John Gutfreund, 1980s ‘King of Wall Street’, dies at 86

Bloomberg

John Gutfreund, who was proclaimed the “King of Wall Street” in 1985 for harnessing the egos and fiefdoms of Salomon Brothers into one of the most profitable investment-banking firms, only to be deposed after a 1991 trading scandal, has died. He was 86.
He died on Wednesday at New York Presbyterian/Weill Cornell Medical Center in New York after suffering from pneumonia, his son, John Gutfreund, said.
As managing partner and later as chairman, Gutfreund (pronounced GOOD-friend) transformed Salomon from a traditional bond-trading firm into a pioneer in businesses such as mortgage-backed securities, under Lewis Ranieri, and computer-driven trading techniques, under John Meriwether. It also became the largest underwriter of municipal bonds, the department where Gutfreund got his start. “Gutfreund seemed able to smell money being lost,” Michael Lewis wrote in “Liar’s Poker,” his 1989 account of working at Salomon. “He was the last person a nerve-racked trader wanted to see.” In overseeing New York-based Salomon’s transition from private partnership into what Lewis called “Wall Street’s first public corporation,” Gutfreund was a pioneer in taking the risks once assumed by a small group of senior partners and spreading them among shareholders. His view of business as a daily battle was captured in his exhortation to traders that they come to work “ready to bite the ass off a bear” every day.
The New York-born son of a prosperous trucking-company owner, Gutfreund assumed control of Salomon in 1978. His reputation as a tough corporate infighter was burnished after he agreed to sell Salomon in 1981 for $554 million to Phibro Corp., a publicly owned commodities-trading firm that had benefited from rising oil prices as inflation spiked in the late 1970s. When the Federal Reserve lowered the inflation rate, oil prices dropped while bond prices, Salomon’s lifeblood, rose.
Gutfreund seized on the reversal of fortunes to oust David Tendler, the head of Phibro and co-chief executive of the combined firm, in 1984. He renamed the company Salomon Inc., shrank what remained of Phibro and allowed his bond traders to use the company’s expanded capital base to boost profits.
He broadened Salomon’s client services and its global presence by creating a mortgage-securities unit, moving into mergers and acquisitions, building its foreign currency-exchange operation and opening offices in Tokyo, Zurich and Frankfurt.
Salomon’s capital grew to $3.4 billion from $209 million when he took over, and BusinessWeek magazine put Gutfreund on its cover in 1985 with the headline: “King of Wall Street.”
Gutfreund also became a prominent figure in the New York City social scene. In 1981, he married Susan Penn, a former beauty queen and Pan Am flight attendant. They were known for parties at their apartments on the East River, and later on Fifth Avenue, and weekend trips to their home in Paris.
Missteps first weakened Gutfreund’s grip on the firm, then led to his ouster from Wall Street.
In 1987, when Ronald Perelman, the head of Revlon Inc., tried to buy a 14 percent stake in Salomon, Gutfreund was forced to sell a 12 percent share to Warren Buffett’s Berkshire Hathaway Inc. for $700 million to discourage hostile challenges. In 1991, Salomon admitted it had violated U.S. Treasury Department auction rules by placing orders for securities in the name of customers who hadn’t authorized them. Paul W. Mozer, then the head of government bond trading at Salomon, served four months in federal prison for lying to regulators. Gutfreund, criticized for failing to notify U.S. regulators quickly enough about Salomon’s false bids, resigned from the firm.