NEW YORK -- Wall Street may be jaded when it comes to routine upheavals such as bankruptcies, disasters and the like, but a folksy two-page advertisement written by Salomon Inc.'s interim chairman, Warren Buffett, and published yesterday in three newspapers had an electrifying effect.
Mr. Buffett's statement disclosed a good third quarter and emphasized ethical behavior for the firm. "Good profits simply are not inconsistent with good behavior," he wrote, reflecting a sentiment many considered long absent from the investment world.
By 9:15 a.m., 15 minutes before the opening bell, buyers had crowded around the trading post for Salomon's shares on the floor of the New York Stock Exchange. The company's stock, which had collapsed in late August under the weight of a Treasury bond scandal at its Salomon Brothers brokerage unit, was temporarily unobtainable, and its opening was delayed a half hour.
"It was very impressive," said Robert Fagenson, the specialist on the exchange floor who orchestrates transactions in the company's stock. Traders read copies of Mr. Buffett's letter as they shouted their bids.
Shares in Salomon closed $28.375, up $2.25 for the session. Since the most desperate days of late September, when rumors of the firm's collapse repeatedly swept Wall Street, the stock has risen $7.625.
At least one major, unnamed buyer who in recent weeks appeared to have acquired millions of Salomon shares was active yesterday, said Mr. Fagenson, but so too, for the first time, were the tiny orders that suggest individuals have regained confidence in the firm. Salomon's volume for yesterday's session was 3 million shares, six times the average.
While the firm's ability to register a third-quarter profit of $85 million despite putting aside $200 million for liabilities stemming from the scandal was likely beneficial to the company's share price, the high end of recent analyst estimates for Salomon had called for the firm to earn even more.
A number of investors, however, said that no one had anticipated Mr. Buffett's way of communicating the results and the new goals of the firm. The earnings release took the form of a first-person letter to partners and run as a two-page ad in the Wall Street Journal, the New York Times, and the Washington Post, with another set to run today in the Financial Times, at a cost of about $500,000.
Before stating operating results, the core of any earnings announcement and usually the foremost part of a good one, Mr. Buffett emphasized that the scandal stemmed from "an extremely serious problem, but not a pervasive one."
In the future, he said, the ethical hurdle will go beyond the law and extend to whether the employee would feel comfortable if it was displayed "on the front page of his local paper, there to be read by his spouse, children and friends."
"At Salomon," Mr. Buffett added, "we simply want no part of any activities that pass legal tests but that we, as citizens, would find offensive."
He also was critical of the company's pay scale. He called the compensation scheme irrational, in that it paid 106 individuals in excess of $1 million each, despite an overall level of firm profitability that, based on return on investment, was below average for American industry.
Compensation was cut by $110 million in the third quarter, Mr. Buffett said, and the structure of future compensation will be based less on cash than on stock in the firm that must be maintained for five years.
"Were an abnormal number of people to leave the firm, the results would not necessarily be bad. . . . In the end, we must have people to match our principles, not the reverse," Mr. Buffett said.
An indication that Mr. Buffett may have much work to do was evident Monday when Salomon's shares rose strongly as rumors became prevalent that Salomon would soon release good news. Even advance notice of more stringent ethics, apparently, can be valuable inside information.