Act I: Michael Price and the New Breed of Money Managers
NARRATOR: IN AMERICA TODAY, IT’S OUT WITH
GARY RANDHAHN: You know, I felt I had something to offer society
NARRATOR: …AND IN WITH THE NEW.
AL DUNLAP: I’ve done nine major restructurings, and I can tell you categorically this was the worst.
NARRATOR: WALL STREET VALUES REIGN SUPREME.
DENNIS SLOTHOWER: We are only loyal to our money.
NARRATOR: THE POWERFUL REAP THE REWARDS.
MICHAEL PRICE: That’s another six
hundred million. So we made a billion dollars on Sunbeam with no risk.
NARRATOR: THE MIDDLE CLASS FEELS THE SQUEEZE.
DIANE FRITTS: You’re
hired as a temp. When they’re through with you, they let you go.
JOHN MITCHELL: You know, why is it so hard to have just have a stable job?
NARRATOR: WE HAVE A CHOICE:
WINNER TAKE ALL…
AL DUNLAP: I’m a great believer in in predators.
NARRATOR: …OR SHARE THE GAINS.
RICHARD ANDERSON: I don’t see it as as surrendering power. I see it as creating power.
FOR SIX YEARS NOW, AMERICA’S BEEN RIDING THE TURBULENT
TIDE OF ECONOMIC CHANGE AND ENJOYING STEADY GROWTH, MORE JOBS, COLOSSAL PROFITS AND A RECORD-SHATTERING BULL MARKET ON WALL STREET.
HELLO, I’M HEDRICK SMITH.
THE SAME ECONOMIC EARTHQUAKE THAT HAS GENERATED ENORMOUS
NEW WEALTH FOR THE ALREADY AFFLUENT HAS DEEPENED THE ECONOMIC FAULT LINE DIVIDING AMERICAN SOCIETY AND LEFT MILLIONS OF MIDDLE CLASS AMERICANS STRUGGLING TO SURVIVE WITH LOWER PAY, UNCERTAIN JOBS, TEMP WORK AND THE
COMPETING DEMANDS OF FAMILY AND TWO CAREERS. IN THE ’90S, WE’VE LARGELY COME TO ACCEPT THE WINNER-TAKE-ALL ECONOMY AS THE INEVITABLE CONSEQUENCE OF BOTTOM-LINE COMPETITIVENESS.
BUT WE HAVE A CHOICE. SOME HIGHLY
COMPETITIVE COMPANIES, COMMUNITIES AND COUNTRIES HAVE COMMITTED THEMSELVES TO SHARING THE GAINS MORE WIDELY. THEY’VE FOUND THAT, THROUGH PARTNERSHIPS, THEY CAN CUSHION THE SHOCKS OF THE NEW ECONOMY AND CREATE EQUITY AND
GREATER JOB SECURITY PARTNERSHIPS THAT SAVE COMPANIES ON THE BRINK OF BANKRUPTCY, PLANTS ON THE VERGE OF SHUT-DOWN, KEEP GOOD JOBS IN AMERICAN COMMUNITIES, PROVIDE YOUNG PEOPLE AND DISPLACED WORKERS WITH THE
SKILLS THEY NEED TO COMPETE.
IN THIS SERIES, WE’LL EXPLORE THE ALTERNATIVES. WE BEGIN RIGHT HERE INSIDE WALL STREET.
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MICHAEL PRICE/CHASE MANHATTAN SEGMENT
NARRATOR: AUGUST TWENTY-EIGHTH, 1995 IN A YEAR OF RECORD BANK MERGERS, CHASE MANHATTAN BANK CEO THOMAS LABRECQUE AND
CHEMICAL BANK CEO WALTER SHIPLEY SIGN OFF ON THE GRANDDADDY OF THEM ALL.
WHILE THEY CELEBRATE, THE MAN MANY CREDIT FOR FORCING THESE TWO FINANCIAL GOLIATHS TO THE TABLE IS NOT EVEN IN THE PICTURE. THE HIDDEN HAND…IS
THIS MAN: MUTUAL FUND MANAGER MICHAEL PRICE.
