Ludwig Jesselson

Introduction

In the decades after 1945, Philipp Brothers grew to become the largest and most important metal trading company in the world. By the late 1970s, the secretive American company had become an international giant, in the words of Business Weekly a “$9 billion supertrader,” dealing in over one hundred and fifty different industrial raw materials with representatives in virtually every country in the world possessing metals or minerals of commercial quality. At the helm of the company for most of this period was a German Jewish émigré, Ludwig Jesselson (born August 29, 1910 in Neckarbischofsheim, Germany; died April 3, 1993 in Jerusalem, Israel), who had come to New York in 1937 to work for Philipp Brothers. Jesselson led the company from a sizable private company to an international giant, in the process contributing to changing the markets for international commodities. He was also heavily involved in philanthropy in the United States and in Israel.

Family, Ethnic Background, and Early Work Experience

Ludwig Jesselson (Jeselsohn) was born on August 29, 1910, in Neckarbischofsheim, a small town near Heidelberg in today’s state of Baden-Württemberg to Samuel Max and Amalie Jeselsohn (née Zucker). His father owned a little store, selling dry goods and groceries.[1] In addition, the family owned some farmland, which was usually rented out. Ludwig’s father (born 1870) had been raised as a liberal Jew but changed to Orthodox Judaism and eventually headed the Jewish congregation of Neckarbischofsheim.[2] Ludwig and his two older brothers Sigmund and Albert were raised as Orthodox Jews. While his brothers studied at university, Ludwig instead wanted to work. As an Orthodox Jew it was important to honor the Sabbath, so he had to work at a firm that would allow him to have Saturdays off. Since most German work places were open on Saturdays, the choice of potential employers was limited. Through a cousin, his father found a position for him as a trainee with the metal trading firm Aron Hirsch & Sohn in Halberstadt in Saxony-Anhalt, a company run as an Orthodox Jewish firm.[3] Ludwig Jesselson began an apprenticeship there in May 1927. The apprentice period was originally supposed to last for two years but already in November 1928, Ludwig Jesselson became a regular employee of the firm.[4]

When Jesselson joined the company, Aron Hirsch & Sohn was a troubled firm, but it was still one of the most important metal trading companies in the world. The company had been founded in 1805 in Göttingen, near the important mining district of the Harz region. Aron Hirsch was the son of a rabbi who had started out by selling products from the metal forges of the Harz region. Gradually, Hirsch increased his reach, first by going into manufacturing and then metal smelting. When his four sons came of age, they joined the company and in the late 1920s it was still led by the Hirsch family. From the 1870s onwards the company began expanding internationally, opening offices in the principal cities of Europe and eventually overseas. Benjamin Hirsch, a grandson of the founder of the company, became a co-founder and the only non-British member of the London Metal Exchange in 1882. The preferred international expansion method of the company was to take controlling share holdings in legally independent foreign companies instead of creating branch offices.[5] This was also the way that Hirsch & Sohn entered the U.S. market. In 1897, Ludwig Vogelstein, a former senior employee in the Hirsch organization, established a metal trading company in New York under the name of L. Vogelstein & Co. The Hirsch firm owned 35 percent of the shares in the new company and used it as a vehicle to establish links with the major American copper and brass producers.[6]

Before 1914, German firms dominated the international trade in metals and minerals. In 1913 there were more than five hundred and fifty companies engaged in the non-ferrous metals trade in Germany. Most of these companies were small or medium-sized enterprises, but three of them were international giants. Together with Metallgesellschaft and Beer, Sondheimer & Co., Aron Hirsch & Sohn more or less monopolized the important Australian lead and zinc exports. The three companies also dominated the pre-1914 international zinc cartel. Through controlling the flow of zinc concentrates from Australia and by having ownership interests in the Belgian and German zinc smelters, the three metal traders, through the cartel, were able to set production quotas and fix prices (one commentator has classified the zinc cartel as an organized world monopoly rather than an international cartel[7]). During World War I the three large German metal trading companies came to be known as the “German Octopus” in Britain.[8] Like the Hirsch company, both Metallgesellschaft and Beer, Sondheimer & Co. were established by German Jews.[9] In fact, practically all metal traders were Jewish in Germany between 1880 and 1930.[10]

The Jewish dominance in metal trading was probably due to the fact that German Jews had not been allowed to own land or be members of guilds before the early nineteenth century. Many turned to itinerant peddling instead, and metal trading was attractive as metal objects had a fairly high value and were easily transportable. As Europe started to industrialize in the decades after the Napoleonic Wars, there was an increasing demand for metals and minerals. Jewish peddlers with their knowledge of metal markets and values benefitted from this demand and gradually expanded their role to become full-fledged metal traders.[11]

