Record earnings for more open Salomon: Arbitrage section turns in dollars 300m paper loss

SALOMON Brothers reported record earnings for its second quarter yesterday, but disclosed that it suffered paper losses of more than dollars 300m trading for its own account earlier this year.

It was the first time the Wall Street investment bank's arbitrage unit had found itself in the red in the highly speculative business. Salomon, whose quarterly results are notoriously volatile, made dollars 783m before taxes, after losing dollars 89m in the first three months of the year.

But for the first time, Salomon broke down revenues for its client and proprietary-trading operations, giving shareholders a glimpse of their relative contributions to the firm's earnings.

Client businesses brought in dollars 913m in revenues during the second quarter, the highest level in the three years of statistics the firm published yesterday. Trading for its own account, Salomon realised dollars 523m in revenue, after losing dollars 303m in the first quarter.

The firm did not detail quarterly expenses for each business, but said client businesses contributed dollars 613m to Salomon's profits for the first half of 1993, while proprietary trading yielded only dollars 81m - a sharp reversal of Salomon's earnings pattern over the past three years.

In past years, fixed-income and equity arbitrage accounted for about 80 per cent of the firm's profits, according to yesterday's release. Proprietary trading results were 'lagging dramatically' from earlier years.

Deryck Maughan, chief executive, said the firm was disclosing the information for the first time so that investors 'can better understand the dynamics of our earnings. There has been a significant turnaround in profitability of our client-driven businesses.'

Salomon attributed the improvements to favourable market conditions, changes in business strategies and a recovery of business lost as a result of the 1991 scandal involving the firm's US government securities trading desk.

After tax, the firm's corporate parent, Salomon Inc, reported earnings of dollars 433m, or dollars 3.32 a share, for the quarter. This included dollars 65m in one-off charges, of which dollars 20m was a write-down of Salomon's investment in the White Nights Russian oil-refining venture.

A year ago, Salomon Inc earned dollars 211m, or dollars 1.56 a share, after taking a dollars 185m charge to pay the costs of settling the Treasury scandal.