Walter's Stories
My brother Walter was, like Ned, also an attorney. Except for two years in the
navy my brother Walter had worked for the Metropolitan Life Insurance Company
since 1936. By 1944 he was a vise president and with another vice president,
Harry Hagerty, the treasurer, invested four billion dollars a year. They never
lost a dime.
He was working with an attorney at a well known New York firm who represented
a corporation , and the Met was in the process of agreeing to buy all of the
bonds in that issue. Late in the deliberations Walter found a detail in the
mortgage that he wanted to change. He called the seller's attorney and asked
that part of one paragraph be changed. " Mr. Saunders, I don't feel that this
can be changed at this late date. If you don't feel that the mortgage, as it
stands, properly secures the Met then perhaps you should not participate." Since
the Met needed to loan money at that time, Walter advised that they go ahead
with the purchase. He did not feel particularly kindly toward the seller's attorney.
A few years later the Met was one of several insurance companies participating
in a really major bond offering. The corporation had employed the attorney who
had represented a seller in the earlier offering. Again there was a detail in
the mortgage that Walter did not think was proper, and he called the seller's
attorney to ask for a change. Again he was told to take it or leave it, and
this time he opted for the latter.
What he knew and his adversary
did not was that all of the other insurance companies depended on the Met's
research. When the Met told the other companies they were withdrawing, the others
followed suit. More than this, a considerable portion of the bonds were to be
sold to the portfolios of widows and orphans who were always looking for safe
investments. The underwriter saw his potential sales vanishing and withdrew.
The other attorney who thought that he understood how the world of finance operated,
discovered that his knowledge was at a kindergarten level. He had to eat a lot
of crow before he was permitted to put the offering back together.
After you Alfonse - after you Gaston
The Met had loaned a large amount of money to Gulf Oil who were building a chemical
plant in Louisiana. There is usually a cancellation clause in all mortgages
which exacts a penalty if a seller decides to repay ahead of time, in order
to benefit from a refinancing at a time when interest rates are lower. This
is there to recompense the buyer for the time and money he has spent on buying
the issue.
When the plant was finished Gulf discovered that they had a process that did
not produce the hoped for chemical. A catalyst that had been satisfactory in
the laboratory did not work in mass production. Gulf decided to just redeem
the bonds, since the plant would never produce the revenue to cover even the
interest. The Met had no desire to penalize Gulf for their decision since the
project had been an unseen disaster.
The Gulf executives insisted, however, that they were obligated to pay the amount
of the penalty called for in the mortgage. At a conference room at the Met,
the argument went on all morning with Gulf insisting that they wanted to pay
the penalty and the Met refusing to accept it. Finally, just in time for lunch,
an agreement was reached. The Met was permitted not to exact the penalty, and
Gulf promised to come to the Met the next time they needed money.
Sometimes You Don't Know Who The Beneficiary Is
Using money provided by the Met an investment house had put together a deal
to buy a great number of oil wells from Doheny's widow. He had had them dug
on land acquired by bribing a Secretary of the Interior during the Harding administration.
It was called the Tea Pot Dome scandal and an investigating reporter for the
Saint Louis Post Despatch, Paul Y. Anderson, had broken the story. The New York
Times had the distasteful task of heading all their stories with a sentence
such as "Reporter Paul Anderson of the Saint Louis Post Dispatch today revealed
etc." It wasn't until Woodward and Bernstein went to work on Nixon, so many
years later, that the Times again suffered so grievously.
The deal depended on two factors, oil wells usually last longer than most geologists
predict, and using the favorable breaks given to the oil industry by Congress
and the Internal Revenue Service, there was a ploy by which much tax might be
avoided. Two corporations were to be formed. The first was to take the maximum
depletion allowance permitted by the IRS until the properties had gone to a
zero worth. Then the property was to be passed to the second corporation who
the IRS would permit a fixed sum deduction per barrel pumped. I seem to remember
a figure of fifty cents a barrel.
All the parties involved in this quite complex undertaking had worked out the
details during a full week spent in Los Angeles. On Friday, Walter at the far
end of the table, took out a very large check drawn on the Met and started it
moving. As it passed the various participants they exchanged the various contracts
involved. Finally the check arrived in front of Mrs. Doheny. A monsignor had
slipped into the room and was behind Mrs. D. She turned and handed him the check.
At that point, everyone at the table realized that the whole week had been spent
working for the Catholic church.
This was only one of Mrs. D's gift to her church. She had long before donated
a magnificent church to her husband's memory. It is familiarly known in Los
Angeles as "Doheny's Fire Escape."