When Ludwig Jesselson joined Aron Hirsch & Sohn, the company was well past its golden age. During World War I, the company’s foreign assets had been expropriated, and the economically turbulent 1920s weakened the firm. The 1929 economic crash was the final straw, and Aron Hirsch & Sohn was liquidated late that year.[12] This did not leave Jesselson without a job, though. The Hirsch family reorganized their trading activities in a new company in Berlin called Erze und Metalle Hirsch Aktiengesellschaft. Ludwig Jesselson was hired as assistant to Josef Hirsch, soon rising to become head of the scrap department of the firm.[13]

When Adolf Hitler came to power in 1933, Ludwig Jesselson soon realized that Germany was not the place to be for an Orthodox Jew. He later said that he decided to leave the country immediately after having witnessed a victory parade held by the SA, the paramilitary organization of the Nazi party, in Berlin shortly after Hitler’s takeover. Jesselson went to his employer and asked for a transfer abroad, arguing that if the company had no work for him, he would leave anyway. He got a new position with N.V. Groma, a Hirsch-owned firm in Amsterdam. Jesselson was not alone in going to the Netherlands; many German Jewish firms at the time moved there to continue their business from abroad. Ludwig Jesselson left the country with the blessing of his father; his older brother Sigmund left for Palestine in 1934.[14] Samuel and Amalie Jeselsohn left for Palestine on February 9, 1939, via Basel and Triest.[15]

Among the people that Ludwig Jesselson got to know in Amsterdam was Julius Philipp, another German émigré metal trader. Like Jesselson, Philipp was also an Orthodox Jew who had decided that Hitler’s Germany was not safe for him and his family. Julius Philipp had operated a small metal trading company in Hamburg since 1901, but from 1934 he continued his operations from Amsterdam. More important to Ludwig Jesselson’s future career was the fact that Julius Philipp had tight links with two other companies in London and New York. In 1909, Philipp had helped his younger brother Oscar set up a metal trading operation in London under the name of Philipp Brothers. When World War I broke out in the summer of 1914, Oscar Philipp avoided internment by the British authorities thanks to his British citizenship, which he had been granted by that point. His partner in the Philipp Brothers company in London, Siegfried Bendheim, however, did not qualify for citizenship, and to escape the threat of internment he claimed that the company had business contacts in the United States. In October 1914, Bendheim was allowed to leave for New York where he established a new company called Philipp Brothers, Inc. After the war, Bendheim’s New York company maintained intimate connections with the two companies operated by Julius and Oscar Philipp in Europe. In 1923, Bendheim was joined by his second cousin Siegfried Ullmann as partner in the company. Ullmann had been trained by both Julius and Oscar Philipp prior to going to New York.[16]

In 1934, Siegfried Ullmann was on a business trip to Europe, and in Amsterdam Julius Philipp introduced him to Ludwig Jesselson. The two men discovered that they were second cousins and hit it off immediately. When Jesselson decided to leave Europe in late 1936 due to the developing political situation, he wrote to Ullmann to ask for work. Siegfried Ullmann immediately sent him a job offer. On May 10, 1937, Ludwig Jesselson arrived in New York to take up a position with Philipp Brothers.[17] He applied for U.S. citizenship shortly thereafter.

Early Business Development

Philipp Brothers, New York, had handled the economically turbulent 1920s and early 1930s fairly well and when Ludwig Jesselson arrived the company employed about twenty people. The company had three main business areas. It traded metal scrap, residues, and ores mostly from the U.S. to Europe, and chemicals mostly in the U.S. Together with its sister company in London, the New York company had set up a subsidiary in Bolivia which bought tin concentrates and other ores from small and medium-sized Bolivian mines and sold them to smelters in Europe. In all of these areas the company usually acted as a principal: it bought and took physical control over the commodities before selling them for (ideally) a higher price. The New York company managed the Bolivian operations, while Oscar Philipp in London handled contacts with the European market for the ores. To manage the Bolivian venture, the Philipp Brothers companies sent Arthur Gruenebaum, a young German who had first worked for Julius Philipp and then for Oscar Philipp.[18]

