chip pioneer Gordon Moore, that computer power doubles every
year or two, thanks to rapid advances in hardware technology.
Through the 1960s, IBM estimated its machines had a four-year life
span for tax purposes.
Steinberg had built Leasco on the proposition that IBM was being too
conservative. He bet IBM machines could be leased over an eight-year
period, allowing him to claim extended depreciation and federal tax
benefits.
But by 1973, with ever-more-powerful and cheaper IBM machines flooding
a market depressed by the oil crisis, Leasco was having an
increasingly tough time renting its machines.
Its stock price plunged, dragging Reliance down with it.
The following year, Steinberg wrote off $14 million in computers.
Losses mounted as Leasco wrote off more computers each year. Steinberg
still had Reliance, but the company was battered by inflation and the
weak investment market. The value of his personal stake plunged from
$60 million to an estimated $9 million in 1975, Forbes reported.
Steinberg's marriage broke up. His children's school sued him for
nonpayment of a promised donation. He married again, but that union
dissolved in tabloid accusations of misbehavior.
But Steinberg had learned some powerful lessons from his spectacular
and highly public failure to buy Chemical Bank.
The next time he went after a company that didn't want him, he had no
intention of going away without a profit.

LIFE IS GRAND: After some tough times in the '70s, Saul Steinberg was on top of the
world in the '80s - and lived accordingly. But Reliance Insurance, his Philadelphia cash cow, wasn't faring so well.

Saul Philip Steinberg spent the 1980s showing what a man could do in
glittering New York, with access to billions of dollars in other
peoples' money.
It wasn't just that he could buy stuff.
Sure, he had a big Park Avenue apartment and a bigger estate in Long
Island's Hamptons, a beautiful third wife, and use of a beautiful
customized Boeing jet.
But Steinberg and his wife, Gayfryd, spent as if they were fulfilling
a grand plan - to showcase his success, amid the capitalist resurgence
of the Reagan years, through a calculated display of financial power
and social prerogatives.
Like a Renaissance prince, Steinberg seemed to delight in cultivating
a fearsome public reputation and then dispelling it in private with a
dash of humor and a great deal of calculated style.


"He did scare people. He liked the publicity, he liked his success,
and he traded on that in being a corporate raider" in lurid and
lucrative financial attacks on companies such as Walt Disney, says a
former director of Steinberg's holding company, Reliance Group.
Yet at heart Steinberg was a bargain hunter who made big money by
bidding up cheap stocks. Though his name became synonymous with
hostile takeovers, he never actually completed one. Steinberg won if
his interest in a company attracted me-too speculators, or forced an
embattled company chairman to cut costs and boost profits, enabling
Steinberg to unload his stock and pocket the profits.
Some companies, like medieval cities menaced by freelance mercenaries,
even paid Steinberg to go away.
Steinberg could play the prince because he owned vast plantations,
starting with Philadelphia's Reliance Insurance Co., with 10,000
workers and millions of customers' monthly premiums to pay for his
grand gestures.
Steinberg showered his (and Reliance's) money on charities including
the Metropolitan Museum of Art, on politicians such as Alphonse
D'Amato and Edward G. Rendell - and especially on his alma mater, the
University of Pennsylvania. Penn collected more than $30 million from
Steinberg, despite misgivings from trustees who worried that
Steinberg's connection with financier Michael Milken could damage the
school's reputation.
Unlike Milken, Steinberg seemed to enjoy a magical protection: He kept
control of his company through the turmoil of the 1980s and well
beyond, even as the rules changed profoundly.
As a young man, Steinberg had been able to see himself as an outsider
battling the establishment. Rebuffed in his 1969 attempt to buy New
York's Chemical Bank, he puzzled, in congressional testimony,
interviews, and private conversations, about how he could have
possibly fallen short: Because he was Jewish? Because he was brash?
Because he tried to pay with convertible debentures instead of cold,
hard cash?
But 15 years later, Steinberg had bought and finessed his way to the
heart of the aggressive new financial establishment that was
frightening big companies into slashing expenses, raising profits, and
pushing up share prices. In Steinberg's mind, he and everything he
represented had moved so far from the margins toward the center of
financial America that, by the end of the 1980s, he was able to boast
to a business partner, "You'd be a billionaire, too, if you were
Jewish."
Steinberg accumulated the trappings to show he'd arrived.
Consider how his art collections changed:
With his first wife, childhood sweetheart Barbara Herzog, and his
first fortune, acquired in the 1960s computer-stock bubble, Steinberg
bought Picassos and Kandinskys for his Long Island castle-by-the-sea -
the kind of art and the kind of house that one might expect from the
Ivy League-educated child of a serious Brooklyn immigrant family
nurtured on early-20th-century visions of progress and culture.
Then, in the 1970s, he moved on to brooding German Expressionists and
intense Francis Bacons. But in 1981, when Steinberg ended his shortest
marriage, to publicist Laura Fisher (formerly Sconocchia), he sold off
more than 40 of the dour works.
By the following year, when he met Gayfryd (formerly Johnson, formerly
MacLean, formerly McNabb) at a party at the home of his favorite art
dealer, Richard Feigen, Steinberg had begun the process of building
one of the world's great collections of Old Masters.
The doubt and irony of the modern educated classes no longer had pride
of place on Steinberg's walls. The new collection evoked the
self-confident, imperial style of the 16th and 17th centuries.
Masterpieces such as Titian's Salome with the Head of John the Baptist
and Rubens' Death of Adonis adorned the velveted walls of his and
Gayfryd's Park Avenue apartment - their home and seat of power during
his years as a famous investor and Gayfryd's reign at the center of
New York's "nouvelle society."
If the musical champagne parties of powerful men and elegant women at
Steinberg's Hamptons estate evoked the ghosts of that fictional Long
Islander, Jay Gatsby, there was a time when Steinberg seemed fated to
prove Gatsby creator F. Scott Fitzgerald's claim that "there are no
second acts in American lives."
In the mid-1970s, Steinberg wandered in a social and financial
wilderness, a burned-out boy wonder unable to turn a profit, keep a
wife, or stay out of court.
By 1977, Forbes magazine, which once anointed Steinberg the richest
self-made American under age 30, had relegated him to a sad-sack list
of the nation's all-time business failures under the headline "They
Blew It."
Everything had gone wrong:
Steinberg's red-hot computer company, Leasco, had fizzled, weighed
down with $150 million worth of clunky machines that no one wanted to
rent.
Worse, his cash machine, Reliance, was in trouble. The company
traditionally lost money on its main business - insurance - and earned
it back through stock and bond profits, but these vanished in the bear
market of the early 1970s. By 1975 Reliance was half a billion dollars
in debt, and its own accountants said it would have trouble paying the
money back. Wall Street brokers stopped recommending the stock, which
fell below $10 - from a 1968 high of nearly $100. For a time,
Steinberg even had to suspend his precious dividend to himself and
other shareholders.
Steinberg turned to private investments. But these often proved a
source of embarrassment.
A plan to sell a Brooklyn bank that he partly owned, Kings Lafayette,
was delayed in 1973 because it was identified in federal criminal
court hearings as a lender to Mafia members who tended not to pay it
back.
