Most analysts see as many as 1,500 jobs being lost as Salomons is folded into Smith Barney, the brokerage unit of Travelers. That, combined with other awkward realities now starting to emerge, is beginning to cloud the sun-burst of praise that met the deal at its unveiling on Wednesday.
Not that the joyous moods of at least two men will be dented. By fusing Salomon with Smith Barney, Sandy Weill, the Travelers chairman, will control a firm, Salomon Smith Barney Holdings, that is able to compete head-on with giants Merrill Lynch and the newly merged Morgan Stanley Dean Witter.
From every angle, Mr Weill's new creation will be a powerhouse, combining the retail-equities strength of Smith Barney with the global franchise of Salomon in fixed-income trading. It will, for example, have $55bn (pounds 34bn) in market capitalisation, more than twice that of Merrill Lynch.
Meanwhile, it is pay day for Warren Buffett, the legendary market guru from Nebraska, who last week saw his original $700m investment made in Salomon in 1987 parlayed into a holding with a paper value of $1.5bn. Mr Buffett will receive the agreed 1.13 Travelers's shares for each of his Salomon shares, giving him a 3 per cent stake in Travelers.
While there has been no word yet on the details of the lay-offs, Travelers confirmed it would take a $500m charge from the acquisition, much of which will go towards redundancy payments. And most observers expect most of the pain to be suffered among traders and analysts at Salomons.
Such a bloodbath is already attracting attention from New York's state government. Suggesting that Mr Weill may be about to become a "corporate welfare cheat", Senator Franz Leichter is calling on New York Mayor Rudy Giuliani to review a 1994 deal under which Travelers was granted $22.1m in tax breaks on condition it created at least 2,100 new jobs for the city. A massive redundancy campaign could be in breach of that deal.
Another needling problem concerns Salomon's long-term lease at its World Trade Centre headquarters. If, as Travelers has already signalled, Salomons staff are moved to the new Travelers headquarters several blocks north in Manhattan's Tribeca district, Salomon may incur huge costs, perhaps as much as $56m a year, in sub-letting its current space. Its lease on its existing offices, which is unbreakable, runs for another 16 years to 2013.
More fundamental, though, are the doubts bubbling through about the workability of the relationships at the top of the management pyramid, whereby Mr Weill has appointed Deryck Maughan, the chief executive at Salomon who is British, and James Dimon, his counterpart at Smith Barney, as co-chief executives of the new entity. Some say the men and their egos are bound to collide.
Even if the two, who claim their areas of expertise are complementary, work well together, the arrangement sets up an inevitable horse race as to the eventual succession when Mr Weill steps down. "It's an inherently unstable relationship," Noel Tichy, a professor at the University of Michigan, told BusinessWeek. "My guess is that this is a transition vehicle to get past the merger phase."
But Mr Weill told the Wall Street Journal he saw no prospect of instability in the power-sharing set-up. "Jamie and Deryck have the intellect and personalities to get along fine and be a perfect team."
Among those laying bets on the horse race, Mr Maughan appears to be the favourite to survive in the long term. This may be because he is a reasonably close friend of Mr Weill's. Meanwhile, Mr Dimon had an unfortunate spell in the summer when one of his top officers at Smith Barney walked out. She was Jessica Bibliowicz and she happens to be Mr Weill's daughter.Reuse content