The two Siegfrieds, Bendheim and Ullmann, divided management responsibilities among them: Bendheim was responsible for the chemical business, while Ullmann was in charge of the scrap, metals, and ore business and oversaw the Bolivian operations. Ludwig Jesselson, while hired because of his knowledge of the scrap and residues business, soon took charge of developing and expanding the company. Ullmann and Bendheim had built a profitable business through small deals, but Jesselson, who had been trained at the more ambitious Aron Hirsch & Sohn, wanted to deal in larger quantities. Instead of doing business with dealers, which Philipp Brothers hitherto had mainly done, he wanted to deal with producers and consumers directly.[19] In August 1939, the company set up a new subsidiary, called the Filbro Overseas Corporation, and the aim was to use this company as a vehicle to promote and develop the marketing and exports of metals and ores from South America and the Far East. According to the charter of the company, Jesselson would devote at least 50 percent of his time to this task. However, before the company was able to really get going, World War II broke out.[20]

During the war years, the traditional business of Philipp Brothers was severely restricted and traditional trade in metals and scrap almost came to a full halt due to government demands and regulations. Jesselson and his colleagues became involved in government work instead, going on semi-governmental missions to resource-rich regions of the world to purchase strategic metals and ores needed for the war effort. Working closely with the Office of Strategic Services (OSS, the forerunner of the CIA), Jesselson himself flew to Brazil to get minerals from the Amazon jungle needed to make smoke bombs. He also visited neutral countries like Portugal to outbid representatives of Nazi Germany in their quest for raw materials. Later Jesselson said: “Whenever we saw Germans buying some metal, we bought even more.”[21] To get access to vital information as quickly as possible, Jesselson encouraged the trading teams that the company sent out to report everything that they could about prices and the political situation wherever they went. To ensure that the information did not end up in German hands, he developed a series of traffic codes for each metal and its price. As a consequence, by 1945, the company’s information service was incomparable to that of its competitors.[22]

Postwar Expansion

After the war ended, the two partners who owned Philipp Brothers decided to split. Siegfried Bendheim took the chemical business and left to set up a new company, Philipp Brothers Chemicals, Inc., while Siegfried Ullmann continued as the head of a new Philipp Brothers, Inc., with Jesselson as co-owner, director, and treasurer. Arthur Gruenebaum moved from Bolivia to New York and became a director and co-owner of the new company.[23] The split was not a sign of retrenchment, but signaled the start of a very expansive phase for Philipp Brothers, Inc., and the post-war world would prove to offer plenty of opportunities for the reorganized firm.

World War II had been a total war on a scale never seen before, and after the fighting stopped, there were surplus materials to be found all over the world. Ullmann and Jesselson sensed the potential and realized that the first movers could make considerable profits trading leftover materials from the war. In 1946, Ludwig Jesselson went on a business trip around the world to pick up any business that he could on his way and to develop contacts. He first went to Japan, then on to India via Hong Kong and Singapore. The rest of his trip took him to Palestine, Egypt, Yugoslavia, and Germany. During the next years, traders from Philipp Brothers were constantly on the road, gradually building up a network of suppliers and consumers to whom they supplied their services, and increasing the number of metals and minerals that they dealt in.

To expand the scope of their business, Ullmann and Jesselson embarked on a policy of hiring every available metal trader they could find. The traders that they hired had usually learned their occupation in one of the old German metal trading companies, or with one of the competing trading operations established in the Americas in the interwar years by German immigrants. To fill the junior positions, the company usually hired relatives or people from its employees’ own social circles. As a result, the new hires were predominantly European Jewish émigrés, mostly Orthodox, but the company also started to take in liberal Jews and gentiles. From 1945 to 1955, Philipp Brothers expanded from about forty employees to two hundred.

Several of the new traders were recruited away from Moritz Hochschild’s organization. Hochschild, born and raised in Germany and related to the owners of Metallgesellschaft, had from the 1920s onwards become one of the dominant figures in the Bolivian tin trade. Known as one of the three Bolivian “tin barons,” he controlled about 25 percent of all Bolivian tin mines.[24] To run his business organization, he hired mainly German Jews, several of whom had prior experience with German metal trading companies. Yet Hochschild found it increasingly difficult to operate in Bolivia in the 1940s and early 1950s. After the disastrous Chaco War of 1932-1935, Bolivian political life became increasingly volatile and the country experienced revolts, coups, and civil wars. In the process, Hochschild’s company experienced several setbacks. The situation culminated when a new Bolivian government nationalized all of Hochschild’s mining assets in 1952. Philipp Brothers eagerly recruited key personnel like Adolfo Blum and Henry Rothschild from Hochschild.[25]

