Despite Losses, Firms Are Intent on Rebuilding

NEW YORK — Fred Alger Management Inc. suffered grievously in the World Trade Center attacks. Among the missing were chief investment officer David Alger as well as most of its analysts and portfolio managers--the people whose skill and knowledge had led investors to trust the firm with $15 billion.

“We will spare no expense in rebuilding,” Fred Alger, the chairman and David’s brother, said the day after the attacks. It was a sentiment echoed by nearly every company that had its offices destroyed and employees killed when the hijacked planes hit the twin towers. To close, to say the damage was so enormous that recovery is impossible, would be admitting defeat at the hands of terrorists.

Yet the task in front of these companies is daunting, perhaps overwhelming. More than a third of the firms in the World Trade Center when it was bombed in 1993 later went out of business, according to various studies. And that time, only six people died, and the towers still stood.

For Alger’s remaining executives, the difficulty of rebuilding was underscored when American Skandia Life Assurance, which had given Alger $835 million to invest, arranged for another firm to co-manage the money. Call it a vote of limited confidence in what remained of Alger.

It was “an absolutely grueling personal decision” but “an easy business decision,” said Michael Murray, chair of Skandia’s investment committee.

Expertise Lost

In the wake of the attacks, many customers and clients of the ravaged firms are having to confront equally tough choices. Despite their horror and sympathy, they have their own businesses and clients to worry about. As Murray said, “It’s not our money--it’s the investors’ money.”

The 286 tenants of the World Trade Center reflected its name: They were banks, insurers, import-export brokers, investment houses--companies whose value wasn’t in a factory or a consumer brand but the skill, knowledge and relationships that the employees had in their heads.

“The nature of that work, for better or worse, is very person-centric,” said J. Richard Hackman, a Harvard specialist in organizational behavior. “It’s going to be very hard to rebuild.”

The elite investment house of Keefe, Bruyette & Woods, which did more bank deals in the first half of 2001 than anyone in the country, lost a third of its 170 trade center staffers in the attacks.

“It’s not going to be easy,” said founder Harry Keefe, who retired in 1989. “They’ve lost some wonderful people. I’ve been sick all week.”

SunTrust Banks Inc. of Atlanta was born out of a merger orchestrated by Keefe in 1984. SunTrust has often relied on the firm since then. But the bank admits it isn’t sure it will use Keefe next time.

“Because of the seriousness of the staffing issue, it remains to be seen whether we can,” said Gary Peacock, SunTrust director of investor relations.

Many Keefe executives have privately wondered since the attack whether it would be better to sell the firm, which had a book value of $173 million at the end of 1999 and was probably worth more on the open market. But because of the immense damage the terrorists did to the firm, “our value is not in selling, but in rebuilding,” Keefe general counsel Mitchell Kleinman said.

The executives conducted a crude financial triage, working out which aspects of the business they would have to abandon.

The mergers and acquisitions team still had members, and that team brought in the most revenue. But research, described in company documents as the core of the business, was gone.

The true toll of the damage won’t be known for months.

“We have to figure out not just who is left, but what is their condition,” Kleinman said. “You have to look in their eyes.”

Support Networks

Despite their horrendous human losses, companies like Fred Alger and Keefe, Bruyette have support networks: loyal ex-employees, sophisticated computer back-up systems, national reputations in their fields and branch offices that escaped unscathed.

Many of the 3,000 or so businesses in the neighborhoods adjoining the World Trade Center don’t have those advantages. Over on 3rd Avenue, the state’s Empire Development Corp. has set up a sort of Red Cross for small businesses. With officials from 21 agencies, it’s a one-stop shop for company owners seeking help with real estate and office equipment, finances and insurance.

People from 900 companies have come by, said staff member Eileen Mildenberger. Only 30 of them had World Trade Center addresses.

Attorney David Absarian scanned tables for help on saving his small law firm, one he started 10 years ago and that now has six partners. It’s the support staff that he’s fearful for.

“People have offered to work for half pay,” said Absarian, whose offices were a couple of blocks from the site. “I’d rather not take a salary myself. I’m thinking about having everyone come work at my house. At least that will help cut down the bills.”

He knows he can get loans, and tap into his retirement to make ends meet. But can he do it for a year? Two years?

“God, I hope it doesn’t come to that,” he said.

A mid-size, more established company, Cables & Chips Inc., was hit by a double whammy: Many of its customers were in the towers. Meanwhile, its Fulton Street offices, a few blocks from the trade center, are filled with dust and debris. The phones are dead.

Makeshift Offices

The 27-person computer networking business has relocated to the 10th floor of a midtown skyscraper, in a room borrowed from online fashion retailer Bluefly.com.

“A friend of mine worked at Bluefly,” said Scott Gerber, Cable & Chips director of operations. “They offered us the space for free.”

There is one phone line, which dials into the Internet, connects to the fax machine and runs credit-card numbers. For all other purposes, cell phones are used.

But few of the company’s customers know where it is. And the employees are struggling to track down their clients.

“People owe us money, and we owe people money,” said Howard Feinstein, co-founder of Cable & Chips with his wife, Susan. “We’re going into our personal savings.”

Cable & Chips develops customized computer networks. The morning the planes hit, the company was scheduled to do some work at the offices of ESpeed Inc., an online marketplace for financial instruments. “Thank God we didn’t go,” Feinstein said.

Located on the 105th floor of the north tower, ESpeed lost its president, vice chairman, chief financial officer, head of corporate development, head of product development and head of sales. The exact number of ESpeed’s dead is unclear. Cantor Fitzgerald, the bond-trading firm that spun off ESpeed last year, is including ESpeed’s missing in its own total. Cantor says a total of 730 employees are unaccounted for.

Trading in ESpeed’s stock has been halted until at least the end of the month. Before the attacks, its market value was $477 million.

“There’s a big open question as to how to move forward,” said analyst Gregory Smith of J.P. Morgan.

Or even when ESpeed will be in shape to pay bills. At Cable & Chips, the Feinsteins have applied for federal and state loans, but say that it could be weeks before they get approved and receive the checks.

“We’ve been in business for 20 years,” said Susan Feinstein. “I feel like we’re back to being a start-up.”

That’s probably the only attitude that will save them, said Stanford University professor of management H. Irving Grousbeck. “These firms will be forced to be entrepreneurial. To succeed, they’ll have to be opportunity-oriented and resourceful and focused, all the things that successful start-ups are. ‘Business as usual’ will not work.”

But all is not bleak. Murray, the Skandia executive who brought in a co-manager over Alger’s objections, has been encouraged by the caliber of the analysts and managers that Alger is bringing in to replace the 36 employees who are missing and presumed dead.

Although the dual management structure will remain for Skandia’s portfolio, Murray expects Alger to be calling most of the shots within only a few weeks. At least, Alger has a chance of proving itself.

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Huffstutter and Menn reported from New York and Streitfeld from Los Angeles.