American Express sells brokerage

January 25, 1994|By New York Times News Service

NEW YORK -- The American Express Co. said yesterday that it would pump more than $1 billion into its Lehman Bros. brokerage firm, then spin it off to its shareholders, finally closing the door on its unsuccessful effort to become a supermarket of financial services.

American Express also said that, partly as a result of the planned spinoff, its earnings rose nearly fourfold in the fourth quarter.

The spinoff is expected to be completed in May or June, American Express said, at which time Lehman will become an independent company, with its employees owning about 10 percent of Lehman's stock after investing $160 million.

Lehman Bros., a specialist in corporate finance and trading, has been a leading underwriter on Wall Street. It has been owned by American Express since 1984.

Over the last two years, American Express has retreated from the Wall Street securities business to concentrate on its charge-card, travel and financial planning operations.

In March, American Express sold its Shearson retail brokerage to the Primerica Corp., which owned Smith Barney, Harris Upham & Co., for $1 billion and a share of future profits.

In 1992, American Express sold the Boston Co., a money manager and specialist in mutual-fund record keeping, to the Mellon Bank Corp., and all but 24 percent of the First Data System, a computer service company, realizing about $3.5 billion.

At the time of the Shearson sale, Harvey Golub, the chairman and chief executive of American Express, said Lehman would be sold as soon as its financial strength was bolstered.

To that end, American Express said it would buy $890 million of newly issued common stock in Lehman, then pass that stock to American Express shareholders as a special dividend. It will invest another $200 million in Lehman preferred shares, which it will hold as an investment.

In exchange for the capital infusion, Mr. Golub said, American Express anticipated recouping more than $400 million in cash from the deal. It will receive 50 percent of any Lehman net income exceeding $400 million over eight years, with a limit of $50 million a year.

It will also receive up to $50 million annually for three years from revenue and earnings-related participations due Lehman from Travelers as part of the Shearson deal last year.

Lehman said yesterday that the capital infusion would bring its equity base to $3.3 billion, and it said its net operating earnings for 1993 were $376 million, up 22 percent from 1992. For the fourth quarter, Lehman said it had net income of $114 million.

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