Building A Global Financial Empire – Daniel Gross

Building A Global Financial Empire – Daniel Gross

Building A Global Financial Empire – Daniel Gross

Real Talk: The Charles Mizrahi Show podcast

Building A Global Financial Empire – Daniel Gross

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Who was Edmond J. Safra? Some know him as “the greatest banker of his generation.” He founded four massive financial institutions on three continents.

That’s why financial journalist and historian Daniel Gross set out to uncover the history behind this 15-year-old prodigy that built an empire based on these timeless principles: a banker must protect his depositors and avoid excessive leverage and risk.

Safra posted remarkable returns in an age of busts and bailouts while rarely suffering a credit loss.

This banker’s journey offers enduring lessons for those seeking to make their way in the twenty-first century. He inspired generations to make the world a better place.

Topics Discussed:

  • An Introduction to Daniel Gross (00:00:00)
  • Warren Buffett-level returns (00:10:20)
  • How to succeed in a world of crowded trades (00:24:25)
  • Banking in a time of no deposit insurance or bailouts (00:21:19)
  • How the $10 billion deal at HBSC was done and protected the people (34:56)
  • It’s business AND it’s personal (00:42:22)

Guest Bio:

Daniel Gross is one of the most widely-read writers on finance, economics, and business history. Over the past three decades, he has reported from more than thirty countries, covering everything from the dotcom boom to the global financial crisis and the Great Recession of 2008–2009.

Gross worked as a reporter at The New Republic and Bloomberg News, wrote the “Economic View” column in The New York Times, and served as Slate’s “Moneybox” columnist. At Newsweek, where he was a columnist and correspondent, he authored seven cover stories. He is a bestselling author of eight books, including Forbes Greatest Business Stories of All Time; Generations of Corning; Dumb Money: How America’s Greatest Financial Minds Bankrupted the Nation; and Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy.

Gross was educated at Cornell University and holds an M.A. in American history from Harvard University. His great-grandparents immigrated to the United States from Aleppo and Damascus.

Resources Mentioned:

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Read Transcript

Charles Mizrahi: Dan, thanks so much for being on the show. I greatly appreciate it.

Dan Gross: It’s my great pleasure to be here.

Charles Mizrahi: The name of the book is: A Bankers Journey: How Edmond J. Safra Built a Global Financial Empire. Now, most people have no idea who Edmond J. Safra is. What bank he built. How he really used old-world tradition, knowledge, experience and created a behemoth. He was considered at one time to be the greatest banker of his generation. So, let’s take a step back. How’d you get involved in this? And doing a biography on a man that was extremely secretive in building a humongous bank.

Dan Gross: You know, by training and profession. I’m a financial journalist. I’ve written about global finance for 30 years and am a historian. I’ve written several books on business history. I got a call about five or six years ago, and the colleague said, “do you know who Edmond Safra is?” And I said, “well, of course I do.” I covered finance. And also on my mother’s side, my family are Jews from Syria, which is where he traces his origins to. And they said, “the foundation which he left behind when he died in 1999 has a huge trove of documents — his personal archive, his family archive, his corporate archive and transcripts of hundreds of interviews that had been done in the years after his death with people who knew him from his childhood in Beirut to his career in Brazil, in New York, Switzerland.” So, they had this vast pool of resources, and asked if I would be interested in seeing if I could make something of that. If I was able to put together a coherent story that would describe not only his business career, but his personal journey, of his family and his community. So, in some ways, I was set up a little by my origins and also by my professional career to do precisely this.

Charles Mizrahi: Okay. So, Safra started several banks. Trade Development Bank was one of them, but the one most people would know was Republic National Bank. That wash was eventually sold to HSBC in 1999 for $10 billion, which Safra owned close to 30%. So, he built a banking empire, but kept very, very secretive. And even though it was a public company, he was very, very discreet. I remember this clearly back in the late seventies and early eighties, it was the bank where you get a television. You bring in deposits or someone introduced you. My grandfather used to go around opening accounts and we had tons of TVs and microwaves and blenders. I remember you’d go to the national bank, open up a CD or some type of money market or what have you, and get a blender. So, let’s go back for a second. Let’s go back to the origins of who this guy was, what made him tick, and more importantly, what he did in terms of his background, in terms of his tradition, in terms of banking in the old country. And how we took that to the modern era and created a global behemoth in the face of all new change and still survived.