In 1977, Steinberg gave what New York City investigators called a
"disguised contribution" of $12,500 to City Controller Harrison
Goldin. At the time, Steinberg was seeking a bus-shelter construction
contract for a company he backed, Convenience & Safety Corp. Steinberg
refused to testify and wasn't charged, but the lawyer who
investigators said made the payment for him, former New York State
Sen. Jack Bronston, went to prison.
Steinberg's storybook home life was also unraveling. His wife,
Barbara, sued him for divorce in 1977.
His daughter's school, Woodmere Academy, was suing him over an unpaid
donation, which Steinberg said he'd had to suspend because he had
given so much money to Israel for the Yom Kippur War and to Richard
Nixon for his reelection.
Steinberg soon remarried, but his new wife, Laura, filed for divorce
after two years. In court papers, she accused Steinberg of blowing
Reliance money on cocaine, furniture, and personal use of the
company's jet - claims that he denied and she recanted after the pair
reached a cash settlement.
Through all his tribulations and divorces Steinberg hung on to one
acquisition: his fabulous Park Avenue apartment. Billionaire John D.
Rockefeller had built it - with 80 rooms - in the 1920s for use during
his trips to New York. In 1971 Manhattan real estate was in a funk,
and Steinberg bought half the apartment for a mere $300,000.
Steinberg added air conditioning and an alarm system. He then
furnished the place with Chinese ivory and Indian brass, and decorated
it with Rodin bronzes, a Rockefeller family Matisse, and a treasury of
somber 20th-century European paintings.
The sprawling 740 Park Ave. museum suite would become one of
Manhattan's most spectacular addresses, a showplace for big people and
big parties of the 1980s.
Saul Steinberg finished his vodka martini and called for another.
Across the table, as recounted by Peter W. Bernstein in a 1981 Fortune
magazine article, "Fear and Loathing in the Boardrooms," the gentlemen
who ran the New York Times Co. prepared to discuss their urgent
business.
One of the Times' lawyers looked at Steinberg. "Mr. Silverman," he began.
The Times man had confused the portly investor with his intense young
lieutenant, Henry Silverman, the future Cendant Corp. chairman.
It was clear the Times didn't understand whom it was dealing with.
It was October 1980, a month before the election of Ronald Reagan.
Steinberg had recently directed his Reliance Insurance Co. to buy 2
percent of the Times Co. on the American Stock Exchange.
That made Steinberg one of the Times' biggest owners. It also made the
number-one owner, the family of Times publisher Arthur Ochs Sulz-
berger, pretty nervous.
There was plenty to worry about. Newspaper stocks were suffering one
of their cyclical downturns - and that made them vulnerable to
investor pressure. The Times of London was on the verge of being sold
to another brash investor, Australian tabloid-press tycoon Rupert
Murdoch, who would force big changes in its editorial content. Would
America's best-known paper be next?
During Steinberg's failed attempt to buy Chemical Bank 11 years
earlier, the Times had published damaging stories based on information
leaked by bank officers. More recently, Steinberg and his lawyers had
complained angrily about the Times' coverage of his role in the
bus-shelter bribery case. Was he seeking revenge?
Steinberg would face a bitter fight if he hoped to dominate the Times,
he was warned. Did he really think he could bully the proud Times
managers - as he had the people running Reliance Insurance - into
adopting policies designed to profit Steinberg at others' expense?
Steinberg left the meeting and spent about $12 million that day to buy
an additional 3 percent of the Times. Steinberg even leaked word,
which the Times duly printed, that he might consider buying 15 percent
more in the paper.
Yet Sulzberger needn't have worried: Steinberg was also buying chunks
of CBS, ABC, Warner Communications, Gannett Co., and Knight Ridder
(which publishes The Inquirer) - not, as some investment analysts
speculated, because he wanted to form a global media empire but
because he felt the sector was cheap.
Steinberg sold most of the shares in the early 1980s, booking big profits.
By then, the stock market had shaken out of its 1970s slump and come
roaring back to life.
And so had Steinberg.
Ronald Reagan's presidential election in 1980 freed American
capitalism not only from the stagnation of the previous decade but
from the self-restraint imposed by the Great Depression, the Cold War,
and the egalitarian rhetoric of the Democratic Party.
Even more than reduced regulation and taxes, Reagan stood for social
acceptance of the idea that self-interest is a key force for economic
efficiency and social good.
For Saul Steinberg and his contemporaries - men such as
Philadelphia-born cigars-and-cosmetics king Ronald Perelman, Miami
Beach-based factory dismantler Victor Posner, and
stockbroker-turned-dealbuster Carl Icahn - Reagan ushered in a
freewheeling period. With little or none of his own money at risk, a
fast-moving operator could make big investments with borrowed money
and turn a fat profit - and then flaunt his gains in fancy living and
splashy philanthropy.
At the time, traditional banks and conservative, Depression-bred
investors still had a deep aversion to financing speculative
enterprises that might have a tough time paying them back.
Some companies tried anyway, issuing "junk" bonds with outrageously
high rates of interest - which compensated would-be buyers for the
higher risk of default.
The big challenge was finding large investors willing to accept those
terms. It was the labor and the genius of Steinberg's fellow Wharton
School graduate, investment banker Michael Milken of Drexel Burnham
Lambert & Co., to relentlessly organize a circle of like-minded bond
buyers willing to shoulder that risk.
And Steinberg, through Reliance, could help both ways:
To fund his aggressive investment plans and refinance his company's
staggering debt, Steinberg ordered Reliance to borrow more than $660
million through junk bonds between 1982 and 1988.
And - in search of the higher returns Reliance needed to cover its
insurance losses - Steinberg made the company one of the nation's
biggest buyers of junk bonds. By 1988, up to 40 percent of Reliance's
investment portfolio consisted of high-yield debt.
Junk-bond debt and junk-bond returns enabled Reliance to pay Steinberg
fat dividends, report the cash reserves demanded by Pennsylvania and
New York regulators, attract new business clients for Reliance
insurance policies, and eventually convince skeptical Wall Street
investors to place their dollars in Steinberg's keeping.
These billions flowing to Reliance depended completely on the
assumption that Steinberg's company would eventually be able to repay
its debts.
It couldn't. But under Steinberg's leadership, it could paper over the
problems for years to come.
Saul Steinberg actually bought Reliance Insurance Co. twice - both
times with borrowed money.
After taking control of Reliance in 1968, he had issued stock to the
public to help pay for the deal.
As the value of those shares collapsed in the 1970s, he used company
funds to start buying them back on the cheap from disgruntled
investors - boosting the proportion of total shares he controlled
without spending a dime of his own.
Along the way, Steinberg eliminated a source of potential opposition
to his grand projects: In the mid-1970s he reorganized the board,
securing the departure of a handful of Philadelphians who had resisted
his attempts to replace the company's local attorneys with what one
ex-director called "New York raider types."
From then on, Steinberg would be answerable only to a circle of
hand-picked directors - including his father, Julius, and his brother,
Robert.
