NEW YORK -- Travelers Group Inc., the No. 2 U.S. financial services company, said yesterday that its first-quarter earnings rose a bigger-than-expected 25 percent, led by gains in its Salomon Smith Barney Inc. securities unit.
Travelers, which agreed two weeks ago to a $70 billion merger with Citicorp to form the world's biggest financial company, said profit excluding gains from investment sales rose to a record $1.01 billion, or 84 cents a diluted share, from $806.2 million, or 66 cents, a year ago.
Profit exceeded the 76 cents that analysts expected, according to First Call Corp., fueled by a 22 percent increase in income from operations at its Salomon Smith Barney investment banking unit to $502.8 million.
Rallying stock markets and low interest rates in recent months mean "there's a lot of money to be made" by securities firms, said Ira Zuckerman, an analyst at Nutmeg Securities Ltd., who views securities as "the driving force" at Travelers.
Travelers' other businesses include insurance, investment banking, mutual funds and consumer finance. The proposed merger with Citicorp would add commercial banking to the mix.
Travelers Chairman and Chief Executive Sanford I. Weill, 65, said the securities unit's profit validated his decision last year to pay $9.3 billion for Salomon Inc. and join it with Smith Barney to create the second largest U.S. brokerage. He described the merger as "proceeding very successfully."
Weill said profits gained "across the board" in other divisions.
Baltimore-based Commercial Credit Co., Travelers' consumer lending unit, reported that its earnings rose 26 percent to $59.4 million.
Profit at the Primerica Financial Services life insurance division jumped 21 percent to $94.6 million, and the Travelers Life & Annuity business reported that profits climbed 17 percent to $118.1 million.
Travelers' 83 percent stake in Travelers Property Casualty Corp. generated $253.1 million in profit, up 15 percent. The property and casualty insurer's profit totaled $303.9 million, or 77 cents a diluted share, in the latest quarter.
"The property and casualty insurance businesses was really a pleasant surprise," said Cathy Seifert, an analyst at Standard & Poor's Corp.
Bolstering Travelers' earnings, Weill said, were the sales of financial services of one unit through the agents of another. Primerica's agents are selling Commercial Credit loans, Salomon Smith Barney mutual funds and Travelers annuities and property and casualty insurance. Weill said what helps that so-called cross-selling work is that the services are "especially designed for the unique needs of the distributing unit's customer base."
The company's expected merger with Citicorp in the third quarter is a gamble that the cross-selling strategy will work on a global basis. "We are very excited about the announced combination," Weill said yesterday.
Revenue rose 19 percent to $10.4 billion. Travelers' net income, which included a gain of $86.5 million on investment sales, rose 34.1 percent, to $1.09 billion, or 91 cents a diluted share. A year ago, an $8.9 million gain on investment sales made net income $815.1 million, or 67 cents.
New York-based Travelers' share price fell 37.5 cents to $64.375 after giving up an early gain in trading of 4.2 million shares, surpassing its daily average for the past three months of 3.4 million. Citicorp stock fell $2.125 to $158.
Pub Date: 4/21/98