Dan Gross: So I think what’s remarkable about him and why we talk about this baker’s journey is that he was an heir. This was a multi-generational family bank like the Rothschilds of the Middle East. So, in Aleppo in the 19th century, there were the Safra brothers. They had sent one to Istanbul, one to Cairo, one to Beirut. So, he was born into this world in 1932. He was a prodigy. His father, at the age of ten, 11, 12, was saying, Edmond is going to be the one to carry this forward. He was a remarkable entrepreneur. So, he wasn’t just content to kind of manage the little bank that his father had in Beirut. He went to Milan at the age of 15 to start trading and find a beachhead for his family because Beirut was no longer so hospitable. He went to Brazil. He moved the entire family there in 1952 and formed a financial company. He was unable to form a bank because he wasn’t a citizen. He started Trade Development Bank in Switzerland in 1959 and then Republic as a startup in 1964 with $10 million in startup money. And as you said, it sold in 1999 — 35 years later — for $10 billion. So, he had this combination of someone who was born to be a banker in an almost aristocratic way, but who also was an immensely creative and entrepreneurial person who sought out growth and building new institutions all over the place. And even the week of his death, he was building yet another financial institution. So, this was who he was. He was not simply someone who was content to kind of inherit what he had or steward what he had. He saw these immense opportunities in this opening world of finance in the second half of the 20th century and really staked his claim there.

Charles Mizrahi: So why is his life a life that a biography should be written about and not only bankers, but businesspeople could learn from?

Dan Gross: I think it’s like several books in one, to a degree. This is a story about the globalization of finance and the second half of the 20th century, because he was a person who had these immense networks. You talked about Republic Bank. This is a bank for kind of middle-class consumers in New York. And his innovation was, you know, at the time, you couldn’t compete by offering a higher interest rate and you couldn’t give somebody a big premium to open an account. But, Charles, I could give you your brother unlimited incentives if he brought you in to open an account. And that’s what the TVs were. The TV at the time cost 400 bucks. And he was taking these deposits and he was finding places to put them overseas where they could get a much higher interest rate because he had this network where he would place a loan with the Central Bank of Venezuela or the Philippines, South Africa, euro dollars. This is something that typical U.S. banks weren’t doing. He had a remarkable global perspective.

Charles Mizrahi: Let’s take a step back for a second. For most people who don’t know this, the way banks make money is they take in cheap deposits. Right. They take in money. People deposit their money with a bank. They pay a low interest rate, and the bank takes that money and does what with it?

Dan Gross: Well, in our world, it makes mortgages. It lends money to credit cards. Right. You think about consumer finance in the U.S., auto loans, all those sorts of things, which, of course, are decided by like an algorithm or a formula or a credit score or even, you know, everybody is just bombarded with offers of credit in the safest world. Again, he came from Beirut. His father had been a banker in Aleppo and Beirut in the 1920s, 1930s. You didn’t lend to strangers. You lent to people you know. And paying it back was a matter of honor and your family’s name. And he viewed that. But he was always perplexed that American banks would lend money to strangers or have 1-800 call for a loan. That was not how he viewed banking. He knew that he was responsible for the deposits of the people who entrusted their money to him. In many instances, these were people who were having to flee. They were having to flee persecution and start a new life somewhere. Didn’t matter to them. I mean, maybe it mattered to them. They got some return. But what’s most important for them to know was that their money would be there. And he felt personally responsible for every single one of his depositors. So, he was very careful about lending money out.

Charles Mizrahi: The way banks make money is they take — and in this case we’ll talk about software with his innovation — money at a very low rate for it. They lend out at a very high rate or take risks with it at a very high rate. And this spread the difference between what they pay out and what they get minus any losses that they have. Because not everyone’s going to pay back. What the bank makes is between that. Say they pay you out 2% in a CD, they make 10% net by lending out for, I don’t know, a building. They make 8% less expenses. Is that more or less, right?

Dan Gross: That’s right.

Charles Mizrahi: Okay.