The expansion policy of Philipp Brothers was based on the belief that after the end of the ravages of the war the industrial world would need large amounts of metals and minerals to rebuild the economy. When the outbreak of the Korean War in 1950 created a boom in the markets for raw materials, the company was well placed to take full advantage of the rising demand. The fact that the U.S. government started to build up large materials stockpiles to be used in case of a potential third world war opened up more business opportunities as Philipp Brothers was able to procure lucrative contracts to deliver metals and minerals to the stockpile.[26] When the stockpile program was put on hold in the mid-1950s, the company found an important substitution in the so-called Public Law 480, a new law implemented in 1954 which opened up the possibility to barter surplus grain from the U.S. for foreign strategic raw materials for the stockpile. Philipp Brothers, which had developed excellent connections in Washington D.C. during its World War II operations, was the first firm to grasp the potential in Public Law 480, and during the 1950s the company handled about 50 percent of all barter transactions of the U.S. government. The profits were substantial.[27]

To grow business, Philipp Brothers opened a string of new offices all over the world. By the end of the 1950s, the company had subsidiaries in Buenos Aires, Sao Paulo, Santiago de Chile, Lima, Montreal, Tokyo, Osaka, Istanbul, Amsterdam, Paris, Cologne, Milan, Zug, Brussels, London, South Africa, Rhodesia, Australia, New Zealand, and Madrid. In total, Philipp Brothers had fifty offices in twenty-eight countries spread out all over the world.[28] The company rarely used agents, but relied on having local traders. Ludwig Jesselson hammered into his traders that “Agents are not interested in Philipp Brothers. Agents are only interested in making their commission.”[29] Philipp Brothers’ traders were required to travel incessantly, and they were taught to be independent and to make decisions on the spot, something which gave the company an edge over its competitors. New traders were generally recruited at a young age and taught in-house through apprenticeships in the various departments of the firm, learning about invoicing, shipping, and insurance, in addition to the finer details of the metal markets. Apprentices’ wages were very modest, and even when the employees were allowed to trade on their own they did not receive a commission for their sales. One trader later recalled that when he started out, his wife, who was a teacher, earned more than he did.[30] Yet, Jesselson and Ullmann created an environment where competitive souls thrived, and Philipp Brothers prospered as a result of this. According to Henry Rothschild, who worked for the company from 1946 to the 1980s and eventually became Jesselson’s right hand man, the sales of Philipp Brothers increased 1,000 percent between 1946 and 1957.[31]

One important reason for Philipp Brothers’ success was the information network that the company established. By the end of the 1970s, the company was boasting that its communication system was “probably the most sophisticated in the world, with the possible exception of the Defense Department or the Central Intelligence Agency.”[32] The company’s profits depended on the ability to read the movement of the markets correctly, and with representatives present in all corners of the world, Philipp Brothers proved adept at coming up with supplies of raw materials to its industrial customers during times of shortages.

Mergers and Going Public

Philipp Brothers was from its inception organized as a partnership, and though Ullmann, Jesselson, and Gruenebaum continued to be the controlling owners of the firm, in 1956, upon Jesselson’s urging, the firm opened up to minority owners. The management and senior traders in the organization now also became owners of Philipp Brothers. However, when Arturo Gruenebaum died suddenly of pneumonia on a business trip to Turkey in 1957, the downside to the partnership organization became very obvious. Gruenebaum had owned a significant stake in the company, and the other senior partners now had to buy out the heirs for a considerable sum. Since both partners had sunk most of their capital into the firm, it was difficult for them to raise the necessary funding quickly. Ullmann and Jesselson wanted to avoid getting into this position again, and they sought the advice of André Meyer, the influential head of the New York investment firm Lazard Frères. Meyer suggested that Philipp Brothers should go public by merging with Minerals & Chemical Corporation of America, a company which mined and processed a number of non-metallic minerals. Incidentally, Meyer also had a personal interest in the company. On July 20, 1960, the two companies merged under the name Minerals & Chemicals Philipps Corporation (MCP). After the merger, Ullmann and Jesselson reportedly both had shares in MCP valued at more than $20 million.[33] The shares could also be sold on the public market, which would make it easier for Jesselson and Ullmann to monetize their holdings.

