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Technology- An Ex-Salomon Partner Scores Big

November 14, 2016

Chapter 20 in the exclusive series for Dynamic Commodities- becoming a commodities trader

One of the Salomon Partners forced to leave the firm when Philipp Brothers purchased the partnership in 1981 was Michael Bloomberg. Bloomberg was in charge of technology at the firm and he took his multimillion-dollar payoff and started one of the most successful market platforms and media organizations in the world.

Bloomberg went on to become a billionaire and the Mayor of New York City. In his book, “Bloomberg on Bloomberg”, the mogul wrote:

So there I was, thirty-nine years old and essentially hearing, “Here’s $10 million; you’re history.” One summer morning, John Gutfreund, managing partner of Wall Street’s hottest firm, and Henry Kaufman, then the world’s most influential economist, told me my life at Salomon Brothers was finished.

“Time for you to leave,” said John.

On Saturday, August 1, 1981, I was terminated from the only fulltime job I’d ever known and from the high-pressure life I loved. This, after fifteen years of twelve-hour days and six-day weeks.

Out!

For a decade and a half, I’d been an integral part of the country’s most successful securities trading firm, even of Wall Street itself. Not just in my head. If my press was to be believed, in everyone’s. Suddenly, though, needed no longer. I was a general partner. An owner rather than an employee. Nevertheless:

Fired!

I wasn’t going to know what was happening, wasn’t going to be making decisions, wasn’t going to share in “my” company’s profits and losses, wasn’t going to be part of it at all. “We” had become “them and me.”

“What do you think about us selling the company?” asked Henry.

“If I’m being thrown out, better now than later,” I replied.

Of course, there was the $10 million I was getting. America’s a wonderful country.

Although Phibro technically bought Salomon, Salomon soon ran the combined companies. The power shifted with record speed. Phibro took over when the transaction occurred, and Phibro became Phibro-Salomon. As the securities business boomed, the commodities business collapsed. Soon the entity became Salomon Inc., with Phibro Energy and Philipp Brothers as subsidiaries. The Philipp name went back to the obscurity it had had five years earlier. The acquirer never knew what hit it. The acquiree dominated almost from day one. A total mismatch.

Salomon went on to dominate Philipp Brothers after the merger because of the growth in financial markets and a bear market in commodities. I wrote in Chapter 7 that, “The men who ran Philipp Brothers saw the fundamental change in markets coming and did what was probably the best and most successful transaction they could at the time.” That transaction changed Philipp Brothers and would eventually cause them to lose their jobs. However, it was technological advances that led to more transparency through price dissemination which was the chief reason for the downfall of the commodities trading giant. It was Michael Bloomberg that was on the cutting-edge of technology in markets. Had Salomon not fired the partner in 1981, the firm might have owned the price dissemination business rather than watch it from the sidelines. Bloomberg converted his $10 million payout into billions and he alone pocketed the spoils.

Over the course of my career, I witnessed many winners and losers. For those that only sought to create profits via standard market practice the game was zero sum, for those who added value through innovation, it was not.

 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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