Dan Gross Well, his view was: I’ll give you 2% on your deposits. But instead of seeking to make 8% or 9%, he would take 5% or 6% alone that the World Bank would guarantee, or the Export-Import Bank would guarantee. And then he wouldn’t have to worry about credit losses or account for them. He took it personally. Like if one of his executives made a loan that lost money — could be to GM, it could be to some other company — he would have sort of yelled at them as if they had committed a grave sin. In the banking industry, it’s accepted that you will have a certain amount of loss. And over the years, he had a very low level of leverage, which means he wasn’t borrowing a lot of money for the bank itself, and he had very low credit losses. That was what he prided himself on. Over the long term, that can get you a lot more profits than having booms and busts than a year where you have to write off hundreds of millions of dollars in bad loans.

Charles Mizrahi: Or so he built up in a very, very conservative basis. A tremendous amount of deposits from all his network of contacts throughout the world who trusted him and knew they weren’t investing in a bank. They were investing behind Edmond J. Safra and that he would make good on that money and not risk it in silly ways that banks have found ways to lose money, as we saw in ’08-’09 during the financial crisis, and instead would make a smaller percentage without swinging for the fences, but a steady one. And this, by the way, I think you wrote in the book, when the Republic went public as a stock to when they were sold, I think it was a 25% annualized return?

Dan Gross: That’s right. And also, on his bank that he ran from 1959 that he sold, it went public in 1972, First Swiss Bank, he sold in ’82, again, 25% annualized return. He formed another bank in 1988, sold it in 1998, 25% return. He didn’t invest his own money in the stock market. He didn’t like to invest in companies that other people control. But these are like Warren Buffett level types of returns if you just put your equity with him and went along for the ride. In addition, his company provided banking services that are really necessary for the global economy. But a lot of banks weren’t interested in it, like trade, finance, factoring. He had a large business in moving physical banknotes around the world, which in the seventies, you know, you had to do because, you know, a tourist goes to Brazil, spends money, the money’s got to come back very low margin business. But if you don’t lose the cash, you can’t lose on it. And this is you know; his grandparents were moving gold from Aleppo to Kuwait in the 19th century. Moving banknotes around the world was the same type of business. Again, JPMorgan Chase, they weren’t interested in that. Citigroup wasn’t interested in that. He was. And it worked out really well.

Charles Mizrahi: Right. So, these were areas of the marketplace that really big banks weren’t interested in going after. But what I find so amazing is the way you really connect the dots is this all stems from his background of his family in Aleppo, Syria, in Beirut, Lebanon, where a handshake was a handshake. It was a deal. And the most important thing a banker could do is protect the deposits of the client, of the customer, and not take risks with that money. As a steward of capital. And what would you show throughout the book and throughout Safra’s life was that he started banks from zero — from literally what seems like a telephone and his contact list and banks just came. They just flourished around them because he had amazing amounts of deposits come into him at a very low cost very simply because of his name.

Dan Gross: Yeah. And why should someone read this today? Well, you know, it’s like a fascinating story. We live in a world where every company, you know, they’re hiring consultants to say, what is our mission? What is our purpose? All this ESG stuff, millennials, they only want to go to work for a place that has a purpose that they understand. He never talked about, like, what is our corporate purpose? He just lived it, and he knew what it was because this is who he was as a person, as a Safra, as a banker. And that purpose, as you said, was protect depositors, be a steward of capital, provide the financing that is needed. And he saw this connection between having you’re not just your deposits protected, but your livelihood, your personal safety, your ability to practice your religion. That was a matter of dignity for him. It wasn’t just a matter of dollars and cents. It was a matter of dignity. If you were leaving somewhere, if you had a place where you could be safe physically, where you could be safe spiritually, and where you can have access to your assets. That was his sort of personal mission in life because of the experience of his community, of people from Lebanon and the Jewish community in Lebanon, in Syria, which he was a part. Their experience in the ’40s, ’50s, ’60s, ’70s was one of displacement. They were leaving. They were looking to go to Europe, to anywhere that would take them. And a big part of the book talks not just about his banking activities, but about how he personally financed the construction of community centers, of synagogues, where people would flee from Beirut, and he would give them a job. His math teacher from grade school. Guy was not a banker, he showed up in Buenos Aires, he had a job. People fleeing wound up in New York. He would find a place for people. And he managed to do this while still having really profitable companies.

