Nobody, except for one firm: Salomon Brothers.
In 1991, just as Maxwell had generated a huge scandal in Britain, Salomon Bothers had done the same in the United States. In the previous autumn, the Securities and Exchange Commission (SEC) caught some top Salomon traders trying to manipulate the US Treasury bond market. It was unclear how hard the SEC would pursue its case or even whether Salomon would survive. A similar thing happened a year before at another firm, Drexel Burnham Lambert, and it went bankrupt, leaving many people unemployed. Fearing a similar fate at Salomon, many of the good employees had jumped ship and found new work elsewhere.
This left gaping holes at Salomon that needed to be filled, and I was desperate for a job. In better times, Salomon might have shunned me, but they were as desperate as I was, and after an intense round of interviews, they offered me a position as an associate on the East European investment-banking team in London. It wasn’t exactly what I wanted. My dream was to be an investor—the person deciding what shares to buy—not an investment banker, the guy organizing the sale of shares. Moreover, the title wasn’t as good as my title at Maxwell, and it came with a significant pay cut. But beggars can’t be choosers, so I gratefully took the offer. I was determined to put my head down and do whatever was necessary to get my career back on track.
Unfortunately, Salomon was probably the most unnatural place to do that. If you’ve ever read Liar’s Poker, then you know that Salomon Brothers was one of the most dog-eat-dog firms on Wall Street. To say that I was nervous on my first day would be a gross understatement.
I arrived at Salomon’s offices above Victoria Station on Buckingham Palace Road in June 1992. It was an unusually warm and sunny day, and I walked through a large set of wrought-iron gates and took the long escalator up three flights to the main reception area. I was met by a well-dressed vice president a few years older than me. He was curt and impatient and seemed annoyed at having been tasked with greeting me. We walked across the atrium and through some glass doors to the investment bank. He showed me to my desk and pointed to a box of business cards. “Listen, things are pretty simple around here. You generate five times your salary in the next twelve months and things will be fine. Otherwise, you’re sacked. Clear?”
I nodded and he left. That was it. No training program, no mentors, no orientation. Just do it or get fired.
I tried to settle into my chair in the bullpen, the open area where all junior employees sat, unsure of what to do next. As I leafed through the Salomon Brothers employee handbook, I noticed a secretary sitting nearby speaking loudly into the phone about flights to Hungary. When she put down the receiver, I walked over. “Sorry to eavesdrop, but I’m a new associate and couldn’t help hearing you talking about Hungary. Do you know what the firm’s doing over there?”
“Oh, that’s okay,” she said reassuringly. “We all listen to each other’s conversations. I was making reservations for the Malev privatization team to go to Budapest next week.”
“Who’s working on that?”
“You can see for yourself.” She pointed toward a group of men sitting in one of the glass-windowed conference rooms just off the bullpen. While I’d been there for only a few hours, I knew that if I was going to succeed, I needed to take some initiative. I thanked the secretary and marched over to the conference room. As I opened the door, the six people on the Malev team stopped talking, turned toward me, and stared.
“Hi, I’m Bill Browder,” I said, trying to mask my awkwardness. “I’m new on the East European team. I was hoping you guys could use some help on your deal.” The uncomfortable silence was broken by two younger team members, who giggled under their breath. The team leader then politely said, “Thanks for stopping by, Bill, but I’m afraid we’re fully staffed.”
That was a little embarrassing, but I didn’t let it affect me. I kept my eyes open and asked around and found another opportunity several days later. The Polish telecom privatization team was having a meeting to discuss the next phase of their project. I knew they were getting a much bigger fee than the Malev team, so I figured they might not be so resistant to having another person around.
When I showed up to their meeting, the man in charge was much less polite than the Malev team leader. “Who told you to come here?” he demanded. “We don’t need you on this or any other deal we’re doing in Poland!”
