Chad Leat cannot sit still as he describes his vision of the global debt capital markets group that will emerge from last fall's marriage of Citicorp and Salomon's parent, Travelers Group.
"We think we have a real shot to become the leader in high-yield within the next few years. We certainly have the capital, clients, and talent," Mr. Leat says.
"I do believe we are the people that the competition fears most-and that feels good."
The former Chase Manhattan Corp. executive is now part of the management team combining all fixed-income and syndicated lending, and a group providing debt products to financial sponsors, into one unit at Salomon Smith Barney, a subsidiary of Citigroup. The task is a formidable one, given that the three teams encompass executives from three very different corporate cultures: the old Salomon, Smith Barney, and Citibank.
Mr. Leat says the group is pursuing the lofty goal of propelling Salomon Smith Barney to the top of the junk bond underwriting charts, up from No. 3 last year. It plans do that, in part, by providing financial sponsors-also known as leveraged buyout shops-with an array of bond and loan products.
"We have significantly increased the capital we are going to use to support leveraged lending for financial sponsors and corporates," he says. "Salomon will bring more capital to both fixed-income and loans for financial sponsors than any other firm. And that will give us a competitive advantage."
Competition is a big part of Mr. Leat's life, and not just at work. His office walls are decorated with photos of him racing across finish lines and jumping barricades on one of his three horses. The 42-year-old native Kansan grew up riding Western style and became interested in English-style racing and jumping as an adult.
"I know a lot of LBO guys who ride competitively," he says, noting that he was attracted to the field of leveraged finance because he enjoys the aggressive attitude of its players.
Mr. Leat is an interesting choice to trumpet Salomon's junk bond shop, observers say. He's a relative newcomer to the business, having joined it in 1997, when he was hired by Salomon Brothers as a managing director and co-head of high-yield capital markets.
He headed syndicated lending for Chase Manhattan Bank before its merger with Chemical Bank in 1996. But Chemical's much larger market share and the reputation of its James B. Lee meant that Chemical's management team took charge of syndications.
This was the first bend in Mr. Leat's course. He became head of Chase's financial sponsors group, choosing to emphasize West Coast buyout shops.
Colleagues say that Mr. Leat's career path makes him uniquely suited for his current position.
"Not many people in high-yield have all those good conservative credit instincts that you develop in banking," says Mr. Leat's co-head for high- yield capital markets, Steven M. Jones.
Since the Citigroup merger, Mr. Leat has also become co-head of the loan group with longtime Citibank executive Ann Lane, and co-head of acquisition finance with Michael Klein, a former Smith Barney executive who oversees a relationship group aimed at entrepreneurs, including financial sponsors.
Thirty-two people from Salomon and Citibank have been assigned to an acquisition finance unit, which provides bridge loans and junk bonds to clients of Mr. Klein's group. Mr. Klein launched his team at Smith Barney four years before its merger with Salomon in 1997, and it now has about 70 bankers worldwide.
Most of Citigroup's fixed-income employees came from Salomon, including the 55 in global high-yield capital markets. And the roughly 200-strong global syndicated lending group has only recently been rolled in from Citibank.
With such a large group, some market observers predict there will be friction until a new culture emerges.
"The proof is entirely in the pudding," says Roy Smith, a finance professor at New York University Stern School of Business. "But the history of integrating investment banking shows that people are most concerned with who's getting credit, who's getting fired or advanced, and which group is making the most money."
Mr. Leat may be able to help bridge some of these gaps, because he does not have a long background with either Salomon or Citibank, says Samuel Hayes, a finance professor at Harvard Business School.
"There has been a loosening of the lifelong ties that used to be characteristic of investment banking and commercial banking," Mr. Hayes says. "Now a lot of bankers move around almost like baseball players."
Still, the new group might encounter some difficulties in tightening its focus on leveraged buyout shops-a sector most big investment banks now favor because of its lucrative deals. Though Citibank was a market leader in loans to LBO firms during much of the 1980s, it reduced its stake in the 1990s.
"They made the decision to focus leveraged lending on multinational global clients rather than the sponsor-driven Wall Street model," one banker says.
Before Citigroup, Salomon also had a small syndicated lending group that its executives characterize as "defensive," at a time when bank loan giants were trying to move in on Wall Street's junk bond turf. About a dozen of those bankers remain, though the group's chief, Richard Ivers, returned to Credit Suisse First Boston, which he had left in 1996.
Combined, Citibank and Salomon Smith Barney ranked No. 7 in syndicated lending to financial sponsors last year, with 16 deals, down from No. 5 in 1997, according to Loan Pricing Corp.
Mr. Leat acknowledges that the old Salomon was a little slower than some other firms to commit capital to the leveraged buyout side of the high- yield business. "When I joined, their business mix was heavily skewed toward traditional industrials," he says.
When Travelers Group bought Salomon for $9 billion later in 1997 and merged it with the company's Smith Barney unit, Mr. Leat formed an alliance with Smith Barney's entrepreneurs group, which does about 80% of its business with buyout shops, according to Mr. Klein.
Mr. Leat says financial sponsors prefer investment banks that can offer them a debt package with both high-yield bonds and leveraged loans.
"I really do believe that this area of leveraged finance is where the traditional barriers between investment banking and commercial banking have come down the farthest," he says.
Now Mr. Leat says Salomon will take the leveraged loan product to its usual junk bond customers.
"Nobody else on Wall Street today has bulge-bracket status in both syndicated lending and fixed-income," he says.
Only a few other firms come close. Among commercial banks, Chase and Bankers Trust Corp. have built competitive junk bond shops. But only J.P. Morgan & Co. has a claim to bulge-bracket status in overall fixed-income, ranking No. 7 last year, compared with Salomon's No. 3.
Among Wall Street firms, only Lehman Brothers has cracked the top 10 in syndicated lending.
Mr. Leat said he hopes that a renewed focus on LBO shops will help Salomon advance in junk bond charts. Salomon had a 12.7% market share last year, according to Securities Data Co.
Longtime industry leader Donaldson, Lufkin & Jenrette had a 14.7% share. But DLJ did far more deals-bringing 112 new issues to market, compared with 85 for runner-up Morgan Stanley Dean Witter & Co. and 86 for Salomon. The domestic junk bond market is very top-heavy, with these three firms managing more than 40% of the volume.
