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 1 New York Plaza which was Salomon Brothers' headquarters starting in 1970 | |
| Company type | Public |
|---|---|
| NYSE: SB | |
| Industry | Financial services |
| Founded | 1910; 115 years ago (1910) |
| Founders | Arthur Salomon Herbert Salomon Percy Salomon |
| Defunct | 2003; 22 years ago (2003) (name dropped byCitigroup) |
| Fate | Acquired byTravelers Group in 1997 |
| Successor | Salomon Smith Barney (1997–2004), Smith Barney (2003–2009) |
| Headquarters | 7 World Trade Center 250 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) |
| Products | Sales and trading,Investment banking |
| Revenue |  US$9.046 billion(1996)[1] |
| US$617 million(1996)[1] | |
| Total assets | US$194.881 billion(1996)[1] |
Number of employees | 7,100(1996)[1] |
Salomon Brothers, Inc., was an American multinationalbulge bracketinvestment bank headquartered inNew York City. It was one of the fivelargest investment banking enterprises in the United States[2] and a very profitable firm onWall 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. It was a leadingunderwriter of corporate bonds and 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] InMichael Lewis' 1989 bookLiar's Poker, the insider descriptions of life at Salomon gave way to the popular view of banking in the 1980s and 1990s as a money-focused and work-intensive environment.[9] It was acquired byTravelers Group in 1997, which in turn became part ofCitigroup the next year.
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]
Founded in 1910 by Arthur, Herbert, and Percy Salomon and a clerk, Ben Levy. The founding Salomon Brothers are descendants ofHaym 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 apartnership until the early 1980s.William Salomon, the son of Percy Salomon, became amanaging partner and the head of the company in 1963.[13]
In 1967, Salomon Brothers sponsoredMuriel Siebert, the first woman to obtain a trading license on the floor of the New York Stock Exchange.[14]
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]
In 1981, it was acquired by thecommodity trading firmPhibro Corporation and becameSalomon Inc. It was thereverse merger that enabled Gutfreund to take the company public. Gutfreund became theCEO of the company following the reverse merger.[17][18]
During the 1980s, Salomon was noted for its innovation in thebond market, selling the firstmortgage-backed security, a hitherto obscure species offinancial instrument created byGinnie Mae.[19] Shortly thereafter, Salomon purchasedhome mortgages fromthrifts 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 thecapital market and negotiatingmergers and acquisitions) to almost exclusivelyproprietary trading (the buying and selling ofstocks, bonds,options, etc. for the profit of the company itself). Salomon had expertise infixed income securities and trading based on daily swings in thebond market.[20]
The firm competed for the leveraged buyout ofRJR Nabisco and the leveraged buyout ofRevco 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] However, Salomon Brothers went through signficant turmoil during the year. In July,Lewis Ranieri, the firm's vice chairman and the head of the mortgage trading department was forced out. By September, Salomon stock had fallen by more than nine percent for the year due to trading losses in the bond market. The firm's largest shareholder,Bermuda-basedMinorco controlled byHarry Oppenheimer, sought to sell its fourteen percent stake.Revlon ownerRonald Perelman, funded byMichael Milken ofDrexel Burnham Lambert, expressed an interest in acquiring Minorco's 21.3 million shares worth $800 million.[24][25] However, Salomon management, wary that Perelman sought more than Minorco's shares, sought the help of investorWarren Buffett to purchase the shares themselves by selling $700 million worth of convertiblepreferred stock to Buffett's firmBerkshire Hathaway and giving it two seats on the Salomon board.[26][27][28][29][30]
Salomon Brothers' success in the 1980s is documented inMichael Lewis' 1989 book,Liar's Poker. Lewis went through Salomon's training program and then became a bond salesman at Salomon Brothers inLondon. 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...[31]
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 moretreasury bonds than permitted by one buyer during the period between December 1990 and May 1991.[32][33][34] Mozer and Thomas Murphy used unauthorised accounts to purchase four-year Treasury notes in December 1990 and five-year Treasury notes in February 1991. Along with separate purchases that the company had made in its own name, the total purchases exceeded the 35 percent limit on issues.[35][36]
Salomon was fined $190 million for this infraction, and required to set aside $100 million in a restitution fund for any injured parties. In December 1993, Mozer was sentenced to four months in a minimum-security prison and fined $30,000.[37] CEO Gutfreund left the company in August 1991 and aU.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.[38][39]Warren Buffett briefly stepped into the CEO and chairman position.[40] Buffett later promotedDeryck Maughan to take over as chairman and CEO.[41][42] The scandal was then documented in the 1993 bookNightmare on Wall Street: Salomon Brothers and the Corruption of the Marketplace by Martin Mayer.[43]
The firm's top bond traders called themselves "Big Swinging Dicks," and were the inspiration for the novelThe Bonfire of the Vanities, written byTom Wolfe. The expression "Big Swinging Dick(s)" itself was used to refer to the Salomon bankers who dominated the game of extraordinary profit-making.[44][9]
Some members of the Salomon Brothers'bond arbitrage, such asJohn Meriwether,Myron Scholes and Eric Rosenfeld later became involved withLong-Term Capital Management (LTCM), ahedge fund that collapsed in 1998.[45] The last years of Salomon Brothers, culminating in its involvement with LTCM, is chronicled in the 2007 bookA Demon of Our Own Design byRichard Bookstaber.
The firm was acquired byTravelers Group in 1997 for $9 billion.[46][47][48][49][50]
Salomon (NYSE:SB) was acquired byTravelers Group in 1997 for $9 billion; and, following the latter's merger withCiticorp in 1998, Salomon became part ofCitigroup. The combined investment banking operations became known as Salomon Smith Barney.[51]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.[52][53]
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."[54] As of 2020, Citigroup no longer owns the Salomon Brothers trademark, according to the records provided by theUnited States Patent and Trademark Office.[55][56]
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