KING OF CAPITAL KING OF CAPITAL SANDY WEILL AND THE MAKING OF CITIGROUP Amey Stone and Mike Brewster John Wiley & Sons, Inc. Copyright © 2002 by Amey Stone and Mike Brewster. All rights reserved. Published by John Wiley & Sons, Inc., New York. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. 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ISBN 0-471-21416-7 Printed in the United States of America. 10987654321 To our parents: Jackie and Lanier Stone Ann Brewster and Bob Brewster PREFACE hen beginning this book, we first had to decide which Sandy Weill we were going to concentrate on: Weill the Wcorporate titan; Weill the philanthropist; Weill the entre- preneur; or perhaps Weill the manager. We decided to focus on Sandy Weill the dealmaker. By deal- maker, we mean someone who not only negotiates a merger, but also carries out its goals. It is this aspect of Weill’s career that puts him in a class with few other CEOs. By focusing on deals, we show how Weill evolved over the course of his long career as the size and scope of the deals grew. In a single generation, with no personal connections or family money to speak of, Weill built one of the biggest brokerages in the United States—Shearson. Then he did it all over again, cre- ating Citigroup, one of the world’s most profitable financial ser- vices institutions. To help readers who aren’t familiar with the scope of his career, we included a long introduction that sketches the major events. This is not the authorized biography of Sandy Weill, although he did meet with us at the end of the project to answer some vii viii PREFACE questions and gave us access to several of his top executives for interviews. Nonetheless, we did not have an opportunity to ask Weill everything we’d have liked to. When we quoted Weill from a secondary source, we footnoted it. When we quoted him di- rectly, we made it clear in the text that he made the comment during our interview. Most of the material in this book was generated from approxi- mately 60 interviews conducted between July and December 2001. All the people quoted directly, without a footnote, were in- terviewed by us. We also gathered material from official docu- ments, such as congressional testimony, court filings, and annual reports. A number of people we interviewed asked not to be named or spoke to us only on background. Weill remains at the peak of his career. There is likely no other job as well-suited to him as his current one as head of Citigroup. To have written a biography of Weill any earlier would have risked leaving out the climax of his amazing career—a risk we still run with this book. ACKNOWLEDGMENTS riting this book would have been much more difficult without the help of our researcher, Paul Rogers, who— Walong with being an excellent reporter and editor—pos- sesses the patience and diplomatic skills to work closely with a husband and wife team. We’d also like to thank Lauren Cooper, who searched tirelessly to find photos that capture Weill and his era. Courtney Rowe also offered research assistance, as well as her support. Our readers, Suzanne Woolley and Bill Schwartz- man, offered invaluable suggestions for revising our manuscript. Friends, colleagues, and family members too numerous to mention volunteered their ideas and encouragement. We’d like to give special thanks to Bob Arnold and the staff of Business Week Online, David Shook, Weld Royal, Dermott and Elizabeth Morgan, Julie Tilsner (for those immortal words that kept us going), Jean Bergstresser, Evan Simonoff, Kerry Capell, Andy Wickstrom, Kathy Bonadie, Rebecca Hefter, Randy Fuller, Joyce Magruder, Irene Sitbon, Seth Kaufman, Jackie Mroz, Sam Freedman, Nate and Frances Burke, and Dee Stearns. We also extend our thanks ix x ACKNOWLEDGMENTS to Citigroup’s public relations staff, especially Jennifer Scardino and Leah Johnson, who set up several key interviews for this book. A special thanks also goes to the authors of some excellent books that greatly helped us understand the context and import of Weill’s career. In that regard, we’d like to thank Jon Fried- man, co-author with John Meehan of House of Cards; David Rogers, author of The Future of American Banking; and Tim