In 1981, with the stock market showing signs of life, Steinberg
decided it was time to buy the part of Reliance he didn't already own.
Reliance's new profitability had driven the stock modestly higher.
Steinberg calculated that the company could persuade investors to part
with the rest for half a billion dollars - most of it borrowed.
The plan raised a lot of eyebrows. "He's really stealing the stock
back from shareholders for next to nothing, and at the same time
getting off the hook of regulation by the Securities and Exchange
Commission" by taking the company private, New York stock analyst
Irwin Perry told The Inquirer at the time.
Reliance "is probably worth more than shareholders are getting,"
agreed analyst Jeffrey Vinik, future head of the nation's largest
mutual fund, Fidelity Magellan.
Steinberg bumped his offer slightly higher, won approval from the SEC,
and took full control of Reliance, its investment portfolios, and its
dividends.
Exactly how many hundreds of millions of dollars Steinberg removed
from Reliance over the next five years was the subject of a federal
lawsuit in the late 1980s by a later generation of disgruntled
investors. The lawsuits were settled privately, and no final figure
was reported.
But Steinberg always ensured that his paycheck matched his Park Avenue
lifestyle. By 1980 he was already the best-paid financial executive in
America, earning $750,000 in cash compensation - more than the head of
Citicorp, J.P. Morgan, Bank of America or any other U.S. financial
company, and about 10 times what his predecessor had made when
Steinberg bought the company. And that's not counting his dividends.
Of course, that was peanuts - by the standards of the years to come.
At times, Steinberg behaved as if he were actively cultivating his
reputation as a robber baron.
He picked Donald Duck's 50th-birthday celebration, in 1984, as the day
to unveil his bid to take over Walt Disney Co., oust the board, sell
off its beloved Snow White, Bambi, and all their cartoon pals to raise
cash, and fold its theme parks into something called M.M. Acquisitions
- in honor of Mickey Mouse.
The move made Steinberg a lightning rod for anyone with qualms about
the way assertive Reagan-era investors were pressuring old-line
companies.
"Run for the hills, Bambi!" the Philadelphia Daily News urged,
comparing Steinberg to a "salivating hound with a big leer and
outstretched paws, bearing down on a cute, cuddly" Walt Disney
Productions.
Watching Steinberg stalk Disney was "like watching your mother getting
ravaged by New York thugs," Los Angeles investment manager Greg
Kieselmann told Time magazine.
Congressmen and state legislators demanded laws restricting his
secretive takeover tactics; some were later enacted.
Yet Steinberg's aggression was often a show - with a practical goal.
"I don't think he wants to own Disney," Philadelphia stock analyst
James Mayer told The Inquirer during Steinberg's takeover campaign. "I
think he likes to make people nervous, so they will buy him out at a
premium."
And that's what happened. Led by nervous chairman Ron Miller, the
shaken Disney board agreed to buy back all of Steinberg's stock at a
higher price and pay his expenses. That guaranteed Steinberg a profit
of $58 million on his short-term investment.
Steinberg had already collected $10 million from Quaker State, more
than $8 million from the Penn Central, and more than $10 million from
the Lomas Financial Corp. in earlier greenmailings. But it was the
Disney payment that sealed Steinberg's reputation. Though a federal
judge later forced him to give Disney investors most of their money
back, the deal ensured Steinberg's permanent enshrinement in the
gallery of ruthless 1980s dealmakers. The irony is that investors had
reason to cheer Steinberg's attack, since it pushed Disney to replace
its conservative CEO, Miller, with aggressive Michael Eisner, who
drove sales and profits to dizzying heights.
Yet if outrageous offers such as the Disney bid gave Steinberg his
public-enemy reputation, they were hardly his typical transaction.
More often, corporate managers who came to do business at Steinberg's
posh Park Avenue office - with its sign proclaiming, in English and
Hebrew, "On the eighth day Saul rested" - were apt to find themselves
charmed and disarmed.
Steinberg's wonky bow tie and high-pitched voice, which ex-employees
compare to the annoying whine of comedian Gilbert Gottfried, could
become a backdrop for self-deprecating humor and expansive discussions
on food, culture, politics, women, and the solution of world problems
- anything but the way Steinberg actually made his money.
"We had been led to expect this Inquisition. But [Steinberg] didn't
ask a lot of questions. He talked a lot - a lot - about lunch," says
Pennsylvania banker Alan Fellheimer, who traveled to Park Avenue to
sell Steinberg $20 million worth of bonds soon after the Disney raid.
Steinberg didn't just buy fancy art. He also paid for and promoted the
promulgation of fancy ideas.
He paid for Henry Kissinger's hard-line 1981 speech at the Wharton
Reliance Forum, at a time when Kissinger was angling in vain for a job
with the new Reagan administration. He funded Polish hero Lech
Walesa's stormy 1990 Vienna conclave with top Polish intellectuals
over the future of the ex-communist nation.
In the late 1980s, the Steinbergs organized posh fund-raisers at their
Park Avenue home, and at New York's Metropolitan Club, for the
writers' group PEN (the International Association of Poets,
Playwrights, Editors, Essayists and Novelists). Gayfryd Steinberg had
been recruited to the group by novelist Norman Mailer and editor Tina
Brown, a neighbor in the Hamptons. Gayfryd hosted a $750-a-head
cocktail party, uniting the likes of ebullient countercultural poet
Allen Ginsberg and high-strung sexual revolutionary Erica Jong with
leveraged-buyout king Henry Kravis and investment banker Felix
Rohatyn, enabling New York culture and New York's new fortunes to bask
in one another's light.
Not all big-name writers saw this as an equal, or positive, relationship.
The Steinbergs "were very much a part of that whole
ostentatious-wealth era. You have it, you flaunt it, you show it off,"
says Ken Auletta, a critic of corporate America who had recently
joined PEN's board. "And yet a fairly large number of people at PEN
liked them and thought she was a serious person."
Auletta pondered the source of the Steinbergs' generosity and its
purpose. He says he had reviewed the details of a government
investigation of Steinberg's business dealings that raised disturbing
questions. He also believed that Steinberg's "general reputation of a
greenmailer made him less than wholesome."
And he worried that the Steinbergs' fund-raisers had come to account
for half of PEN's yearly budget of about $3 million.
At the group's 1990 fund-raising dinner, "they had floral arrangements
you couldn't see over. It just seemed over-the-top ostentatious. . . .
I just came away feeling writers are pets. We were helping
rehabilitate a reputation. It pissed me off."
Auletta made his feelings public in a 1990 New York magazine interview
in which he called Saul Steinberg "a pretty sleazy character" who
sought "respectability on the backs of writers."
PEN "tries not to take money that's too bloody or too tainted," says
Texas writer Larry McMurtry, who was president of PEN in the late
1980s. "There was a debate over whether the Steinbergs were gaining
too much influence at PEN." McMurtry welcomed them - "understand, we
didn't even have a bathroom in our office; you had to trundle 300
yards down the hall."
The Steinbergs took their money elsewhere after they came under attack.
Indeed, Steinberg's reputation preceded him, even at one of the main
objects of his charity: the University of Pennsylvania.
