Lehman spin-off ends Amex diversification

AMERICAN Express announced the long-awaited spin-off of its Lehman Brothers investment banking subsidiary yesterday, bringing to an end one of Wall Street's most ambitious and costly diversification plans.

Lehman will be established as a separate publicly listed company during the second quarter of this year, with a market capitalisation of just under dollars 1bn.

The plan will award 90 per cent of its shares to current American Express shareholders in the form of a special dividend, while the remaining 10 per cent will be purchased by Lehman employees, led by Richard Fuld, its chief executive.

American Express would hold no common equity in the new securities firm, and would not be represented on its board. It will invest about dollars 200m in preferred shares, and promised to help it to achieve a 'solid credit rating'.

In exchange for its capital infusion, American Express will receive 50 per cent of any annual profits over dollars 400m for the next eight years, to a maximum of dollars 400m. Nippon Life will continue to hold dollars 508m worth of convertible preferred shares - the legacy of one of American Express's many attempts since 1990 to find partners to share control of the business.

Lehman, one of Wall Street's leading investment banks during the 1960s and 1970s, was purchased in 1982 and merged into the Shearson brokerage unit it acquired the year before.

After years of losses that ate deeply into American Express earnings, the group was split up last year, and its other assets sold to Travelers Corp's Smith Barney division and to Mellon Bank.

Lehman Brothers reported a dollars 114m profit in the final quarter of 1993, after a dollars 166m loss previously.

Separately, American Express announced its own fourth-quarter results yesterday, with operating earnings of dollars 291m compared with dollars 255m for the same quarter in 1992.

Brokers' earnings surge, page 27