Profile: Enter the loan ranger: Loyalty is driving Wall St legend Lewis Ranieri to help Paul Reichmann regain his impossible dream for Docklands

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The Independent Online
THE MAN who would save Canary Wharf - or at least help Paul Reichmann retake control of his dream for the Docklands - is no stranger to the world of foreclosed property, defaulted mortgages and desperate project lenders. Lewis Ranieri, the portly former Salomon Brothers trader who is drumming up investors for Reichmann's bold salvage scheme, is arguably responsible for more bad property loans than anyone on the planet.

Many people have been blamed for the dollars 500bn fiasco at America's savings and loans banks in the Eighties, from Democratic senators and George Bush's son to Michael Milken and Ronald Reagan, but it was Ranieri - the father of the trillion-dollar market in mortgage-backed securities - who made possible the orgy of irresponsible investment with taxpayer-guaranteed deposits.

Not intentionally, of course. Contrary to the Wall Street myth that has grown around the flamboyant Ranieri since the publication of Liar's Poker, Michael Lewis's best-selling account of Salomon's heady days in the mid-Eighties, he did not invent mortgage securities. But it was he who identified their potential, used Salomon's clout to win regulatory changes that created insatiable demand for the securities, and went on to cram billions'-worth down the willing throats of inexperienced thrift managers, all the while claiming to be the champion of the American home-owner.

'The big idea was securitisation, a word I unfortunately coined,' Ranieri told one interviewer.

'Lewie was the right man at the right place at the right time,' says Michael Lewis. Ranieri's critics would argue that Salomon's huge mortgage trading profits between 1978 and 1987 were the result of unbelievably good luck rather than a testimony to his vision, facility with big numbers, and considerable skills as a salesman. The huge success of Salomon's irreverent, decidedly un- yuppie mortgage desk - long held up as proof of the firm's street-wise trading culture - was the result of 'a simple tax break', Liar's Poker contends. 'It was all a great mistake.'

His critics are similarly sceptical about Lewie Ranieri's role in Reichmann's bold bid to revive the seemingly doomed Docklands project, which has already consumed dollars 3.5bn of Olympia & York's money and dollars 1bn more from its creditors. The pounds 350m bailout proposal the banks have agreed to consider is still very tentative, and its economics are daunting. Ranieri finds himself in the company of two other potential investors - Primerica's Sanford Weill and Laurence Tisch of the Loews group - well known on Wall Street as 'bottom-fishers', whose commitment to the scheme is apparently in doubt.

Few who know Ranieri, however, doubt that his interest in helping Paul Reichmann, a former Salomon client, is sincere. His Salomon caricature was of a gluttonous, vulgar, cigar-chomping slob who ran his department like a fraternity house, hiring other self-educated, loud, fat Italian-Americans, pulling sophomoric pranks on colleagues, and staging Friday afternoon 'food fights' in the trading room.

But Ranieri has a great virtue: loyalty. His background was lower-middle-class Brooklyn, and because his father died when he was 13 and his health would not let him become an Italian chef, as he wanted, he joined Salomon Brothers as soon as he left school. He learned his loyalty to the company when he was only 19: his wife fell ill, and his boss said the company would pay for her treatment. His loyalty to Reichmann dates from a period of deep depression after Salomon fired him in 1987.

The Canadian rescued him from self-imposed exile on the 'redneck Riviera' in Florida, setting him up with office space in Manhattan and investing dollars 30m in his new company. Ranieri, now 45, believes he owes Reichmann - his antithesis in so many ways - a big favour.

This has not prevented him from claiming some credit for Olympia & York's early success in the New York property market, where it remains the city's largest private landlord. 'Many of their most innovative financings can be traced through Paul to me,' Ranieri told the Independent earlier this summer. 'O & Y was a valued client of the firm, so it wasn't for me to take victory laps.'

Ranieri's sense of loyalty was, however, deeply wounded by the sudden decision by the then chairman, John Gutfreund, to sack him, less than a year after naming him vice-chairman and publicly mooting him as a possible successor. Why he did is still unclear; one suggestion at the time was that he was completely out of control. 'Lewie is really a wild guy, an entrepreneur,' Robert Dall, his one-time boss and one of the actual co- founders of the collateralised mortgage obligation, said soon after. 'He doesn't like to be told what he can do.'

Salomon fell into a bad slump soon after Ranieri's departure, and Gutfreund was forced to resign a year ago, when it was revealed he had failed to control illegal practices by the firm's government-securities desk.

Despite a number of offers from competing Wall Street firms, Ranieri decided to set up his own shop only four months after the 1987 market crash, this one based on the ironic idea that the collapse of the S & Ls created new business opportunities. 'As a result of the upheavals currently affecting almost all parts of the financial services industry, the partnership may be able to acquire financial services companies on favourable terms,' ran the business plan for Ranieri Wilson & Company.

Ranieri was able to raise more than dollars 450m from many of the same cash-rich institutions, among them Prudential Insurance and Westinghouse Credit, that had originally used his mortgage securities market as a means to invest in the high yields paid by buyers of property.

Most of the principals of Ranieri Wilson's original partnership have since left, apparently because of personality conflicts with Ranieri. But the firm, after some initial setbacks, has grown into one of America's largest mortgage finance operations, acquiring bankrupt S & Ls and property seized by the government, and managing billions of dollars in mortgage securities.

Ranieri's group now owns United Savings Association of Texas, a thrift with dollars 6.5bn in assets that will change its name this month to Bank United of Texas. It recently bought out Boston-based Commercial United, the 12th largest mortgage bank in the US, originating dollars 5bn worth of mortgages last year.

Ranieri has already helped Reichmann by finding buyers for O & Y's 12 per cent stake in his Hyperion partnership, providing the bankrupt Canadian developer with desperately needed cash. Lining up hundreds of millions of pounds for an unneeded and apparently unwanted office complex in east London will be an entirely different matter.

While negotiations began on Friday, Ranieri was in Florida, and his brother Sal - a lawyer and a partner in Hyperion - will confirm only that the firm 'is looking at Paul's proposal. But we look at a lot of proposals'.

But other Wall Street associates say Lewie is serious about the Reichmann salvage plans for Canary Wharf. 'I don't think either Sandy Weill or Larry Tisch will end up putting a nickel of their money into Canary Wharf,' said one investment banker close to the bid. 'But Ranieri, he's the only guy I know who is crazy enough to actually open his cheque book on this deal.'

(Photograph omitted)