Salomon Brothers

From Wikipedia, the free encyclopedia
Jump to navigation Jump to search
Salomon Brothers, Inc.
TypeAcquired
NYSE: SB
IndustryFinancial services
Founded1910
FounderArthur Salomon,
Herbert Salomon,
Percy Salomon
Defunct2003 (name dropped by Citigroup)
FateAcquired by Travelers Group in 1998
SuccessorSalomon Smith Barney (1998–2004), Smith Barney (2003–2009)
Headquarters250 Greenwich Street
New York, NY 10006
U.S.
Key people
John Gutfreund
(Chairman 1978–1991)
Warren Buffett
(Chairman 1991–1997)
Deryck Maughan
(CEO 1992–1997)
ProductsSales and trading, Investment banking
RevenueIncrease US$9.046 billion (1996)[1]
Increase US$617 million (1996)[1]
Total assetsIncrease US$194.881 billion (1996)[1]
Number of employees
Increase 7,100 (1996)[1]

Salomon Brothers, Inc., was an American multinational bulge bracket investment bank headquartered in New York. It was one of the five largest investment banking enterprises in the United States[2] and the most profitable firm on Wall Street during the 1980s and 1990s. Its CEO and chairman at that time, John Gutfreund, was nicknamed "the King of Wall Street".[3][4][5][6]

Salomon Brothers served many of the largest corporations in America. At one time, it was the leading underwriter of corporate bonds and the largest dealer of Treasury Securities in the United States. It was also one of the top firms in futures and options (known as "derivatives") and in securitization in a range of asset classes including commercial real estate securities.[7]

The bank was famed for its "cutthroat corporate culture that rewarded risk-taking with massive bonuses, punishing poor results with a swift boot."[8] In Michael Lewis' 1989 book Liar's Poker, the insider descriptions of life at Salomon gave way to the popular view of banking in the 1980s and '90s as a money-focused and work-intense environment.[9]

In February 2022, it was announced that the Salomon Brothers brand will be revived by a group of former employees and execs and operate as full-service investment bank again.[10][11]

History[edit]

Founding[edit]

Founded in 1910 by Arthur, Herbert, and Percy Salomon and a clerk, Ben Levy. The founding Salomon Brothers are descendants of Haym Salomon, primary financier of the American Revolutionary War, Consul to France, and childhood friend to Robert Morris, Founding Father and Superintendent of Finance of the United States.[12] The company remained a partnership until the early 1980s. William Salomon, the son of Percy Salomon, became a managing partner and the head of the company in 1963.[13]

In 1967, Salomon Brothers sponsored Muriel Siebert, the first woman to obtain a trading license on the floor of the New York Stock Exchange.[14]

Top ranking and public financing: 1970-1979[edit]

In 1975, Salomon Brothers was formally recognized by other top investment banks as a "bulge bracket" firm, meaning it was one of the leaders in investment banking.[15] In 1979, Salomon Brothers scored a major coup when IBM insisted that Morgan Stanley accept Salomon Brothers as co-manager on a $1-billion debt issue for a new generation of IBM computers. Morgan Stanley demanded sole management, but IBM affirmed Salomon Brothers’ role as co-manager.[15] In response, Morgan Stanley refused to act as co-manager, and Salomon Brothers and Merrill Lynch were awarded top billing as a result.[16]

In 1975, Salomon Brothers also aided the state’s efforts to save New York City from bankruptcy. When the Municipal Action Committee (MAC) was established and bonds were created in its name, Salomon Brothers and Morgan Guaranty Trust organized syndicates for the $1 billion bond sale. Both of the organizations were able to place the bonds successfully.[16]

In 1978, John Gutfreund became a managing partner, and succeeded William Salomon as head of the company.[17][18]

Salomon Brothers during the 1980s[edit]

In 1981, it was acquired by the commodity trading firm Phibro Corporation and became Salomon Inc. It was the reverse merger that enabled Gutfreund to take the company public. Gutfreund became the CEO of the company following the reverse merger.[17][18]

During the 1980s, Salomon was noted for its innovation in the bond market, selling the first mortgage-backed security, a hitherto obscure species of financial instrument created by Ginnie Mae.[19] Shortly thereafter, Salomon purchased home mortgages from thrifts throughout the United States and packaged them into mortgage-backed securities, which it sold to local and international investors. Later, it moved away from traditional investment banking (helping companies raise funds in the capital market and negotiating mergers and acquisitions) to almost exclusively proprietary trading (the buying and selling of stocks, bonds, options, etc. for the profit of the company itself). Salomon had expertise in fixed income securities and trading based on daily swings in the bond market.[20]

The firm competed for the leveraged buyout of RJR Nabisco and the leveraged buyout of Revco stores (which ended in failure).[21][22]

In 1987, a New York Times report identified Salomon Brothers as in the top tier of firms along with Merrill Lynch, Morgan Stanley and Goldman Sachs.[23]

Salomon Brothers' success in the 1980s is documented in Michael Lewis' 1989 book, Liar's Poker. Lewis went through Salomon's training program and then became a bond salesman at Salomon Brothers in London. Lewis presented an insider description of life at Salomon Brothers, and his book became a seminal work in terms of understanding the corporate culture at Salomon Brothers in the 1980s.