Car- rington, author of The Year They Sold Wall Street. Finally, we’d like to thank our agent, Susan Barry, who helped us through the agonizing and exhilarating process of writing our first book, and Jeanne Glasser, our editor at John Wiley & Sons, who can spot a good story when she sees one. CONTENTS Timeline xiii Introduction: Meet Sandy Weill 1 1 The Past Is Gone. The Future Is Limitless 15 2 The Best and Brightest 37 3 Hayden Stone: The Prototype Deal 71 4 Building Shearson 93 5 Deputy Dog 123 6 Starting Over 153 7 Back in the Big Leagues 181 xi xii CONTENTS 8 Deal of the Century 217 9 Weill on Top 245 10 Citigroup, Post–September 11 271 Notes 285 Bibliography 295 Index 297 TIMELINE 1812 The future Citicorp is founded, under the name City Bank of New York. 1908 Etta Kalika, Sandy Weill’s mother, emigrates to the United States with her family. 1933 Sandy Weill born in Brooklyn; Glass-Steagall Act passed. 1947 Weill sent to Peekskill Military Academy; he graduates four years later. 1951 Weill starts at Cornell University with plans to major in engineering. 1955 Weill graduates from Cornell, marries Joan Mosher, and lands his first job as a runner at Bear Stearns for $150 a month. 1957 Marc Weill, Sandy and Joan’s first child, is born; two years later, Jessica is born. 1960 Weill, with three others, starts Carter, Berlind, Potoma & Weill. 1970 Weill’s firm acquires the older, more established brokerage firm Hayden Stone. xiii xiv TIMELINE 1970–1980 Weill’s firm acquires H. Hentz & Co., Shearson Hamill, and Loeb Rhoades. 1981 American Express acquires Shearson Loeb Rhoades. 1983 Weill is named American Express president. 1984 John Reed becomes CEO of Citicorp, replacing the legendary Walter Wriston. 1985 Weill resigns from American Express, along with protégé Jamie Dimon. 1986 Weill acquires control of consumer finance company Commercial Credit. 1988 Weill acquires Primerica Corp., including Smith Barney. 1992 Weill acquires a 27 percent stake in Travelers Insurance. 1993 Weill recaptures Shearson from American Express. 1993 Weill buys the remainder of Travelers and assumes the Travelers name. 1997 Travelers buys Salomon Brothers. 1998 Citigroup merger announced; Reed and Weill to become co-CEOs. 1999 Repeal of Glass-Steagall Act legitimizes Citigroup’s structure. 2000 Weill wins power struggle with Reed, who agrees to step down as co-CEO in April. 2001 Citigroup continues international expansion, acquiring Mexico’s Banamex. 2002 Sandy and Joan announce a $100 million donation to Cornell’s Weill Medical Center, their second such gift to the school. Introduction: Meet Sandy Weill alling Sandy Weill a dealmaker is a little like calling Warren Buffett an investor, Bill Gates a techie, or Al Dunlap retired. CThe statement is true only so far as it goes. Every now and then, someone redefines the meaning of suc- cess—or failure—through the sheer enormity of their achieve- ments or shortcomings. Weill, the chairman and CEO of Citigroup, the largest financial services firm in the world, more than redefined “the deal”; he has come to embody it. And the deal, more so than many other aspects of business, is exhilarat- ing: midnight oil is burned, careers are made and destroyed, stock is swapped, and fortunes made. Deals are so addictive, in fact, that Weill—who turned 69 in March 2002—keeps making them. He built two business em- pires literally from scratch, the first culminating with the bro- kerage house Shearson and the second with financial giant Citigroup. Weill, through a keen eye for value, pure will, and boundless energy, may have fathered more corporate births and presided over more corporate deaths than any other single 1 2 KING OF CAPITAL business executive. Along the way, Weill fired more friends than some people ever make, made more mistakes than most people have ideas, and experienced more triumphs than most people dare dream of. Fiercely intelligent? Amazingly ambitious? Certainly, and so are most of his competitors, peers, and would-be successors. What sep- arates Weill from his fellow CEOs is a laser-like focus on boosting the bottom line, a keen eye for hiring talented and loyal lieu- tenants, and prodigious amounts of raw energy and drive.