Charles Mizrahi: Yeah, it wasn’t charity in the sense of he was getting people to work and doing amazing things. But I find so fascinating is that throughout his life, even at the age of 15 years old, he donated money to a school or for refrigeration or something to that effect. Whether it was giving charity was never something that was just a line item. It became a part of his life where the money he made was to be given away in order to make lives better everywhere.

Dan Gross: That’s right. It was connected to his business success. He had a sense that he had been born, you know, in a certain place at a certain time with certain skills. And that was basically to make money as a banker and that had come directly from God. It wasn’t anything that he or his father had done. And so, he had a responsibility to improve the lot of others in order to do so. And the anecdote you talk about, you know, he was a prodigy when he was 15. His father sent him to Milan with a 19-year-old chaperone. They started trading gold and he was traveling around to Amsterdam and Paris. And at the time, of course, after World War Two, the price of gold was fixed. There was no gold trading in Europe, but he had a network that can move gold from Beirut to Kuwait to India and Hong Kong, where his father would send it on, and they could sell it in the local market. So that’s what he was doing. And he shows up in Paris at the age of 16. He always looked much older than he really was. When you see photos of him, he looks like a man in his twenties. And it was a Jewish educational organization, someone there helped him get some papers so he could stay in Paris for a while. And he said, “okay, I want to do something for you.” And they said, “well, we need some new refrigerator equipment.” And he said, “okay, I’ll buy it for you.” And they had to call Beirut and say, “is this kid for real?” And of course, he was for real. And throughout his life, when he had business success, which was a lot of the time, he would get on the phone and say, give money to this school, to this synagogue. There’s a famous tomb of an ancient scholar outside of Tiberius in Israel, where he funded, you know, rooms and renovations, always in the name of his father or his mother. He would send synagogue leaders some new prayer books. He built the first synagogue in Spain since the Inquisition in the 1970s. They went to him. He agreed to fund it. It wasn’t an obligation. It was something he took some joy in. And he had a couple of staff members whose job it was basically to field requests, and he spent a chunk of his day giving money away.

Charles Mizrahi: I remember there was some part in your book where you were talking about when Assad, the dictator of Syria in the nineties keeping the small Jewish community of 4,000 or so – the people of Poland, Jews specifically in Damascus – there as hostages and wouldn’t let them leave. They finally agreed to let them leave. But there was something if you could just share, that they needed to buy a round trip airline ticket. Talk about that.

Dan Gross: Yeah. So, him and his family first left Aleppo to Beirut in the twenties. Many of his family members remained there. After the forties, people started to trickle out and leave. By the eighties or nineties, there were a few thousand left and they were essentially hostages to Assad, who was the dictator. Throughout the eighties, he was personally keeping that community afloat. I have these amazing letters in French from the commander left, the rabbis of Aleppo in the eighties saying, you know, we need this much money to keep the school open, to have high holiday services. And he was keeping them afloat. In the early nineties, the U.S. remember after the war in Kuwait, Assad had joined that U.S. coalition to kind of push Hussein out of Kuwait. And so, there was some leverage there. They were trying to get them to talk to Israel. Assad was looking for some funding and they saw this as a moment… Maybe we can get the remaining Jews out of Syria. So, there’s a lot of pressure applied. And he agreed. Assad agreed. But his conceit was, you know, I’m not letting them go. They’re going to have to all buy roundtrip tickets. I’m going to let them leave for a bit and they have to come back. So, they all have to buy round trip, plane tickets. And someone picked up a phone and said, “Edmond, we need roundtrip plane tickets for 4,000 people.” And he gave them the check and they all left. And that was the sort of thing he did on an individual basis. But he also did things on what we would call more of an institutional basis. He endowed chairs in history at Harvard University. In the seventies, he set up a fund for underprivileged Students in Israel Education Fund to Send Kids to college. And that was set up as a foundation even in the 1970s. So, it wasn’t just like him writing a check or making the decision. It had a professional staff and was systematically deploying capital. But he really saw it as his personal mission and ambition and joy to do these sorts of things.

