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Here’s Wall Street’s Plan to Recover from the Devastation

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Firemen make their way through rubble and debris after the collapse on September 11, 2001. Stan Honda — AFP/Getty Images

No one understands better than Peter DaPuzzo the combination of talented people, sophisticated systems, and cult bonding required to build a successful Wall Street trading firm. DaPuzzo, a trim, 60ish polo player, spent almost a decade joining those elements with rare chemistry at Cantor Fitzgerald, the nation’s largest broker for U.S. Treasury bonds and a comer in equities, DaPuzzo’s specialty. When the World Trade Center collapsed on Sept. 11, Cantor suffered unimaginable destruction: Every one of the 66 traders in DaPuzzo’s international, Nasdaq, and program trading groups died. More than 100 bond brokers perished. At last count Cantor had lost 680 of its 1,000 employees in New York—a human toll that dwarfs the destruction of the giant systems running Cantor’s premier product, its eSpeed electronic trading network.

For DaPuzzo, rebuilding a business while nurturing shattered lives is an epic, eerie, left-brain/right-brain exercise. “With half of my brain, I’m talking to the Fed, arranging credit lines, getting eSpeed running,” says DaPuzzo. “With the other half, I’m consoling the families of the employees who died. When I look at the remains of the World Trade Center, it’s like looking into a grave.”

Or a war zone. It’s impossible to overestimate the carnage on Wall Street. Of the nearly 5,000 dead or missing, some 2,000 worked for financial firms, meaning that one Wall Street worker in 100 has been lost. More than 15 million square feet of office space was either obliterated or badly damaged, equivalent to the entire downtowns of Atlanta or Miami. Early estimates suggest that anywhere between $2 billion and $5 billion worth of telecom and computer equipment was destroyed. When 7 World Trade Center collapsed a few hours after the Twin Towers, steel beams fell onto Verizon’s office across the street, and water damage short-circuited the phone company’s switching facility, silencing millions of voice and data lines that linked Wall Street to the world. The debris in lower Manhattan is so deep that Verizon (VZ) can’t reach its manhole covers to make repairs. And there is untold collateral damage, to everything from Trinity Church to the World Financial Center’s Winter Garden, home to elegant restaurants and boutiques.

NEW YORK'S WORLD TRADE CENTER COLLAPSES. The remaining tower of New York’s World Trade Center disolves in a cloud of dust and debris soon after the towers were hit by hijacked airliners, September 11, 2001.Reuters

Nearly every company on Wall Street can count losses in some—or all—of these four key areas: people, equipment, real estate, and trading capacity. Stricken companies must replace highly paid traders and other specialists from a small, exclusive pool of Wall Street elites. Firms whose electronics gear vanished in the explosion now need a plethora of routers, switches, and servers. Within two days Dell Computer had been called by all 85 of its New York clients directly affected by the attack and was shipping 5,000 computers by truck; it promised delivery within 24 hours. Thacher Proffitt & Wood, a law firm that normally has 300 people on floors 38 to 40 of Tower 2 (no casualties), didn’t wait for Dell to deliver; it sent a truck to Austin to collect the 400 computers and printers it had ordered.

The disaster has created a severe shortage of office space in lower Manhattan. That could put upward pressure on already high rents—although it’s likely that some companies blown out of the World Trade Center will decide to reopen on what they perceive to be safer soil outside New York City. In the meantime, some of the most cutthroat businesses in the world have gone out of their way to help each other. The New York Stock Exchange, which was not damaged, will allow the American Stock Exchange, which has no power, to trade equities on its floor (other Amex (AXP) business will move to Philadelphia). “All sorts of firms are offering their space to others,” says Wick Simmons, chairman of the Nasdaq. “It’s an industry pulling for an industry.”

That’s because Wall Street must restore a huge loss in America’s trading capacity. The casualties include not only the Amex and Cantor’s bond-trading network but prominent commodities exchanges like the New York Board of Trade and the brokerage operations for firms ranging from Morgan Stanley (MS) to Salomon Smith Barney.

The rebuilding effort will take years. Yet in the midst of the devastation, a remarkable number of companies—despite the loss of people, computers, and physical space—are back in business, if not exactly business as usual. A spokesman for Morgan Stanley, by far the World Trade Center’s largest tenant, with 3,700 employees (all but 15 accounted for), said the firm was “fully operational less than 48 hours after the tragedy.” It relocated people to backup facilities in New Jersey and Brooklyn. Merrill Lynch, which had to evacuate its headquarters in the World Financial Center, sent many of its debt and equity traders to offices in Jersey City. Merrill has additional space in Manhattan and Princeton, N.J.


