A Final Payoff

On Monday, the headlines didn't say DROP DEAD; they took in the reversal as well as the ban. Salomon's stock opened on time and traded in orderly fashion, falling about a point and a half.

Pointing out a paradox, Buffett says today that the whole Treasury episode, excruciating though it was at the time, probably gave Salomon a boost that it could not have got any other way. The reversal, coming along at 2:30 P.M., sent a message to the market that this almighty regulator, the Treasury, thought Salomon was okay. Had not that endorsement materialized, Monday's debt markets would have been forced to make their own determination about Salomon's creditworthiness, and who knows what kind of thoughts they would have pulled from the ether.

As it was, Salomon emerged from that weekend with just enough stamina to limp through some exceedingly tough months, in which the interim CEO reduced leverage by vastly shrinking the balance sheet, haggled with banks about money Salomon badly needed, and hoped above all else that Mozer's wrongdoing (which cost him nearly four months in prison after he pleaded guilty to lying to the Fed) would not entrap Salomon itself in criminal charges. In the end, the company settled for $290 million, an outcome mainly reflecting the extraordinary cooperation Buffett decreed should be given both regulators and the law in getting things cleaned up.

A big broom in this cleanup was a California lawyer who had worked often for Berkshire, Robert Denham, and whom Buffett pulled into Salomon full-time. When May of 1992 rolled around, with many of Salomon's biggest problems under control, Buffett went back to Omaha, and Denham stepped into his place as chairman of Salomon Inc. and overseer of the shareholders' interests. Having now overseen these folk into $9 billion of Travelers stock, Denham will be stepping on to something else.

And Berkshire's part of the $9 billion? It's about $1.7 billion, though some of the Travelers stock Berkshire will receive is committed to holders of a Berkshire convertible bond. About that complication you do not wish to know more, nor do you wish to deeply analyze other acrobatics that Buffett has carried out with Salomon stock. Just note this: a share of Salomon is right now worth about $81 in Travelers stock. Against that, Berkshire owns some Salomon stock that it bought in 1987 at an effective price of $38, and it owns other Salomon shares purchased later at an average price of about $48.

In short, Buffett said in 1987 that Salomon wouldn't be "a triple," and it hasn't been. On the other hand, this record hardly equates to a strikeout. "I'd say we hit a scratch single," says Buffett, "but not before the count got to 0 and 2."

And then inching oh-so-slightly toward a philosophical summary of Salomon, he hauls out one of his favorite expressions: All's well that ends.

Two Views; Zero Pay

In Salomon's chaotic weekend of Aug. 16-18, 1991, outgoing CEO John Gutfreund was unstintingly helpful in trying to ease the transfer of power and combat the dangers of Sunday. But he was also worried about his economic future. So on Saturday, his lawyer, Philip Howard, tried to get some sort of assurances out of Buffett and Munger as to what Gutfreund's severance package would be. Buffett and Munger had no real stomach for this discussion on that incredibly tense and busy day, but they thought Gutfreund deserved the courtesy of a hearing. Later, though, it turned out that the two sides disagreed on what, if anything, was decided that night. The point is important not only because of what eventually was decided about Gutfreund's compensation but also because it illustrates how memories and perceptions differ when events are dramatic and strung out, as they were at Salomon in 1991. You can say this in other words: This article that you have been reading mainly describes how Buffett saw events; a Gutfreund account of the same period would be different.

In the compensation talks on that Saturday, Howard says he and Munger came to an understanding that Munger and Buffett would support severance of $10 million to $15 million. Munger and Buffett say they refused to commit to any figures at that point. Ultimately they agreed with the board's determination to offer $8.6 million. Gutfreund was offended by this amount, and refused. The dispute then became a New York Stock Exchange arbitration case, put before a panel of three experienced Wall Streeters. Gutfreund asked for $55 million. The arbitrators decided to give him nothing--not a cent.