"At Penn he gave a lot of money. Everything on the campus is named for
him - Steinberg Conference Center, Steinberg Dietrich Hall," says John
Neff, who managed Penn's endowment fund and sat with Steinberg on the
school's executive committee.
"There was some concern, including mine, because he was one of the big
borrowers and backers, junk-bond-wise, of Milken," Neff adds.
Correctly anticipating that Milken would face criminal charges, the
trustees feared he would "spill the beans" on Steinberg and embarrass
Wharton, Neff says.
But they mastered their fear, and took Steinberg's money. And
Steinberg, at Penn, repaid their gamble by taking every public
opportunity to support broad academic values over narrow business
interests.
Praising the value of liberal education and inquiry, Steinberg
insisted that millions of his largesse be spent on Penn's English
department and its medical school. Acknowledging his distaste for the
pan-Africanist teachings of Penn scholars Houston Baker, Steinberg
nevertheless told The Inquirer he expected his money would support
Baker's work: "Who says I'm right?"
Behind the scenes, Steinberg did mobilize other Penn directors to
lessen elected officials' influence at the university - a move Neff
says the majority of trustees correctly blocked, acknowledging the
state's big financial commitment to subsidizing Penn.
But whenever Steinberg showed up to be honored at the dedication of a
professorial endowment or a building, "he handled himself well," Neff
says. "It was kind of modest - he spoke briefly, which was kind of
unusual for guys like that."
At home in New York, Steinberg didn't have to act modestly.
On a rainy April afternoon in 1988, Laura Steinberg, a Warner Bros.
story analyst and the daughter of Steinberg and his first wife, wed
Jonathan Tisch, son of Loews Corp. president Preston Tisch and nephew
of CBS president Lawrence A. Tisch.
Brass palm fronds from the Steinbergs' art collection were trucked
into Manhattan's Central Synagogue to form a canopy for the couple.
Steinberg's Reliance Insurance Co. had owned a big piece of CBS, and
Loews Corp. had invested heavily in Reliance, causing the Tisch family
to joke that the union would require the blessing of the SEC.
It was the Wall Street equivalent of a royal wedding. Gayfryd
Steinberg's favorite dress designer and neighbor in the Hamptons,
Arnold Scaasi, did the off-white gowns for the 10 bridesmaids. Barbara
Walters, Cosmopolitan editor Helen Gurley Brown, casino builder Donald
Trump, and civil-rights-attorney-turned-Washington-powerbroker Vernon
Jordan were among the guests, who retired to a reception at the
Metropolitan Museum's Temple of Dendur, where they quaffed Chateau
Latour at dinner.
Steinberg paid for other lavish parties, but it was hard to beat the
star-studded, heavily publicized Steinberg-Tisch wedding for a symbol
of the rise, mutual support, and general public acceptance of the
aggressive investment tactics that underlay the couples' family
fortunes. The marriage, unfortunately, didn't last.
Five years after taking exclusive control of Reliance, Steinberg
decided it would be convenient to invite outsiders to own part of his
company again.
In the summer of 1986 he offered new Reliance shares on the New York
Stock Exchange. He hoped to raise more than $300 million. The money
would be used to pay back some of the debt Reliance had racked up.
Steinberg also hoped to sell more than $60 million of his own shares,
pocketing the proceeds.
The year before, Reliance had lost nearly $200 million on its
insurance business. But it had gained $260 million from Steinberg's
investments in the roaring bull market.
The lead investment bank on the Reliance stock sale was to be Michael
Milken's Drexel Burnham Lambert, which, as it later emerged, had been
having a tough time selling some of Reliance's junk bonds and stood to
gain if Reliance could afford to buy them back.
Milken's moment was almost over, however. That spring, a managing
director at his firm was indicted for insider trading; it was the
first in a series of prosecutions that would culminate five years
later with Drexel's bankruptcy and Milken's imprisonment.
The offering raised just $150 million. By the end of the year Reliance
was borrowing again, and Drexel was withering under the widening
federal probe - including a leaked rumor, which Reliance denied, that
Steinberg himself was under investigation for insider trading with
Milken.
The 1980s' style of financing was also under attack by state courts in
Delaware, whose business-friendly judiciary traditionally moderates
corporate-shareholder disputes. By 1989, the Delaware Supreme Court
had given corporate managers sweeping powers to resist hostile
takeovers, further crimping Steinberg's investment style.
The state regulators who monitor insurance companies were starting to
close in. Reliance and other insurers were pressured to diversify
their investment portfolios. The company adapted poorly at first.
Profits continued weak, and the stock price kept falling.
The message of the late '80s was clear: Steinberg would have to find a
new way to do business.
So in April 1988 he announced to the Wall Street Journal that it was
out of date to call him "a corporate raider and a greenmailer."
Henceforth he would prefer "to be known as an insurance man," the
Journal reported.
Something, at any rate, had to be done with Reliance, whose fortunes
were once again sagging.
For the balance of his career, Steinberg would dedicate his energies
to selling insurance in much the same way he had invested: with a
certain flair, with fancy props and inspiring declarations of great
things to come - but mostly as a bargain-hunting opportunist.
Saul Steinberg turned 50 at the end of the 1980s, and Gayfryd gave him
a surprise party fit for a fun-loving billionaire.
She summoned the rich and powerful and fashionable to their Long
Island estate for the million-dollar gathering. U.S. Commerce
Secretary Robert Mosbacher strolled the gardens with the likes of
celebrity photographer Francesco Scavullo and Brown University
president Vartan Gregorian.
Models posed as mermaids and characters from Steinberg's favorite
paintings. Financier James Wolfensohn, future president of the World
Bank, admired the naked woman portraying Rembrandt's Danae.
The champagne swirled, the caviar jiggled, the orchestra swelled above the surf.
Steinberg had seized the opportunities America offered a smart,
aggressive, fast-moving dealmaker, backed by lots and lots of borrowed
money, to propel himself and the people around him to this spectacle
of imperial capitalist decadence.
Yet this game Steinberg played so well was changing fast. His banker
was heading to prison. His company was deep in debt. He faced pressure
from regulators and his own advisers to tone down his high-risk
investment style: Don't buy so many junk bonds. Don't put so much into
so few stocks.

What, his guests may well have wondered, was in store for the former boy wonder?
Steinberg was, after all, a survivor. He had been a young capitalist
radical in the 1960s, before nearly going broke in the hangover bear
market of the following decade.
He roared back as a billionaire corporate raider in the 1980s,
brushing aside federal investigations even as he bankrolled local,
state and national politicians.
But the 1990s would bring the greatest test of Saul Steinberg's powers
and of the faith of the workers, customers and investors who trusted
in him.
He would be forced to sell insurance. Lots of insurance.
To people who turned out not to be very good risks.


THE PARTY'S OVER: After record years in the late '90s, Saul Steinberg's
empire collapsed with remarkable speed. The reckoning is still due.

To celebrate its move from a dowdy, windswept Penn Center building to
the leafy, museum-lined Benjamin Franklin Parkway, Reliance Insurance
Co. threw a party with a homey Philadelphia theme.
