SALOMON Brothers' huge arbitrage portfolio is likely to skew the investment bank's results again this quarter. It warned Wall Street yesterday that it had lost dollars 250m (pounds 176m) trading for its own account since the beginning of the year.
But the losses are almost certainly of the sort that have made Salomon's results highly volatile from quarter to quarter in recent years, reflecting paper losses in the value of the firm's proprietary trading account. Sophisticated arbitrage techniques assure eventual profits on many of the holdings, but their market value can decline sharply in the interim.
The firm, for example, came close to declaring a loss for the third quarter last year at a time when other Wall Street firms posted record profits, only to roar back in the final quarter with pretax profits of dollars 503m.
Salomon also warned that its oil-refining business faces potential losses from its White Nights joint venture in western Siberia. Salomon maintains that oil export taxes imposed by the Russian government 'threaten the economic viability' of the project.
Salomon currently carries its investment in White Nights at dollars 86m, having taken a series of charges to reflect development losses on the project. Most recently it took a dollars 20m charge in the fourth quarter last year.Reuse content