ONCE UPON A TIME, NOT TOO LONG AGO, MICHAEL PRICE AND OTHER MONEY MANAGERS WERE RELEGATED TO THE SIDELINES… SPECULATORS WHOSE ONLY OPTION WAS TO DO WHAT THEY CALL THE WALL
STREET WALK: WALK AWAY FROM A FAILING INVESTMENT. NOT ANYMORE TODAY MICHAEL PRICE AND HIS FELLOW MONEY MANAGERS ARE ARMED WITH RECORD SUMS OF INVESTMENT CAPITAL. ALL THIS MONEY AND GREATER AGGRESSIVENESS HAVE MADE
THEM THE NEW POWER BROKERS IN CORPORATE AMERICA.
PRICE: We’re the players on the field. I’m not a spectator. I’m not a journalist. I’m a guy butting heads, and that’s what I
NARRATOR: MONEY MANAGERS AND PRICE FOREMOST AMONG THEM HAVE EMERGED IN THE ’90S AS THE TERRORS OF CORPORATE BOARDROOMS.
PRICE: We feel as if we own these companies. I know I do. When you’re an owner, you really feel that the board and the management reports to you. And they should report good things. And if they don’t, they should have
good reasons for their failures. And, if they don’t, then something needs to change.
NARRATOR: PRICE’S FUNDS, LIKE THE REST OF THE MUTUAL FUND INDUSTRY, HAVE BEEN SKYROCKETING.
TODAY HE CONTROLS OVER TWENTY-FIVE BILLION DOLLARS.
HIS STRATEGY? USE HIS INVESTORS MONEY TO BUY A HUGE STAKE IN AN UNDERPERFORMING COMPANY…
PRICE: What are the revenues in ’97 like?
MAN AT HOUGHTON MIFFLIN: The revenue in ’97 would be approximately a hundred…
NARRATOR: …AND PUSH
MANAGEMENT TO STEP UP PERFORMANCE IN A HURRY.
MAN: If they have growth over the third quarter dollars…
PRICE: It’s not gonna happen…
MAN: …up to thirty-nine
PRICE: It’s not gonna happen, not gonna happen
NARRATOR: HIS GOAL? MAKE THE STOCK PRICE SOAR.
AS THE DRIVING FORCE IN A FAST-TRACK, PRESSURE-PACKED COMPETITION, WALL STREET
MONEY MANAGERS LIKE MICHAEL PRICE ARE OUT FOR EVERY LAST DROP OF INVESTMENT GAIN.
SLOAN: Well, Wall Street loves anything that gets a stock price up. So, if firing people gets a
stock price up, it’s good. Hiring people gets the stock price up, that’s good. They don’t care.
PRICE: And that $200 million can go to $2 billion.
NARRATOR: MONEY MANAGERS ARE
MAKING A KILLING.
TAUB: Wall Street guys, on a consistent basis, make much more money than the people in corporate America.
You want me to give you a list of the prices?
5-0 for big cash.
SLOTHOWER:…we are only loyal to our money.
50 million to go.
…could definitely pay you 58.
PRICE: We feel a sense of urgency.
NARRATOR: IN THE
WALL STREET PRESSURE COOKER, THE TIME IS NOW.
We’ve got a hundred million Raytheon.
How about 800 and 4 million?
SLOAN:…they think ‘what have you done for me
lately? Have I made money in the last 12 seconds?’
22-3 in ’94.
I’d like to try 73…
LONGMAN: Sometimes the market is like running with the bulls in Pamplona. That means you you just get in there
for a minute, and then you get out of the way fast…
LONGMAN: …before you get gored.
Does that say at all…
NARRATOR: CEOS ARE UNDER THE GUN.
LABRECQUE: The need to perform in the near term is high
SMITH: And don’t you feel the heat?
LABRECQUE: Sure, sure I feel the heat.
I can tell you right now he’ll probably go…
OK, I’ll call right now.
PRICE: The only thing I care about is my shareholders doing well.
NARRATOR: TO DELIVER FOR STOCKOWNERS.
And I could do any of the states, any of the states…
USEEM: …and if you don’t deliver,
…anything he wants.
USEEM: … you may find yourself on the street.
Have you talked to him yet about anything…
NARRATOR: THE REST OF US? WE’RE PAYING FOR THE PARTY.
ROACH: Shareholders get rewarded beyond their wildest dreams, but there’s a cost through stagnant wages, through downsizing and layoffs, through widening inequalities. Capital wins but at a cost.
