Deryck C. Maughan, who catapulted into the chief operating officer's job at Salomon Bros. last August after a scandal forced four top officers to resign, was named chairman and chief executive of the investment bank Wednesday.
Warren E. Buffett, interim chairman of parent company Salomon Inc., announced the promotion in a press release that praised Maughan's "moral leadership" and "character" as well as his operational stewardship of the crisis-ridden firm the last nine months.
Maughan's promotion, which takes effect immediately, paves the way for Buffett to leave Salomon. Buffett's principal remaining task is to find someone to replace him as chief executive of the holding company.
Said Buffett: "Deryck assumed the job at a time when Salomon's regulators were understandably outraged and its staff was dismayed. Working seven days a week, quite often 18 hours a day, he personified the integrity and professionalism of the firm."
The move, which was expected, follows a settlement of fraud allegations last week with several government agencies, including the Treasury and Justice departments, the Federal Reserve Board and the Securities and Exchange Commission. Salomon agreed to pay fines and penalties of $290 million to settle charges that the firm submitted billions of dollars in fraudulent bids in Treasury auctions used to finance public debt.
Buffett's announcement credited Maughan's "grace and goodwill" as "integral to our settlement with the government."
"I'm on a real high," Maughan said. "I'm pleased about the promotion because it reflects Warren's confidence in the firm. . . . We're in a good position to move forward now, doing what we do best: serving clients and committing capital."
Maughan, 44-year-old son of a British coal miner, was thrown into the breach last August only months after returning to New York as co-head of investment banking from an assignment in Japan, where he built the Salomon office into a moneymaking showcase.
In an emergency session the day after former Chief Executive John H. Gutfreund and several other executives resigned, 12 Salomon officers met with Buffett to begin picking up the pieces of the shattered firm.
Buffett invited them one by one into a nearby room, where he asked: "Who should run the firm?" Ten out of the 12 answered, "Deryck Maughan."
The tall, soft-spoken Maughan served for 10 years as a British Treasury official before he was recruited to investment banking in London by Wall Street's Goldman Sachs in 1979. He later moved to Salomon. When tapped as chief operating officer, he immediately reorganized and downsized the firm.
Said Buffett: "Rather than freeze the firm in the headlights until the investigations were over, Deryck almost immediately began looking at how to improve the firm. Some of the operational changes he put in place have already had a favorable influence on profits."
His most controversial changes were laying off a sizable percentage of Salomon's equity traders and investment bankers and slashing bonuses.
Salomon's profit has suffered for the past two quarters as investment banking and underwriting clients awaited the conclusion of the government's case against the firm before resuming business ties.
Last week's settlement was a victory for Buffett and Maughan, because the firm escaped criminal indictment and will be allowed to retain its status as a "primary dealer" of government debt. With those issues resolved, Salomon is now in a position to compete on an equal footing with competitors.