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The Fall of the House of Steinberg

Illness, hubris, and market reversals combined to bring down the couple who best epitomized eighties New York. Now Saul and Gayfryd Steinberg are reinventing themselves -- as mere millionaires.

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On April 4, Saul Steinberg and his wife, Gayfryd, threw open the mahogany doors of their 17,000-square-foot Park Avenue aerie for the very last time. At noon, 200 students from the New York School of Interior Design began trooping through the cavernous salons and sitting rooms to gape at the Old Master paintings and elaborate antiques -- the British rococo chairs and ormolu tables, the Chinese armorial porcelain -- that were all soon to be sold.

Later that evening, once the students had dispersed, the Steinbergs descended from their bedroom to host a cocktail party for 150, a tribute to their late friend and decorator Mark Hampton. By Steinberg standards, it was a rather spartan affair, featuring just canapés and cocktails. Saul, 61, shuffled from room to room before retiring early, while Gayfryd -- wearing an Indian-inspired Oscar de la Renta jacket over a T-shirt -- lingered downstairs, chatting up Blaine Trump and Mica Ertegun.

"They tried to make it cheerful and upbeat," says Duane Hampton, the decorator's widow, "rather than a sad we're leaving kind of thing."

But the feeling was there nonetheless. Only hours earlier, the massive $2 million mahogany writing commode that for years sat as sentry in the Steinbergs' foyer had gone on display at Sotheby's in London. Upstairs, out of view, other furnishings were packed in boxes. The air was heavy with an end-of-an-era pall reminiscent of the dismantling of Xanadu in the final scene of Citizen Kane.

Last winter, even as Liz Smith wrote a column in which Saul emphatically refuted rumors that he was selling his trophy apartment, Sotheby's specialists were already inside, furiously cataloguing its contents. At one point, before the sale was made public, the twenty-member team of cataloguers found themselves in the uncomfortable position of literally bumping into decorator Peter Marino, who was taking measurements for the apartment's new owners. The Steinbergs' insistence on keeping up appearances "made them look more vulnerable than they really are," says one of their social peers. "They're not exactly poor, but within their circle, maintaining the billions is important to the ego."

In November, as Reliance's financial picture darkened, Steinberg fired the company's president -- his brother.

By all accounts, Saul adored the apartment. "He bought it from the Rockefellers," says his ex-wife Laura Steinberg, who lived there with him. "It meant he was going up in life. It was a status symbol, just big enough for his ego." On May 11, Saul and Gayfryd bid farewell to their servants and moved into a three-bedroom apartment at the Helmsley Carlton, a shabby-chic Madison Avenue residential hotel on 61st Street.

In the pre-dot-com eighties and early nineties, Saul and Gayfryd were the undisputed dean and doyenne of Nouvelle Society -- he a plump corporate raider with a photographic memory who had established himself as one of Wall Street's most feared Masters of the Universe; she, a smart, ambitious beauty eleven years his junior -- the ultimate trophy wife. Together, they presided over a seemingly endless stream of parties and benefits, supplying the gossip pages with tales of gilded-age excess.

In 1988, they took over the Metropolitan Museum of Art for Saul's daughter's marriage to a scion of the Tisch family in a $3 million French Directoire-themed affair that featured 500 guests and 50,000 French roses. Then, just a year later, Gayfryd outdid herself with Saul's $1 million fiftieth-birthday party. In a tribute to her husband's passion for Old Masters, she orchestrated ten tableaux vivants of his favorite works.

At the party, James Wolfensohn, then just the head of an eponymous bank (now head of the World Bank), asked the naked lady re-creating Rembrandt's Danaë to dance. For his part, Saul raised a glass high in the air-conditioned tent in a toast to thank his wife for her labors. "Honey," he proclaimed with characteristic bravado, "if this moment were a stock, I'd short it."

Indeed, he might have been wise to do so. Since those heady days, both Steinberg and his company, Reliance Group Holdings, have paid an almost Biblical penance for eighties indulgence. The collapse of the junk-bond market in the early nineties ravaged the company, and in 1995, Steinberg, already struggling to keep his company profitable, suffered a stroke from which he has yet to recover fully. For the past year, he has been vowing to restructure Reliance, but last month, his penchant for piling hundreds of millions in debt onto his company's balance sheet finally caught up with him: Fearful of a credit downgrade, Steinberg relented and agreed to sell to the notoriously cost-cutting Leucadia National Corporation, a financial-services company. Under terms of the proposed deal, stockholders would receive the equivalent of $2.55 a share in Leucadia stock, just 25 cents above Reliance's all-time low. (But since the announcement, the stock has sunk even further, to $1.75.) Assuming the deal closes on those terms, Steinberg himself will walk away with approximately $90 million in Leucadia stock, by most standards a rather impressive sum. But many on Wall Street now speculate that it will not close at all.

Last Thursday, A.M. Best Company, an insurance credit agency that recently met with Leucadia, downgraded Reliance's rating, citing the company's "worse than expected" performance, and said that the deal with Leucadia "carries greater risk of non-completion than most definitive agreements." Whatever happens, for a man who was a millionaire by 30, and a billionaire by 40, it is a humiliating coda to a high-flying career.

Still, the last several months should have prepared him for it. In November, as Reliance's financial picture began to darken, Steinberg fired the company's president -- his brother, Bobby. Wall Street applauded the shake-up, but the firing caused a major rift between the brothers, who had worked together since 1965. (This past spring, the once close-knit family spent Passover apart; Saul and his family celebrated with one sister on the Upper East Side, while Bobby hosted his family and their other sister at his home in Bernardsville, New Jersey.)

Saul was next. On the last day of February, after Reliance reported a loss of $311 million for 1999 (following a profit of $326 million in 1998), Steinberg stepped down as CEO. At the same time, his annual bonus, which had been $6.3 million in 1998, was reduced to a sum virtually unheard of on Wall Street: zero. Most drastic of all was the decision, made in order to placate insurance regulators and credit-rating agencies, to suspend Reliance's quarterly dividend. For Steinberg, who owns 36.4 million shares of the stock, the move meant a further loss of $16 million in income.

In the midst of all this, his daughter Laura and her husband, Jonathan Tisch, filed for divorce. By then, rumors were spreading that Saul and Gayfryd's marriage was in trouble as well, but friends deny this was ever true. "They adore each other, but sadly in this town people just love to see a tumble," says one intimate. "They see a change of life and think, 'Ooh, things must be really bad.' "


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