Though the share price of MCP quickly increased, the merger was not completely satisfactory due to the economic imbalance between the two merged parties. The old Philipp Brothers company completely dominated the new entity, which could not have come as a surprise, as in the year before the merger it accounted for 91 percent of the combined sales and 75 percent of the total after tax earnings of the two companies.[34] In 1966, the Philipp Brothers division contributed 75 percent of net earnings to MCP.[35] A side effect of the merger was that the previously very publicity-shy Philipp Brothers now had to reveal important financial information to the public, one of the requirements of being a publically traded company.

Yet the new organizational setup did not last long. Soon the old Philipp Brothers company was involved in another merger which increased the visibility of the company even more. Again André Meyer played a decisive role. A few years earlier in 1963, he had convinced Charles Engelhard, the flamboyant owner of Engelhard Industries, to buy a significant stake in MCP, becoming the company’s biggest shareowner. Engelhard Industries was the world’s largest refiner and processor of precious metals, and Engelhard himself was a high-profile business leader who was reportedly the model for the James Bond villain Goldfinger.[36] In 1967, Engelhard Industries and MCP merged to create Engelhard Minerals & Chemicals Corporation (E M & C). André Meyer’s grand idea behind the merger was to create a global alliance between the South African mining giant Anglo-American, which was the largest shareowner in Engelhard Industries, and MCP. Together, this group would control a significant part of the world’s precious metal mining, refining, marketing, and trading.[37] Jesselson and his fellow directors at Philipp Brothers were very enthusiastic about the new merger and expected the company to handle the international marketing of Anglo-American’s mining output. Yet Anglo-American never consented to this, and the synergy effects that the Philipp Brothers top brass had aimed for were not forthcoming.[38]

The combined sales of the new company in 1967 were more than $1 billion and the merged company had assets valued at nearly half a billion dollars.[39] The company was organized with three operating divisions (Minerals & Chemicals, Engelhard Industries and Philipp Brothers) and each division retained its old corporate setup with its own chairman, president, and other officers. At the outset, this new entity was better balanced than the old MCP. However, during the next decade the Philipp Brothers division would outgrow the two others, and the old strains in the organization would reappear.

By the time of the first merger, Ludwig Jesselson had taken over most of the operative responsibilities of Philipp Brothers. Although Siegfried Ullmann officially retired in 1962, paving the way for Jesselson to become chairman and chief executive officer, Ullmann had already begun to withdraw from day-to-day operations in the 1950s.[40] Jesselson pushed the company towards offering longer-term contracts, for one year based on regular monthly shipments where the price was based on the quotations on the London Metal Exchange. He also recognized the changing political landscape and inherent business opportunities as Asian and African countries gained their independence. The new countries needed capital to develop and they needed outlets for their natural resources, and Philipp Brothers could supply both. The company lent money to countries to develop new mines against their metals and minerals as collateral, and in return Philipp Brothers also got long-term sales contracts for the output of the mines. In an interview, Jesselson explained the rationale behind the strategy: “We look at developing nations as if they were bicycle makers. Bicycle makers are just not equipped to market bicycles, so they go to someone else to take that risk. Philipp Brothers exists to assume a producer’s risk.”[41] The public could follow the advances of Philipp Brothers through the annual reports of E M & C, which glowingly presented ever more impressive trade volumes and growing revenues. As the 1967 annual report noted: “There is scarcely any commercially important ore or metal that is not marketed by the division [i.e. Philipp Brothers]”.[42]

Breaking into Oil

The 1960s were a period of non-stop growth for Philipp Brothers, but impressive as they were, the earnings of that decade would be dwarfed by the profits made in the 1970s. The main reason for the development was that the company was able to break into the oil trade. Unlike metals and minerals, oil was not a major international trading commodity. A handful of large international oil companies, often called the Seven Sisters, controlled the whole value chain and in addition they also set the prices for oil. However, by the late 1960s the situation was slowly beginning to change. In 1960, several producer nations had grouped together in the Organization of the Petroleum Exporting Countries (OPEC), and the member states wanted to assert greater control over the market for oil.[43] In 1969, a Philipp Brothers trader based in Milan, Alan Flacks, learned that Tunisia, a country which had just recently started to produce oil, had some crude oil that it wanted to sell. Flacks found an Italian refinery that wanted to buy and arranged the sale. It was an example of a “back-to-back” deal, where both the seller and buyer were at hand before the arrangement was made, it was risk-free, and Philipp Brothers earned as much as $65,000 for this quick deal.[44] Jesselson was very happy with the sale, and he encouraged his traders to seek out other oil deals.[45]

