Salomon Brothers
| Company type | Public (after early 1980s) |
|---|---|
| Industry | Investment banking, Financial services |
| Predecessor | Salomon Brothers partnership |
| Founded | 1910 |
| Founder | Arthur Salomon, Herbert Salomon, Percy Salomon, Ben Levy |
| Defunct | 1998 |
| Fate | Acquired by Travelers Group in 1997; merged into Citigroup in 1998; brand retired in 2003 |
| Successor | Salomon Smith Barney (merged entity) |
| Headquarters | New York City , United States |
Area served | United States, International |
Key people | John Gutfreund (Chairman & CEO 1978–1991), Warren Buffett (Chairman 1991–1997), Deryck Maughan (CEO 1992–1997) |
| Products | Corporate bonds underwriting, futures, options (derivatives), securitization, mortgage-backed securities, proprietary trading |
Number of employees | 7,100 (1996) |
| Parent | Travelers Group (from 1981), later Citigroup (from 1998) |
Salomon Brothers, Inc. stood as a prominent American multinational bulge bracket investment bank with its headquarters located in New York City. Consistently ranked among the top five U.S. investment banks, the firm achieved substantial profitability throughout the 1980s and 1990s under the leadership of CEO and chairman John Gutfreund, who earned the nickname "the King of Wall Street."
The company was recognized for its expertise in underwriting corporate bonds and held a leading position in futures, options (commonly referred to as "derivatives"), and securitization across various asset classes, including commercial real estate securities. Serving numerous major American corporations, Salomon Brothers leveraged its capabilities to capture a significant portion of the investment banking market.
Its competitive corporate culture, which rewarded bold risk-taking with generous bonuses, was famously depicted in Michael Lewis' 1989 publication Liar's Poker as a symbol of Wall Street’s intense and aggressive atmosphere.
In 1997, Salomon Brothers was acquired by Travelers Group, which subsequently merged with Citigroup in 1998. Although the Salomon Brothers name was retired, plans were announced in 2022 by former employees to revive the brand as a comprehensive investment banking institution.
Notable leaders included chairman John Gutfreund (1978–1991), chairman Warren Buffett (1991–1997), and CEO Deryck Maughan (1992–1997). In 1996, the firm reported revenues of US$9.046 billion, net earnings of US$617 million, total assets amounting to US$194.881 billion, and employed around 7,100 personnel.
This profile underscores Salomon Brothers’ strategic management, international reach, and its significant impact on financial services, cementing its lasting influence and growth within the investment banking sector.
Founding
Established in 1910 by Arthur, Herbert, and Percy Salomon along with clerk Ben Levy, the company originated from the Salomon Brothers family lineage, descendants of Haym Salomon—a prominent financier during the American Revolutionary War. The firm operated as a partnership until the early 1980s. William Salomon, son of Percy, assumed leadership as managing partner in 1963.
In 1967, Salomon Brothers played a pioneering role by sponsoring Muriel Siebert, who became the first woman to obtain a trading license on the New York Stock Exchange trading floor.
Top ranking and public financing: 1970-1979
By 1975, Salomon Brothers had secured its position among the elite "bulge bracket" investment banks. A defining event occurred in 1979 when IBM mandated that Salomon Brothers act as co-manager for a $1 billion debt issuance to finance new computer equipment. Despite opposition from Morgan Stanley—which eventually withdrew—this elevated both Salomon Brothers and Merrill Lynch to premier status.
Additionally, in 1975, the firm contributed significantly to preventing New York City's bankruptcy by organizing syndicates for a $1 billion bond issuance through the Municipal Assistance Corporation.
John Gutfreund succeeded William Salomon as managing partner and leader of the firm in 1978.
Salomon Brothers during the 1980s
In 1981, commodity trading company Phibro Corporation acquired Salomon Brothers, transforming it into Salomon Inc via a reverse merger that facilitated CEO John Gutfreund’s efforts to take the firm public.
