William “Billy” Salomon, who turned Salomon Brothers, the bond trading house co-founded by his father, into a Wall Street force in stock trading and underwriting, has died. He was 100.
He died on Dec. 7 at his home in Manhattan following a gradual decline in health, his son, Peter F. Salomon, said today in an interview.
First as part of a three-member governing committee, then as managing partner from 1963 to 1978, Salomon modernized the firm that his father and two uncles had started in 1910.
He broadened the firm’s focus beyond government bonds and into new markets, assembling a team that included analysts Sidney Homer and Henry Kaufman; William Simon, who would go on to serve as U.S. treasury secretary; Lewis Ranieri, who would become known as the father of mortgage-based securities; and Michael Bloomberg, who would create Bloomberg LP, owner of Bloomberg News, and serve as New York City mayor.
Under his direction, the firm became an aggressive new player in the competition for underwriting business and a specialist in the high-stakes field of block trading, and it invested in computer technology to help handle the increased business.
With Merrill Lynch, Blyth & Co. and Lehman Brothers, the firm formed the so-called Fearsome Foursome, which challenged the underwriting supremacy of Morgan Stanley and other old-line firms. To increase the firm’s capital pool, William Salomon changed rules to limit the take-home pay of partners. In 1970, the firm moved to 1 New York Plaza, at the tip of Manhattan, from 60 Wall Street, its home since 1922.
Retain Capital
“The decision to retain capital -- to sacrifice the present for the future -- was to be Salomon’s most important contribution,” Robert Sobel wrote, of William Salomon, in his history of the firm.
After retiring in 1978, at 64, Salomon watched as the partnership was sold, transformed into a public corporation and ultimately folded into today’s Citigroup Inc.
It was his hand-picked successor, John Gutfreund, who struck the deal that made Salomon Brothers part of Phibro Corp. in 1981. Salomon was informed only after the accord was reached.
“I was very upset,” Salomon later said, according to the New York Times. “I felt betrayed.” He said had left the firm in Gutfreund’s hands “in the hope and expectation that we would remain a general partnership for a long time.”
Simon’s autobiography, published after his death in 2000, includes a section attributed to Salomon in which he says he was “dumb” to pick Gutfreund over Simon to succeed him: “Bill would have stood up to those people who were only interested in the immediate dollar. If I had hired Bill and told him he was the heir apparent, we’d still be a partnership and we’d be beating everybody’s brains out.”
Successor’s Fall
Gutfreund’s early success in growing the renamed Salomon Inc. led BusinessWeek to declare him “King of Wall Street” in a 1985 cover story. His reign ended with his departure in 1991, after the company admitted violating U.S. Treasury Department auction rules by placing orders for securities in the name of customers who hadn’t authorized them.
In a 1991 interview with the Associated Press, William Salomon expressed his displeasure at the direction of his former firm.
“In my time, the customer was God, and we would no more take advantage of him than we’d fly out the window,” he said, according to AP. “We always felt that if we did the right thing the profits would take care of themselves.”
Early Life
William Roger Salomon was born on April 2, 1914, in New York City. Four years earlier, his father, Percy, and Percy’s brothers, Arthur and Herbert, had left their father’s money- brokerage company to go into business themselves, taking their father’s clerk, Ben Levy, with them.
Their firm was Salomon Brothers & Hutzler, so named because they added broker Morton Hutzler, who had a seat on the New York Stock Exchange. Hutzler was dropped from the name in 1970.
In 1933, 19-year-old William joined the family firm, having graduated from the King School in Stamford, Connecticut. Rather than attend college, he wanted to enter the workforce so he could marry his high-school sweetheart, Virginia Foster. They were married from 1937 until her death in 2008, and had two children.
Salomon became a bond salesman and made partner in 1944, just before leaving for two years of military service. His last name notwithstanding, in the early 1950s he “seemed destined for a comfortable, respectable but not necessarily outstanding career at the firm,” Sobel wrote in his account of the firm’s history.
New Leadership
That path was changed by the 1951 death of his uncle Herbert, who was succeeded as senior partner by a longtime employee, Rudolf Smutny.
According to Charles Geisst’s 2001 book, “The Last Partnerships,” Smutny soon fell out of favor for making ill- advised investments and indulging “in what was becoming the traditional Wall Street vice of an outlandish expense account and all the visible perks of his position as the managing partner.”
Smutny resigned in 1957 and was succeeded not by another senior partner but by a committee that included Salomon and Levy, who decades earlier had been the firm’s first employee.
Over the next six years, Salomon earned his stripes by building the firm’s pool of capital, which had taken a $4 million hit when Smutny left.
Compensation Plan
He persuaded senior partners to stop withdrawing capital and instead move to a salary system -- $25,000 annually, according to Sobel, plus 5 percent interest on their capital share, funds for charitable gifts and $6,000 for each dependent. This put the firm “on the road to stability in what was becoming the biggest bull market yet seen,” Geisst wrote.
As part of the Fearsome Foursome, Salomon made inroads as an underwriter, first by bidding for business from utilities companies. According to Sobel, the amount of underwritings managed by Salomon Brothers was $276 million in 1962, $578 million in 1963 and $873 million in 1964.
In November 1963, Salomon, was named managing partner.
He steered the firm into buying exceptionally large blocks of stock from a bank or pension fund and selling it in whole or pieces to other institutional investors. Such block trading required daring, because the firm would own the shares for a time while looking for buyers.
Many trading houses considered that too risky. Not Salomon, who summarized his attitude with three words: “We’ll buy anything.”
Personal Integrity
In one example cited by Time magazine in 1970, the firm’s partner in charge of block trading, Jay H. Perry, bought almost 1.2 million shares of Goodyear Tire & Rubber -- the largest block ever traded on the New York Stock Exchange -- after Goodyear reported a decline in earnings. Within an hour, the firm had sold all the shares at a profit -- while earning $300,000 in brokerage fees from buyers and sellers.
Salomon’s personal integrity left an impression on those who worked for him.
Simon, who went on to serve as treasury secretary under presidents Richard Nixon and Gerald Ford, called him “a suave, dignified leader.” Bloomberg, in his 1997 memoir, called him “decisive and consistent” and observed, “There was no different set of rules for him. He led by example. What he said, he did. And the rest of us did as well.”
In a coda to his life’s work, Salomon testified in January 2013 that Karen Febles, the personal secretary whom Citigroup had provided him, stole $1.3 million through her control of his checkbook. A federal jury found Febles guilty of wire fraud, money laundering, tax evasion and bank fraud.
Salomon then filed a lawsuit that blamed Citigroup for instituting no “supervisory procedures whatsoever over Febles,” and he put his losses at $3 million. A spokesman for Citigroup said Febles, not the firm, was responsible. The lawsuit was dismissed.
His wife of 71 years, Virginia Foster Salomon, died in 2008. In addition to his son, a doctor in Tucson, Arizona, survivors include a daughter, Susan Salomon Neiman of Los Angeles; four grandchildren; and three great-grandchildren.