Charles Mizrahi: You know, during the financial crisis, 2008, 2009, and a little before that, banks were dropping like flies. Wachovia, Washington, they were wiping out shareholders. The equity was going virtually to zero. The banks had such risky loans, and they were disintegrating. But the board of directors walked away scot clean. There was no liability to them because they have insurance. They have directors’ and officers’ liability insurance. The CEOs walked away with all the money they made over time. So, the ones who got hurt were basically the shareholders. And in some cases, you know, the FDIC stepped in and insured the depositors. And Warren Buffett said at the time, something to the effect of, if he was running things, I’d only let a bank foreclose or go out of business and get FDIC insurance or the taxpayer pick it up, only when they are wiped out. They are wiped out, their wife is wiped out, their spouse, and they have no equity, nothing left. Only then will they pay them. And here with Safra, you write that Edmond said about Republic, “no one will lose a penny in Republic before I lose everything I have”.

Dan Gross: You know what you’re talking about, is a governance issue, right? You’ve got the CEO and the directors who are supposed to supervise him or her. And they may have some very small ownership stake, but they’re there for a few years. If something happens, they have insurance. It’s really no skin off their back if things go south. We see this time and time again and in the corporate world. For Edmond Safra, every business where he came from was by definition a family business. These banks had directors, but it was a family business. He owned 30% of the equity. He was hoping to pass it on to the next generation, as it was supposed to exist for 100 years, a thousand years. And when you have a Family business, there’s no such thing as saying, something goes bad, and the senior executives get off scot-free. They’re wiped out. Right? That’s what your family business is. And so, he brought that mentality combined with the fact that when he started in Beirut and also in Switzerland in the fifties, there was no deposit insurance, there was no such thing as deposit insurance. You couldn’t go to the government or have someone bail you out. And he often believed that even though he had this very large bank in the U.S., that because he was a foreigner, he wasn’t a U.S. citizen, that they wouldn’t bail him out. But he didn’t really think somehow that the insurance would apply to his depositors. So, he always ran the banks in that manner. And if your mindset is that, then the first person to suffer a loss is me, you’re going to make very different decisions about how you put your money to work.

Charles Mizrahi: Right. And how you view your customers. Your customers are not just fodder for you to take. It’s a call option. If you do well, you make a lot of money if you don’t. Big deal. It’s not a one-sided deal.

Dan Gross: And here’s the thing in the banking world. Deposits are a base liability on the balance sheet.

Charles Mizrahi: Because they owe that money to the depositors, the bank is holding it on their balance sheet.

Dan Gross: That’s right.

Charles Mizrahi: It’s a liability for John Jones who gave it to the bank.

Dan Gross: That’s right. And so, it’s treated on their balance sheet as a liability. I owe you the deposit. And in the world, you don’t want to have liability. What you want to have is assets. And a loan you make is an asset. And then Safra had it flipped the other way. He kind of viewed the deposits as his asset because he could put that money to work. It could help people. He would crack their deposits; it would bolster the image and the actual power of his bank. So, if he had more money to put to work. And he thought the loans were the liability. That’s what he was worried about because if someone didn’t pay him back, that he felt that was on him. And so that’s another distinctive approach that he brought, again, due to his own mentality and to where he grew up and how he operated. And then again, I think explains a lot of his success. And I think if you’re looking for lessons that are applicable today, the people who succeed are often people who sort of flip the formula on its head. Because there are a lot of crowded trades in the world, a lot of people piling into the same thing. And the people who have the sort of divergent view are often the people who end up succeeding. And I feel like if more people had a mentality that what is a liability for everybody else could be an asset for me. And what everyone else thinks are an asset is actually a liability. I think there are big opportunities not just for profit but for having more effective systems.

Charles Mizrahi: And you wrote that when some deal was not going well with his brothers who lived in Brazil, who weren’t part of the bank per say, and his concern was the press, and the media and customers won’t make the distinction – a Safra is a Safra. So, we have to make sure they’re good as well. So, the name was everything. His name was his asset. And that was a reputation, as Buffett says, that it takes a lifetime to build and only moments to lose. And I want you to talk about how his reputation was sullied in such a way that physically and literally almost destroyed him. And this was against American Express. Just give us a brief overview of what happened and how he was vindicated at the end and how he learned from it. Which I find so amazing. Steve Robinson, who was running America was a friend of his. So, if you could just go through what that was, I think it was a book written about that in 1992?

