The Fall of the House of Steinberg

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.’ “

As his business unraveled, Steinberg was left with a high-class predicament. Suddenly he was stock-rich but cash-poor, a situation that prompted him to start shedding pricey totems at a dizzying speed. First to go was the apartment at 740 Park; in February, Steinberg sold it to financier Stephen Schwarzman for $37 million, the highest price ever paid for an apartment in New York City history. In April, Steinberg put 61 Old Masters, valued at more than $50 million, up for sale through his good friend Richard Feigen, the dealer who had sold most of them to him over the last two decades. Finally, three weeks ago, 293 lots of the Steinberg’s furniture and decorative effects rounded up an additional $12.5 million at Sotheby’s.

The Steinbergs’ friends insist this wholesale dumping of assets is not the act of a couple desperate to raise some cash but rather that of empty nesters cleaning house. “Their family is now essentially three people, because of grown-up children,” explains Duane Hampton. “Who needs whatever number of rooms they had for three people?” Another close friend speaks of Gayfryd’s desire to “scale back” in the wake of her sons’ departure for college. “Who wants to live in a museum?” she insists. “They’ve done that.”

Situated on two floors of a glassy Park Avenue office tower, Reliance Group Holdings’ headquarters is more Hamptons chic than corporate America. The reception area features a double-height ceiling, gargantuan windows, and lots of cherry paneling and sand-colored couches. On one wall hangs a tattered antique American flag with only thirteen stars. But for all its open beach-house-like aura, Reliance resembles something more like a fortress when it comes to dealing with the outside world. When Steinberg had his stroke in 1995, the company didn’t even bother to inform the public; it wasn’t until word of his illness leaked out on CNBC six weeks later that Reliance decided to address the matter. A company spokesman insisted that Saul was never seriously incapacitated.

But those who know him say that that was not true. “Saul before and Saul now – it’s two different people,” says Laura Steinberg. “The first few days, his doctors didn’t know whether he would die. It took him three days to stabilize.” Says a Steinberg acquaintance: “Saul Steinberg’s massive stroke was the most underplayed bit of news in the world. Nobody really wanted anybody to know how ill he was. It would be bad for business.” As the architect Charles Gwathmey, who designed Reliance’s headquarters and is a friend of the Steinberg family, describes it, the stroke “severely limited both Saul’s physical and mental capacity when it first happened.”

In the wake of the stroke, Saul and Gayfryd all but vanished from the social circuit. “When you can’t use your arm, your life changes,” explains one of their closest friends. “Saul was a very intense, hyper, triple-A-personality type of guy. He was this incredible dynamo. But after you have a massive stroke, you can’t function like you did before. It’s not possible.”

Even his most innocuous activities presented inordinate challenges. With a weakened left arm and leg, exercise became excruciatingly difficult, and Steinberg, not thin to begin with, put on weight. Even after his recovery, his movement remains severely impeded. He walks shuffling and lurching, dragging one leg behind the other, but unassisted, without a cane. His left arm looks frozen in place, bent at the elbow. For a man known for his vitality, the changes were particularly painful.

Once upon a time, Saul Steinberg was a dogged seeker of the limelight. The eldest son of a successful Lawrence, Long Island, rubber manufacturer, he didn’t take long to hit on his first big idea: independent, long-term computer leasing. Conceived while Steinberg was a senior at Wharton, the plan featured what would later become two of his hallmarks: amassing debt and hiring family members as employees – his younger brother, Bobby, would become his company’s secretary; his father and uncle became his partners. By 1965, his company, which he gave the clunky name Leasco Data Processing Equipment Corporation, had revenues of $8 million; a year later, its assets had jumped to $21 million.

As business boomed, Steinberg parlayed his Leasco stock into something more substantial; in 1968, he took over the then-151-year-old Philadelphia-based Reliance Insurance Company. The deal earned the 29-year-old mogul millions. According to Forbes, Saul’s $50 million increase in net worth was unprecedented. As a result of the deal, reported the magazine, he made more money on his own than any other U.S. citizen under 30.