On the marble-floored two-story lobby of its brick high-rise, the
former home of the old Pennwalt Corp., Reliance stationed genuine
sidewalk vendors - carts and all - serving salty soft pretzels and
juicy cheesesteaks. Here was an eight-man doo-wop band. Over there was
the bouncing Phillie Phanatic.
"It was a good time. There were no speeches," recalls Tom Black, a
Reliance administrative worker whose office helped organize the bash.

And there in a corner was Mr. Philadelphia himself - "America's
mayor," Edward G. Rendell - with Reliance vice chairman Robert
Steinberg and his big brother and boss, chairman Saul Steinberg.
Saul had once been a frequent visitor, grilling his Philadelphia
managers over financial targets every quarter and rallying the troops
at yearly meetings. But that had ended with his debilitating stroke
two years earlier. Now Saul was making a rare visit to the company
he'd purchased back in 1968 and used as his investment war chest and
personal treasury ever since.
It was 1997, and Steinberg's down-home party was telling the world -
or at least his workers - that Reliance was stepping back a bit from
its fixation with New York glitter and returning to its sober roots in
Philadelphia, where it had been founded by a group of the city's
brawling fire companies in 1817.
In fact, the Steinbergs' commitment to Philadelphia was less than absolute.
Though their company was more profitable than ever before, Rendell had
felt obliged to arrange $9 million in low-cost, taxpayer-subsidized
loans for the new digs. The mayor denied that his help had anything to
do with the $55,000 that Steinberg had raised for him in the previous
election cycle at a posh New York fund-raiser. Rather, Rendell said,
he was placating the Steinbergs, who had threatened to move their
company's 1,200 wage-tax-paying Philadelphia jobs to Wilmington.
The folksy office-warming was a pale echo of the star-studded affairs
Saul Steinberg liked to throw at his Manhattan apartment and his
seaside estate in Long Island's Hamptons, but the Philadelphia workers
who bellied up to the carts weren't complaining.
Reliance Insurance, they had reason to believe, was finally getting
the Steinbergs' full attention - and doing well.
Sales were up as Reliance wrote policies for construction defects,
environmental disasters, high-risk drivers, and other dangers that
competitors feared to touch.
Profits were up as premiums for the new policies rolled in and
Reliance sliced back-office costs and encouraged new customers to
apply on the Internet.
Steinberg was scoring investment gains by salting company funds into
sexy Internet stocks such as CMGI - which were starting to go through
the roof in the first phase of the Internet bubble.
Even on Wall Street, where Steinberg's reputation had frayed,
Reliance's stock was rising. "A lot of people didn't want to believe,
because it was Saul. But it looked to me like they were building some
pretty decent businesses," said Stephen Smith, an analyst at
Brandywine Asset Management in Wilmington.
In a few months, Reliance stock would hit its all-time peak on the New
York Stock Exchange, giving the company a value of more than $2
billion.

Even so, Steinberg had fallen short of the promise of his youthful
ambitions: He hadn't become the first Jewish president, and he hadn't
built a worldwide tech company like Microsoft or a global financial
power like Citigroup.
Still, if he could have frozen time in 1997, Steinberg would have
accomplished something remarkable - his own survival as a captain of
corporate America. He had endured the wreck of his early ambitions in
the lean 1970s and had emerged from the 1980s' junk-bond collapse
still firmly in control of a profitable company.
Yet Steinberg, who received more than $12 million a year in cash,
benefits and dividends, wasn't content to run a middle-of-the-road
insurer. So in the 1990s Reliance embarked on a giant expansion spree,
plowing cash into new offices in Europe, Asia, Africa and Latin
America - and into new businesses such as auto insurance for risky
drivers and workers' compensation on the Internet.
Maybe it wasn't too late for Steinberg to be granted yet another
opportunity to build a global empire. Or maybe it was tempting fate:
Even Napoleon got only two chances.
But Reliance's rally in the late 1990s wasn't a new springtime. It was
a late Indian summer, with more than a hint of a freezing Arctic wind
in the air.
Before long, Steinberg's company would dissolve in the biggest
insurance-company failure in U.S. history.
There was no lack of prophets warning of doom. In 1993, David Schiff,
publisher of Schiff's Insurance Observer, began eight years of
trenchant criticism of Steinberg with an article titled "Would You Buy
a Used Car From This Man?"
Schiff caricatured Steinberg as a high-living, glad-handing used-car
salesman who bamboozled regulators into approving risky investment,
accounting and insurance schemes. Schiff also warned, in a quote
adapted from Ernest Hemingway: "How does an insurance company go bust?
Slowly at first, then suddenly!"
In Philadelphia, some Reliance employees quietly predicted that the
premiums from the company's rush of new customers would eventually be
followed by very expensive claims. Dennis Costello, the veteran claims
chief, resigned in 1996, convinced that his bosses "were focusing on
the financial side and not focusing on the underwriting side."
Maybe it was a mistake for Steinberg to get serious about insurance in
the first place.
He had earned his reputation as an aggressive and successful investor
by pumping millions of dollars into undervalued companies, often to
the intense discomfort of the companies' managers, who sometimes paid
him millions in "greenmail" to go away.
But in the late 1980s, courts restricted hostile-takeover attempts,
and insurance regulators imposed "risk-based" standards "that changed
your ability to do all these high-flying investments. You could no
longer plop all that money into Disney," said Brian Gleason, a former
Reliance marketing officer. "So now Reliance had to make money selling
insurance. That led them into riskier lines of business."
To speed his empire's growth, Steinberg reorganized it in 1987.
He kept his flagship Reliance Insurance Co. in Philadelphia, where for
160 years it had sold policies protecting customers from fire, flood,
factory accidents, and other numbingly predictable disasters.
But he also started a new arm, Reliance National Insurance Co., close
to the Manhattan headquarters of his umbrella company, Reliance Group
Holdings. Reliance National was set up to handle "unique exposures" -
high-risk claims for nuclear-plant operators, builders in
earthquake-prone regions, chemical manufacturers, corporate directors,
and others who had a tough time buying affordable coverage.
"My job was to build a company, and to generate premium and cash flow.
It was very simple," says Dennis Busti, whom Steinberg hired to run
Reliance National in 1987. But Reliance Insurance workers in
Philadelphia developed a more jaundiced view.
Reliance National "would insure the fireworks factory next to the oil
refinery," according to Richard Murro, a 29-year Reliance veteran who
left at the end of 2000.
Resentments grew. It was as if Steinberg had fathered two sons by
different mothers - and the younger one, New York-based Reliance
National, was emerging as Dad's favorite.
The New York office was "like the golden boys, making the big bucks
and bringing in the premiums," says Deena Whitfield, who worked for 20
years as a Reliance computer specialist. "But the insurance guys in
Philly would tell us - just wait until those claims start pouring in."
After 1995, Reliance Insurance in Philadelphia was run by Robert
Olsman, who seemed more in tune with Steinberg's New York style than
his conservative predecessors. Olsman urged managers to build a
"world-class company," but Reliance veterans say he also introduced
flexible claims and cash-reserve methods that they felt left the
company dangerously exposed to losses.