Remarkably, Cantor Fitzgerald was trading bonds two days after the attack, as clerks in its Connecticut office settled accounts by phone. The New York Board of Trade moved to backup offices on Long Island and prepared to begin trading each commodity—sugar, cotton, orange juice, coffee—for 90 minutes each day. Probably no one found new space more quickly than Harris Beach, a law firm with 150 employees on the 85th floor of Tower 2 (five people missing). The day after its offices were vaporized, Harris Beach signed a lease for furnished, wired, ready-to-go space in midtown Manhattan.

Wall Street firms would be inoperative right now were it not for the careful contingency planning they began after the 1987 stock market crash—and accelerated after the 1993 bombing of the Trade Center towers. Until that first terrorist attack, few companies had strong systems for backing up data or duplicating critical computing power. The 1993 explosion didn’t destroy huge amounts of data, but it did persuade firms to focus on crisis management. Says the Nasdaq’s Simmons: “The scare we had in 1993 put into us the fear we always have in such times: that we’ll be down and no one else will.”

Today the financial firms rely on two critical services to guarantee a quick rebound from natural or man-made disasters. The first are information backup serv- ices that collect computer tapes and store them in highly secure suburban facilities. A leading player is Recall, which handles data storage for Cantor Fitzgerald; Mizuho Financial, a big Japanese bank; and six other firms in the World Trade Center. Recall collects tapes from its clients as often as three to five times a day. Victor Mendes, Recall’s CEO, said his firm began gathering backup tapes to deliver to clients as soon as he heard about the first plane. He confirmed that Recall helped restore Cantor’s trading power. “The part that depended on Recall has been accomplished safely,” he told Fortune.

The second key service is provided by companies like Comdisco, which operate facilities packed with mainframes and servers that replace lost computing power. For a subscription fee, plus a disaster assessment that may run into the millions of dollars, stricken firms can move their personnel to Comdisco’s centers for up to six weeks; after that, the companies must find their own space. John Jackson, who heads Comdisco’s disaster recovery services, says it handles 31 clients, including the New York Board of Trade, that once had offices in the World Trade Center or surrounding buildings. So far these companies have moved 3,000 employees from lower Manhattan into various Comdisco facilities. Once a company’s backup tapes arrive—usually in a matter of hours—its systems can be up and running in a day. Jackson knows firsthand that not all of Wall Street’s damaged firms took the right precautions. About two dozen have called him asking for help. They’re out of luck. Says Jackson: “You can’t buy life insurance after you’ve died or car insurance after you’ve had a wreck.”

Comdisco owns the cavernous warehouse in Long Island City where the New York Board of Trade has its emergency trading floor. The exchange hired Comdisco to establish the backup facility after the 1993 World Trade Center bombing. Because it could take months for the NYBOT to reclaim its trading floor on Wall Street, it is talking to the NYMEX, the energy and gold exchange, about sharing the NYMEX office space along the Hudson River. The NYBOT must move fast to find a permanent facility. London’s commodity exchange, the LIFFE, is far more automated than the NYBOT. So far it hasn’t poached the NYBOT’s products because, until now, it was impossible to steer enough volume from New York to London to create a large, liquid market. London, for example, trades African coffee beans, while New York dominates in South American beans. But now London could move to capture business that once flowed to New York.

Cantor Fitzgerald faces the same dilemma: It could lose the deep liquidity that is one of its major appeals to customers. Cantor is primarily a Treasury bond broker providing a crucial service to large institutions like banks and insurance companies: It enables them to remain anonymous. When a bank asks Merrill Lynch to unload $1 billion of Treasury bonds, Merrill uses Cantor to break the order into pieces. That keeps other customers or dealers, like Salomon, from knowing that a big block of bonds is hitting the market. If Merrill called Salomon directly, Salomon might dump its own bonds first, pushing down the price when Merrill sold. Cantor dominates the business because it serves so many clients; it can quickly find buyers, at low cost, for even $3 billion sell orders. It’s practically an exchange itself: The world’s bond traders use Cantor’s quotes to establish the price of Treasuries. And investors use Cantor’s screen to make sure dealers aren’t ripping them off.


In 1999, Cantor offered clients a discount to switch from traditional, over-the-phone trading to its fully automated eSpeed system; eSpeed now accounts for 80% of the firm’s bond business. It seems heartless to say so, but eSpeed also had an unintended consequence: DaPuzzo says Cantor will not replace any of its brokers who perished and instead will move immediately to the totally automated eSpeed system, a transition it had planned to make more gradually. The danger is that a wounded Cantor may still lose business to upstart competitors. Banks, wary of relying on a single broker, have created rivals like TradeWeb and BrokerTec. So far they’ve attracted only small volume, but Cantor must restore both its smooth-running systems and its visionary management to keep the competitors at bay.