But Steinberg, by then the owner of a 29-room mansion in the Five Towns, had little interest in being an insurance executive. “You watch!” he would boast to Dan Dorfman. “Like the Rockefellers, I’ll own the world. I could even be the first Jewish president!” Steinberg’s boldest attempt at joining the elite he so admired came in the form of a hostile bid to take over Chemical Bank. Though Chemical successfully fought him off, the Steinberg threat was taken very seriously: The bank assembled a cadre of powerful East Coast bankers, lawyers, and politicians to fight it. At one point, even Governor Nelson Rockefeller joined the fray. The battle against Steinberg was so fierce that some, including Saul, couldn’t help but wonder whether anti-Semitism had played a role in his defeat.

If a decade could be designed to fit the needs, talents, and proclivities of a particular individual, then the eighties were tailor-made for Saul Steinberg. Michael Milken’s junk bonds were an ideal product for a man in love with leverage, and Steinberg, who became part of Milken’s inner circle, didn’t flinch from availing himself of them frequently. He used junk bonds as well as traditional financing to purchase companies in a variety of industries, as well as various companies within an industry; at one point, he owned both Days Inn and the Grand Hotel in Cap-Ferrat.

In 1984, Steinberg attempted his second high-profile takeover. This time, the target was Disney. Although it didn’t work, Steinberg walked away nearly $40 million richer, having “greenmailed” the company into paying him a premium for selling it his stake.

While Steinberg was out rattling his corporate saber, his home life was no less tumultuous. He married young, to his high-school sweetheart, Barbara, and became a father in his early twenties. But by his thirties, he was feeling restless. In 1974, while on business in Beverly Hills, he fell in love with a beautiful Italian public-relations consultant named Laura Sconocchia Fisher. Although she rebuffed him at first, his relentless attention eventually paid off, and they began an affair. The relationship culminated in Saul’s divorce from Barbara, with whom he had three children: Laura Tisch, a mother of two; Jonathan “Jono” Steinberg, who is CEO of the embattled Individual Investor and husband of CNBC “Money Honey” Maria Bartiromo; and Nicholas Steinberg, who owns comic-book stores in Philadelphia. (Barbara died of pneumonia last October, at the age of 58.)

At Saul’s insistence, Laura Steinberg converted to Judaism. She also set about redecorating the apartment recently vacated by the preceding Mrs. Steinberg. But the marriage turned out to be fleeting and tempestuous. After bearing Steinberg a third son, Julian (now a Brown University senior), she divorced Saul in what quickly devolved into the Perelman-Duff battle of its day. During the trial, Laura, who was represented by an ever-changing roster that included Raoul Felder and Roy Cohn, accused Saul of misappropriating $190,000 in Reliance funds for his “cocaine habit.”

Laura later recanted the cocaine charge. “I tried to lash back and made a mess,” she says now, adding that the marriage dissolved in part because of her exuberant husband’s taste for the high life. “He would give a toast and come back two days later,” she sighs. “We started to have problems.” Although Steinberg had Laura arrested for trespassing during their estrangement, she says she remains “madly in love” with him.

In 1983, after a brief courtship, Steinberg married Gayfryd. Like Laura, Gayfryd also converted to Judaism, as did her son, whom Steinberg adopted. A savvy, twice-divorced Louisiana businesswoman who once ran her own steel-pipe business, Gayfryd was no stranger to high living or to scandal: She and her second husband, an oil executive, had lived in the biggest house in New Orleans, but it was ultimately seized by the IRS when he was indicted for tax evasion. (Norman Johnson served 14 months in prison and later committed suicide.)

The second time she met Saul, at a dinner party in Steinberg’s home, she once recalled: “You know, I thought, This is a very attractive guy. I was looking for someone to be bad with that night, and this seemed to be it.” Social lore has it that Gayfryd changed the place settings before the meal so she could sit next to Saul; she has told friends it was Saul who engineered their placement.

Almost immediately, Gayfryd began working to propel herself and Saul into the upper echelons of Manhattan society. The new Mrs. Steinberg, who bore her husband a daughter, quickly befriended socialites like Anne Bass, Blaine Trump, and Libbet Johnson, and set about becoming one of the most successful fund-raisers in the city, sitting on the board of the New York Public Library.