Throughout the 1980s, Salomon Brothers led innovation in bond markets by issuing the first mortgage-backed security created by Ginnie Mae. The company acquired home mortgages from savings institutions nationwide and repackaged them into mortgage-backed securities marketed to investors domestically and internationally. Over time, Salomon shifted its emphasis away from traditional investment banking activities such as capital raising and mergers and acquisitions toward proprietary trading with a focus on fixed income securities and bond market operations.
The firm participated in major leveraged buyouts including those of RJR Nabisco and Revco stores—the latter ultimately unsuccessful. By 1987, it was acknowledged alongside Merrill Lynch, Morgan Stanley, and Goldman Sachs as one of the foremost investment firms.
Michael Lewis’s 1989 book Liar's Poker, based on his tenure as a bond salesman at Salomon’s London office, provides an insider’s perspective on the firm’s fiercely competitive culture during this era. He portrayed the trading floor as an environment driven by relentless profit-seeking and intense internal competition—an embodiment of unrestrained capitalism marked by vigorous rivalry among employees.
1990s U.S. Treasury Bonds Controversy
In 1991, Paul Mozer, a trader at Salomon Brothers, placed fraudulent bids exceeding the permitted limit to acquire U.S. Treasury bonds. This misconduct resulted in a $190 million penalty and the establishment of a $100 million restitution fund. Mozer received a prison sentence of four months and was fined $30,000. Following the scandal, CEO John Gutfreund stepped down in August 1991; the SEC imposed a $100,000 fine on him and prohibited him from managing any brokerage firm. Warren Buffett temporarily assumed the roles of CEO and chairman before selecting Deryck Maughan as the company’s new leader. The incident was extensively covered in the 1993 publication Nightmare on Wall Street. In 1997, Salomon Brothers was purchased by Travelers Group.
The firm’s leading bond traders, colloquially dubbed the "Big Swinging Dicks," served as inspiration for Tom Wolfe’s novel The Bonfire of the Vanities, representing their commanding market presence and exceptional profitability.
Significantly, former Salomon arbitrage experts such as John Meriwether and Myron Scholes went on to establish Long-Term Capital Management (LTCM), a hedge fund that ultimately collapsed in 1998. These developments are examined in the 2007 book A Demon of Our Own Design.
Integration into Citigroup
In 1997, Salomon (NYSE:SB) was acquired by Travelers Group; after Travelers merged with Citicorp in 1998, Salomon became part of Citigroup. The merged investment banking activities operated under the name Salomon Smith Barney. The firm’s headquarters at 7 World Trade Center continued to serve as its primary office following the merger.
The Salomon brand remained in use until April 7, 2003, when the division was rebranded as "Citigroup Global Markets Inc." By 2020, Citigroup had relinquished ownership of the Salomon Brothers trademark as part of a broader brand consolidation strategy.
Prominent Personnel
- Michael Lewis, author renowned for The Big Short and Liar's Poker, worked as a bond salesman in London during the late 1980s.
- John Meriwether, former head of fixed-income trading and hedge fund manager, elevated to vice-chairman in 1988.
- Michael Bloomberg, who served as mayor of New York City from 2002 to 2013, led equity trading and systems development at Salomon during the 1970s.
- John Lipsky, acting managing director of the International Monetary Fund in 2011, previously directed the European Economic and Market Analysis Group until 1992.
- Lewis Ranieri, recognized as a pioneer in mortgage-backed securities, led Salomon’s mortgage bonds desk and held the position of vice chairman.
- John Gutfreund, former chairman and CEO responsible for taking Salomon public.
- Myron Scholes, Nobel Prize-winning economist famed for the Black–Scholes model, served as managing director of fixed-income derivatives.
- Gedale B. Horowitz, influential figure in the securities industry, founder and chairman of significant securities associations, and member of Salomon’s executive committee.
- Michael Corbat, who served as Citigroup CEO from 2012 to 2021, began his career at Salomon in mortgage finance in 1983.
- Bill Browder, British-American financier and founder/CEO of Hermitage Capital Management.
- Chris Innes, former Global Head of Equities, Derivatives, and Prime Brokerage at Bank of America.
Additional reading
- Liar’s Poker: Rising Through the Wreckage on Wall Street by Michael Lewis. Penguin Books
- Articles with short description
- Citigroup
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