NEW YORK -- Warren Buffett, a soft-spoken Midwesterner with anaffection for sweets and an unmatched reputation for savvy and probity, yesterday rescued Salomon Bros. Inc., a firm of legendary power, from expulsion from the government securities market.
The series of events that culminated with Mr. Buffett's first action as interim head of the beleaguered firm began yesterday morning as theU.S. Treasury announced it was taking the unprecedented step of banning Salomon -- a primary dealer -- from the quarterly auctions where the nation's debt is financed.
Salomon is the oldest, and often most important, participant in the $2.2 trillion market for government debt. Recently, however, it admitted to having broken rules limiting the amount single firms may purchase at the auctions and then withholding that information from regulators.
The economic consequences of Salomon's actions remain unclear, and may very well have been positive for the U.S. government by reducing interest rates on its borrowing.
Rather than following the strategy of other Wall Street firms caught up in scandal in recent recent years, Salomon chose not to fight or minimize the charges and instead initiated a massive housecleaning.
Yesterday, Salomon's board of directors accepted the resignation of the firm's top two top executives, Chief Executive John H. Gutfreund and President Thomas W. Strauss, as well as Vice Chairman John W. Meriwether. All had multimillion-dollar-a-year salaries and stood at the apex of international finance.
Additionally, it fired two executives who allegedly committed the transgressions and may have altered records to hide their involvement.
First apprised of the firm's dire condition in a 6:45 a.m. call Friday from Mr. Gutfreund, Mr. Buffett left his home in Omaha, Neb., and arrived in New York Friday afternoon to begin what he termed a "48-hour training program."
At a board meeting yesterday morning, he was appointed interim chief executive of Salomon. At 10:30 a.m. he placed the first of a series of calls to Treasury Secretary Nicholas F. Brady concerning Salomon's disbarment.
Mr. Buffett said he told the secretary that the ban would be "hurtful" and reassured him that no firm would be more forthcoming to an investigation, or in the future more insistent "on the correct moral and legal things."
Citing Mr. Buffett's involvement in the firm and the sweeping scope of managerial change, the Treasury officials then partly restored Salomon's authority, allowing the brokerage to bid at auctions for its own account. The firm still faces fines and investigations from regulators.
And as of Friday, it had been named in three suits stemming from the inappropriate actions in the Treasury market.
The extent of Salomon's transgressions are still emerging, though Mr. Buffett asserted, "if I thought there were a lot of things, I wouldn't have taken the job."
It has acknowledged having acted inappropriately at several Treasuryactions beginning last December. Senior officials, including Messrs. Gutfreund, Straus and Meriwether, were informed of some improprieties in April, when they received a letter sent by Treasury officials to a Salomon client, but apparently did not provide authorities with information until August.
Mr. Buffett termed the firm's lack of response "inexplicable and inexcusable."
He did, however, take pains to defend the integrity of both the firm, with which he has long done business, and Mr. Gutfreund personally.
Still, he did not spare Salomon criticism. "I think culture did in some way contribute to a couple of people's misbehavior," he said. "Some would call it macho; others would call it cavalier. I don't think the same thing would happen in a monastery."
Treasury officials described yesterday's action of first suspending Salomon's right to buy government notes at auction, and then partly lifting the suspension, as part of an ongoing pressure tactic. The company had announced last Friday that Mr. Gutfreund and Mr. Strauss would resign as a result of the scandal.
But that was not deemed by Treasury to be enough of a shake-up to forestall the decision announced yesterday morning to deny Salomon's its valuable right to participate as one of about 40 primary buyers at auctions of Treasury notes.
Salomon's board of directors went farther yesterday afternoon than Treasury expected in also announcing the resignation of Mr. Meriwether and changes in administrative procedures that deal directly with the area of trading in which the abuses occurred.
Mr. Brady consulted with the White House and the Federal Reserve Board before authorizing Salomon to continue participating in the Treasury auctions in order to buy notes for its own account, but not on behalf of customers. The distinction is important, a Treasury Department official explained, because it addresses the particular area of abuse that got Salomon into trouble.