A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation

CHAPTER 7

COLOSSUS

The tagline of ads heralding the creation of Salomon Smith Barney within Travelers was “We’re Just Getting Started.” In his meeting with the managing directors to announce the Travelers-Citibank merger, Jamie Dimon played off that line to signal that the summit had now been reached by flashing a slide that said “We’re Done.” It would be a tall order indeed to top the deal that created Citigroup. And it would be a creation that required total managerial focus just to maintain.

Sandy Weill’s assemblage of the Citigroup colossus was his second act after having bootstrapped his securities firm, started in 1960, into Shearson Loeb Rhoades, which he then sold in 1981 to American Express, a move that catapulted him to the president’s office. A Jewish kid from Brooklyn, he chafed against the Brooks Brothers bureaucracy of Amex and left in 1985, loser in a power play. Act II started the next year, when, at age 53, with a young Jamie Dimon on his team, he bought Commercial Credit, a second-tier Baltimore consumer lending operation. They leapfrogged from one company to the next, Weill using intuition and connections to find cash cows with inflated expenses that Dimon’s disciplined management style could trim to profitability.

Commercial Credit bought Primerica and its Smith Barney brokerage firm, and then Travelers insurance. Through Travelers, Weill in 1993 bought Shearson back from American Express and four years later bought Salomon Brothers. This conglomerate of companies ...