Salomon Smith Barney Holdings Inc.
Headquarters: 388 Greenwich St., New York, NY 10013
Web Site: http://www.smithbarney.com
More on the history at:
In a period of consolidation in the financial services industry, the wisdom of Salomon was to join in. Salomon Brothers (with strengths in global bond trading) first merged with Travelers Group's Smith Barney (a US brokerage powerhouse) to form Salomon Smith Barney; then, when Travelers and Citicorp merged, it came under the big red umbrella of Citigroup as another weapon in Sanford Weill's financial services arsenal.
Salomon Smith Barney, as part of Citigroup's Global Corporate and Investment Bank, has more than 500 offices and 35,000 employees worldwide. It provides investment banking, asset management, and securities and commodities sales and trading. The firm is also the world's largest underwriter of stocks and bonds, knocking perennial leader Merrill Lynch from the top spot in 2001.
Citigroup bought the investment bank of Schroders and folded it into the unit, and at times the very British ways of Schroders clashed with Salomon's American style. Citigroup plans to drop the Salomon Smith Barney and Schroders names as part of a brand unification.
In a wave of research analyst scandals, Salomon Smith Barney has been stung by bad press. Heavy-hitting telecom analyst Jack Grubman faced Congress in July 2002 regarding a possible conspiracy with WorldCom executives to boost stock prices through questionable stock ratings. A recent lawsuit has been filed against the firm and Mr. Grubman in connection to similar violations with Winstar Communications. In addition to research violations, special executive access to scorching IPO's have led to further legal action and a Congressional subpoena. Mr Grubman resigned from the firm in August 2002 amid a barrage of scrutiny.
Arthur, Herbert, and Percy Salomon founded Salomon Brothers as a brokerage firm in 1910. In 1917 it became a US government securities dealer and until the 1960s specialized in bond trading. In the 1950s and 1960s Salomon moved into stock underwriting and corporate finance.
John Gutfreund, head of corporate finance, became managing partner in 1978. He recapitalized the firm in 1981 by selling it to oil and commodities trader Phibro. Gutfreund became CEO of both firms in 1984.
Salomon thrived in the 1980s, but when it suffered losses in mortgage-backed securities and the 1987 stock market crash, Gutfreund turned to investor Warren Buffett. Salomon withdrew from municipal bonds and commercial paper and went into leveraged buyouts.
In 1991 Salomon bought most of the February Treasuries auction, using clients' names without authorization (a violation of SEC rules). It was subsequently learned that even though Gutfreund knew about the February infractions by April, the firm still bought most of the May auction. Gutfreund resigned.
Buffett installed his lawyer Robert Denham and Salomon administrator Deryck Maughan at the top, and the firm took disciplinary action. Business fell off, credit dried up, and the company sold assets to continue operating.
The brokerage business rebounded, but energy operations didn't. In 1992 Phibro's commodities business became a Salomon unit and the refineries became Phibro USA (sold in 1997).
As litigation from the bond scandal dragged on, in 1995 Salomon was fined millions for bookkeeping errors in its trading accounts, and morale sagged. Traders saw their pay pruned when Buffett linked bonuses to the firm's overall performance. In 1995 ongoing staff defections prompted a reversal of the policy, after which bonuses hit record levels in the soaring stock market.
In the mid-1990s Salomon put new emphasis on client-centered operations. It formed an alliance with mutual fund company FMR in 1997, giving it access to the lucrative retail market and FMR's customers access to issues that might otherwise be closed to them. Later that year Travelers bought Salomon and combined it with its own brokerage unit to form Salomon Smith Barney.
Smith Barney's roots go back to late 19th-century Philadelphia, where broker Charles Barney and investment banker Edward Smith joined forces. In 1987 Primerica bought the firm, then called Smith Barney, Harris Upham & Co. Primerica acquired Shearson Lehman Brothers' brokerage and asset management business in 1993 and combined them with Smith Barney. Smith Barney became a subsidiary of Travelers Group when Primerica acquired that company and took the Travelers name.
In 1998 Salomon Smith Barney helped bail out Japan's struggling Nikko Securities (now Nikko Cordial), which combined its investment banking operations with those of the US firm; the two formed joint venture Nikko Salomon Smith Barney a year later. Also in 1998 Travelers merged with banking behemoth Citicorp to form Citigroup.
