Primerica close to buying Shearson from Amex

AMERICAN EXPRESS and Primerica are in the final stages of negotiating a dollars 1bn deal that would change the pecking order on Wall Street, transforming Primerica's Smith Barney subsidiary into one of the largest securities firms in the US.

The talks, confirmed by both parent companies yesterday, would essentially return control of the brokerage and money-management assets of Shearson Lehman Brothers, America's second-largest retail broker, to Sandy Weill, Primerica's chairman. Mr Weill is the Wall Street veteran who originally sold Shearson to Amex in 1981 for dollars 930m.

Amex, in an ultimately fruitless expansion into financial services in the 1980s, spent billions expanding Shearson, buying first the Lehman Brothers investment advisory firm and later EF Hutton, another large retail brokerage. Mr Weill, 59, remained an executive of Amex until 1985, when he left to found Primerica, now one of the US's most profitable financial businesses.

The deal, which was first mooted in 1990 when it collapsed over price differences, would undo the merger, leaving Amex with Lehman Brothers' investment banking, trading and research operations. But it would relieve the group of the most expensive acquisition made by James Robinson, the former chief executive who was ousted last month amid a revolt by shareholders.

Operating losses at Shearson, which persisted last year despite record earnings elsewhere on Wall Street, have become a huge drag on Amex's finances, forcing the parent to spend almost dollars 2bn shoring up its balance sheet. Mr Robinson, in handing over his post to his chosen successor, Harvey Golub, had volunteered to stay on at Shearson to turn its operations around, but was rebuffed by the Amex board.

Sources close to the negotiations, which continued throughout the day yesterday, said the key issues that caused the collapse of the earlier talks had been resolved, notably a difference of opinion over Shearson's liabilities. In the 1990 discussions, Smith Barney had complained about what it believed were dollars 1bn in unrealised losses on Shearson's books, notably in dubious 'bridge loans' the firm made to complete junk-bond financings in the late 1980s.

Losses subsequently reported by Shearson have borne out their concerns, a Smith Barney spokesman said. Mr Golub - who ironically was first hired at Amex by Mr Weill - has also agreed that as part of the deal the vendor would retain legal responsibility for other Shearson liabilities that might arise.

The new firm would have 11,500 brokers and 500 branches - as many as the industry leader, Merrill Lynch - although Mr Weill, a ruthless cost-cutter, would probably reduce numbers significantly. The combined brokerages, with dollars 3.2bn in equity capital, would have had revenues last year of dollars 13.4bn.

Lehman Brothers would re-emerge as a pure investment bank, with about 10,000 employees worldwide and a structure akin to that of First Boston, another Wall Street firm with a financial-services parent, in its case Credit Suisse. Analysts said it was difficult to predict whether Lehman would be profitable, but noted that much of its business was derived from its relationship with the Shearson broking arm.