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Fear and Loathing of Salomon- A New Era

December 1, 2016

Chapter 32 in the exclusive series for Dynamic Commodities- becoming a commodities trader

Philipp Brothers did not look anything like the company I had come to work for in 1976. Nor did it resemble the powerhouse firm it was in 1981 after the departure of Tendler and Beretz. The death of Alan Flacks left a void at the top of the firm. Flacks was brought in, out of semi-retirement, to calm the waters after the departure of the previous managers. Salomon Brothers required that Philipp Brothers cut all dealings with South Africa. They felt it would negatively impact many of their businesses, particularly municipal underwriting. This was because of the political situation in the country at that time. South Africa had been a cash cow because of the many minerals produced in the nation. Salomon cut its sister division off from those revenues.

Amongst the traders and traffic employees at the Philipp Brothers division, there was an atmosphere of fear and loathing of Salomon and John Gutfreund, the man in charge.  The top of the commodities division had no leadership. However, the department heads continued to lead their individual business units.

Ray Nessim ran global precious metals. Tom O’Malley was the head of the oil department. Manfred Koppleman was the chief of nonferrous metals trading. Martin Kaufman and Henry Schachar, two young traders, ran sugar trading, another profitable area of the firm. Everyone at Philipp Brothers assumed that the next head of the division would be Nessim, O’Malley or Koppleman.

Salomon scheduled a series of meetings to decide the fate and future direction of the commodities division. Each department chief  had the assignment of presenting a business plan. It became clear that the new boss would be the one who most impressed the hierarchy at Salomon.

In the precious metals area, we all assumed that Ray Nessim was the leading candidate. Ray had a management air about him. He was a close confident of Tendler and Beretz, as well as the Chairman emeritus of the firm, Ludwig Jesselson. Even though he was in his eighties, Jesselson retained his title after the coup that unseated Tendler and Beretz. He was a legendary figure due to his business acumen and philanthropy. Ray spent weeks putting together an impressive business plan. He returned from Salomon’s office at number one New York Plaza after presenting his plan with complete confidence. Precious metals’ trading was the closest thing Philipp Brothers had to financial trading. Therefore, Nessim understood Salomon’s business. He was confident that Gutfreund and company understood his world.

King of the copper market, Manfred Koppleman was a steely-eyed German trader. His reputation around the world was impeccable with other traders and those in the metals industry. However, Koppleman was a trader through and through. He consistently produced profits. The story goes that he went into the meetings at Salomon. He handed the new leaders of the firm one sheet of handwritten paper. On it was his business plan. It went something like this:

When I like it, I buy it and when I don’t, I sell it.

That was a far cry from Ray Nessim’s opus about the precious metals business.

When the decision from Salomon came down, it was a shocker. As a result, the company was split into three segments, Salomon Brothers Inc., Philipp Brothers Inc., and Phibro Energy. Tom O’Malley impressed Gutfreund and his lieutenants to such an extent that they handed him his own division. It would move from NYC to Greenwich, Connecticut, where O’Malley could ride his boat to work each day. When it came to Philipp Brothers, two young traders from the sugar department obtained the reigns. Martin Kaufman became the Chairman of the division with Henry Schachar named President. Both men were just 32 years old.  Consequently, Ray Nessim was not a happy camper.

Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities

 

Post Series: Origin Of A Commodities Trader

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