Salomon Brothers

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Salomon Brothers, Inc.
Company type Public
NYSE: SB
Industry Financial services
Founded1910;115 years ago (1910)
FoundersArthur Salomon
Herbert Salomon
Percy Salomon
Defunct2003;22 years ago (2003) (name dropped by Citigroup)
FateAcquired by Travelers Group in 1997
SuccessorSalomon Smith Barney (1997–2004), Smith Barney (2003–2009)
Headquarters7 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
RevenueIncrease2.svg US$9.046 billion (1996) [1]
Increase2.svg US$617 million (1996) [1]
Total assets Increase2.svg US$194.881 billion (1996) [1]
Number of employees
Increase2.svg 7,100 (1996) [1]

Salomon Brothers, Inc., was an American multinational bulge bracket investment bank headquartered in New York City. It was one of the five largest investment banking enterprises in the United States [2] and a very 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]

Contents

Salomon Brothers served many of the largest corporations in America. It was a leading underwriter 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] 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 1990s as a money-focused and work-intensive environment. [9] It was acquired by Travelers Group in 1997, which in turn became part of Citigroup 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]

History

Founding

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

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

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] 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-based Minorco controlled by Harry Oppenheimer, sought to sell its fourteen percent stake. Revlon owner Ronald Perelman, funded by Michael Milken of Drexel 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 investor Warren Buffett to purchase the shares themselves by selling $700 million worth of convertible preferred stock to Buffett's firm Berkshire Hathaway and giving it two seats on the Salomon board. [26] [27] [28] [29] [30]

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... [31]

1990s treasury bonds crisis

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. [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 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. [38] [39] Warren Buffett briefly stepped into the CEO and chairman position. [40] Buffett later promoted Deryck Maughan to take over as chairman and CEO. [41] [42] The scandal was then documented in the 1993 book Nightmare 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 novel The Bonfire of the Vanities , written 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. [44] [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 (LTCM), a hedge fund that collapsed in 1998. [45] The last years of Salomon Brothers, culminating in its involvement with LTCM, is chronicled in the 2007 book A Demon of Our Own Design by Richard Bookstaber.

The firm was acquired by Travelers Group in 1997 for $9 billion. [46] [47] [48] [49] [50]

Acquisition by Citigroup

Salomon (NYSE:SB) was acquired by Travelers Group in 1997 for $9 billion; and, following the latter's merger with Citicorp in 1998, Salomon became part of Citigroup. 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 the United States Patent and Trademark Office. [55] [56]

