Folder 137

NYC 9/11 Public Portal Document

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designated successor. "Bernie wouldn't hear a bad word about the kid," says an ex-Cantor executive. "If you presented him with evidence that Howard had crossed the line, he'd say, 'Don't worry. He's young. He'l I leam."

Bernie Cantor might well have admired the way Lutnick grabbed

[Photograph] Caption: Howard Lutnick and Bernie Cantor Cut from the same cloth?

In 1990 Cantor, in his 70s, went on dialysis. By 1994 he had been declared legally blind. Lutnick convinced him to change the firm from a corporation into a partnership, to avoid double taxation. The deal closed in September 1992. Cantor had started with a 73% stake, but he and his stylish wife, Iris, took out profits to finance their high living. (By the time Cantor died, he owned just 47%.) The partnership structure still gave him absolute power; though Bernie's days were numbered, Lutnick apparently was getting antsy. He made an ally of Stuart Fraser, Iris Cantor's nephew, naming him head of the firm's government securities brokerage. In 1995 Lutnick, Fraser and a third partner tried to buy out the Cantors, but Bernie was still. able to say no. But on Jan. 2, 1996, when Bernie Cantor had been put on life support, Lutnick made his move. He activated the five-member incapacity committee provided for in the partnership agreement. Three members voted to take the reins from Cantor's failing hands; Iris Cantor and the fifth member abstained. Howard Lutnick, though he held just 14% of the partnership, was now the boss.

Iris Cantor, newly in charge of the holding company through which Bernie owned his partnership units, was furious. Lutnick has claimed she wanted. to sell the firm. Iris claimed that she merely wanted a say in operating it. In May 1996 they went to Chancery Court in Delaware to have it out. After two days they settled. Lutnick won: Iris Cantor would get a lot of money but have no voice in running the firm. When Bernie was buried two months later, Iris barred Lutnick from the cemetery.

A master of the universe it wasn't for long. The weekend after his mentor's death, Lutnick and a

Lutnick was by nowin novelist Tom Wolfe's felicitous phrase-a master of the universe. What gives Lutnick and the firm clout in an investment world dominated by far bigger and more respected firms? Certainly not prestige. Its clout derives from its highly specialized position. This is a business in which margins are so thin that it takes real expertise to make money on them. Lutnick likes to refer to it as "getting between the wall and the wallpaper. The wholesale market in government securities operates in price increments as small as 1-256 of a point, which translates to $39.06 on $1 million worth of bonds. In the retail market, increments typically are in 1/32 of a point, translating to $312.50 per million. Commissions? A primary dealer that trades through Cantor's wholesale government securities brokerage operation normally pays a commission of $30 per $1 million. The customers of Cantor's retail arm would pay a minimum commission on their trades of $39 per million. There's not a lot of paste between that wallpaper and that wall. There is, however, a hell of a lot of wall and wallpaper. These tiny margins are worth pursuing because the market is so huge. In a market where $100 billion a day is traded, even $30 per Si million comes to $3 million. If you can wring a few extra pennies on a business in the billions, you've got real money. Think of it as

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