Philipp Brothers’ manager in Madrid, Marc Rich, eagerly picked up on the idea. Rich had started his career with the company in the mailroom but had risen to become one of the most successful young traders in the organization, and Jesselson viewed him as a future president of the company. Rich understood that the producer states could only break out of the grip of the large producers if they could find a way to market the oil outside of the channels of the Seven Sisters. Philipp Brothers, with its worldwide organization, could offer the marketing know-how and the distribution channels that the oil countries lacked. However, oil was traded in large quantities and in special ships, so the capital requirements were significant. In addition, unlike metals and minerals, oil could not be cheaply stored but had to be kept in specialized storage tanks. Rich teamed up with his colleague Pincus Green, a logistical expert, and together the pair started to investigate business possibilities in oil. Building on their close connections with Iran and Israel, they were able to purchase Iranian oil that flowed through the secret Iranian-Israeli oil pipeline. Though the oil was politically sensitive, nations doing business with Israel risked being blacklisted by the Arab countries. Rich found buyers, often by disguising the origin of the oil, while Green organized the logistics for the deals and chartered tankers. In a short time span, Rich and Green’s oil deals propelled Philipp Brothers into becoming the largest independent oil trader in the world, in the process creating a spot market for oil which revolutionized the price setting for the product. In 1973, the pair’s oil sales contributed between $4 million and $5 million in profits to Philipp Brothers.[46]

Ludwig Jesselson was very happy with the development, but the board of directors of E M & C worried that the oil deals were too risky, especially since Rich did not always have buyers lined up when he purchased oil. Jesselson backed him up, and Rich and Green continued. However, in the spring of 1973 the pair concluded a huge deal with Iran, committing Philipp Brothers to a long-term deal to purchase about 7,5 million barrels of oil for a price at least $2 over the going market price at the time. Rich and Green had information that the Arab countries would soon embargo oil, but Jesselson was shocked when he learned about the deal, and demanded that Rich should get out of the contract immediately. Rich and Green managed to sell it for a small profit, but the pair was incensed that Jesselson did not trust them and the information that they had. The incident damaged the relations between Jesselson and his young oil traders, and though Jesselson tried to repair the relationship by asking Rich to come back to New York to eventually be his successor as president of Philipp Brothers, Rich refused when he did not get the (very substantial) bonus that he demanded. In February 1974, Rich and Green left the company to establish a competitor under the name of Marc Rich + Company, taking with them several Philipp Brothers employees.[47] Jesselson never spoke again with Rich and Green, and in a later interview said: “It’s a sad chapter in my personal life. They were like my own sons. I brought them up from nothing, and they turned their backs on me.”[48]

Life after Rich

Rich and Green’s defection was a shock to Jesselson and his fellow directors, but although Marc Rich + Company grew aggressively (often by hiring away employees from Philipp Brothers) and became a real force to be reckoned with in the trade, Philipp Brothers also continued growing significantly in the second half of the 1970s. From 1974 and onwards, the company reported yearly net earnings in excess of $100 million every year, and between 1979 and 1983 Philipp Brothers enjoyed record years with net earnings ranging between $289 million and $470 million.[49] Philipp Brothers was far outgrowing the other divisions in E M & C and by 1979 the metal trading division supplied more than 85 percent of the net earnings of the corporation. To the owners it was becoming increasingly clear that Philipp Brothers and the two other divisions were too different in size and in focus to gain much in terms of synergy effects, and in March 1981 E M & C announced that Philipp Brothers would be spun off as a separate company under the name of Phibro Corporation.[50] Jesselson later explained: “We felt you cannot do justice to an industrial complex if you want to do trading at the same time. […] You need to do one thing in order to do it well.”[51]

By now, Ludwig Jesselson was no longer the president of Philipp Brothers. After Marc Rich left the company, the sixty-four-year old Jesselson immediately looked for another trader to succeed him. He chose David Tendler, the then thirty-five-year-old manager of Philipp Brothers’ office for Tokyo and Far Eastern operations. Tendler’s appointment was a sign that the company was changing. Unlike most of the other older directors, he was not a German immigrant but had grown up in New York. Tendler became president in July 1975, while Jesselson continued as chairman and remained highly influential in the company.[52] Under Tendler’s tutelage, the company started to pay higher wages and give larger bonuses. This was partly a consequence of the fabulous earnings of the late 1970s, but also a measure to prevent losing more key people to Marc Rich. The new management pushed Philipp Brothers into new business areas, expanding into “soft” commodities like sugar, grain, cocoa, and fertilizers, and in addition purchasing both mines and production facilities.[53]

