1, main loss.
1985 is the pinnacle of Solomon's development. In this year, the company's after-tax net profit reached 557 million dollars. However, some newly supported departments, including the stock department, did not bring the expected profits to the company, so the competition within the company was almost out of control.
Faced with this once-in-a-lifetime opportunity, Solomon's competitors are poaching. A group of leading cadres who helped the company create huge wealth left one after another in the face of high salaries. Gutfreund is aware of the crisis facing the company and hopes to retain talents by improving the treatment of employees. However, he has not taken any action against the staff turnover in the stock trading and investment banking departments.
2. Gutfreund's luxurious lifestyle caused internal contradictions.
Gutfreund and his wife Susan live a very luxurious life. His living room is covered with a million-dollar carpet and a million-dollar French antique. The stock market couple also bought a18th century castle in France as their residence. Their neighbor is the world-famous fashion designer Givenchy. With this convenience, Susan invited Givenchy to design clothes for her.
Gutfreund chose a gift for his wife at random, that is, jewels worth $60,000, and lived a luxurious life.
People inside salomon brothers Company began to attack Gutfreund's luxurious lifestyle and began a power struggle between them.
3. Solomon's commercial risks
First, it can only be financed through junk bonds.
This company, which used to shine in the investment banking industry, can only develop new commercial banking business because of the influence of market pressure. However, the practice of Salomon Company to complete the company acquisition through junk bonds is despised by Buffett. In the highly competitive M&A business, Solomon Company is still a novice.
Secondly, the related derivative contracts in the company's internal operation are risky.
The financial derivative business of Salomon Company has risen rapidly, mainly trading in those markets with small trading volume. This kind of transaction does not last long, usually only a few years, and the amount of cash transferred in financial derivatives transactions is very small. Solomon Company uses mathematical models to evaluate the book value of these derivatives. Because how much bonus the inventor of this model can get is determined by these models, these models often show that the profits of these transactions are very high, and the profits are overestimated by 20 million dollars through this wrong accounting method. However, the audit object of the Audit Committee is only those transactions that have been approved and often completed. Therefore, this kind of supervision, which only exists before the transaction, cannot prevent the overestimation of profits during the transaction.
Solomon Company is an arbitrage trading machine.
4. The company's reputation is damaged.
Liar's poker, the author of this book is the agent of Solomon Company, Michael? Lewis, this book not only describes the corporate culture of Solomon Company-arrogance, innovation and vitality, but also describes in detail the decline process of the company from 1986 to 1987. As soon as the book was published, it topped the sales charts. The book's description of some strange behaviors within Solomon Company has brought great shock to readers. Salomon Company is regarded as a zoo-like place where the most aggressive and vulgar people on Wall Street gather, which makes it difficult for Salomon Company to recover its reputation.
5. The internal management of the company is chaotic.
In Solomon, whoever can create income has the right to speak. The heads of all departments report directly to Gutfreund, and the reporting scope is the same as that of other superiors. Strictly speaking, Strauss is the president of Solomon, but because of his high position, he looks like a hydrogen balloon hanging over the trading hall, and the heads of various departments quietly exclude him.
Salomon's manager is fearless and always cooperates with foyle Stein's employees, including Zachary, the assistant lawyer in the trading department. Slo works together. This system makes the legal department look strong, but weak-to a large extent, they need to be responsible for almost everything inside Solo.
6. Paul, head of the national debt department of Solomon Company? Mozer repeatedly violated the bidding rules of the US Treasury Department and made huge profits through covert operations.
In Paul? Under the command of mozer, Salomon Company hoarded the bonds it bought, and used it to "squeeze" those companies that were short of bonds-they had expected the bond price to fall, so they sold their bonds, resulting in insufficient bonds. In this way, the price of national debt will rise rapidly, and sellers will regret it in the short term, but there are many voices in the trading book-Solomon has made huge profits from it.
Mozer's problem is far from overbidding. In the auction of the Ministry of Finance in February, 199 1, in order to reach 35%, he bought the national debt under the guise of a customer and hid it in Solomon's account. In fact, he didn't just forge it in this purchase. He has five other fraud cases.
7. The company manager covers up the crime.
Gutfreund, Moss Rouse, meriwether, foyle Stein and the company's legal counsel all knew what mozer had done. Mozer's behavior has constituted a crime.
But Gutfreund said he would take this matter seriously, but he didn't come up with any clear plan-he didn't visit the magnificent Italian mansion of the Federal Reserve and tell corrigan the whole story. More importantly, they actually kept mozer in management.
When the manager of the company took action, he just sat there thinking hard and wasting time.
8. The scale of assets and liabilities is too large, and there are too many short-term loans.
Solomon has tens of billions of dollars in short-term commercial loans (capital operation), and more and more every day. If the news gets out, the lender may refuse to renew the loan. Mango thinks that "financial difficulties" will lead to "financial panic".
Solomon's balance sheet ranks second among many American companies. It is bigger than Merrill Lynch, Bank of America and American Express. Almost all loans include short-term loans, and the lenders of these short-term loans can recover their investment within a few days or weeks. The company has only 4 billion shares, but the loan is $654.38+04.6 billion.
At the same time, Solomon has hundreds of billions of dollars of off-balance-sheet derivative debt-including interest rate swaps, foreign exchange swaps and futures contracts-which is a huge and complex trading chain involving many partners around the world, and these partners also have countless other trading businesses, which is part of the complicated global financial network. Once these funds disappear, all Solomon's assets will be slowed down.
At the same time, the government lacks a national policy to provide loans to these faltering investment banks because they are too big to fail. This company may become a bottomless pit overnight.
All these factors caused the resignation of executives, the loss of customers and the decline of stocks, which is the reason for the failure of Solomon Company.