Nobody wanted to share their revenue with me because they were all struggling with the same “five times” formula that I was; everybody was simply fighting to protect their turf in Eastern Europe. For several weeks I racked my brain trying to figure out how I was going to survive at Salomon. But then I noticed something interesting. Nobody was doing anything in Russia, meaning there was no one to fight me over it. I decided to take a chance. I declared myself the investment banker in charge of Russia, held my breath, and waited to see if anyone would object. Nobody did.
From that moment on, Russia was my territory.
But there was a good reason why no one cared about Russia: there was no paid investment-banking work to do there. While Russia may have been politically free, it was still Soviet in every respect, including their use of investment bankers. I stubbornly ignored this fact and set out to find whatever business I could. I tirelessly went to conferences, meetings, luncheons, and networking events all around London, hoping some business would fall into my lap.
Three months in, I still hadn’t made a single penny for Salomon and my prospects were not looking good. But then, a lawyer whom I’d met at a networking event told me about an advisory assignment for the Murmansk Trawler Fleet, a Russian fishing operation two hundred miles north of the Arctic Circle. The fleet had put out a tender for a privatization adviser. I didn’t know the first thing about fishing, but I’d learned how to make an excellent proposal at BCG, and I set to work.
I searched Salomon’s deal database, looking for anything to do with trawlers or fishing. Remarkably, fifteen years earlier the Tokyo office had been involved in several transactions involving Japanese fishing companies. Fifteen years seemed like a long time, and these were debt deals, not privatizations, but what the hell? I stuck all the Japanese experience in the proposal, tidied it up, and sent it off to Murmansk.
A few weeks later, the phone rang. A woman named Irina was calling on behalf of the Murmansk Trawler Fleet’s president.
“Mr. Browder,” she said in a thick Russian accent, “we would like to inform you that we have accepted your proposal.” I briefly wondered if they had even received any others. “When can you come to Murmansk to begin the assignment?” she asked awkwardly. It sounded as if this was the first time she had ever spoken to a Western investment banker.
I was elated—I had brought in my first piece of real business—but the tender didn’t say how much they would pay. Since I hadn’t made any progress toward the goal of making five times my salary, I was hoping for something significant. In a deliberate and formal voice that I thought would make me sound older and more credible, I said, “I’m very honored you’ve chosen our firm. Could I inquire how much you intend to pay for this assignment?”
Irina spoke in Russian with someone in the background, then said, “Mr. Browder, we have budget of fifty thousand dollars for two months for this assignment. This is acceptable for you?”
My heart sank. It’s hard to describe how small $50,000 is to an investment banker. Linda Evangelista, a supermodel from the 1980s and 1990s, once famously declared, “I don’t get out of bed for less than ten thousand dollars a day.” For an investment banker, that number is more like $1 million. But here I was having earned nothing for Salomon, and $50,000 was that much more than zero, so I agreed.
A week later, I set off for Murmansk. The first leg of the trip was a 9:30 a.m. British Airways flight to Saint Petersburg. It took four and a half hours, and with the three-hour time difference, I arrived in the late afternoon at Saint Petersburg’s Pulkovo Airport. I stared out of my window as the plane taxied to the terminal and was astonished to see the burned-out carcass of an Aeroflot passenger plane lying on the side of the runway. I had no idea how it had gotten there. Apparently it was too much of a bother for the airport authorities to have it moved.
Welcome to Russia.
Since Aeroflot scheduled lots of its regional flights in the middle of the night, I had to sit in the airport for another ten hours until 3:30 a.m. to make the connection to Murmansk. Waiting all that time would have been painful in any airport, but it was particularly so at Pulkovo. There was no air-conditioning, and even though it was so far north, the air was hot and stuffy. Everyone was smoking and sweating. I tried to get away from the bodies and cigarettes, but even after I’d found a row of empty seats, a large stranger plopped down next to me. He didn’t say a word, but he pushed my arm off the armrest between our seats and promptly lit a cigarette, taking pains to blow the smoke in my direction.
I got up and moved.
