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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 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".
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.
The bank was famed for its "cutthroat corporate culture that rewarded risk-taking with massive bonuses, punishing poor results with a swift boot." 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. 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.
In 1967, Salomon Brothers sponsored Muriel Siebert, the first woman to obtain a trading license on the floor of the New York Stock Exchange.
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.
In 1978, John Gutfreund became a managing partner, and succeeded William Salomon as head of the company.
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. Shortly thereafter, Salomon purchased Mortgage loan 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 , 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.
The firm competed for the leveraged buyout of RJR Nabisco and the leveraged buyout of Revco stores (which ended in failure).
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. 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. 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.
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:
Salomon was fined $190million for this infraction, and required to set aside $100million 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. 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. Ex-Salomon Chief's Costly Battle, The New York Times, August 19, 1994 Warren Buffett briefly stepped into the CEO and chairman position. Buffett later promoted Deryck Maughan to take over as chairman and CEO. The scandal was then documented in the 1993 book Nightmare on Wall Street: Salomon Brothers and the Corruption of the Marketplace by Martin Mayer.
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.
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. 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.
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." As of 2020, Citigroup no longer owns the Salomon Brothers trademark, according to the records provided by the United States Patent and Trademark Office.
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