When Smith Barney Inc. chairman Robert Greenhill sat down three weeks ago to negotiate job offers for some of the investment bankers who were quitting Salomon Brothers Inc., his goal of creating a world-class financial institutions group must have seemed within reach.

Today, Mr. Greenhill and Smith Barney are on the sidelines watching as the former Salomon players revel in their first deal, the $1.6 billion merger agreement between West One Bancorp and U.S. Bancorp.

Adding to the frustration of seeing the former Salomon bankers scoring a big deal for UBS Securities Inc., Smith Barney last week lost the head of its bank group when Charles Nathan left the company for a job at the law firm of Fried, Frank, Harris, Shriver & Jacobson.

The Salomon team represented a major opportunity for Smith Barney's financial institutions group, which had yet to attract much outside talent. Instead of gaining ground, the company is suddenly without Mr. Nathan and lacks the bank M&A professionals it will need to cash in on the expected consolidation in the era of interstate banking.

"Rome was not built in a day, and it takes a long time to build a sound investment bank," said Sanford C. Bernstein & Co. analyst Guy Mozkowski, concluding that the jury is still out on Smith Barney's efforts.

Despite Mr. Greenhill's impressive clientele in banking, the firm has failed to make the strides in commercial bank M&A that it has in advisory work for credit card, asset management, and mortgage banking clients.

His relationship with Terrence Murray didn't prevent the Fleet Financial Group chairman from turning to Salomon Brothers for advice in its $3.7 billion purchase of Shawmut National Corp.

The key Salomon Brothers adviser on that deal was Richard Barrett, the same official who headed the group Smith Barney had hoped to lure.

With the interstate banking law effective in September and massive consolidation on the horizon, the developments of the past few weeks could be costly.

Already this year Michigan National Corp., Shawmut, and West One have been sold in billion-dollar deals, netting millions of dollars for their advisers.

Smith Barney downplayed its inability to ink employment contracts with the Salomon bankers, who also talked to other Wall Street firms.

The company never offered the former Salomon team positions, and only had talks, said John C. "Hans" Morris, head of Smith Barney's financial institutions group.

But in a sign of the intensity of the firm's interest in the Salomon group, Sanford I. Weill, chairman of Smith Barney's parent, the Travelers, joined in the talks.

And despite internal criticism leveled at Mr. Greenhill and Mr. Weill for dividing the work force between high-paid former Morgan Stanley bankers and less well rewarded original Smith Barney bankers, the two discussed guaranteeing two years of multimillion-dollar salaries for the Salomon bankers, said a well-placed source, who noted the usual practice of no guarantees.

In the end, this source said, the high-priced Salomon entourage looked to UBS, where they were afforded the independence and flexibility that they missed at Salomon Brothers - and feared would be absent at Smith Barney.

Smith Barney denies politics played a role. Officals at the firm said no offer was made because the team's price was too high, likely in the $15 million to $20 million annual range.

Smith Barney's head of investment banking, William Mills, said the discussions were only exploratory, and the Salomon group was already well into talks with UBS.

Mr. Mills added that Smith Barney is committed to bulking up the financial institutions group, though it would not replace Mr. Nathan, who will help expand Fried Frank's bank practice.

"We are very committed to banks," Mr. Morris added. "We understand that banks are relationship driven, and we are investing substantially in those relationships.

"But we think ideas and distribution increasingly will become the distinguishing characteristic among investment banks," he said.

Mr. Nathan, who said he preferred lawyering to investment banking, also defended Smith Barney's financial institutions group.

It recently underwrote two debt issues for Bankers Trust New York Corp. and has been slowly cultivating relationships with 10 to 15 major commercial banks, he said.

The group's investment bankers have their hands in all the pots and do not confine themselves to specialties in any one field or market, he said.

The bottom line is, though the firm has bank analysts and bank capital markets personnel, it lacks a bank M&A specialist.

"They have got a decision to make," said a Wall Street investment banker.

"Are they going to continue to try to be an all-service financial institutions group with all the support that entails, or are they going to be just a niche player?"

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