NARRATOR: STEPHEN ROACH IS THE CHIEF ECONOMIST FOR THE MORGAN STANLEY INVESTMENT BANK.
ROACH: If I were to describe the new rules of the ’90s,
it would really probably start and finish with the uh the power of the financial markets…. to really control the destiny, the strategy
of of the corporation. Shareholders win in that environment.
NARRATOR: BUSINESS PROFESSOR MICHAEL USEEM CALLS THIS NEW WORLD INVESTOR CAPITALISM.
USEEM: If you go back and think about what’s happened at IBM the chief executive forced out by angry investors just like Michael Price, chief executive at General Motors forced out by angry investors,
chief executive at American Express forced out by angry investors there’s a message out there that uh “The king is dead or will die.” You will not survive if you do not produce what the money managers
think you ought to produce.
NARRATOR: AND IN 1995, CHASE BANK WAS NOT PRODUCING FAST ENOUGH FOR MONEY MANAGERS. MICHAEL PRICE WAS THE ONE DEMANDING CHANGE. HIS BRAVADO SHOCKED
EVEN THE BOLDEST DISCIPLES OF INVESTOR ACTIVISM.
MINOW: Chase was uh one of the last best bastions of WASP-dom. It was like something out of a John Updike novel. It
takes quite a mighty opponent to make Michael Price look like David in a ‘DavidandGoliath’ situation, but somehow the chase managed. And uh yeah, he did catch the imagination, I think, of the financial world.
MINOW: Very gutsy.
SMITH: And so we’re talking David versus Goliath. And yet
who wins? David.
GAREA: Well, he won the last time, too.
NARRATOR: PRICE’S CHALLENGE TO CHASE WAS A CLASSIC CONFLICT OF THE NEW ECONOMY
…A CLASH OF CORPORATE STRATEGIES, A CLASH OF PERSONALITIES AND CULTURES: THE BRASH UPSTART VERSUS THE BLUE-BLOOD BUSINESS ESTABLISHMENT.
PRICE AND HIS TOP BANK ANALYST, RAY GAREA, WERE IMPATIENT. THEY SAW CHASE AS TOO TRADITIONAL, TOO SLOW.
GAREA: You know, it was kind of like still David Rockefeller’s
bank except that, you know, that was, you know, twenty-five years ago. And the world’s changed, but they’re still running it that way.
DAVID ROCKEFELLER: I’m not against improving efficiency, earnings and stock price.
That’s that’s absolutely essential in our system. All I’m saying is that it isn’t everything, and it isn’t the short run only. It’s more important is the long run.
NARRATOR: CHASE CEO TOM LABRECQUE, A THIRTY-THREE-YEAR VETERAN OF THE BANK, WAS A MAN RAISED ON ROCKEFELLER VALUES.
LABRECQUE: What I say is shareholder value is critical
to me, but I also say I can’t get it without the right customers and really high-quality employees. And I can’t have high quality employees if I don’t do well by them.
FOCUSING ON THE LONG TERM, NURTURING EMPLOYEES THESE DID NOT FIT MICHAEL PRICE’S TIMETABLE.
PRICE: And we wanted them to unlock those values. Not just run the bank better,
but give us some of the value that they created.
SMITH: ...isn’t there a clash of cultures between an activist investor like Michael Price and a corporate leader like yourself at
LABRECQUE: The there’s the answer is probably yes. You got in in in one sense yes, and another sense our job is to deal with all of those
NARRATOR: THE OLD CHASE EARNED A LEGENDARY REPUTATION FOR LOYALTY TO ITS STAFF.
SMITH: And people called it Mother Chase. Why did people call it Mother Chase?
LABRECQUE: I think they feel that the institution really cared about its people.
NARRATOR: IT EVEN SURVIVED THE GREAT DEPRESSION WITHOUT LAYING
OFF A SINGLE EMPLOYEE.
SMITH: How did they do it?
LABRECQUE: They went through a period where the returns were a lot less. um there was much less pressure for
returns. I think uh the truth here is is that we took care of the people. But it’s different it was different then.