I finally boarded an old Aeroflot Tupolev 134 just before 3:30 a.m. Its seats were threadbare and sunken. The cabin smelled of tobacco and old age. I settled into a window seat, but it wouldn’t lock into position and every time I leaned back, it would fall into the person’s lap behind me, so I didn’t lean back.
The cabin door closed and we moved out to the runway without the slightest hint of a safety announcement. We took off and were treated to a short but exceedingly bumpy flight. When the plane neared Murmansk, the pilot announced something in Russian. Another passenger who spoke English explained that we had been diverted to a military airport an hour-and-a-half drive from Murmansk because of a problem at the municipal airport.
I was relieved when the plane finally came in to land, but my relief was short-lived. The runway was so potholed and crooked, and the landing so violent, that I thought the wheels were going to be torn off the plane.
When I finally disembarked at 5:30 a.m., I was completely exhausted. Because I was so far north, the late-summer sun was low in the sky and had barely set. There was no terminal at the military airport—just a small warehouse-like building and a parking lot—but I was happy to see that the trawler fleet’s president, Yuri Prutkov, had made the trip to greet me. Irina, an unsmiling and leggy blonde with too much makeup, was there too. Prutkov was almost a carbon copy of the general manager of Autosan—late fifties, large, and with a handshake like a vise. He and I sat in the back of the company car while Irina sat in the passenger seat, twisting around to translate. The driver took off across a desolate tundra landscape that looked like the moon. Ninety minutes later, we arrived in Murmansk.
I was dropped off at Murmansk’s best hotel, the Arctic. I checked in and went to my room. The bathroom smelled like urine, there was no toilet seat, and large chunks of porcelain were missing from the sink. The room’s window screen was broken, allowing mosquitoes the size of golf balls to fly in and out freely. There were no curtains to blot out the barely setting sun and the mattress was lumpy and sunken in the middle, as if it hadn’t been changed in twenty-five years. I didn’t even unpack. My only thought was How soon can I get the hell out of here?
A few hours later, Prutkov returned and drove me to the docks for a tour of the fleet. We walked up a rusting gangplank to one of the trawlers. It was a huge oceangoing factory that stretched hundreds of feet long, boasted a crew of more than a hundred men, and was capable of holding thousands of tons of fish and ice. As we descended into one of the subdecks, I was hit by the overpowering odor of rancid, spoiled fish that hung in the air. I felt like throwing up the whole time Prutkov spoke. Remarkably, he was unfazed by the smell. I pitied the poor guys who worked on these ships for six months at a stretch without any reprieve.
We toured the vessel for twenty minutes, then made our way to the fleet’s offices at 12 Tralovaya Street. These were just as decrepit and tumbledown as the boats, but thankfully they didn’t smell. The lighting in the hall was weak and green, and the walls of the reception area looked as if they hadn’t been painted in decades. I couldn’t help but think that everything about this operation was an insult to the senses, but then, as we settled down to a cup of lukewarm tea, we started to discuss the financial situation of the company and my perceptions started to shift.
“Tell me, Mr. Prutkov—how much does one of those boats cost?” I asked, Irina still translating.
“We got them for twenty million dollars new out of a shipyard in East Germany,” he answered.
“How many do you have?”
“About a hundred.”
“And how old are they?”
“Seven years on average.”
I did the math. A hundred trawlers at $20 million each meant that they had $2 billion worth of ships. I figured that if the fleet was seven years old, then it was about half-depreciated, meaning that they had $1 billion of ships at the current market value.
I was amazed. These people had hired me to advise them on whether they should exercise their right under the Russian privatization program to purchase 51 percent of the fleet for $2.5 million. Two and a half million dollars! For a half stake in over a billion dollars’ worth of ships! Of course they should! It was a no-brainer. I couldn’t understand why they needed anyone to tell them this. More than anything, I wished I could have joined them in buying the 51 percent.