Yet, these investments were small fry compared to the deal that Philipp Brothers made in July 1981 when it bought Salomon Brothers, the largest investment banking house on Wall Street. The buying price was $554 million and the two companies were merged in a new holding company called Phibro-Salomon, headed by Tendler and Salomon Brothers’ John Gutfreund as co-chairmen.[54] For Philipp Brothers, the rationale behind the deal was to gain access to the financial service capabilities of Salomon Brothers. The trading company had become increasingly involved in arranging debt financing for mining projects and other production facilities in return for the right to market the output, and had also started trading financial instruments. Salomon Brothers were experts in this field.[55] The business press met the merger between the two companies with euphoric reactions: to the Financial Times it was “Wall Street’s New World Force,” while according to Business Week, the deal meant the birth of “A Trading Superpower.”[56] However, the honeymoon period for the new company quickly ended. Towards the end of 1981 the commodity prices started to fall, and Philipp Brothers profits tumbled. At the same time, Salomon Brothers continued growing, riding high on the Wall Street boom of the early 1980s. Tendler and Jesselson became increasingly dissatisfied with the arrangement between Philipp Brothers and Salomon Brothers and in May 1984, they tried to reverse the merger by buying back the commodity trading business from Phibro-Salomon. Tendler was unable to raise the necessary capital, and the proposal was shelved. Shortly afterwards, Tendler left Phibro-Salomon, and Gutfreund was named sole chief executive officer of the combined companies, which changed names from Phibro-Salomon to Salomon Inc. Ludwig Jesselson himself left as chairman of the division in October 1985, but continued as a director.[57]

During the rest of the 1980s, Philipp Brothers gradually disintegrated. Partially, this can be explained by the difficult economic conjunctures of the period. From late 1981 and onwards the international markets for metals and minerals were in decline. During the 1970s, the world mining capacity for most metals had been significantly increased, and when the industrial world went into recession in the aftermath of the second oil shock in 1979, demand for metals and minerals collapsed. Some of Philipp Brothers’ competitors like Associated Metals and the Hochschild group left metal trading for good in 1984/1985.[58]

However, ultimately the rapid decline of Philipp Brothers had perhaps more to do with corporate infighting than with the collapsing commodity markets. When Tendler and Jesselson lost the internal power struggle, the future of the Philipp Brothers division clearly lay with Gutfreund. In an attempt to turn the division around, a quickly changing succession of top managers, with Gutfreund’s blessing, made rapid cuts in the staff of the commodity trading operations. Within a year after Tendler had left, Philipp Brothers was slashed to a third of its size.[59] The company culture of Philipp Brothers, which had always been a company with a paternalistic character, changed virtually overnight. Many of the most experienced traders, seeing the writing on the wall, decided to leave the company on their own accord, taking with them their knowledge and their contacts to competing firms or setting up their own trading companies. Yet, the downsizing did not lead to improved economic results. The first round of layoffs was thus rapidly followed by new rounds: at the apex in 1980, Philipp Brothers had two thousand and three hundred employees; by mid-1990 that number was down to six hundred. Of the one hundred and fifty commodities that the company traded in 1980, in 1990 there were just eleven. Finally, seeing no improvements in the profitability of the division, Salomon Brothers in 1990 dismantled Philipp Brothers as a separate unit and shut down most of the remaining trading operations, keeping only the precious metal trading under the name of Salomon Brothers. The old Philipp Brothers was no more, although the name lived on in Phibro Energy Inc., the oil trading arm of the old organization, which had been spun off as a separate company in the early 1980s.[60]

Social Status, Networks, Family, and Public Life

After he arrived in the U.S., Ludwig Jesselson lived both his professional and personal life in circles dominated by German Jewish immigrants. He himself was a typical pre-1940 hire for Philipp Brothers: Bendheim and Ullmann generally hired immigrants, mostly German Orthodox Jews, and before World War II they spoke almost exclusively German in the office. Although they understandably enough switched to English as the office language during the war, and even though they started to recruit from a broader base when the company expanded after 1945, Ullmann and Jesselson still seemed to prefer hiring people with a German Jewish background. According to Jesselson this was not a conscious decision, it just worked out that way since for reasons of background and language they fit in better.[61] However, the fact that German Jewish companies like Metallgesellschaft and Aron Hirsch & Sohn had pioneered the development of non-ferrous metal trading must also have been a factor. Metal trading was a highly specialized occupation, and a trade in which German Orthodox Jews had traditionally been dominant. After Hitler came to power in Germany, many metal traders left the country, and quite a few of them ended up in New York, in the process moving the center of metal trading from the old world to the new. Because of their background, the Philipp Brothers’ directors were able to tap into this resource when they grew their company. But Philipp Brothers was not alone in doing this; other New York firms established by German Jewish immigrants like Associated Metals (owned by the Lissauer family originally from Cologne) and Continental Ore Corporation (established by Henry J. Leir originally from Upper Silesia) also utilized the expertise developed in Germany to become important actors in the business.[62]

