FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1997.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____.
Commission File Number 1-4346
SALOMON INC
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(Exact name of registrant as specified in its charter)
Delaware 22-1660266
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
of incorporation or organization)
Seven World Trade Center, New York, New York 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 783-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Number of shares of common stock outstanding
at July 31, 1997: 107,418,248
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SALOMON INC
Form 10-Q
<CAPTION>
<S> <C>
Part I FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements (unaudited):
Consolidated Statement of Income -
Three and Six months ended June 30, 1997 and 1996 3
Condensed Consolidated Statement of Financial Condition -
June 30, 1997 and December 31, 1996 4-5
Consolidated Summary of Options and Contractual Commitments -
June 30, 1997 and December 31, 1996 6
Consolidated Statement of Cash Flows -
Six months ended June 30, 1997 and 1996 7
Notes to Unaudited Condensed Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-17
Part II OTHER INFORMATION
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Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SALOMON INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
Dollars in millions, except per share amounts Three months Six months
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Period ended June 30, 1997 1996 1997 1996
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Revenues from continuing operations:
<S> <C> <C> <C> <C>
Interest and dividends $ 1,678 $ 1,436 $ 3,045 $ 3,008
Principal transactions 443 584 927 1,235
Investment banking 221 251 441 432
Commissions 100 75 199 165
Other 13 11 27 22
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Total revenues 2,455 2,357 4,639 4,862
Interest expense 1,365 1,134 2,527 2,401
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Revenues, net of interest expense 1,090 1,223 2,112 2,461
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Noninterest expenses:
Compensation and employee-related 546 546 1,111 1,096
Technology 59 50 115 96
Professional services and business development 50 49 90 92
Occupancy 42 42 82 85
Clearing and exchange fees 22 17 40 34
Other 21 22 45 45
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Total noninterest expenses 740 726 1,483 1,448
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Income from continuing operations before income taxes 350 497 629 1,013
Income tax expense 130 199 236 405
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Income from continuing operations 220 298 393 608
Loss from discontinued operations, net of taxes - (7) - (41)
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Net income $ 220 $ 291 $ 393 $ 567
===================================================================================================================================
Earnings available for fully diluted earnings per common share
from continuing operations $ 212 $ 289 $ 378 $ 593
===================================================================================================================================
Per common share:
Primary earnings from continuing operations $ 1.89 $ 2.65 $ 3.34 $ 5.41
Primary earnings 1.89 2.58 3.34 5.02
Fully diluted earnings from continuing operations* 1.77 2.40 3.14 4.89
Fully diluted earnings* 1.77 2.34 3.14 4.55
Cash dividends 0.16 0.16 0.32 0.32
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Weighted average shares of common stock outstanding (in thousands):
For primary earnings per common share 108,200 105,400 108,800 106,000
For fully diluted earnings per common share 119,700 120,600 120,300 121,200
===================================================================================================================================
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
and the Unaudited Consolidated Summary of Options and Contractual Commitments
are integral parts of this statement.
* Assumes conversion of redeemable preferred stock unless such assumption
results in higher earnings per share than determined under the primary method.
</FN>
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SALOMON INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(unaudited)
Dollars in millions
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ASSETS June 30, 1997 December 31, 1996
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<S> <C> <C> <C> <C>
Cash and interest bearing equivalents $ 2,081 $ 1,230
Financial instruments and contractual commitments:
Government and government agency securities - U.S. $ 53,364 $ 45,123
Government and government agency securities - non-U.S. 43,407 35,189
Corporate debt securities 14,235 12,415
Equity securities 7,851 7,094
Options and contractual commitments 7,145 6,592
Mortgage loans and collateralized mortgage securities 3,234 3,126
Other 3,612 2,947
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132,848 112,486
Commodities and related products and instruments:
Physical commodities inventory 1,366 995
Options and contractual commitments 167 315
------------ -----------
1,533 1,310
Collateralized short-term financing agreements:
Securities purchased under agreements to resell 62,547 56,536
Securities borrowed and other 28,773 16,162
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91,320 72,698
Receivables 6,638 5,118
Assets securing collateralized mortgage obligations 337 394
Property, plant and equipment, net 505 521
Net realizable value of discontinued operations (Note 3) - 490
Other assets, including intangibles 691 634
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Total assets $ 235,953 $ 194,881
===================================================================================================================================
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
and the Unaudited Consolidated Summary of Options and Contractual Commitments
are integral parts of this statement.