Dan Gross: Yeah. First of all, there’s an entire book written about this episode by Bryan Burrough, one of the authors of Barbarians at the Gate. He’s a very well-known financial journalist. He wrote the entire, 500-page book briefly in the early eighties and then sold his Swiss private bank to American Express. American Express wanted a private bank. He was concerned about emerging market debt that he had a lot of and felt this is a good time to sell it. And the agreement was that he would stay on and work at American Express, which, of course, was never going to work because Edmond was like a king in his own companies. He was not a manager or someone who ever reported to anybody. After a year or two, they had a bit of a falling out and they negotiated an exit. And the terms of the exit were a five-year non-compete. So, he could not open a new private bank until 1988. And starts making plans to do so. And at some point, someone within American Express put the word out or encouraged what turned out to be a smear campaign against him where there was a contractor. And in 1988, this article started appearing in the press in places like Peru.

Charles Mizrahi: What motivated them? American Express’s concern at the time was that Safra wasn’t going to keep his five-year non-compete or that he was going to take customers from them? What was their concern that this smear campaign started?

Dan Gross: I think the concern was that when he opened in 1988 that a lot of their customers would leave and that he would be a competitor.

Charles Mizrahi: Right. A trade development bank, no matter what label was on there, you could put American Express because they wanted to pull this into their financial supermarket. Bottom line, they realized that even with Edmond out of the picture, it really didn’t matter. They were Edmond’s customers and where Edmond went, they were going to go. I think you write – which I just find so amazing – here’s a man who kept the privacy and secrecy of his customers as an overriding theme. It was sacrosanct. You didn’t mess with that. And here is American Express mailing them literature and marketing material on getting credit cards and going to concerts and taking advantage of all bunch of things. And what the freak is this?

Dan Gross: Well, I think that is standard practice in banking, but I think there was an element of that. Yes. That the partnership or that transaction was probably destined not to work out. So, yes, he was intent on opening the bank. I think there was some fear.

Charles Mizrahi: To make it clear Edmond was not violating the five-year non-compete. It was the fear that he knew that he was going to open in 1988. He didn’t do anything to violate that five-year non-compete. Is that correct or not?

Dan Gross: Yeah. He was taking steps to open it and some people were drifting away that had worked for him in the past to rejoin him. It was clear what he was doing, but he was going through the process that you do in Switzerland.

Charles Mizrahi: Right. And he did not make a secret of it. So, they were totally informed of what he was planning on doing.

Dan Gross: Yeah. So, these articles start to appear again in publications in Peru and France that say, Safra’s a drug dealer, he’s involved with Iran-Contra, etc. And over the course of a year, he hired private investigators. And he also sued. The libel laws in Europe are very different than they are in the U.S. So, he sued to get people to retract those statements in those articles, and it became evident that somebody acting on behalf of American Express or at the orders of one of their employees, had planted all this information and they eventually unraveled it. And then when they confronted American Express at the highest level, to their credit, they looked into it and said, “gee, it seems like something bad happened here.” And they issued an apology, and they gave several million dollars in donations to charities that Edmond had stipulated. He didn’t want any litigation. He didn’t want a legal settlement. He had said, “I just want an apology and I want you to give money to these charities.”

 

Charles Mizrahi: He didn’t want any money for his legal fees, which were enormous, and his private detectives and all of that. He didn’t want any money for any defamation of character. He just wanted a public apology and a donation to charities. Is that right?

Dan Gross: Yeah. And that’s what happened. And he then went on with his career. But I think it was certainly for him one of his low points. And as I said, there’s an entire 500-page book called Vendetta by Bryan Burrough, which is where, frankly, a lot of the information that I relied on comes from. And so, if people want to investigate that further, that’s got all the details.