And how does a company begin to restore visionary management? “The real devastation centers on the loss of leaders,” says Jory Marino, head of the financial serv- ices technology practice at Heidrich & Struggles, the executive search firm. “They’re almost irreplaceable.” Cantor, for example, lost Fred Varacchi, the president of eSpeed, and Doug Gardner, its vice chairman. They were entrepreneurs who inspired tight-knit bands, leaders who helped create eSpeed and guide it to a successful public offering. “Cantor is a client, and I will do everything I can to help them rebuild their top team—pro bono,” says Brian Sullivan, Marino’s boss and head of Heidrich’s global financial services practice. “But it will be extraordinarily difficult.”

For DaPuzzo, it’s clear that the esprit de corps at Cantor will never be the same. “We lost so many wonderful, talented people,” he says. “I’m a religious man who believes people have a choice in this world. The people who perished had no choice.”

Comdisco’s Jackson says his job of safeguarding records and equipment is easy compared with the task of replacing human capital: “The biggest challenge is HR, [trying to replace] people who knew how to run things that were never written down.” Although Wall Street’s soft job market would seem to ensure an ample supply of back-office workers, it will be much harder to replace skilled traders and institutional salespeople who had built hard-won customer relationships. At Cantor, DaPuzzo has pledged to quickly rebuild a big part of his nearly obliterated equities department. His plan is to hire around 35 professionals in such niches as Nasdaq and program trading. Cantor’s traders in those businesses were stars who often made more than $1 million a year. DaPuzzo can’t replace them with people who have been laid off from other firms. He’ll have to woo stars who have good jobs already, from his competitors. The price—in time and money—will be high.


An overlooked casualty of the attack is the vast electronic infrastructure either embedded in the vanished towers or beneath streets now heaped with rubble. The equipment divides into two categories: first, the servers, routers, and switches used by the firms, and second, the world’s densest, most advanced telecommunications networks. To run the ultrafast processing and robust data lines needed for quicksilver trading, Wall Street invests heavily in IT. Expenditures can reach $500 per square foot, more than five times the cost for, say, an executive search firm. At those rates, Morgan Stanley, the Trade Center’s biggest tenant, lost several hundred million dollars in electronics gear.

As it happens, the beleaguered equipment industry is swimming in unsold routers and switches. “There’s a lot of overhanging capacity, I can tell you that,” says Manuel Barbero, managing director of KPMG Consulting, who is helping financial firms cope with the crisis.

In telecom, as in crisis management, Wall Street got a healthy scare from the 1993 bombing. If a firm relied on a single provider whose lines went dead, it lost contact with its customers—along with a heap of revenue. From then on, each company began spreading its business among the growing galaxy of telecom players; it isn’t unusual for a firm to have cables from Verizon, Sprint, and AT&T (T) running into its headquarters. That way, if one or two networks blew out, the company could route its calls and trades through the carrier(s) that escaped damage. That’s exactly how it played out after this attack for companies like Merrill Lynch and Lehman Brothers, located in the World Financial Center, which was damaged but not destroyed.

Still, the telecom infrastructure suffered a heavy blow. AT&T’s gear buried far below the World Trade Center may never be salvaged. Debris from the explosion severely damaged the facility housing Verizon’s Wall Street switches. “We have a giant job cutting out the pieces that don’t work and reattaching the parts that do,” says Hugh O’Kane, CEO of Levent Management, a firm that designs and installs telecom networks. It will cost billions—maybe $2 billion, maybe $4 billion, maybe more. No one really knows. It’s unlikely that Wall Street companies will want to simply replace what they lost. They will demand more secure, more sophisticated equipment, with more connections. Cisco (CSCO), Nortel, and other makers of networking equipment could get a nice lift just when they need it most.

Amid all the rebuilding, it’s unlikely that we’ll see one—much less two—mighty towers dominating the skyline. Even before Sept. 11, some Wall Street companies had begun to view giant skyscrapers not as symbols of power but as magnets for danger. Wall Street’s obsession with safety, with girding itself for unforeseeable crises, will grow. But so will its resilience. Wall Street’s skyline may not be be as flashy. But its marquee players will be. Some things never change.

Additional reporting by Katrina Brooker, Julie Creswell, Suzanne Koudsi, Carol J. Loomis, Stephanie Mehta, Bethany McLean, Joseph Nocera, Brian O’Keefe, Janice Revell, David Rynecki, Nicholas Varchaver, and Fred Vogelstein

A version of this article appears in the October 1, 2001 issue of Fortune with the headline “Rebuilding Wall Street.”