A philosopher in the home of the brash
THE MONDAY INTERVIEW: Peter Middleton; Salomon Brothers has always had a name for being a damned good trader, but only that. Its new European chief has plans to take it further
Monday 25 March 1996
Tough talking given that, of the four Wall Street behemoths, Salomon Brothers is by far the least known for investment banking expertise, and faces in Europe some impressive home-grown competitors with global ambitions of their own.
It is also a push, those with longish City memories would retort, that Salomon has made before, and more than once, and never stuck it out. They are traders, damned good traders, but traders they will always be.
But Mr Middleton, having had time to get his feet under the desk since his surprise appointment last November as chief executive of Salomons' European business, is convinced the world is in for a surprise. Those who still think of Salomon Brothers as essentially bond traders and risk- takers must think again, he says.
The buzz is client relationships, equities and banking. It only takes a trip up the long escalator to Salomon's European headquarters above Victoria station in London to appreciate the physical dimensions of the massive expansion under way.
The once cavernous atrium is being sliced away to create new floors of offices for the bankers. Several tens of millions of dollars have been budgeted to be spent each year for the next five years on a hiring and development programme aimed at transforming Salomon Brothers' profile in the City.
"The fact that our investment banking is not seen as a real powerhouse is one of the things motivating us," says Mr Middleton. Having previously spent his energy trying to claw Lloyd's of London back from the brink of self-annihilation, it makes a change for Mr Middleton to be concentrating on building. And in so doing, he is helping shape a cultural revolution in the way, certainly on this side of the Atlantic, Salomon Brothers, sees and runs itself.
"What I have to try to do is not just assemble the people needed for the new business, but make sure these people all have clear business objectives, to foster a management culture in a firm not always best known for that," he says.
In the space of a little over a year, Salomon Brothers in London has increased its European equity products team to 195 from 80.
There were six analysts a year ago, now there are 37 with more to come. The latest high-profile hirings from Merrill Lynch were the top-ranked media specialists, Richard Dale and David Forster, known in their new home as Chip & Dale.
Having been very much a proprietary trading operation, Salomons claims to be undergoing a "total switch" in terms of equities, focusing on agency and secondary market activities, while building up the bank.
"Our approach is to hire just one or two high-quality investment bankers for each country in Europe and then develop a strategy with them," Mr Middleton says. "The next stage is close integration between Europe and the US in terms of combined teams calling on clients."
The expansion has been all the easier, Mr Middleton readily admits, because of the "opportunities in the difficulties of some of our competitors". But Salomons' poaching is only increasing the pressure on salaries and talent among the City's top ranks - already considerable thanks to the ambitions notably of Deutsche Morgan Grenfell. UBS, too, is girding itself for a big investment banking push.
"The big change here for Salomons is the number of talented people who want to join us. Eighteen months ago, many of them would probably not have considered it."
Salomon is certainly a big change for Mr Middleton. By repute, it is quintessentially American, brash and ballsy. This is a far cry from his beginnings of adulthood in a monastery, followed by reading philosophy at the University of Paris. It is also a rather different career lane from the true-Brit one occupied until now: the Foreign Office, Midland Bank, Thomas Cook and finally Lloyd's of London.
But one of the surprises, says Mr Middleton, apart from finding that Salomon people do not eat live children for breakfast, is that the London operation could hardly be less American. "In the course of every working day, I am likely to hear 14 or 15 languages being spoken. One of the better- kept secrets of Salomons is that in Europe it is so European. There are 35 nationalities in this part of the operation."
When the New York board headhunted Mr Middleton, they wanted a European, and they wanted a professional manager who could help bring a consistency of approach to the business that had been so absent in the past.
"In the Eighties, as a bond trader as Salomon essentially was, there was no medium- to long-term client strategy. The emphasis is moving more towards the client relationship side of the business."
Mr Middleton sees his urgent priorities as getting the various product areas of the business operating much more coherently together, and training managers to manage. On a recent trip to a big banking client in Dusseldorf, he was surprised to find that his German counterpart knew much more about the different services from Salomon Brothers it uses than Mr Middleton himself.
"Just in the past three months, there is a greater sense of the need to co-operate among product areas," he says. "None of this is complicated stuff, but it does make a difference between a firm that has a lot of individual talent firing away, and a coherent team that is powerful because united."
He is also putting emphasis on developing people and training to make them better at what they do. "We have tended in the past to put people in a seat and say, right, you are in such and such a product area, start phoning clients. We need to train people on how to manage client relationships."
Senior executives have regular business planning meetings, focusing on where they want to be 18 months from now, and they are all expected to take a period of training each year. "That is how you link management with profit, not just by removing inefficiencies, but by getting people with training to be better."
He adds: "One of the reasons why there is a need for management skills in institutions like this is precisely because you do have to try to bind people to a company by factors other than money."
In advocating change, Mr Middleton is pushing on doors already well opened by the trauma of the bond trading scandal in 1991. At the time, Salomon Brothers was being urged to give up on equities and banking and cut back to its bond trading roots.
But the new management, under Deryck Maughan, another English Northerner like Mr Middleton, took the other course, trying to broaden the base of the business, and transforming the "big swinging dick" culture portrayed by Michael Lewis in the book Liar's Poker.
"I think a lot of good things came out of the awful trauma of 1991. It was very damaging for Salomon, but it gave people the occasion to stand back and say, not just that it would never happen again, but are we sure that the products and the emphasis of the business is the best for the future.
"Deryck Maughan brought a lot of fresh thinking. Quite certainly, until that point, the trading side in New York had dominated the firm."
"A big change is that there is no longer the internal arrogance that used to characterise Salomon Brothers. There were some people who were viewed, and viewed themselves, as bigger than the firm.
"That gives you a problem in management terms, because if you elevate people on to pedestals that high, normal ways of controlling them, internal audit, compliance, may not be able to get to that level to see what is really going on," Mr Middleton says.
"The real transformation is that there is no appetite for a return to that culture."
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