Charles Mizrahi: I remember when reading it in The Wall Street Journal. I also grew up and lived in the Brooklyn Jewish community. When Edmond Safra came to town, it was a big event. And just on the side, I tried to get an internship there in 1980, but that was the start of a recession, and they were firing people. So, I would love to have been associated with that bank, but so be it. I remember reading it in the Journal and other places, knowing who this was, and it was talking about money laundering, dealing with the Russian mob, a drug cartel. This is a man who wouldn’t lend to anyone who he didn’t know. And he needed to do that? You got to be crazy. It was ludicrous to anyone who knew of him.

Dan Gross: I think the thing about his life, one of the reasons, frankly, to do this book is that because of who he was and where he came from and the way he carried himself, there was always in his lifetime suspicion about him because when he shows up in Brazil, he’s a Lebanese guy. When he shows up in Switzerland, he’s a Brazilian guy. When he shows up in New York, he’s not an Ashkenazi Jew. It’s not a Jew from Europe. He’s a Jew from the Middle East. They’re different. They speak a different language. They have different customs. They have different habits. So, the sociologist talks about like the “other.” Often whenever he went somewhere, he was like the outsider. That gave him often an advantage in business, because outsiders often understand things about the way systems work and are able to connect the dots in the way that insiders aren’t. But it also meant that he knew what it was not to be immediately accepted, to have people be suspicious of you just based on what your name is, what language you speak, your accents. And that was something he confronted his whole life in many different circumstances.

Charles Mizrahi: I want to fast forward a bit. In his early sixties, he comes down with Parkinson’s disease and he has no heirs, he has no children of his own. No one’s going to be carrying on this business. His concern was so much so for his babies, his banks and his customers and how they would fare that he makes a very, very painful decision. And that’s to sell the bank. HSBC chairman John Bond didn’t know about Safra. He reads Vendetta and says, well, you know that this is a stand-up guy. He’s just an amazing human being. And by the way, all the screens that consultants come up with, there was no better bank than the Republic in terms of its profitability, its loan loss provisions, its loans, its write offs, and also with trade development bank, it just jumps to the top as being stellar. You mentioned Buffett like returns 20 plus percent returns compounded for long periods. That is amazing, especially during some of the terrible stock market periods we had from the late sixties to ’82. And he was returning amazing rates of return.

Dan Gross: In many ways, this is a story of personal triumph against adversity. Conquering the world. Wherever he went, he went to the center of the action. He started a bank, made a lot of money, built institutions, formed relationships, great success story culminating in this $10 billion sale, which nets him about $3 billion, which in 1999 was a lot of money. But there’s also an element of tragedy. And there are three principal tragedies in this life. One, he got Parkinson’s in the early nineties. That’s still a pretty young man, early sixties. And it started to debilitate not just his functioning, but his mental ability and view of the future. Second, he died in 1999 in a fire that was set by a member of his household staff. So that was another tragedy. And the third tragedy, the biggest if you asked him, was neither of those. It was the fact that he had to sell his banks and that there would be no Safra Bank beyond his existence. Because in his world, again, his father and grandfather had been bankers. He viewed all business as a family business. His brothers, he had set them up in business in Brazil. They had their own very large bank. He was sort of hoping that it would continue. One way in which he really diverged from his community, most Syrian Jews of that era would get married in their late twenties and have a younger woman and have four or five children. And if they had sons, they would bring them into the business. Edmond, in his twenties and thirties, was a nomad. He was traveling around the world between Beirut, Geneva, New York, Paris, London. He didn’t really have the capacity to sort of settle down and be a parent in that way. So, he got married later in life to a woman, Lily Safra, who had her own children, but he didn’t have his own children and therefore he didn’t have an heir or someone to bring into the business. He and his brothers tried to work something out whereby one would succeed him, but they couldn’t figure out how to do that. And so, he reaches this conclusion: I have to sell my banks. I have to sell them to somebody good. I have to sell them to someone who will pay cash because I don’t want to have stock in somebody else that I can’t control. And that’s how he settled on HSBC. And when they announced the sale, again, in any business story, that would have been the crowning achievement. You sell it, you walk away with all the cash, and now you can do whatever you want with your life. That’s business success in our world. You cash out, you monetize, you have an IPO. And for him, that was a failure. One of his friends came from Switzerland and said, “congratulations, Edmond.” And he said, and in French what translates to: “I’ve sold my children, I’ve sold my babies.” And so, for him, it was a moment of sadness that he was selling his banks, not a moment of triumph. But for the world, it was actually something of a triumph because he died later that year and he left a very large chunk of his assets to his foundation, which in the 20 years since his death has been funding on a very large-scale Parkinson’s research, education, professorships, publishing, construction of synagogues, preservation of communities. And so, the work that was important to him during his life has really continued on and will continue on for decades to come, even though there is no financial institution that bears the name of Edmond Safra today.

