Buffett Again Calms Salomon in a Storm : Finance: The quiet Nebraskan replaces John H. Gutfreund, the brash chairman of Salomon Bros., which borrowed $700 million from Buffett’s company in 1987 to fend off a takeover.
Warren E. Buffett’s willingness to take over as chairman of Salomon Bros. marks the second time in four years that the Nebraska billionaire has rushed to help the troubled New York investment banking company and its brash chairman, John H. Gutfreund.
At Gutfreund’s request, Buffett’s investment company lent Salomon $700 million in 1987 to buy up the firm’s own shares and foil an apparent takeover attempt by corporate raider Ronald O. Perelman. In return, Buffett and his fellow investors received a new issue of preferred stock and the right to convert it into a 13% ownership in Salomon.
The move worked, leaving Gutfreund much relieved. Salomon did not want ties to “someone deemed a corporate raider,” he told an interviewer.
This time around, Gutfreund’s dilemma is more complex. Salomon announced Friday that its top executives, including Gutfreund, will offer to resign at a Sunday board meeting. Buffett has agreed to take Gutfreund’s place on a temporary basis, the company said.
Buffett and Gutfreund are certainly one of the odder odd couples in the world of American finance. About all they appear to have in common is their approximate ages; Buffett is 60 and Gutfreund is 61.
Buffett is Nebraska all the way--an unremarkable looking man with thinning hair, a kindly face and a dry sense of humor. Gutfreund is a colorful Wall Streeter with a penchant for expletives and a love of the action on the bond trading floor.
The developments at Salomon, which will send Gutfreund out and bring Buffett in, capped a hectic week during which the firm disclosed that it had violated bidding rules on government securities, which are bonds bought by investors around the world. They are sold to finance the U.S. deficit and keep the national economy functioning smoothly.
Founded in 1910, Salomon is a worldwide investment banking firm that has assets of $118 billion. “We are taking this action to protect the firm, its 9,000 people and its clients,” Gutfreund said in a statement.
Gutfreund and Salomon have a general notoriety far greater their competitors because of their unflattering portrayal in the 1989 best seller, “Liar’s Poker.” The book was written by Michael Lewis, a former Salomon bond salesman.
Lewis gave a hilarious inside look at the ribald, macho trading world of Salomon, where greed ran amok and customers supposedly mattered little. One of Salomon’s more notorious bond traders was known as the “Human Piranha.”
Though a bestseller, the book was not a big hit with Gutfreund. Telling shareholders last year that the book had made Salomon a “laughingstock,” he said that “we have overcome that by doing our job well.”
Gutfreund is a product of the New York City suburbs, the son of a wealthy trucking company owner who played golf with William (Billy) Salomon, according to a New York Times account. Billy Salomon’s father was one of the company founders.
After college in Ohio and a stint in the Army, Gutfreund went to work at the investment house in the early 1950s at Billy Salomon’s urging. He started as a trainee in the statistics department, followed by a career in bond trading that culminated when he was named sole chief executive seven years ago.
Buffett’s turf is Omaha, where his investment company, Berkshire Hathaway, has its offices. He lives in a house purchased in 1958 for $31,500, drives a 1983 Cadillac and wears off-the-rack suits.
What is extraordinary about Buffet is his net worth--estimated at about $4.6 billion, making him America’s second-richest man behind John Kluge, founder of Metromedia. He has quietly amassed his wealth over the years through buying undervalued stocks and holding on.
Buffett’s one concession to true extravagance is a $6.7-million private jet, which he jokingly calls the Indefensible. He also has a home in Laguna Beach.
“My dad says the money is not important, but it is,” Buffett’s son, Peter, 32, told The Times recently. “Not because he wants to spend it, but because it declares him a winner.”
Why Salomon Is So Important
The shock of the Salomon Inc. Treasury market scandal has shaken Wall Street to its foundations because Salomon is such an important part of so many markets:
* It is the oldest dealer in Treasury bonds, and its capital base of $4.42 billion--fourth-biggest of any brokerage--allows it to provide important liquidity to the market as an active buyer and seller.
* Salomon’s broker network does relatively little business with individuals. Instead, the firm is a major supplier of trading services, research and investment banking services to many of the world’s biggest companies and to national and local governments.
* Salomon’s Phibro Energy subsidiary is a leading global trader of crude oil, and its Phibro Refining unit is the fourth-largest independent oil refiner in the United States.
