Farewell to Cornfeld

Like a brooding King Lear, Bernard Cornfeld sat in the forbidding, gray stone, mock medieval Villa Bella Vista on the shores of Lake Geneva. The villa, which used to echo with the pop of Moet et Chandon corks and the giggles and squeals of female employees, was hushed. Every day last week, the 23 directors of Investors Overseas Services Ltd., holding company for Cornfeld's $2 billion European mutual-fund complex, sipped black coffee and mineral water well into the night as they sought a way out of the company's financial crisis. They were trying to do so without surrendering control to the various European and

U.S. moneymen who were vying to take over. By week's end the rescuer had not been chosen, but the flamboyant, 42-year-old Cornfeld was forced to resign as chairman and chief executive of the I.O.S. empire, which throughout Europe is now called "S.O.S."

I.O.S. president, Edward M. Cowett, also quit, though both he and Cornfeld remained as directors. The board picked a chairman, Sir Eric Wyndham White, who is the former head of the General Agreement on Tariffs and Trade (GATT), and a new president, Richard Hammerman, who is the head of the I.O.S. insurance operations and an increasingly powerful man. Their job was to make the best rescue deal possible.

Rescuers. The first offer to aid I.O.S. came from a longtime Cornfeld associate, Denver Millionaire John McCandish King, 43, chairman of King Resources, an oil and mineral exploration and development company. I.O.S. has invested millions in mutual-fund money in the company's oil and mineral ventures, but King's terms last week were harsh. For a reported $40 million injection of cash and notes, he demanded the I.O.S. presidency and complete control. The 35% of I.O.S. stock owned by Cornfeld and his chief lieutenants would be held in a voting trust controlled by King.

Another possible rescuer appeared to be Guy de Rothschild's Banque de Rothschild. The Paris-based Rothschilds operate one mutual fund jointly with I.O.S. Last week they were putting together a group that included their cousins, the British Rothschilds, and other European bankers, to move into the Geneva situation. They would probably command more respect in Europe than Denver's King, and they too demanded that Cornfeld give up power. Six or eight other European banks and U.S. investment groups were said to be readying bids.

Margin Calls. How had Cornfeld got into such a fix? I.O.S. is a financial conglomerate that makes money in three ways: 1) from commissions on the sale of mutual funds to the public, 2) from fees for managing those funds, and 3) from underwriting, banking, real estate and insurance operations. But the prolonged bear market has reduced the asset value of most I.O.S. funds, and sales have been lagging. Commission income has fallen, and management fees are down because assets have shrunk.

The company became vulnerable as a result of a $110 million issue of stock in I.O.S. that was floated last fall. At first, many I.O.S. salesmen and other insiders hungrily loaded up on the shares on 50% margin. When rumors began circulating that I.O.S. earnings would not live up to the officers' overconfident predictions, Swiss and German banks dumped thousands of shares. The price plunged, the insiders got margin calls, and many were sold out. European bankers, who had always viewed Cornfeld as a competitor and abhorred his company's hard-selling and high-living style, were hardly displeased by his decline.

To conserve cash, Cornfeld's aides for weeks have been slashing at I.O.S.'s legendary overhead. Before his resignation, Cornfeld had stopped drawing his $150,000 salary. Hundreds of executives and employees have been fired with two months' notice and given $2,000 to get back home to the U.S. or elsewhere. They have lost painfully, but the major job now is to stop the panic and save the investments of the hundreds of thousands of people who put their trust--and their savings--in the hands of Bernie Cornfeld.

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