The ethnic background of the dominant figures in the company played an important role in how Philipp Brothers was perceived from the outside. When it was described by the media or by writers it was often in terms of being a “clannish” company, or a “tightly-knit group of German-Jewish immigrants.”[63] Jesselson himself was thought to consider the company as an extended family, and until the mid-1980s he is said to have never laid off anyone during slumps.[64] However, the family feeling of the company quickly disintegrated when Philipp Brothers started to fire large parts of the workforce in the troubled years after 1985.

In his private life, Ludwig Jesselson married Erica Pappenheim in 1949. She was born in Vienna in 1922 to Jewish parents, and in December 1938 Erica and her sister Lucy, in a rescue operation, were sent on a Kindertransport to England. The rest of her family managed to escape to New York, where they were reunited in 1940. When Erica and Ludwig Jesselson married, they first lived on the West Side in Manhattan, then in the Riverdale section of the Bronx. The couple had three sons: Michael, Daniel, and Benjamin. Ludwig and Erica became heavily involved in philanthropy, focusing on Jewish causes both in the United States and in Israel. Ludwig Jesselson served as a board member for Yeshiva University in New York from 1961, as treasurer from 1977, and as chairman of the board of trustees from 1998 until he died in 1993. The Jesselsons founded and endowed the Yeshiva University Museum in 1973 and also paid for many of the museum’s acquisitions. In Israel, they endowed a chair of mathematics at The Hebrew University, and also contributed to The Hebrew University’s National Library where both Ludwig and Erica Jesselson received honorary doctorates. The two were major benefactors of the Israel Museum and the Israel Philharmonic Orchestra, and Erica Jesselson served on the board of both these institutions.[65]

The charitable work that Jesselson did also spilled over into his professional life.[66] Philipp Brothers was always a substantial donor to Jewish causes, and even before the company became a global giant, the firm’s and the employees’ contribution to the United Jewish Appeal was always among the highest. In later years it was the highest amount given by any of the metal firms. Ludwig Jesselson and Siegfried Ullmann also instilled in their employees the importance of charity, and there were a number of cases where people were told quite bluntly what they were expected to give.[67]

Ludwig Jesselson died in 1993, at the age of eighty-two.[68]

Conclusion

In the post-WWII world, Philipp Brothers emerged as the most important metal trader in the world, with a dominant position in the markets for a number of metals and minerals. The company was also instrumental in creating a spot market for oil, which had very important repercussions for the way the product was traded. The company was owned and run by German émigrés who had been trained in Germany and who took their expertise and know-how with them to the new world. Together with other German Jewish traders who left after Hitler came to power, they transferred the metal trading center of the world from Germany to the United States. Philipp Brothers replicated the role that large German metal traders like Aron Hirsch & Sohn and Metallgesellschaft had played in the international economy before 1914, but unlike the German predecessors, Philipp Brothers was more reluctant to invest in mines and refineries, and mostly concentrated on being an intermediary, buying commodities and selling them for a mark-up.

Ludwig Jesselson was the driving force in Philipp Brothers’ international expansion after World War II, and he was the main architect behind the transformation of the company into a global actor. By going after bigger deals and focusing on longer-term contracts, the company was able to profit from the post-war boom in metals and minerals. Jesselson and his company especially excelled in dealing with governments. The company played a pivotal role in supplying the United States with raw materials for its strategic stockpile, it harbored close relations with the Communist bloc and was a central actor in the east-west trade. Most importantly, however, Philipp Brothers thrived on doing business with governments in the developing world. Jesselson’s idea was that by lending money to countries with their mineral wealth as collateral, the company could secure privileged access to metals and minerals. Even though Philipp Brothers collapsed in the late 1980s, Ludwig Jesselson’s legacy lived on in a new generation of metal trading giants led by traders who had learned the business under his auspices. Glencore (which grew out of Marc Rich + Co.) and Trafigura, today’s most important oil and metal trading companies, can both be traced back to Philipp Brothers.

Notes