Making Money from Sound Money: The Nicholas Deak Story

As a young officer in the East European subsidiary of London's Overseas Bank in the 1930's, Nicholas L. Deak "learned that taking positions on foreign currencies and precious metals was a viable business and that basic mistrust of paper currencies and ensuing weaknesses in them could be profited upon."

This early lesson in the ambitious Hungarian's life was the germ of an idea that grew into what is today one of the world's foremost foreign exchange organizations—and the largest in the Western hemisphere. With over 50 member firms scattered from New York to London to Zurich to Hong Kong and back to Los Angeles, the Deak-Perera Group combines a broad and exciting range of foreign exchange services with dealings in precious metals and both international and domestic banking.

Following World War II, when millions of Americans wished to send money to relatives in ravaged Europe, it was Deak & Co. that handled many of those remittances abroad. When Vietnamese refugees left their fallen country by the tens of thousands only a few years ago, it was again Deak & Co. that rushed in to set up shop in refugee receiving centers on Guam and in this country to buy their thin, gold "Tael" wafers and provide them with the currency they needed to start life anew.

And over the years, wherever tyrannical governments have attempted to enslave their citizens by preventing them from removing their wealth, Deak & Co. and its affiliates have taken the lead in helping people surmount those exchange controls by often ingenious "blocked funds" transfers.

The unique character and personality of the Deak-Perera Group is imparted by its founder-president, a man whose story rivals that of Midas Mulligan or any other character ever conceived of by Ayn Rand. Born in 1905, Nicholas Deak remains the dynamic head of his international aggregation. A vegetarian, at age 72 he still runs in the New York marathon and finds time to ski cross-country, swim, and play squash and tennis.

Deak lived through runaway inflation in his native Hungary. He can recall the rush to spend increasingly worthless paper and the times his family had to barter their jewelry and clothing to farmers in exchange for food. Not surprisingly, then, Deak is a sworn enemy of inflation. And he is not optimistic for America's chances of avoiding that fate: "I feel that inflation will continue as long as the budget of the Federal Government cannot be gotten under control. With the budgetary deficit we continue to have inflation. Since budgetary deficits, in my opinion, cannot be cured, inflation will continue, and as time goes by will develop into accelerated inflation and lead to the collapse of our monetary system as we know it today. Subsequently, these developments will lead into a deflation and depression. The timing is uncertain. It will continue to depend on the magnitude of the budgetary deficits and other economic uncertainties."

Whether because of harsh experience or because of the financial traditions of his native land, Deak determined early to enter international finance. As he told the Newcomen Society at a 1975 dinner in his honor, his life and his business have been a response to the challenge of "creative entrepreneurship, dramatizing what men can accomplish in our free world."

After spending five years at the Royal Hungarian Trade Institute learning the basics of international trade and finance, he went on to earn a doctorate in international finance from the Swiss University of Neuchatel. Dr. Deak moved rapidly upward from there, going from the Hungary-Rumania branch of Overseas Bank to a post in the Economics Department of the League of Nations in Geneva.

But his was not to be the life of an academician. In 1939 he came to America and quickly launched a foreign exchange business. But with the outbreak of war, he joined the U.S. Army, where he soon came to the attention of the infant Office of Strategic Services (OSS). For four years he used his linguistic and paratrooper abilities in the service of "Wild Bill" Donovan on dangerous assignments in the eastern Mediterranean and in the Far East. In one exploit he likes to recall, Deak masterminded and personally carried out the wholesale smuggling of some 1,000 railroad freight cars out of Russian-occupied Hungary to the West at the end of the war. Later, such tactics were to be used in the service of Deak customers who wished to remove their money from economically or politically inhospitable countries.

In 1946 Nicholas Deak restructured the firm he had started before the war and incorporated as Deak & Co., now the holding company for the Deak-Perera Group. The Perera Company, Deak's major competitor, was acquired in 1953. The company flourished, opening offices throughout the United States and around the world-Washington, Miami, San Francisco, Vancouver, San Juan, Honolulu, Macao…Ever on the watch for innovative services, Deak pioneered in the opening of foreign currency vending machines at New York's John F. Kennedy (then Idlewild) Airport. These airport outlets have continued to spread throughout the country.

In 1958 the Deak-Perera Group broke more new ground, entering the preserve of the "Swiss gnomes" to open its own bank in Zurich in order to avoid paying commissions to Swiss banks. Today the Deak-controlled Foreign Commerce Bank is in the top 10 percent of Swiss banks and, with one of the highest liquidity ratios in the country, is among the fastest growing. In 1967 Deak acquired the respected Bankhaus Mayer-Loos in Vienna, Austria, changing the name to Bankhaus Deak, now the third largest private bank in that city.

Not one to restrict himself to international horizons, Deak had previously acquired a small-town bank in upstate New York. Since 1957, when he bought it, Deak National Bank of Fleischmanns, New York, has kept its small-town image while doing such unorthodox things as: offering checking accounts denominated in gold or silver; making gold and silver collateralized loans; effectively offering free, interest-bearing checking accounts through a combined checking-savings scheme, in which overdrafts are debited to savings; and offering OMNI checking accounts, by which checks can be written in any currency. These are not the kind of services Federal bank regulators and most of their clients have in mind—though perfectly legal—but their popularity can be measured by the fact that this little bank's deposits have grown 15 times over the past 20 years and include accounts from 30 states and 35 foreign countries. Unfortunately Deak was rejected when he attempted to bring his fresh perspectives on customer service and sound money to the entire banking community by running for a seat on the Federal Reserve Board of Governors last year.