As I went over all this with Prutkov, I felt the release of that familiar chemical in my stomach—the one I’d felt after my ten bagger in Poland. I wondered, Is this deal unique to the Murmansk Trawler Fleet, or is the same thing happening all over Russia? And if it is, how can I get involved?
I was scheduled to return to London the following day, but I was so excited and agitated that I bought a one-way ticket to Moscow instead. I had to find out if the shares of every other Russian company were just as cheap as this one. Nobody would miss me in London, anyway—they barely knew I existed.
After arriving in Moscow and collecting my bags, I went to an airport kiosk and bought a small, English-language business-phone directory. I’d never been to Moscow, didn’t speak a word of Russian, and hardly knew a soul. I got in an airport taxi and told the driver that I wanted to go to the Metropol Hotel on Red Square (he must have known that I was easy pickings because I later learned that he charged me four times the normal rate). We sat in snarled traffic on Leningradsky Prospekt, a boulevard that was wider than a football field, slowly passing hundreds of identical Soviet-era apartment blocks and billboards advertising strange-sounding companies.
The cab pulled up to the Metropol two hours later, across from the Bolshoi Theatre. When I got to my room, I called a friend in London who had worked in Moscow and he gave me the numbers of a driver and a translator, each of whom charged $50 a day. The next morning I went through the phone directory and started cold-calling anyone who seemed relevant to see if they would be willing to discuss the Russian privatization program with me. I ended up seeing officials from the US embassy, some people at Ernst & Young, a junior Russian official at the privatization ministry, and a Stanford alum who worked at American Express, among others. Over four days, I arranged a total of thirty meetings, and from them I pieced together the full story of what was going on with the Russian privatization program.
I found that to transition from communism to capitalism, the Russian government had decided to give away most of the state’s property to the people. The government was going about this in a number of ways, but the most interesting was something called voucher privatization. In this part of the program, the government granted one privatization certificate to every Russian citizen—roughly 150 million people in total—and taken together these were exchangeable for 30 percent of nearly all Russian companies.
One hundred and fifty million vouchers multiplied by $20—the market price of the vouchers—equaled $3 billion. Since these vouchers were exchangeable for roughly 30 percent of the shares of all Russian companies, this meant that the valuation of the entire Russian economy was only $10 billion! That was one-sixth the value of Wal-Mart!
To put this in perspective, Russia had 24 percent of the world’s natural gas, 9 percent of the world’s oil, and produced 6.6 percent of the world’s steel, among many other things. Yet this incredible trove of resources was trading for a mere $10 billion!
Even more astonishing was that there were no restrictions on who could purchase these vouchers. I could buy them, Salomon could buy them, anyone could buy them. If what had happened in Poland was profitable, then this was off the charts.
I returned to London a man possessed. I wanted to tell everyone at Salomon that they were giving money away for free in Russia. I started by going to one of the guys on the East European investment banking desk with my discovery. But instead of congratulating me, he frowned and asked, “Where are the advisory fees on this?” How could he not understand that this could easily go up a hundred times? Advisory fees? Was he serious? Who gave a shit about advisory fees?
I then went to someone in the investment-management division, expecting him to hug me since I was sharing the most jaw-dropping investment opportunity he would ever see in his life. Instead he looked at me as if I were suggesting that the firm invest in Mars.
After that, I went to one of the traders on the emerging-markets desk, but he looked at me quizzically and asked, “What’re the spreads and trading volumes on these vouchers?” What? Who cares whether they’re 1 percent or 10 percent? I’m talking about making 10,000 percent!
Nobody at Salomon could divorce themselves from their own narrow mind-set. Perhaps if I had been more subtle and clever I could have found a way to pierce their myopia, but I wasn’t. I had no political skills, and for weeks I just kept presenting my idea over and over, hoping that by repetition I would eventually get through to someone.
Instead, I completely ruined my reputation inside Salomon Brothers. No one wanted anything to do with me because I was that “crazy fuck who wouldn’t shut up about Russia.” The other associates I used to hang out with stopped inviting me for lunch and after-work drinks.