In 2000 Citigroup bought the investment banking business of UK asset manager Schroders and folded it into Salomon. (Bank of New York would buy Schroders' correspondent clearing business.) In September 2001, terrorist attacks destroyed the World Trade Center towers, obliterating the company's branch offices in the center. Fortunately, all of the company's employees survived the attack. Later in 2001 the company made plans to lay off about 10% of its investment banking staff.
Chairman and CEO: Michael A. Carpenter
President and COO: Robert Druskin
CFO: Barbara A. Yastine
SEVP and Chief Administrative Officer: Frank Bisignano, age 43
EVP and Controller: Michael J. Day
EVP and Treasurer: Mark I. Kleinman
Senior Vice President, Investments: Ernest M. Howell
Chairman, Global Investment Banking: Eduardo Mestre
Co-Head, Global Equities: Robert Difazio
Co-Head, Global Equities: Arthur Hyde
Co-Head, Global Investment Banking and CEO, Europe: Michael Klein, age 38
Co-Head, Global Investment Banking: Robert Morse
Head, Global Risk Management: David Bushnell
Head, Strategy: Francois de Carbonnel
Head, Global Relationship Bank: Alan S. MacDonald
Head, Global Fixed Income: Tom Maheras
Head, e-Commerce: Paul Galant
Co-CEO, Schroder Salomon Smith Barney : Edward Miller
Co-CEO, Schroder Salomon Smith Barney: Will Samuel
President and CEO, Private Client Group: Tom Matthews
CEO, Salomon Smith Barney Asia-Pacific: William Mills
CEO, Nikko Salomon Smith Barney: Toshiharu Kojima
General Counsel: Joan Guggenheimer
Head, Human Resources: John Donnelly
Deputy General Counsel: Marcy Engel
If ever a man seemed perfectly cast to play the fall guy for the current Wall Street scandals and the resultant market meltdown, it is Salomon Smith Barney's superstar telecommunications analyst, the man who championed Global Crossing and WorldCom until they were tumbling toward bankruptcy.
Salomon Smith Barney is owned by Citigroup, whose chairman, Sanford Weill, has publicly supported Grubman. But Weill also concedes that Grubman's advice to Salomon Smith Barney clients turned out to be wrong. "Based on what I've heard, I think Jack Grubman believed in what he said," Weill told The Wall Street Journal last week. "But it turns out at the end of the period some of his thoughts about where the industry would go and how it would be put together didn't work out."
“And now come the reports that the National Association of Securities Dealers is poised to pounce on Grubman for touting Winstar shares despite mounting evidence that the firm was in trouble. Winstar eventually went bankrupt, like so many other telecom stocks once favored by Grubman.” (source)
Tuesday, August 20, 2002
“Jack Grubman's $32-million (U.S.) payoff was greeted by investors, especially the investors who took his so- called research seriously, with the sort of reaction normally associated with finding out that your grandfather is a cross-dresser: They were disgusted and amused at the same time.
“They were disgusted because the Salomon Smith Barney analyst made a series of spectacular bad calls, such as advising clients to sell WorldCom (now in bankruptcy protection) only after the stock had gone from $60 to $1. They were amused because outlandish behaviour, such as paying off the investment community's bad boys, goes with the territory. And, in Mr. Grubman's case, why not? His value to Salomon in attracting investment banking fees clearly outweighed the embarrassment he brought to the company. You can go now, Jack, but we're really, really glad you were with us; the party wouldn't have been the same without you. So here's enough loot to buy a Caribbean archipelago.” (source)
Saturday, August 24, 2002
“The investigation into Salomon Smith Barney and Jack Grubman, its former star telecommunications analyst, escalated yesterday when AT&T said that it had received a subpoena from the New York state attorney general for documents related to Salomon's selection in April 2000 as an underwriter for one of AT&T's largest stock offerings.
“The request for information appears to be a way for the attorney general, Eliot Spitzer, who is conducting a broad investigation into Wall Street research practices, to determine whether Grubman changed his rating on AT&T shares from negative to positive to win a role in the $10.6 billion offering of shares that tracked the company's wireless business. Grubman, who had been negative on AT&T for years, upgraded his rating in November 1999. Although AT&T had not yet formally announced its plan to issue the tracking stock, the possibility of such an offering had been widely discussed among Wall Street firms.” (source)
“Jack Grubman, telecoms analyst at Salomon Smith Barney in New York, believes the terrorist attacks will provide a long-term boost in demand for bandwidth. The internet, he notes, was designed to withstand a nuclear war and it proved robust in the face of the terrorist attacks.” (source)