NARRATOR: LABRECQUE’S OPPONENT HAD
MORE HUMBLE ROOTS. MICHAEL PRICE CAUGHT THE FIRE FOR INVESTING IN PUBLIC HIGH SCHOOL, WHEN HE BOUGHT AND SOLD HIS FIRST STOCK. HE WAS NO IVY LEAGUER.
PRICE: You’re looking at a C
student who enjoys what he does.
NARRATOR: HE GOT THE BRASH HUNGER TO WIN BANGING HEADS IN HIGH SCHOOL FOOTBALL.
PRICE: Certain people
have fire in their belly, and others don’t, and I think that that’s it’s the desire to win, things you get from places like high school football, not from Harvard Business School, that make you a success.
NARRATOR: AND THE NEW YORK GARMENT DISTRICT TAUGHT THE YOUNG MICHAEL PRICE HOW TO BE STREET TOUGH.
PRICE: I used to have to go negotiate with
dress manufacturers. And that’s where you learn some negotiating stuff. So you know, I mean, it’s you can’t just trade stocks.
SMITH: What did you learn? What what did you learn?
PRICE: You learn how to get down and dirty in negotiations and go for the jugular.
SMITH: Was it hardnosed? Was it pragmatic?
PRICE: Yeah, yeah. That’s what those are. But it comes from within, you know. It’s not just making scholarly points. It’s
more a street version of that, you know?
NARRATOR: PRICE’S WALL STREET STRATEGY FOR CHASE WAS SELL OFF CHUNKS OF THE BANK SO INVESTORS CAN CASH IN RIGHT AWAY. HIS ARSENAL? CHASE
STOCKS, LOTS OF IT. IN EARLY 1995, PRICE BOUGHT THREE AND A HALF MILLION SHARES.
MINOW: He bought the stock and said, “This is an undervalued stock, and I’m going to kick it up.”
NARRATOR: BUT WHEN PRICE SPELLED OUT HIS STRATEGY TO LABRECQUE, LABRECQUE REBUFFED HIM.
PRICE: Managements like to control their
own destiny. They don’t want other people to influence how they live their day...
LABRECQUE: Michael’s plan was to break the company up. Our plan was a global financial services company.
PRICE: He said that he likes
his game plan. He wants to be a global player.
GAREA: He said actually, what he said was, “We agree with you that the values are there. We think we have two years to convince the market that we are the right
stewards for these assets.”
PRICE: I think the sense of urgency was lacking. When he said two years, we said right away, “Why not today?”
NARRATOR: RATHER THAN WALK AWAY, PRICE
CHOSE TO STAND AND FIGHT.
SMITH: And so what did you do?
PRICE: We bought more stock.
NARRATOR: …SO MUCH STOCK THAT WITHIN WEEKS PRICE
HAD BECOME THE BANK’S LARGEST SHAREHOLDER WITH OVER SIX PERCENT OF ALL CHASE SHARES.
THE SECURITIES AND EXCHANGE COMMISSION HAS A REQUIREMENT THAT ANY SHAREHOLDER AMASSING MORE THAN FIVE PERCENT OF A
COMPANY’S STOCK REVEAL HIS HOLDING IN WHAT IS CALLED A SCHEDULE 13D. MICHAEL PRICE USED HIS 13D TO ISSUE A PUBLIC ULTIMATUM TO CHASE BANK: BOOST YOUR STOCK OR ELSE.
SMITH: What happens at a moment like that, I mean,
to to Wall Street? What’s the reaction?
MINOW: uh 20,000 eyebrows go shooting up. Everybody gets very interested, very excited and very high on the stock.
USEEM: When he speaks, Tom Labrecque of Chase knew it wasn’t just Michael Price. It was Michael Price articulating the concerns of probably several hundred other big stockholders.
SMITH: … you don’t feel the pressure when you file a 13-D?
SCHACHT: Of course you do.
NARRATOR: INSIDE THE CHASE BOARD, LONG-TIME BOARD
MEMBER HENRY SCHACHT EXPERIENCED PRICE’S ASSAULT ALONG WITH TOM LABRECQUE.
SCHACHT: “Tom, break up the Chase, or I am going to get somebody who will.” Answer: “Michael, if you’ve
got enough votes in this system, you’re come run the place.”
SMITH: He also felt some heat.
SCHACHT: Absolutely, of course you do.