Notable employees

References

  1. 1 2 3 4 Travelers Group SEC Form 8-K Filing September 2007
  2. ↑ "Warren Buffett's Wild Ride at Salomon (Fortune, 1997)". Fortune. Retrieved June 21, 2021.
  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 June 21, 2021.
  5. ↑ Fox, Emily Jane (March 9, 2016). ""King of Wall Street" John Gutfreund Dies at 86". Vanity Fair. Retrieved June 21, 2021.
  6. ↑ Kandell, Jonathan (March 10, 2016). "John Gutfreund, 86, Dies; Ran Wall Street Investment Firm at Its Apex". The New York Times. ISSN   0362-4331 . Retrieved June 21, 2021.
  7. ↑ Geisst (March 8, 2001). The Last Partnerships: Inside the Great Wall Street Dynasties. McGraw Hill Professional. ISBN   978-0-07-136999-2.
  8. ↑ Chen, 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 (November 27, 2024). "Salomon Brothers". Investopedia. Retrieved June 21, 2021.
  9. 1 2 Gross, Daniel (September 25, 2008). "The end of the BSD". Slate Magazine. Retrieved June 21, 2021.
  10. ↑ "Salomon Brothers alumni are reviving the swashbuckling bank made famous by 'Liar's Poker'". Fortune. February 7, 2022. Retrieved March 4, 2022.
  11. ↑ "Salomon Brothers Alumni Tap Storied Firm's Legacy in Revival". bloomberg.com. February 6, 2022. Retrieved March 4, 2022.
  12. ↑ "The unknown, unheralded patriot". blogs.timesofisrael.com. Retrieved November 25, 2021.
  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 (August 26, 2013). "Wall Street pioneer Muriel Siebert, first woman to buy a seat on the NYSE". The Seattle Times. Retrieved November 25, 2021.
  15. 1 2 Chernow, Ron (January 19, 2010). The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove/Atlantic, Inc. ISBN   978-0-8021-9813-6.
  16. 1 2 Geisst (March 8, 2001). The Last Partnerships: Inside the Great Wall Street Dynasties. McGraw Hill Professional. ISBN   978-0-07-136999-2.
  17. 1 2 Lewis, Michael (1989). Liar's Poker: Rising Through the Wreckage on Wall Street . New York: W. W. Norton. p. 228.
  18. 1 2 "History of Salomon Inc. – FundingUniverse". www.fundinguniverse.com. Retrieved June 21, 2021.
  19. ↑ Hojnicki, Carrie. "The Spectacular Rise And Fall of Salomon Brothers". Business Insider. Retrieved November 11, 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. (October 5, 1987). "Split in 'Tombstone' Ranks". The New York Times. ISSN   0362-4331 . Retrieved December 12, 2021.
  24. ↑ Cole, Robert J. (September 30, 1987). "Salomon Reassured On Revlon". The New York Times. Retrieved November 16, 2025.
  25. ↑ Hiltzik, Michael a (September 30, 1987). "Revlon Group Says It May Boost Its Stake in Salomon". Los Angeles Times. Retrieved November 16, 2025.
  26. ↑ Kandell, Jonathan (March 10, 2016). "John Gutfreund, 86, Dies; Ran Wall Street Investment Firm at Its Apex". The New York Times. Retrieved November 16, 2025.
  27. ↑ Cole, Robert J. (September 29, 1987). "Perelman Seeks Stake in Salomon". The New York Times. Retrieved November 16, 2025.
  28. ↑ Hiltzik, Michael A. (September 30, 1987). "Revlon Group Says It May Boost Its Stake in Salomon". Los Angeles Times. Retrieved November 16, 2025.
  29. ↑ Vise, David A.; Coll, Steve (September 30, 1987). "SALOMON DEAL GENERATES MORE BUFFETT-WATCHING". The Washington Post. ISSN   0190-8286 . Retrieved November 16, 2025.{{cite news}}: CS1 maint: url-status (link)
  30. ↑ Sterngold, James (January 10, 1988). "TOO FAR, TOO FAST; Salomon Brothers' John Gutfreund (Published 1988)". The New York Times. Retrieved November 16, 2025.
  31. ↑ Lewis, pp. 69–70
  32. ↑ Grant, Linda (February 16, 1992). "Taming the Bond Buccaneers at Salomon Brothers : How Warren Buffet and friends swept up after the Salomon scandal, possible saving the firm from federal regulators furious after a decade of skuldggery on Wall Street". Los Angeles Times. Retrieved November 13, 2025.
  33. ↑ Hilzenrath, David S. (September 27, 1991). "PANEL TOLD OF TREASURY, TRADER CLASH". The Washington Post. ISSN   0190-8286 . Retrieved November 13, 2025.
  34. ↑ Uchitelle, Louis; Labaton, Stephen (September 22, 1991). "When Regulators Stood Still". The New York Times. Retrieved November 13, 2025.
  35. ↑ Fuerbringer, Jonathan (August 10, 1991). "SALOMON BROTHERS ADMITS VIOLATIONS AT TREASURY SALES". The New York Times. ISSN   0362-4331 . Retrieved November 13, 2025.
  36. ↑ Morris, Charles R. (September 1, 1991). "The Treasury Bond Scandal--Was Anyone Really Shocked? : Finance: The more technically obsolete a market is, the bigger a target it is for corruption. The selling of U.S. debt is an antiquated process". Los Angeles Times. Retrieved November 13, 2025.
  37. ↑ Antilla, Susan (December 15, 1993). "Ex-Salomon Trader Gets 4 Months". The New York Times. Retrieved December 24, 2023.
  38. ↑ Ex-Salomon Chief's Costly Battle, The New York Times , August 19, 1994
  39. ↑ Day, Kathleen (August 17, 1991). "TOP SALOMON EXECUTIVES TO RESIGN". The Washington Post. ISSN   0190-8286 . Retrieved November 16, 2025.
  40. ↑ "This is the moment America met Warren Buffett". finance.yahoo.com. April 30, 2019. Retrieved May 21, 2022.
  41. ↑ "Citigroup purge costs Britain's great survivor his job". the Guardian. October 21, 2004. Retrieved May 21, 2022.
  42. ↑ Sloan, Allan (September 30, 1997). "BUFFETT'S DECISION ABOUT SALOMON PROVES EVERYONE MAKES MISTAKES". The Washington Post. ISSN   0190-8286 . Retrieved November 16, 2025.
  43. ↑ NIGHTMARE ON WALL STREET | Kirkus Reviews.
  44. ↑ 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)
  45. ↑ When Genius Failed: The Rise and Fall of Long-Term Capital Management
  46. ↑ "SEC filing by SALOMON SMITH BARNEY HOLDINGS INC". sec.gov. August 12, 1999.
  47. ↑ "Travelers to Buy Salomon Bros. for $9 Billion". Los Angeles Times. September 25, 1997. Retrieved December 12, 2021.
  48. ↑ "Travelers Agrees to Acquire Salomon for $9 Billion in Stock". Wall Street Journal. September 25, 1997. ISSN   0099-9660 . Retrieved December 12, 2021.
  49. ↑ "Travelers to Buy Salomon For More Than $9 Billion - WSJ". Wall Street Journal. September 25, 1997. ISSN   0099-9660 . Retrieved November 16, 2025.
  50. ↑ Raghavan, Anita (September 25, 1997). "Salomon's Decision to Sell Out May Be Traced to 1991 Scandal - WSJ". Wall Street Journal. ISSN   0099-9660 . Retrieved November 16, 2025.
  51. ↑ "A timeline of Salomon brothers". Business Insider. Retrieved July 16, 2018.
  52. ↑ "Fema 403 - Chapter 5 - WTC 7" (PDF). Federal Emergency Management Agency. Retrieved December 25, 2021.
  53. ↑ Lueck, Thomas J. (November 29, 1988). "Salomon Will Move to Trade Center". The New York Times. ISSN   0362-4331 . Retrieved December 25, 2021.
  54. ↑ "Annual report pursuant to section 13 or 15(d) of the securities exchange act of 1934 - Citigroup Global Markets Holdings Inc" (PDF). Archived from the original (PDF) on May 18, 2015.
  55. ↑ "Citigroup to Drop Salomon Name To Streamline Its Multiple Brands". The Wall Street Journal. May 23, 2001.
  56. ↑ "Trademark Electronic Search System (TESS)". United States Patent and Trademark Office.
  57. 1 2 3 4 5 6 7 Du, Lisa (November 18, 2011). "Salomon Brothers Alums: Where Are They Now?". Business Insider. Retrieved July 17, 2020.
  58. ↑ Nasar, Sylvia (May 13, 1994). "A Top Executive's Puzzling Death". The New York Times. ISSN   0362-4331 . Retrieved July 17, 2020.

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