</FN>
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SALOMON INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(unaudited)
Dollars in millions
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LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1997 December 31, 1996
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<S> <C> <C> <C> <C>
Collateralized short-term financing agreements:
Securities sold under agreements to repurchase $ 105,999 $ 77,632
Securities loaned 2,815 1,495
------------ -----------
$ 108,814 $ 79,127
Short-term borrowings 8,036 6,817
Financial and commodities-related instruments sold,
not yet purchased, and contractual commitments:
Government and government agency securities - U.S. 31,857 34,311
Government and government agency securities - non-U.S. 36,126 31,699
Financial options and contractual commitments 10,037 9,391
Equity securities 7,027 5,840
Corporate debt securities and other 1,834 1,942
Commodities, including options and contractual commitments 177 324
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87,058 83,507
Payables and accrued liabilities 9,785 6,054
Collateralized mortgage obligations 327 384
Term debt 16,080 13,370
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Total liabilities 230,100 189,259
Commitments and contingencies (Note 4)
Redeemable preferred stock, Series A 420 420
Guaranteed preferred beneficial interests in Company subordinated
debt securities (Note 5) 345 345
Stockholders' equity:
Preferred stock, Series D and E 450 450
Common stock 159 159
Additional paid-in capital 438 437
Retained earnings 5,811 5,482
Cumulative translation adjustments (1) 6
Common stock held in treasury, at cost (1,769) (1,677)
------------ -----------
Total stockholders' equity 5,088 4,857
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Total liabilities and stockholders' equity $ 235,953 $ 194,881
===================================================================================================================================
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
and the Unaudited Consolidated Summary of Options and Contractual Commitments
are integral parts of this statement.
</FN>
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SALOMON INC AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF OPTIONS AND CONTRACTUAL COMMITMENTS
(unaudited)
June 30, 1997 December 31, 1996
------------------------------------ ------------------------------------
Current Market or Current Market or
Notional Fair Value Notional Fair Value
------------------------ ------------------------
Dollars in billions Amounts Assets Liabilities Amounts Assets Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Exchange-issued products:
Futures contracts (a) $ 567.5 $ - $ - $ 525.3 $ - $ -
Other exchange-issued products:
Equity contracts 15.1 .2 .5 12.9 .1 .2
Fixed income contracts 89.4 - - 59.0 - -
Foreign exchange contracts .1 - - - - -
Commodities-related contracts 4.0 - - 4.9 - -
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Total exchange-issued products 676.1 .2 .5 602.1 .1 .2
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Over-the-counter ("OTC") swaps, swap options,
caps and floors:
Swaps (b) 1,057.2 852.4
Swap options written 15.5 9.7
Swap options purchased 30.8 23.3
Caps and floors 137.6 114.4
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Total OTC swaps, swap options, caps and floors 1,241.1 3.7 6.2 999.8 4.2 6.5
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OTC foreign exchange contracts and options:
Forward currency contracts (b) 82.3 .6 .4 68.3 .5 .5
Options written 26.8 - .3 31.6 - .2
Options purchased 29.9 .5 - 32.9 .4 -
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Total OTC foreign exchange contracts and options 139.0 1.1 .7 132.8 .9 .7
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Other options and contractual commitments:
Options, warrants and forwards on equities
and equity indices (c) 57.0 1.8 2.5 45.6 1.1 1.8
Options and forward contracts on fixed-income
securities (c) 244.6 .3 .1 179.0 .3 .2
Commodities-related contracts (d) 16.5 .2 .2 22.0 .3 .3
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Total $2,374.3 $ 7.3 $ 10.2 $1,981.3 $ 6.9 $ 9.7
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<FN>
(a) Margin on futures contracts is included in receivables or payables on the
Condensed Consolidated Statement of Financial Condition.