Lewis describing the trading floor at Salomon:

Because the forty-first floor was the chosen home of the firm's most ambitious people, and because there were no rules governing the pursuit of profit and glory, the men who worked there, including the more bloodthirsty, had a hunted look about them. The place was governed by the simple understanding that the unbridled pursuit of perceived self interest was healthy. Eat or be eaten. The men of 41 worked with one eye cast over their shoulders to see whether someone was trying to do them in, for there was no telling what manner of man had levered himself to the rung below you and was now hungry for your job. The limit of acceptable conduct within Salomon Brothers was wide indeed. It said something about the ability of the free marketplace to mold people's behavior into a socially acceptable pattern. For this was capitalism at its most raw, and it was self-destructive...[24]

1990s treasury bonds crisis[edit]

In 1991, U.S. Treasury Deputy Assistant Secretary Mike Basham learned that Salomon trader Paul Mozer had been submitting false bids in an attempt to purchase more treasury bonds than permitted by one buyer during the period between December 1990 and May 1991.[citation needed] Salomon was fined $190 million for this infraction, and required to set aside $100 million in a restitution fund for any injured parties. CEO Gutfreund left the company in August 1991 and a U.S. Securities and Exchange Commission (SEC) settlement resulted in a fine of $100,000 and Gutfreund being barred from serving as a chief executive of a brokerage firm.[25] Warren Buffett briefly stepped into the CEO and chairman position.[26] Buffett later promoted Deryck Maughan to take over as chairman and CEO.[27] The scandal was then documented in the 1993 book Nightmare on Wall Street. The firm was acquired by Travelers Group in 1997.[28][29][30]

The firm's top bond traders called themselves "Big Swinging Dicks," and were the inspiration for the book The Bonfire of the Vanities, by Tom Wolfe. The expression "Big Swinging Dick(s)" itself was used to refer to the Salomon bankers who dominated the game of extraordinary profit-making.[31][9]

Some members of the Salomon Brothers' bond arbitrage, such as John Meriwether, Myron Scholes and Eric Rosenfeld later became involved with Long-Term Capital Management, a hedge fund that collapsed in 1998.[32] The last years of Salomon Brothers, culminating in its involvement with Long-Term Capital Management, is chronicled in the 2007 book A Demon of Our Own Design.

Acquisition by Citigroup[edit]

Salomon (NYSE:SB) was acquired by Travelers Group in 1998; and, following the latter's merger with Citicorp that same year, Salomon became part of Citigroup. The combined investment banking operations became known as Salomon Smith Barney.[33] 7 World Trade Center, which had served as the headquarters for Salomon Brothers, continued to be used as the company's main office after the company was merged into Salomon Smith Barney.[34][35]

Although the Salomon name carried on as Salomon Smith Barney, the investment banking operations of Citigroup, the division was renamed on 7 April 2003 to "Citigroup Global Markets Inc."[36] As of 2020, Citigroup no longer owns the Salomon Brothers trademark, according to the records provided by the United States Patent and Trademark Office.[37][38]

Revival[edit]

In February 2022, it was announced that the Salomon Brothers brand will be revived by a group of former employees and execs. President R. Adam Smith said that the trademark had been acquired and they plan to operate as a full-service investment bank again.[10][11]

Notable employees[edit]

References[edit]