Charles Mizrahi: I didn’t know anything of this. And I just think it’s absolutely amazing because it speaks to what type of man he was. When he closed the deal with HSBC for $72 a share. And there was a loss of $450 million that Edmond decided to eat himself and take it out of his shares, his proceeds.  $450 million, which could have been a 100% legitimately discounted off the price and distributed to everyone equally. And instead of $72 share, everyone would have got a little less. Could you just lead up to that? What was that? $450 million? Why did he decide to eat it himself and make everybody whole?

Dan Gross: So, he decided to sell the bank for about $10 billion. It comes out to $72 a share. 72, of course, is four times 18. And 18 was a significant number to Edmond Safra from a religious perspective.  So, the deal is made in April or May. It’s supposed to close in September or October. In those months, there was a trader named Martin Armstrong – who had a financial services organization, and he raised money from the public to do certain investments – was committing fraud. And an employee at one of Republic’s subsidiaries had sort of helped him by issuing some account statements that turned out to be false. This comes to the attention of the S.E.C. in the Justice Department, and it’s clear they’re going to go after Armstrong. And in conclusion, HSBC realizes there’s probably going to be some liability because this other person was an employee of Republic and was sort of implicated in this in some way. HSBC says well, we’ve got to reconsider when we’re going to close. These sorts of things happen. Litigation always comes up in deals. And then his response was, well, I want this to close at $72 a share for all the other shareholders. There’s probably going to be a cost between the liability and what you’ll have to pay, let’s say, it’s $450 million. I am effectively going to give you HSBC that money. By taking $450 million less for my shares. So, everybody else, you know, if you have 100 shares, you’re going to get $7,200 bucks. If you have a million shares, you can get $72 million. For my big chunk of shares, instead of getting $72 a share, I would get what that total is, minus $450 million. So, I will eat whatever that future liability is associated with this. And him doing that gave HSBC the confidence to say, okay, we will go ahead and close now. We know that whatever happens, we are going to be covered because we’re putting out $450 million less. John Bond, who again was the CEO of HSBC, was sort of stupefied by this, flies to his home in the south of France to come and shake your hand. And that was that. That’s how that deal got done in the end.

Charles Mizrahi: Yeah, it’s just amazing. Who would do something like that? You know, it’s just absolutely staggering. By the way, if he would have lowered the price, there would have been a price adjustment. No one would have said no. It would have been just part of the deal. And it happened many times, just provisions taken on the side. And it’s part of doing business. But to Safra, it was a personal matter. He stood behind. It’s easy to talk the talk, but when you have to put up the money, that’s when it becomes difficult. But to him, it was not even a choice.

Dan Gross: There’s a phrase we use: it’s nothing personal, it’s just business. In his world, everything was personal. Yes, of course, you can have disagreements with people. You can have bitter competitors. But the way you conducted yourself in business should not be different from how you conduct yourself in your personal affairs. And in the kind of treatment, you would expect from somebody, from a family member, from a friend, or even from just like common decency, from a stranger, that is how you should approach your business matters as well.

Charles Mizrahi: Outstanding. Dan, thank you so much. Folks, the name of the book is A Bankers Journey: How Edmond J. Safra Built a Global Financial Empire. This is the first biography on the man. Is that right?

Dan Gross: This is the first published biography of Edmond Safra, for sure.

Charles Mizrahi: Wow, well continued success. I think he did an outstanding job. And you shed light on an area that most people had zero idea about. I knew some of the stories, but the detailing was just absolutely amazing. And you had the archives in front of you. So, really a tremendous, tremendous job. Thanks so much for being on the show, Dan.

Dan Gross: Thanks so much for having me. I really appreciate your interest.

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