Olsman says his practices were sound: "There were remarkable changes.
When you go through change, some people adapt and some people don't."
So what went wrong? Olsman and Busti both say the company, under
Steinberg, was hundreds of millions of dollars in debt and starved for
capital - "from day one," Busti says. That left Reliance vulnerable
when a series of financial shocks jolted it in the late '90s.
Maybe Steinberg's highly personal management style was part of the
problem. Costello believes the Steinbergs relied too much on their
hand-picked managers and not enough on outside insurance experts who
might have prevented some of the company's excesses.
Steinberg was especially dependent after his 1995 stroke, Costello
says. Reliance sought to downplay the impact on Steinberg's health.
But Costello, like others, says the change was obvious: "Even after
his rehab, he wasn't even close to being Saul Steinberg pre-stroke."
Still, Reliance might have succeeded, Busti argues. "Obviously, we
wouldn't have done something if we didn't have the expertise," he said
from his office at New Century Global, a New York insurance agency
formerly owned by Reliance.
"But we made a couple of mistakes," Busti added. "And they were biggies."
The state insurance officials assigned to monitor Reliance didn't
notice the "biggies" until it was too late.
The regulators knew Reliance pretty well - too well for critics of the
"revolving door" that often moves industry executives into state
regulatory positions and then back into private, regulated companies.
During Reliance's rapid expansion in the mid-1990s, the key regulators
were a pair of ex-Reliance executives - New York Insurance
Superintendent Edward Muhl, and Pennsylvania Insurance Commissioner
Linda Kaiser. Kaiser, who upon taking the job told her top deputies
that no Pennsylvania insurers would be liquidated while she was
commissioner, returned to Reliance in 1997 as the company's top legal
adviser.
"From a consumer advocate's perspective, Steinberg owned two insurance
departments," says Kevin P. Hennosy of St. Louis, a policyholder
advocate.
The regulators accepted Reliance's filings indicating that the company
had enough assets and income to pay its customers' claims and other
expenses.
Until the winter of 2000, they also permitted Reliance Insurance to
send hundreds of millions of dollars each year to Steinberg's holding
company, Reliance Group. Part of that money went to pay interest on
the hundreds of millions of dollars Steinberg had borrowed in the
1980s. And $3 million a month was set aside to pay shareholder
dividends, nearly half of which went straight into the pockets of the
Steinberg family.
Reliance Group declared profits of half a billion dollars over the
years 1997 and 1998.
By 1999, A.M. Best & Co., the influential credit agency, was weighing
whether to boost Reliance's credit rating above its current
"excellent." Merrill Lynch analyst Alison Jacobowitz was calling
Reliance stock "undervalued by nearly any measure."
The company kept opening new offices and announcing new businesses. In
the summer of 1999, Steinberg even announced that Reliance would
insure corporations' profits against unexpected losses.
He marked the moment with all his old bombastic confidence. "The
insurance and financial markets are converging, and we are in the
forefront of the trend," Steinberg declared. "As we break new ground
for our customers, we will continue to be disciplined in our
underwriting and our risk selection."
But over the following two years, Reliance's own earnings were to sink
far below the reach of any insurance policy.
Insurers buy the public's risk. And sometimes they spread it around,
selling it to other insurers.
In 1994, a North Jersey entrepreneur, John Pallat, set up a method to
let insurers trade workers'-compensation risk in a sort of gigantic
corporate betting pool.
Pallat called his creation Unicover Managers. Insurers who joined
could earn big fees by bringing more policies into the pool.
But Unicover failed to work out realistic odds. The firm had woefully
underestimated the number and cost of the claims, a General Accounting
Office investigation later found.
The shortfall topped $1 billion.
The problem became public in February 1999, when Cologne Re, an
affiliate of Warren Buffett's Berkshire Hathaway, pulled out of the
pool after losing $275 million.
Cologne's misstep shocked Wall Street and the credit-rating agencies,
led by A.M. Best, which had blessed Unicover's participants with
high-quality ratings.
But Cologne was lucky. Buffett, a solvent billionaire running a big,
profitable, diversified company, was able to bail out the errant unit.
A.M. Best soon reported that other insurers, including Reliance, also
faced massive Unicover losses.
But in this crisis, Saul Steinberg was no Warren Buffett.
Unicover was one of Reliance's "biggies." It was the first in a
relentless series of explosions that, in less than two years,
destroyed Reliance's apparent prosperity, ended its long history, and
left its creditors, investors, customers, lenders and workers to pay
the cost.
Like officers on a big ship who don't realize it's been torpedoed,
Reliance officials at first assured each other and the world that they
were still steaming full speed ahead.
At Reliance National in New York, Busti urged the Steinbergs to take a
hard line. Reliance was just a gatekeeper, he argued. Let the other
companies pay.
But investors were shaken again on June 14, 1999, when Reliance
admitted other troubles. It warned of up to $250 million in charges
from what Robert Steinberg called "unsatisfactory trends in a few
lines and programs." Among them were auto, environmental, construction
and asbestos claims.
The stock, already skidding, dropped 18 percent that day. Investors
were asking, "What the hell is going on here?" New York analyst Walter
P. Fitzgerald told Bloomberg News.
And how could the company pay the half-billion dollars in debt that
would come due in 2000? Publicly, officials assured investors they'd
have a plan. Privately, Steinberg began asking investment bankers if
they could find a buyer for the company. They couldn't.
In October, Reliance Group came out with a plan to raise cash. It
would try to sell $250 million in bonds. And it would spin off its
most profitable business, construction bonds, and its most promising
new business, online insurance.
At the same time, Reliance also dropped a bombshell: It admitted it
could be facing more than $100 million in losses from Unicover.
In January 2000, Steinberg agreed to pay American Financial, run by
Steinberg's longtime investment partner Carl H. Lindner, unspecified
damages for American's Unicover losses. Busti argued that Reliance had
a legal right not to pay. Overruled, he left Reliance.
Next, A.M. Best warned that it might have to cut Reliance's credit
rating. That sent the passengers scurrying to the lifeboats. With
anything less than its current "excellent" rating, Reliance would have
a tough time persuading its corporate customers to renew their
policies. And Best's threat damaged Reliance's hopes of selling bonds
at reasonable rates.
Through it all, Reliance Insurance kept paying dividends to
Steinberg's holding company, including a final $189 million in the
nine months from June 1999 to March 2000.
The Steinbergs, under pressure, did what they had done in similar jams
in the past: They began throwing Reliance assets overboard in hopes of
lightening their load - and raising fresh cash.
In February, the company sold its profitable construction-bond unit to
Travelers Property Casualty Inc., a unit of Sanford I. Weill's
Citigroup, for $580 million.
At the same time, Reliance Group confirmed Wall Street's fears and
acknowledged it had lost more than $300 million in 1999 - wiping out
its entire record profit for 1998.
It also announced that the engine of Steinberg's cash machine had been
stopped dead: The Pennsylvania Insurance Department had ordered
Reliance Insurance to cut its dividends to Reliance Group - removing a
major source of income for the group's debt payments and its
investors' wallets. Steinberg, as the biggest shareholder, took the
biggest hit: He was cut off from $10 million a year in shareholder
dividends.