“She’s an amazing organizer,” says Susan Burden, one of the Steinbergs’ closest friends. “She could run anything – the biggest company, the most successful fund-raising event… . She has more follow-through than anyone I’ve ever seen in my life.” Gayfryd also focused on less glitzy causes like the I Have a Dream Foundation, “adopting” a class of 103 Bronx fifth-graders and paying for the college education of all forty who graduated from high school. “She really worked on that,” says Burden. “She went up to the school once a week and had brown-bag lunches.”

“Nobody wanted anybody to know how ill Saul was,” says a confidant. “It was bad for business.”

When she wasn’t staging charity events, Gayfryd was refurbishing 740 Park with mid-eighteenth-century British antiques. John Hobbs, the antiques dealer, remembers Gayfryd’s spending hours at his shop; when she was ready to purchase, says Hobbs, she would summon her husband to write a check. “They bought what nouveau riche would buy,” sniffs Hobbs, now the boyfriend and business partner of Laura Steinberg. “All that gilt furniture, which had been regilded. They only bought two or three really outstanding pieces.”

Not content with simply remaking the apartment, Gayfryd also put Saul on a strict exercise regimen. During their frequent excursions to Canyon Ranch, the couple was usually accompanied by two instructors; one hired to lead them on hikes, another to carry Saul’s backpack.

Attuned to the more austere social mores of the early nineties, the Steinbergs labored to shed their reputation as superficial socialites. Their dinner guests began to include not only top financiers and well-known Republicans but also writers like Allen Ginsberg, Jerzy Kosinski, and Carl Bernstein. When Norman Mailer suggested that the Steinbergs become involved in pen, the writers organization, they happily acceded. As long as Saul raised funds and wrote checks to the organization, no one seemed to mind their involvement.

But when Gayfryd was appointed president of Friends of pen, she provoked an uprising in New York’s literary circles. In the summer of 1990, Ken Auletta, a pen board member, complained to New York that the Steinbergs were “wealthy people gaining respectability on the backs of writers” and that Saul was a “sleazy character.” A flurry of apologies from people like Larry McMurtry and Frances FitzGerald ensued, but by September, Gayfryd had resigned.

The Steinbergs’ friends insist that the relentless press coverage of the couple’s social habits obscured the down-to-earth reality of their lives. Even on evenings when the Steinbergs had social obligations, Burden says, they would often sit down to family dinner at 6:30. Sometimes Saul, an American-history buff, would select a book for the family to read and discuss. Gayfryd even devised a game called “Reading for Cash” in which she paid her children a bonus for every book they finished themselves. Of Mice and Men garnered the young Steinbergs $20, Shogun earned them $30. “Saul did a very good job of raising his children,” says a close friend of Laura Steinberg. “He didn’t spoil them. They took the Jitney, not a limo, to the Hamptons.”

The pen debacle wasn’t the only setback for the Steinbergs. For Saul, the downfall of Michael Milken served as a clear warning. Following Milken’s confession to securities-law violations and the collapse of Drexel Burnham Lambert, the junk-bond market all but dried up. And so after years of controversy and high-stakes corporate gambles, Saul decided it was time for a break. “My motto for the nineties is that money is for lending, not spending!” he proclaimed at the start of the new decade. He would turn his attention to insurance.

In 1995, Steinberg set out on a dog-and-pony show to tout his new Reliance focus. At the time, Reliance stock was trading in the $5-to-$6 range. But just before the July 4 weekend, Steinberg suffered his stroke. While he recovered in New York Hospital, the family struggled to keep his condition a secret. Once out of the hospital, he continued working from home. “The food is good, the paintings are nice, and there’s lots of time to think about big issues,” he told the Wall Street Journal six months later.

While Saul remained officially in charge, it was Bobby who took over managing much of the company – despite what Wall Street observers describe as an intellectual and business-savvy disparity between them. “Bobby Steinberg was not in the same league as his brother,” says one insurance honcho.

Nevertheless, during the mid-nineties Reliance’s stock consistently drifted upward, until by March 1998 it was at an all-time high of close to $20. At the end of that year, the company reported net earnings of $326 million, $97 million more than the year before. “Wall Street was very skeptical,” recalls Brandywine portfolio manager Stephen Smith, “but two to three years into it, it really looked like they did an excellent job.” Says an insurance analyst: “Reliance was perceived to be in a recovery phase.”

