Sunday, May 9, 2021

Leon Black, a fierce financier, backs down under pressure

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Leon Black’s possessions include one of Edvard Munch’s versions of “The Scream” and a famous sculpture by Pablo Picasso, but in 2007 the billionaire financier received something far more valuable.

A garden party in honor of Mr. Black that year at the Manhattan Museum of Modern Art marked his arrival as an American luminary. Guests including New York Mayor Michael Bloomberg, financial titans Carl Icahn and Stephen Schwarzman, and members of the Rockefeller and Estée Lauder dynasties celebrated the “significant contributions to the cultural communityDirected by Mr. Black and his wife Debra, who is a Broadway producer, as well as Hollywood author Martin Scorsese.

For a man who was making billions buying businesses that others thought were doomed to fail, the recognition alongside the famous director was a turning point in itself. Yet, as so often in Mr. Black’s life, triumph merged with potential disaster.

Also in attendance was Leon Shahinian, a California official who flew to New York on a private jet that authorities say was paid for by Apollo Global Management. At the time, a California public pension plan was finalizing a $ 600 million deal to buy about a tenth of Mr. Black’s business. The deal brought in $ 13 million for Alfred Villalobos, an Apollo middleman who was also at the party, and was later accused of attempting to bribe Mr. Shahinian. Neither Apollo, Mr. Black, nor Mr. Shahinian have been charged with wrongdoing. Mr. Villalobos committed suicide shortly before his trial.

This week, Mr Black was faced with a public judgment over his relationship with another man who committed suicide while awaiting justice: Jeffrey Epstein, who was jailed for sex offenses in 2008, but who was tried on new charges of running an international sex trafficking ring. The founder of Apollo announced his intention to resign as CEO and admitted that he paid the late pedophile $ 158 million for tax advice and other financial services. The father-of-four said he ignored the worst allegations against Epstein.

Born in New York in 1951 to a watercolor artist and rabbi turned businessman, Mr. Black majored in philosophy at Dartmouth before enrolling at Harvard Business School. He didn’t like it. But his choices narrowed when his father, then president of banana importer United Brands, jumped to death from the New York Pan-Am building in 1975. Eli Black was later accused of bribing a politician. Honduran.

Mr. Black worked as a management consultant, then in publishing, before joining second-tier investment bank Drexel Burnham Lambert. There he and Michael Milken launched a financial revolution.

Drexel was “a rocket that lasted 12 years”, Mr. Black said. The rise was fueled by junk bonds – expensive financial fuel for companies that had no other way to borrow. Mr. Milken relentlessly sold the bonds and Mr. Black engineered complex deals that used them, including KKR’s record $ 28 billion buyout of RJR Nabisco.

“Then,” Mr. Black told an audience last year, “he collapsed.” Mr. Milken was charged and subsequently pleaded guilty to violating securities laws. In 1990, Drexel filed for bankruptcy – just weeks after Mr. Black complained about the amount of his bonus.

Mr. Black, who has not been charged with any wrongdoing, then founded Apollo with other Drexel alumni, using office space in Manhattan borrowed from a former client. The company’s first deal used money from French bank Crédit Lyonnais to buy assets from Executive Life, a California life insurer bankrupted by losses on bonds that Drexel had sold.

The fallout lasted for years. Several French bank officials have pleaded guilty to violating US foreign property laws. Credit Lyonnais and others have paid over $ 1 billion in fines and settlements. Apollo said he didn’t know anything bad and no one there was charged.

Still, the trade was hugely profitable, and buying distressed assets became a calling card for Apollo. Its aggressive executives have pounced on Twinkies maker Hostess Brands, chemical group LyondellBasell and other companies left for dead. “You were making money on the debt,” Mr. Black explained, or if a borrower couldn’t pay, “you would end up owning the businesses.”

It was a deliberately contradictory strategy. A billionaire privately laments that Mr. Black allowed a trade dispute to ruin their friendship. The late chemistry mogul Jon Huntsman wrote that he took “every opportunity to publicly indict Black.” . . unethical conduct ”after concluding that in a deal that had gone awry, Apollo had“ made promises he never intended to keep ”.

“It’s all a negotiation with Leon,” says a former colleague at Drexel.

The associates say he is a Renaissance man fluent in history and literature. But his bold attitude also extends to art. “I’m an obsessive compulsive sick collector,” he said. “I love the art of acquisition. . . My wife goes to bed at 11, I walk around and change things in the apartment. It is a form of relaxation.

On Monday, Mr. Black announced plans to donate $ 200 million to initiatives that “protect and empower women,” to atone for the financial relationship with Epstein that had baffled some Apollo investors. In the days that followed, Apollo’s shares rallied, adding almost enough to Mr. Black’s fortune to cover pledged donations. Mr. Black seemed to have made another deal – this time with his conscience.

mark.vandevelde@ft.com and sujeet.indap@ft.com

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