You’d be pretty insensitive not to.
NARRATOR: AND THE BATTLE WAS ON.
PRICE: So we wanted to go and hire our own counsel who specializes
in banks. And we called the top three or four in the country, who specialize in bank mergers. Chase had retained all of them.
NARRATOR: FIRST, PRICE, AND THEN LABRECQUE, ALWAYS A
STEP BEHIND, SOUGHT THE BACKING OF CHASE’S LARGEST STOCKHOLDERS.
PRICE: He got the sense that the top ten holders were kind of leaning our way.
UNDER PRESSURE, LABRECQUE HIRED A CONSULTING FIRM TO DOWNSIZE THE BANK, A BITTER PILL FOR THE OLD CHASE.
PRICE: They brought in after we showed up why not two
years before? a firm that specialized in um what do they call it? cost cuts at banks. Where were they before we showed up?
SMITH: Where were they?
PRICE: Where were they?
NARRATOR: BUT THE GESTURE FAILED TO APPEASE PRICE.
LABRECQUE HAD ANOTHER PROBLEM: HIS RIVALS WERE MERGING ALL AROUND
HIM. TO REMAIN COMPETITIVE, LABRECQUE BELIEVED CHASE NEEDED A PARTNER.
LABRECQUE: …what am I gonna do if Chemical and B of A…
SMITH: Bank of America…
LABRECQUE: …merge? And I was still sitting here with a plan that says Chemical is where we ought to go? That was equally a pressure for the time. That
takes away nothing from Michael. Michael is a smart guy, and he’s a terrific analyst, and he’s a terrific investor.
SMITH: And he’s got about a billion dollars worth of your
NARRATOR: FACING INDUSTRY CONSOLIDATION ON ONE FLANK AND THE BULLDOG PRICE ON THE OTHER, LABRECQUE APPROACHED CHEMICAL BANK.
LABRECQUE: The first time we saw each other
was July Twelfth, on this issue.
SMITH: And then things moved very rapidly? What happened?
LABRECQUE: August Twenty-Eighth, we announced
PRICE: The time was right.
SMITH: It needed a match.
PRICE: It needed a little ignition.
LABRECQUE: …your shareholders do
accelerate the tempo. I would argue, in the specific case you’re talking about, the tempo was accelerated from shareholders, not just Michael, but Michael.
PRICE: Sometimes in Wall Street, the impossible things happen.
NARRATOR: THE IMPOSSIBLE YIELDED WINDFALL GAINS FOR CHASE’S STOCKHOLDERS. PRICE SAW HIS FUNDS’ THREE-HUNDRED- EIGHTY-FIVE-MILLION-DOLLAR INVESTMENT IN CHASE TAKE OFF TO WELL
OVER A BILLION DOLLARS.
TOM LABRECQUE, WHO TOOK PRIDE IN CREATING AMERICA’S LARGEST BANK, PROFITED PERSONALLY. HIS SEVEN HUNDRED EIGHTY-FIVE THOUSAND SHARES OF CHASE STOCK HAVE TRIPLED TO NEARLY ONE HUNDRED MILLION
ROACH: The 1990s is is the ultimate triumph of shareholders around the world. But there’s no free lunch. The worker is pretty much a pawn in the process, lacking
in job security, lacking in uh long-term commitment and loyalty uh to the company that he or she once uh thought was a lasting uh ingredient of the social contract. That’s
pretty much out the window.
NARRATOR: TRUE ENOUGH, THE CHASE-CHEMICAL MERGER, SO GOOD TO STOCKOWNERS, MEANT DEEP PAIN FOR MANY EMPLOYEES. THE CHASE, WITH NOT A SINGLE LAYOFF
DURING THE GREAT DEPRESSION, DECIDED NOW, IN BOOM TIMES, TO CUT TWELVE THOUSAND POSITIONS.
LABRECQUE: These were made up for senior officers and were actually placed on
their you know, on the front of their desk. um that’s just an old piece of um nameplate that came from the old Chase.
NARRATOR: LIKE LABRECQUE, BANK
VICE PRESIDENT RUBY SCHNITTMAN WAS REWARDED BY THE OLD CHASE WITH A SILVER NAMEPLATE. THE NEW CHASE GAVE SCHNITTMAN A PINK SLIP.