Steinberg had already dismissed his brother Robert the previous fall.
He now relinquished day-to-day management of Reliance, and the CEO's
title. But he remained its chairman and biggest investor.
As captain of a sinking ship, he now faced a personal as well as a
business cash crisis.
In April 2000, he put 61 Old Master paintings up for sale through his
art dealer, Richard Feigen. He raised $50 million. He also sent his
Park Avenue apartment's contents to auction at Sotheby's. The mahogany
and gilt-trimmed furnishings sold for $12 million.
And he put the apartment itself on the market. It sold later that year
to investment banker Stephen Schwartzmann for $37 million - more than
100 times what Steinberg had paid nearly three decades before.
Why did Steinberg need so much cash? Creditors were pressing in. In
May 2000, Provident Financial Group of Cincinnati - Lindner's bank -
seized and sold one million shares of Steinberg's Reliance stock,
which had been pledged as collateral for a 1999 loan to the
Steinbergs' family investment trust.
If Reliance's problems were all too apparent on Wall Street, the
Steinbergs' personal reversals seem to have taken their Park Avenue
and Hamptons social set by surprise. Where, New York wondered, did all
the money go? Gossip columnists cited unnamed friends of Gayfryd
Steinberg claiming the sales were provoked by the departure of the
grown Steinberg children, or even by Saul's desire for a simpler
lifestyle.
The Steinbergs moved into a hotel. Temporarily, they said.
Steinberg also broke his public silence for an extended interview -
his first since the 1980s - with a small magazine called Boards &
Directors.
He brushed aside suggestions that his stroke had slowed him much. He
noted that his shareholders had always approved his generous
compensation plans. And he insisted that he had the interest of all
his shareholders at heart.
But Reliance was still going broke.
In May 2000, the company reported $36 million in operating losses in
the first quarter. Steinberg still declared Reliance "is making
significant progress toward becoming a more efficient company." Yet
the stock continued to drop as institutional investors dumped the
shares and the last holdouts among Wall Street analysts abandoned
ship.
Steinberg's investment bankers sounded the SOS with new vigor. In late
spring, it looked as if a last-minute rescuer was steaming in out of
the darkness.
Leucadia National Corp., which specializes in running troubled
insurers, offered to buy Reliance and its debt for about $250 million
in cash - a fraction of the company's former stock-market value, but
better than nothing.
But a week later, A.M. Best finally lowered the boom: The agency cut
Reliance Insurance's credit rating to "very good" from "excellent,"
citing "looming debt obligations" that the company looked increasingly
unlikely to meet.
The move effectively made it impossible for Reliance to renew policies
for its corporate customers as they expired. So Reliance sold them,
too: On June 19, Reliance sold thousands of customer accounts to
Hartford Financial Services. The next day, it sold additional business
to another rival, Kemper Insurance Cos.
Four days later, with its stock hovering at an all-time low of $2.63
per share, Reliance Group was hit by the first in a flood of lawsuits
from outraged shareholders, who contended that Reliance's "false and
misleading" statements had fooled them into believing it would not
lose money on the Unicover mess.
In July, the Leucadia deal blew up, as Reliance's would-be rescuer
canceled its offer, citing Reliance's deteriorating finances.
In August, Steinberg won a bit of breathing space when his lenders,
led by Chase Manhattan, agreed to give him until November to repay
$238 million in loans that had come due.
But by now, Pennsylvania regulators were breathing down his neck.
Steinberg was forced to cede control over major expenditures to the
state insurance department.
In September 2000 came a new embarrassment: The Steinbergs' mother,
Anne, sued the brothers in New York state courts, contending they owed
her $6.2 million in missed loan payments. "Mrs. Steinberg is in a
precarious financial condition due to the recent troubles at
Reliance," her lawyers wrote to her sons' attorneys.
News accounts made sport of the formerly fearsome corporate raider's
legal battering by his elderly mother. But cynical bankruptcy-court
observers wondered if she was just trying to ensure that someone in
the family got on the creditors' list, in case the brothers filed for
bankruptcy protection.
In November, Reliance missed two more debt payments and defaulted on
loans and bonds totaling $538 million.
A.M. Best downgraded Reliance to "poor," belatedly acknowledging that
the ship, with its decks awash, was indeed sinking.
That month, another old corporate raider came back into Steinberg's
life. Carl Icahn began buying up Reliance bonds - offering 15 cents
for every dollar investors had put out - in the hope that he could
block Pennsylvania's planned reorganization and ensure that Reliance
money went to investors like him instead of to policyholders. After
months of legal maneuvering, Icahn failed.
On Dec. 6, Steinberg's Reliance Group was delisted by the New York
Stock Exchange. It had been trading at less than a penny a share -
down from its 1998 peak of $19.
In January, Reliance Insurance agreed to let Pennsylvania regulators
install permanent overseers to manage operations.
Finally, in April, the captain abandoned ship. Steinberg relinquished
his post as Reliance chairman, ending 33 years in the top job.
On May 29, Pennsylvania insurance commissioner Diane Koken won a court
order enabling her to take over Reliance Insurance and attempt to
rehabilitate it.
Two weeks later, at a gathering of the National Association of
Insurance Commissioners in New Orleans, Koken's lieutenants assured
skeptics they could salvage Reliance without needing a bailout from
the industry-financed state guaranty funds. The funds were less
convinced: They estimated Reliance losses could hit $2 billion -
making it the biggest insurance failure in U.S. history.
On June 11, Koken's lawyers demanded repayment of $95 million that the
state contended Steinberg's holding company, Reliance Group, had
wrongly diverted from Reliance Insurance. The IRS also has a claim on
that money.
The next day, Steinberg's Reliance Group filed for bankruptcy.
Koken directed an ever-growing staff of accountants, actuaries and
high-paid law firms to dig up enough Reliance assets to keep the
insurance company afloat.
Koken even cut off $8 million in severance payments to 340 veteran
employees who'd lost their jobs in the last year - sparking angry
protests from State Rep. John Perzel, the House majority leader, who
began shepherding legislation to reinstate partial severance.
But the more Koken's hired hands learned, the worse the news got.
On Oct. 3, the commissioner surrendered. Her auditors had located $12
billion in expected claims and other debts, while estimating less -
maybe a lot less - than $11 billion in current assets. She secured a
liquidation order from a Philadelphia judge.
Reliance Insurance never escaped from the debt hole Saul Steinberg dug
it into when he bought the company in 1968, when he repurchased it
from shareholders in 1981, and when he vastly increased the company's
junk-bond borrowings during the 1980s.
Unable to outrun its debts, Reliance sank.
Reliance's former investors and employees have directed much of their
outrage at Steinberg.
"This is like the old robber barons," complains South Jersey investor
Robert C. Juliano. "Who would have thought that the former
Pennsylvania insurance commissioner [Linda Kaiser], who once and again
went to work for Reliance, would let this happen?"
According to Robert Battaglia, a former Reliance manager: "If the
state had any guts, they would go harder after Steinberg. It's a damn
disgrace that an organization that has been around since 1817 was
ripped apart by greed. Steinberg raped 'em, in my opinion."
