Salomon surprises with a strong fourth quarter: Shares rise on dollars 476m result but chairman is 'not satisfied'

SALOMON, the Wall Street investment bank, yesterday announced stronger than expected figures for its fourth quarter, reporting net income of dollars 476m for the three months to 31 December.

The results reflect a buoyant year on Wall Street, where most traders and investment bankers received bumper Christmas bonuses.

Salomon shares rose by dollars 1.5 to dollars 47.5 on the New York Stock Exchange yesterday morning. They have traded in a range between dollars 34.37 and dollars 51.87 during the past 12 months.

Salomon's aggressive proprietary trading businesses led the way with an exceptionally strong fourth- quarter performance, which produced pre-tax earnings of dollars 508m.

However, this followed losses of dollars 173m in the third quarter, and full- year pre-tax earnings for proprietary trading were only dollars 416m, compared with dollars 1.4bn in 1992.

Salomon also used its market position as a stock and bond underwriting powerhouse to benefit from new securities, as a strong market and low interest rates sent companies scrambling to issue both debt and equity.

Client-driven businesses earned dollars 354m pre-tax for the fourth quarter, and dollars 1.2bn for the full year, more than four times the dollars 276m earned during 1992.

Fourth-quarter customer trading activities were also strong, while investment banking revenues set a new record for the third consecutive quarter.

Dean Eberling, analyst at Lehman Brothers, said the results were well ahead of expectations as a result of the big swing in trading profits.

In spite of the traditional high volatility in Salomon earnings, the outlook for 1994 looked promising, he added.

'Stock and bond underwriting business will continue to be good during 1994,' Mr Eberling said. Even if activity in the US fell slightly below 1993 levels, international business had great potential.

Salomon's oil trading division, Phibro, lost dollars 21m during the fourth quarter and dollars 15m for the full year. Phibro USA, the company's oil refining business, operated at near break-even for the fourth quarter, reflecting weakness in refining margins.

But a fourth quarter pre-tax write-down of dollars 30m on core refining led to a pre-tax loss of dollars 31m for the fourth quarter.

Salomon's chairman, Robert Denham, said the proprietary trading continued 'to demonstrate long-term profitability, notwithstanding significant quarterly fluctuations'.

But Mr Denham's verdict on the overall performance of Salomon for the year and the fourth quarter was 'pleased but not satisfied'.