A major role of the Deak-Perera Group has been in serving other banks in need of specialized foreign exchange services for their customers. Deak said many bankers told him there was "no market for our services" when he started, but he was undaunted. "They found…as time went on," Deak recalled, that "individuals and firms engaged in international business were demanding more varied services, including greater knowledge in exporting. Banks soon saw that their often conservative and old-fashioned 'foreign departments' could not fill the bill. They were faced with a new vocabulary and the fact that special skills definitely were needed to deal with such transactions as multilateral currencies; triangular deals; swaps of currencies; hedges and straddles; arbitrage; restricted, blocked, non-transferable, resident and non-resident accounts; multiple rate currencies; banknotes, and inland and hand payments. It didn't take long for the Deak-Perera Group to be ushered on to center stage to practice its fine art."

Today, in a world where exchange rates are more volatile than ever and at a time when people are increasingly concerned with the threat of inflation, the services that Deak & Co. offers are in greater demand than ever before. And its network of banks, foreign exchange houses, and precious metals departments—linked as they are by constant intracompany communication on market conditions and opportunities around the world—enables it to provide traders and investors nearly every conceivable service they might need. Whether it be a currency futures contract to hedge against an unfavorable exchange rate movement affecting foreign assets or liabilities, a Swiss Franc account in or out of Switzerland, a portfolio of foreign bonds, a bullion safekeeping account abroad, or collecting on a foreign draft, one or another of the Deak-Perera members can provide these (and many other) services. And for those with gypsy blood, Deak & Co. deals in 120 foreign currencies and even sells prepackaged currency complete with travel tips.

Deak obviously puts his trust in hard money. "The best way for a businessman or an individual to protect himself against inflation is to stay active, engage in imaginative business, swim with the tide and stay atop," he advised recently. "A sizeable part of the available capital should be invested in precious metals, and another sizeable part should be invested in highest yield, short term, readily convertible securities…"

Amid the dispute between investment counselors and economists over whether we face inflation or deflation, Deak counseled that gold and silver have always "fared well" during all types of "economic upheavals." "They were always readily convertible into cash, if cash was needed, or they could be bartered for other products, if we reach that stage."

And he is confident that, no matter what comes, the Deak-Perera Group will survive and prosper. "In our type of business, monetary and economic upheavals create additional activities," he observed. "We will not fare badly in an inflationary world, because we are active in business and we are aware of the dangers of inflation. We maintain a liquid situation in currencies, in ready funds, and we avoid speculations."

Asked about investing in foreign currencies, Deak replied that "of the so-called 'hard' currencies,…the Swiss Franc is the hardest and the soundest. The Austrian Schilling is aligned to the Deutschemark (and to some lesser degree to the Swiss Franc). The Austrian economy depends greatly on the German economy."

He added that "inflation in the United States will affect the currencies of the entire world. If there is inflation in the United States, there will be inflation in the rest of the world." Still, Deak said hopefully, "Switzerland might be an exception and, I should say, will probably be an exception. Accordingly, the Swiss Franc, in my opinion, is the strongest currency and will be the strongest one. Switzerland can withstand to a great extent inflationary pressure, but she cannot isolate herself completely from the outside world."

What concern does Deak have for government intrusion into his activities? Deak said he is "fully aware" that the company "would be greatly affected by U.S. exchange controls" and said he would have no alternative but to cooperate. But he noted that while exchange controls "might reduce the scope of our business considerably,…we might place more emphasis on our activities in the offices outside the United States." In any event, he said he does not believe "that dealing in restricted or blocked funds in foreign countries can be and will be prohibited by the U.S. government "

Deak said that another "gold confiscation, as it happened in 1933, is within the realm of possibilities," but he does "not believe that our customers will be exposed to harassment by the U.S. Government or will be subjected to more investigation or inquiries than in the past." The company "will always comply with the laws and regulations of the United States" but will only open its records for government inspection "if the laws require us to open the books to them for legitimate purposes" (emphasis added).

What does the future hold for the Deak-Perera Group? "We do not intend to enter into new types of services," Deak said, "but just expand the services which we are providing now to the public, and we endeavor to become more efficient and geographically more widespread." Thus the company just opened a new office in Chicago, to take advantage of a growing interest in foreign commerce and travel in the Midwest. But Deak said the company will expand only as fast as it finds more "competent managers," persons who "have to go through very lengthy training" and acquire "years of experience before they become managers." Many high-level Deak personnel are Swiss, including, most prominently, the company's executive vice-president and vice-chairman of Foreign Commerce Bank Otto E. Roethenmund.

Nicholas Deak will continue to stand by hard money. He is one businessman who is not bamboozled by the dreams, schemes, and promises of governments, and perhaps this is the secret of his success in good times and bad.

Steven Beckner graduated from Duke University and is the editor of Deaknews.