He added, "I've been in this business 20 years, and I realize this is
radical, but it's absolutely ridiculous that insurance companies can
be traded on the New York Stock Exchange. Insurance companies have to
put money aside to pay claims. A public company has to report to Wall
Street investors. The two don't match.
"And where the major stockholder of a big company is one individual,
they're naturally going to do things that satisfy the investor, not
the long-term health of an organization."
Battaglia doesn't expect the system to change. And he worries Reliance
isn't alone: "God knows how many more companies are getting ready to
have the same problems."
Commissioner Koken says her department is months or years away from
knowing how much Reliance Insurance Co. owes and who will have to pay
it.
The $1 billion shortfall she identified in November could be much
higher, she acknowledges.
All over the country, the guaranty funds that bail out failed insurers
are bracing to pay Reliance claims. The cost will be passed along to
competing insurers, who will get it back by raising rates for
homeowners, drivers and other insurance buyers.
Some Reliance claims may never be paid - particularly among smaller
insurers who bought reinsurance from Reliance to cover their own
future losses.
Reliance's banks, led by Chase Manhattan, and bondholders, led by
Wells Fargo, are hoping to get back part of their $700 million in lost
investments through Reliance Group bankruptcy proceedings, currently
grinding their way through a Manhattan courtroom.
Shareholders fall lower on the creditors' list.
In November, the Federal Pension Benefit Guaranty Corp. told 7,000
ex-Reliance workers that the company's pension fund was underfunded by
$100 million. The corporation will step in and pay the difference with
money from solvent pension plans across the country. Some Reliance
retirees' pensions will be reduced.
The 340 former Reliance workers whose severance was canceled are
waiting to see if Perzel's legislation restores part of the money they
were promised.
Some Reliance veterans say the story might have turned out differently
if Steinberg's health had held up.
Since Steinberg bought Reliance in 1968, he had made a point of
assembling its Philadelphia team regularly for hors d'oeuvres and a
glowing, if numbingly quantitative, account of their glorious future
together.
The regular visits ended in 1995, when the chairman, then 55, suffered
a stroke - which wasn't disclosed to the company's workers, customers
or investors for many weeks.
Although Reliance denied the stroke affected the company, workers say
Robert Steinberg, three years younger than Saul, took up the slack.
The two had always been close, but Robert wasn't quite a substitute.
"Saul had more knowledge than Bobby did," said Tom Black, a 31-year
Reliance veteran who observed both men from his desk in the company's
Philadelphia administrative office.
"Saul was all business; Bobby was laid-back. Saul went for the
jugular; Bobby was easygoing. His presentations were filled with
jokes.
"After the stroke, Saul just let Bobby have control over what was going on."
Geoffrey Moore, speaking for Steinberg's former investment banker,
Michael Milken, also cites Steinberg's medical problems. But more than
that he blames Steinberg's failure to pay off Reliance's debt, plus
the company's too-rapid expansion: "It was more-recent business
decisions that dragged them down."
"Had Saul not suffered this stroke," Costello says, "who knows what
could have happened? He could always pull a rabbit out of a hat."
If Reliance is gone, some of its pieces remain. Two successful and
profitable Philadelphia companies, mortgage insurer Radian Group and
health insurer Reliance Standard Life Insurance Co., trace their roots
to businesses sold by Steinberg to raise cash. Reliance Standard has
had to wage a damage-control campaign to assure customers it has not
been affected by the collapse of Steinberg's company.
Two weeks after Saul Steinberg threw his company on the mercy of New
York's bankruptcy court, America's most successful insurer rose to
kick more dirt on Steinberg's reputation.
Maurice Greenberg, longtime chairman of American International Group,
made Reliance's bankruptcy a text of his sermon at a June insurance
conference in New York sponsored by Deutsche Banc Alex. Brown. "We
lost business to them, as have many other companies, throughout the
last decade or more, because of price concessions and policy form
changes that we were not willing to meet," Greenberg said, according
to an A.M. Best report.
When aggressive insurers like Reliance fail, Greenberg added,
conservative companies have to bail them out. "I find that obscene."
Greenberg advocates a federal insurance regulator - an idea that state
regulators such as Koken adamantly oppose.
Others worry that might not solve the problem. "As it stands, all
[insurance] regulators - state or federal - are tempted to try to
avoid losing any companies during their term. They push it back to the
next commissioner," says David Skeel, a University of Pennsylvania law
professor.
"If you elect to do your insurance business on the cheap," Greenberg
concluded, "then you should take your own risk."
Sanford I. Weill collects over $200 million a year from his job as
chairman of Citigroup - a company that broke the law so profoundly
when he formed it that his friends in Congress had to rewrite the
nation's banking statutes.
Citigroup, the sole superpower of today's financial world, marries
investments, insurance and international banking on a massive scale,
and makes more money than General Electric or Microsoft.
Saul Steinberg might have done as much: Weill's old investment bank
advised Steinberg in 1968 to buy Reliance in hopes of turning it into
a new kind of huge, wealthy, diversified, high-tech financial empire.
But Steinberg lost his chance to be that pioneer. Defeated in his bid
to buy Chemical Bank, he settled for lucrative but temporary
investments in bargain-priced companies.
The chairman and his family collected hundreds of millions of dollars
from Reliance, lavishing the money on art and philanthropy, while
driving the company deep into debt.
Money manager John Neff, who served with Steinberg on the University
of Pennsylvania board, is left with an unanswered question. To the
very end, he says, Steinberg had an uncanny understanding of the stock
market, ditching technology stocks before the market crashed. Why
couldn't he save his own company?
Saul Steinberg has now dropped from public sight, setting off
speculation that his health has continued to decline. His wife,
Gayfryd, has put her party-making skills to work, setting up a firm
that organized fund-raisers earlier this year for the New York Public
Library, the New York City Ballet, and New York public-advocate
candidate Betsy Gotbaum.
In October, the family celebrated the second wedding of Saul's
daughter, Laura Steinberg Tisch. In contrast to her $3 million 1988
reception in an Egyptian temple at the Metropolitan Museum of Art,
this union took place at a Hamptons winery - a convenient drive from
the Steinbergs' Quogue beach house. That house has been for sale since
last summer, listed by its agent as an "extravagant oceanfront estate"
that "embodies an opulence that is very rare," even among the castles
that line the shore in this playground of New York's rich and famous.
Will Saul Steinberg have to pay for the wreck of Reliance?
In November, Koken's lawyers sent Steinberg's lawyers formal notice
that the state is investigating hundreds of millions of dollars that
he and his senior managers diverted from Reliance Insurance in the
months and years before it failed.The state wants "to determine if
they involved breaches of fiduciary duties, neglect or other wrongful
acts." More than $1 billion in payments are under investigation,
including Reliance dividends, real estate deals, interest-free loans,
the surety-bond sale and the Unicover settlement.
Even if the state makes a legal case - and proves it - that doesn't
mean Steinberg will pay. His actions, and those of other Reliance
directors and managers, were insured by Lloyd's of London.