It was now October 1993, and I’d been at Salomon Brothers for just over a year. I was an object of ridicule throughout Salomon, and worst of all I’d made the firm only $50,000 in total, meaning I was sure to be fired at any moment. As I despaired over my impending dismissal, my phone rang. I didn’t recognize the New York extension: 2723. I answered. The man on the other end had a deep Southern drawl, like a Georgia lawman. “Hey, there. This Bill Browder?”
“Yes. Who’s calling?”
“Name’s Bobby Ludwig. I heard you got something going on in Russia.”
I’d never heard of this guy before and wondered who he was. “Yeah, I do. Do you work for the firm?”
“Yep. In New York. I was wondering if you might do me a favor and come tell me about what you’re up to?”
“Uh, sure. Can I check my schedule and get back to you?”
“ ’Course.”
We hung up. I immediately called someone I knew on the emerging-markets desk who had worked in New York and asked him about this Ludwig person.
“Bobby Ludwig?” he asked, as if I were stupid not to know who he was. “He’s one of the top producers at the firm. Weird guy, though. Some people think he’s crazy. But he makes money year after year, so he kind of does whatever he wants. Why do you want to know?”
“No reason. Thanks.”
Bobby was exactly the person I needed to get me out of my rut. I phoned him back immediately. “Hi, this is Bill again. I’d love to come to New York and give you a presentation on Russia.”
“Friday work for you?”
“Sure. I’ll be there. See you then.”
I stayed up two nights in a row, putting together a PowerPoint presentation on Russian equities. That Thursday, I took a 6:00 p.m. British Airways flight to New York, skipping the on-board movies and reviewing the presentation over and over. I couldn’t blow this opportunity.
I arrived at Salomon Brothers headquarters at 7 World Trade Center on Friday morning. The Twin Towers glistened in the bright morning sun just to the southwest. I was sent up to the thirty-sixth floor and met by Bobby’s secretary. She greeted me and swiped us through the door to the trading floor. It was huge—desks went as far as the eye could see—and the energy was palpable. This was raw, aggressive capitalism to the core.
We walked along the side of the floor, passing a dozen rows of desks, and then through a short hallway that led to Bobby’s office. Bobby’s secretary announced me and left. Bobby was behind his desk staring out the window toward New York Harbor. He was around fifty but looked much older with his unkempt red hair and a stringy mustache that fell over the corners of his mouth. Except for a bunch of messy stacks of reports, his office was spartan, and aside from his desk and chair, the only furniture was a small, round table and two other seats. As Bobby asked me to sit, I noticed that he wore a pair of beat-up leather slippers and that his red tie was stained. I later learned that this was his lucky tie, which he’d worn nearly every day since he’d made $50 million on a single trade. Bobby settled behind his desk and I got out my presentation, put a copy in front of him, and started to talk.
Normally when one gives presentations, audiences indicate that they’re interested or bored or curious, but Bobby didn’t do any of that. He just stared vacantly at the charts and graphs as I flipped through them. There were no Uh-huhs or nods or anything else to give me an indication that I was getting through—just a blank stare. It was unsettling. Then, when I was about halfway through the slides, Bobby abruptly stood and, without saying a word, walked out of his office.
I didn’t know what to think. This was my final chance to save my career at Salomon and I was blowing it. What have I done wrong? How am I going to salvage this meeting? Should I speed up the presentation? Slow it down? What the hell should I do?
For nearly forty minutes I stewed in panic and uncertainty, but then I saw Bobby returning. He stopped to say something to his secretary and then, slowly, came back in. I stood, ready to beg if that’s what it was going to take.
But before I could even get a word out, Bobby said, “Browder, that story’s the most amazing thing I’ve ever heard. I just went down to the risk committee and got twenty-five million for us to invest in Russia. Don’t waste time doing anything else. You get back to Moscow and let’s put this money to work before we miss out, you hear?”
Yes. I did. I heard loud and clear.