  1. ^ a b c d Travelers Group SEC Form 8-K Filing September 2007
  2. ^ "Warren Buffett's Wild Ride at Salomon (Fortune, 1997)". Fortune. Retrieved 2021-06-21.
  3. ^ Collins, Denis (1992). Lewis, Michael (ed.). "An Ethical Analysis of Organizational Power at Salomon Brothers". Business Ethics Quarterly. 2 (3): 367–377. doi:10.2307/3857539. ISSN 1052-150X. JSTOR 3857539. S2CID 53527583.
  4. ^ Tablang, Kristin. "'King of Wall Street' John Gutfreund's $120 Million Fifth Avenue Duplex Crowned New York's Priciest Home Listing". Forbes. Retrieved 2021-06-21.
  5. ^ Fox, Emily Jane (9 March 2016). ""King of Wall Street" John Gutfreund Dies at 86". Vanity Fair. Retrieved 2021-06-21.
  6. ^ Kandell, Jonathan (2016-03-10). "John Gutfreund, 86, Dies; Ran Wall Street Investment Firm at Its Apex". The New York Times. ISSN 0362-4331. Retrieved 2021-06-21.
  7. ^ Geisst (2001-03-08). The Last Partnerships: Inside the Great Wall Street Dynasties. McGraw Hill Professional. ISBN 978-0-07-136999-2.
  8. ^ Chen, Full Bio Follow Linkedin Follow Twitter James; CMT; Investing, Is the Former Director of; trader, trading content at Investopedia He is an expert; Adviser, Investment; Chen, global market strategist Learn about our editorial policies James. "Salomon Brothers". Investopedia. Retrieved 2021-06-21. {{cite web}}: |first1= has generic name (help)
  9. ^ a b Gross, Daniel (2008-09-25). "The end of the BSD". Slate Magazine. Retrieved 2021-06-21.
  10. ^ a b "Salomon Brothers alumni are reviving the swashbuckling bank made famous by 'Liar's Poker'". Fortune. 2022-02-07. Retrieved 2022-03-04.
  11. ^ a b "Salomon Brothers Alumni Tap Storied Firm's Legacy in Revival". bloomberg.com. 2022-02-06. Retrieved 2022-03-04.
  12. ^ "The unknown, unheralded patriot". blogs.timesofisrael.com. Retrieved 2021-11-25.
  13. ^ Company Profiles – FundingUniverse 1992">"History of Salomon Inc. – FundingUniverse". Search Thousands of Company Profiles – FundingUniverse. November 23, 1992. Retrieved January 11, 2018.
  14. ^ Arnold, Laurence (2013-08-26). "Wall Street pioneer Muriel Siebert, first woman to buy a seat on the NYSE". The Seattle Times. Retrieved 2021-11-25.
  15. ^ a b Chernow, Ron (2010-01-19). The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove/Atlantic, Inc. ISBN 978-0-8021-9813-6.
  16. ^ a b Geisst (2001-03-08). The Last Partnerships: Inside the Great Wall Street Dynasties. McGraw Hill Professional. ISBN 978-0-07-136999-2.
  17. ^ a b Lewis, Michael (1989). Liar's Poker: Rising Through the Wreckage on Wall Street. New York: W. W. Norton. p. 228.
  18. ^ a b "History of Salomon Inc. – FundingUniverse". www.fundinguniverse.com. Retrieved 2021-06-21.
  19. ^ Hojnicki, Carrie. "The Spectacular Rise And Fall of Salomon Brothers". Business Insider. Retrieved 11 November 2020.
  20. ^ Sterngold, James (January 10, 1988). "TOO FAR, TOO FAST; Salomon Brothers' John Gutfreund". The New York Times.
  21. ^ "History of the RJR Nabisco Takeover". The New York Times. December 2, 1988.
  22. ^ Eichenwald, Kurt (October 31, 1991). "Rite Aid Seeks to Buy Revco As Salomon Settles Lawsuit". The New York Times.
  23. ^ Gilpin, Kenneth N. (1987-10-05). "Split in 'Tombstone' Ranks". The New York Times. ISSN 0362-4331. Retrieved 2021-12-12.
  24. ^ Lewis, pp. 69–70
  25. ^ Ex-Salomon Chief's Costly Battle, The New York Times, August 19, 1994
  26. ^ "This is the moment America met Warren Buffett". finance.yahoo.com. Retrieved 2022-05-21.
  27. ^ "Citigroup purge costs Britain's great survivor his job". the Guardian. 2004-10-21. Retrieved 2022-05-21.
  28. ^ "SEC filing by SALOMON SMITH BARNEY HOLDINGS INC". sec.gov. 1999-08-12.{{cite web}}: CS1 maint: url-status (link)
  29. ^ "Travelers to Buy Salomon Bros. for $9 Billion". Los Angeles Times. 1997-09-25. Retrieved 2021-12-12.{{cite web}}: CS1 maint: url-status (link)
  30. ^ "Travelers Agrees to Acquire Salomon for $9 Billion in Stock". Wall Street Journal. 1997-09-25. ISSN 0099-9660. Retrieved 2021-12-12.
  31. ^ Conversations with Tom Wolfe. Scura, Dorothy McInnis. Jackson: University Press of Mississippi. 1990. pp. 262. ISBN 087805426X. OCLC 20630163.{{cite book}}: CS1 maint: others (link)
  32. ^ When Genius Failed: The Rise and Fall of Long-Term Capital Management
  33. ^ "A timeline of Salomon brothers". Business Insider. Retrieved 16 July 2018.
  34. ^ "Fema 403 - Chapter 5 - WTC 7" (PDF). Federal Emergency Management Agency. Retrieved 2021-12-25.{{cite web}}: CS1 maint: url-status (link)
  35. ^ Lueck, Thomas J. (1988-11-29). "Salomon Will Move to Trade Center". The New York Times. ISSN 0362-4331. Retrieved 2021-12-25.
  36. ^ http://www.citigroup.com/citi/investor/data/k04cgm.pdf?ieNocache=32[bare URL PDF]
  37. ^ "Citigroup to Drop Salomon Name To Streamline Its Multiple Brands". The Wall Street Journal. 23 May 2001.
  38. ^ "Trademark Electronic Search System (TESS)". United States Patent and Trademark Office.
  39. ^ a b c d e f g Du, Lisa. "Salomon Brothers Alums: Where Are They Now?". Business Insider. Retrieved 2020-07-17.
  40. ^ Nasar, Sylvia (1994-05-13). "A Top Executive's Puzzling Death". The New York Times. ISSN 0362-4331. Retrieved 2020-07-17.

Further reading[edit]