Steinberg was recovering as well. With a combination of determination and the-best-that-money-could-buy medical care, his health and stamina slowly improved. Gayfryd “was amazing, totally amazing, a total saint,” exults Burden. “I’ve seen other women in this situation,” says their friend, Khalil Rizk, “and they become angry and critical. She just took it with such grace. She really brought him back.”

By the end of 1999, the perception that Reliance was on the upswing was shattered by a severe downturn in the insurance industry. For Reliance, the problem of downward pricing pressure was magnified by the company’s enormous annual interest expense of $62 million. Reliance’s disastrous involvement in Unicover, an insurance fronting company, ended up costing them $170 million more, before taxes. In November, Saul fired Bobby in an attempt to regain the confidence of the marketplace, replacing him with Robert Miller, a well-known turnaround specialist. The brothers have been estranged ever since.

Following Bobby’s ouster, Reliance installed new management and began shopping itself to investors. Why no deal was done then is the subject of much speculation in insurance circles. “Saul was looking for a ridiculous price, given the value of the franchise,” says an insurance executive. In February, Reliance sold its surety business – widely perceived to be its crown jewel – to Travelers Property Casualty for $580 million. Soon after, the company announced the results of its annus horribilis: a loss of $311 million.

“All of a sudden, you realize that the reason they grew the business so well was because they underpriced it,” explains portfolio manager Smith. “I looked at the financials and said, ‘Saul has built himself a business that doesn’t make any money.’ “

On April 14, Steinberg and several Reliance executives were ushered into a windowless conference room on the third floor of a Wall Street office building, headquarters of the New York State Insurance Department. Steinberg reported in person. Regulators were concerned about the company’s financial condition and wanted to protect policyholders. Steinberg confidently insisted that his new management was going to turn the company around, and said that he was also considering a sale. As for the regulators’ concern that Steinberg would reinstate Reliance’s dividends prematurely for his own benefit, Steinberg assured them it wouldn’t happen; he had no plan to restore the dividend until 2002.

The new team never had a chance to get the ailing company in order. By the last week of May, unable to refinance Reliance’s debt, Steinberg announced his intention to sell both his company and his belongings. On Wednesday the twenty-fourth, his art collection went on display at Richard Feigen’s new gallery on East 69th Street, where a few hundred people grazed on Terra Chips, gave the once-over to Saul’s paintings, and chatted about his personal life. Is he getting divorced? someone asked. Why is he selling?

The next day, at precisely 1 p.m., as 30 Sotheby’s workmen began disassembling the exhibition of Steinberg furniture to prepare for Friday’s sale, Gayfryd was just eleven blocks away, lunching with designer Arnold Scaasi at a back-corner table in Amaranth, as sure a sign as any that Reliance was not going under. Sources at Sotheby’s claim she was especially reluctant to sell her silver and porcelain. Perhaps in a burst of optimism, Gayfryd even withdrew one lot from the sale – lot 17, two Chelsea Strawberry Leaf sauceboats, circa 1755, estimated at $4,000 to $6,000.

At 7:40 on Friday morning, just two and a half hours before the start of the auction, the news of Reliance’s prospective sale ran across the tape. As 25 people quietly worked the phones, occasionally shouting numbers into the room, a fatigued yet hopeful mood prevailed, giving the auction a bit of the feel of a TV telethon. Just after a George II black-japanned tilt-tripod table that had once been “The Property of a Lady” sold for $16,000, the auctioneer had an announcement to make. “New York State law does not permit the sale of bedding,” he awkwardly read from his notes, and so lot 253, a George III bedstead, sold for $42,500, not including mattress. In an hour, it was all over.

In the aftermath of the sale, the Steinbergs went to Quogue for a quiet Memorial Day weekend with five of their children. Saul took a long walk on Dune Road with his family and talked about the strange path his life had taken. “I think they felt their father could use some love and support,” says a source close to Steinberg.

Saul and Gayfryd will spend the summer on Long Island, “pooping out,” as an art dealer close to them puts it, or in New York, where they are looking for a townhouse in which to live with their daughter, their maid, and their remaining objects. “Gayfryd – she loves a project,” enthuses a close friend. “She can create a wonderful environment out of nothing.”

The Fall of the House of Steinberg