SCHNITTMAN: This is what you got when you became
an officer, a nameplate, which I threw in the garbage when I was leaving, but somebody took it out, and they said, “You have to take it home with you.”
SMITH: Why’d you throw it in the garbage?
SCHNITTMAN: Because what did I need it for?
SMITH: You could’ve just left it on the, I
mean you threw it in the garbage because...
SCHNITTMAN: Well, yes, I threw it in the garbage because that’s what it meant to me. It didn’t mean anything anymore.
NARRATOR: DURING 30 YEARS AT CHASE, SCHNITTMAN WORKED ON THE FOREIGN EXCHANGE DESK ALONG WITH MATT LIFSON.
LIFSON: She was the rock. She was the foundation that the
desk was built on. It was the most successful trading desk of its kind at the time, and uh she had a lot to do with the success.
SMITH: How can they let the rock go?
LIFSON: Well the merger is the whole thing
SCHNITTMAN: I got called into the office. And I wasn’t the only one it was 14 other people. It wasn’t cause I did anything
wrong. I don’t remember too well because, you know, I was, like, running out of there. I was embarrassed. When I opened the door to leave, I got a standing ovation from the people that were still left that I worked
with. It was really nice.
NARRATOR: AS MERGERS SWEPT THE BANK INDUSTRY IN ’95 AND ’96, TENS OF THOUSANDS OF EMPLOYEES WERE FIRED. THE MARKET ROARED ITS APPROVAL. BANK STOCKS
JUMPED 50 PERCENT.
CHASE FIRED MATT LIFSON TOO.
LIFSON: Go downstairs anyplace in New York City. There was a Chemical Branch on one corner and a Chase branch on another corner.
Well, when they merged, you didn’t need the two branches on the corner. So yeah, we’re sitting here talking about us, but there was a lot of jobs that were lost because of an inter-city merger.
NARRATOR: LIFSON EVENTUALLY FOUND ANOTHER BANKING JOB.
BUT RUBY REMAINS WITHOUT WORK. SHE CONTINUES TO JOB HUNT AND NETWORK, SEEING OLD CHASE FRIENDS, THE FAMILY SHE NEVER HAD.
SMITH: Did you ever get married?
SCHNITTMAN: No, I was married to Chase. And I got divorced. (laughs) It was really felt like that.
SMITH: What do you say to somebody like Ruby Schnittman, who is somebody we ran into at Chase, who loved the company, thought it was her family, and she’s out now?
PRICE: Yeah, but what happened to her stock options?
SMITH: I don’t know how many she had.
PRICE: And, if she was good at what she does,
I’m sure she can get a job at another bank.
NARRATOR: RUBY HAD TOO FEW STOCK OPTIONS TO BREAK HER FALL.
SCHNITTMAN: This wasn’t enough to
be a cushion. It was just a few shares.
SMITH: You’d rather have your job than the stock.
SCHNITTMAN: Well, in this case, definitely,
because there was only a few shares.
NARRATOR: RUBY SCHNITTMAN’S STORY TELLS WHY SO MANY AMERICANS FEEL JOB ANXIETY IN BOOM TIMES.
AS CORPORATIONS STRIP DOWN TO BOOST STOCK,
EMPLOYEES PAY THE PRICE. ACCORDING TO CENSUS AND LABOR DEPARTMENT DATA, EIGHT OUT OF TEN AMERICANS HAVE SEEN THEIR PAY SHRINK IN THE GO-GO ’90S.
SCHACHT: This is gonna blow up in
our faces, and those of us who are benefiting are certainly enjoying it for the time being, but there is no way a society can have this much of its accumulated wealth distributed to these few people.
SMITH: What do you say to the people who are who are saying repeatedly now, the wages, the salaries, the returns in America are getting more and more unequal and it’s getting more and more dangerous.
The CEOs and the people at the top...
PRICE: You mean, the rich-get-richer kind of thing?
SMITH: Well, the rich get richer, and not only
the people at the bottom, but the people in the middle are staying right...
PRICE: I think everybody’s getting lifted ...
ROACH: I am hard-pressed to believe that this is a
period uh when we’ve got a rising tide that has lifted all boats. There are millions of workers who have never seen the harbor let alone even know what a boat looks like.
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