A small group of five top executives in US investment bank Salomon will own shares worth pounds 40m in Travelers Group after the takeover announced last week is completed. They will be swapping stock of a volatile bond trading firm for one of the best-performing financial companies on Wall Street.
John Haseltine, who stepped down as head of fixed income late last year, but remains on Salomon's board, is swapping his 252,606 Salomon shares, worth pounds 11m before the transaction, for Travelers shares worth pounds 12.25m. London-based Shigeru Myojin, head of the Salomon unit that trades securities for the firm's own account and one of the highest-paid executives on Wall Street, will own Travelers shares worth pounds 7m.
"They're probably much better off owning Travelers than owning Salomon shares," said John Keefe, an independent securities analyst. "The market loves Sandy Weill and gives him the benefit of the doubt."
The Travelers chairman, Sanford Weill, a leading executive on Wall Street for more than 30 years, built Travelers into a company with a 1996 net income of $2.33bn. His firm, a New York-based insurer, broker and consumer finance company, agreed to buy Salomon for about $9bn in stock on Wednesday, paying 1.13 of its shares for each Salomon share. The transaction will create the second-largest US securities firm and a financial services powerhouse.
Salomon executives will own Travelers shares that rose an average 45.3 per cent a year over the past five years, compared with 19.8 per cent annually for the Standard & Poor's Index. Salomon stock, by contrast, rose 11.5 per cent annually in the same period.
Salomon is among Wall Street's most volatile companies because it derives much of its profit from trading bonds using its own capital. After losing $399m in 1994, the worst year for bonds in a generation, the firm earned $457m in 1995 and $617m last year. Investors penalised Salomon for that volatility. The firm's shares traded at a multiple of 11.7 times earnings after the shares rose following announcement of Salomon's sale. Meanwhile, investors reward Travelers with a higher multiple of 18 times earnings.
Salomon executives did get big pay cheques last year even without the benefit of Travelers stock. The firm paid Mr Myojin $31.4m in salary, bonus, deferred compensation and stock. His compensation is tied to Salomon's proprietary trading profits. Mr Maughan got $11.5m, including his first bonus in three years, as Salomon's securities firm almost doubled its pre-tax earnings. Travelers paid Mr Weill $8.9m in salary, bonus, stock and other compensation after the company had its best year yet.
David Usborne, page 2