What Is Salomon Brothers?
Salomon Brothers, founded in 1910 by brothers Arthur, Herbert and Percy Salomon, was once one of the largest Wall Street investment banks. In 1981, it was acquired by Phibro Corporation and became known as Phibro-Salomon. In 1997, the bank merged with Smith Barney, a subsidiary of Travelers Group, to form Salomon Smith Barney. Immediately following, the bank merged with Citigroup, where Salomon Smith Barney served as the investment banking arm. In 2003, the Citigroup name was adopted.
Salomon Brothers Explained
Salomon Brothers provided a wide range of financial services, but the bank established its legacy through its fixed-income trading department. Perhaps the original founding fathers of high yield bond trading, along with Drexel Burnham Lambert, the Salomon bond arbitrage group established the trading careers of John Meriwether and Myron Sholes.
The Salomon Brothers Mythos
Salomon Brothers was long seen as one of the elite multinational investment banks and a part of what was known as the bulge bracket. Salomon Brothers was famed for a cutthroat corporate culture that rewarded risk-taking with massive bonuses and punished poor results with a swift boot. Michael Lewis' book "Liar's Poker" depicts the high-pressure bond trading culture at Salomon Brothers and it has inspired the popular view of 1980s and 1990s Wall Street as a ruthless playground for people who don't let morals get in the way of money.
The Oracle of Omaha, Warren Buffett, invested in Salomon Brothers in the 1980s and had to personally take a position on the board to clear out people involved with a false Treasury bond bid scandal to keep the SEC from taking legal action. Buffett exited when the Travelers buyout took place and the corporate culture quickly reasserted itself. Salomon alumni went on to have a large impact on the market. Long-Term Capital Management was created by Salomon alumni, and the arbitrage positions it took on were worth over $1 trillion before its implosion in 1998. In that case, a global financial crisis was averted, but it was not the first or last crisis that the high-risk, high-reward approach of Salomon Brothers trading would set up. The surviving structures of Salomon Brothers helped push Citigroup deep into the market for mortgage-backed securities, and the hit that the bank took as a result led to a further exodus of former Salomon leaders and traders. In 2009, the Wall Street Journal reported that then-Citigroup CEO Vikram Pandit was dismantling the remnants of Salomon Brothers to avoid similar risks in the future.