(b) Includes notional values of swap agreements or forward currency contracts
for non-trading activities (primarily related to the Company's fixed-rate
long-term debt, TRUPS and preferred stock) of $18.9 billion and $1.7
billion at June 30, 1997 and $15.5 billion and $1.3 billion at December 31,
1996, respectively.
(c) The fair value of such instruments recorded as assets includes
approximately $1.0 billion at June 30, 1997 and $.6 billion at December 31,
1996, respectively, of over-the-counter instruments, primarily with
investment grade counterparties. The remainder consists primarily of highly
liquid instruments actively traded on organized exchanges.
(d) A substantial majority of these over-the-counter contracts are with
investment grade counterparties.
</FN>
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CONSOLIDATED CREDIT EXPOSURE, NET OF SECURITIES AND CASH COLLATERAL ON OTC
SWAPS, SWAP OPTIONS, CAPS AND FLOORS AND OTC FOREIGN EXCHANGE CONTRACTS AND
OPTIONS, BY RISK CLASS*
Note: Amounts represent current exposure and do not include potential
credit exposure that may result from factors that influence market risk.
Transactions
with over
Dollars in billions All Transactions 3 years to
maturity
- ----------------------------------------------------------------------------------------------------------------------------------
Other Major
Derivatives Financial Governments/ Year-to-date
June 30, 1997 Dealers Corporates Institutions Supranationals Other Total Average Total
- --------------------------------------------------------------------------------------------------------------------- ------------
Swaps, swap options, caps
and floors:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Risk classes 1 and 2 $ .4 $ - $ .5 $ - $ - $ .9 $ 1.0 $ .8
Risk class 3 .7 .2 .1 - .1 1.1 1.1 .6
Risk classes 4 and 5 .3 .1 .2 - .1 .7 .7 .4
Risk classes 6, 7 and 8 - - - - - - - -
------------ ---------- ----------- ------------- ----------- ---------- --------------- ------------
$ 1.4 $ .3 $ .8 $ - $ .2 $ 2.7 $ 2.8 $ 1.8
------------ ---------- ----------- ------------- ----------- ---------- --------------- ------------
Foreign exchange contracts
and options:
Risk classes 1 and 2 $ .5 $ - $ - $ .1 $ - $ .6 $ .8 $ -
Risk class 3 .3 - .1 - - .4 .3 -
Risk classes 4 and 5 .1 - - - - .1 .1 -
------------ ---------- ----------- ------------- ----------- ---------- --------------- ------------
$ .9 $ - $ .1 $ .1 $ - $ 1.1 $ 1.2 $ -
------------ ---------- ----------- ------------- ----------- ---------- --------------- ------------
<FN>
* To monitor credit risk, the Company utilizes a series of eight internal
designations of counterparty credit quality. These designations are analogous
to external credit ratings whereby risk classes one through three are high
quality investment grades. Risk classes four and five include counterparties
ranging from the lowest investment grade to the highest non-investment grade
level. Risk classes six, seven and eight represent higher risk
counterparties.
</FN>
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SALOMON INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Dollars in millions
- ----------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income adjusted for noncash and non-operating activities -
Net income $ 393 $ 567
Depreciation, amortization and other 42 57
- ----------------------------------------------------------------------------------------------------------------------
Cash items included in net income 435 624
- ----------------------------------------------------------------------------------------------------------------------
Net (increase) decrease in operating assets -
Financial instruments and contractual commitments (20,362) 11,422
Commodities and related products and instruments (223) 292
Collateralized short-term financing agreements (18,622) (6,234)
Receivables (1,535) (157)
Other (71) (72)
- ----------------------------------------------------------------------------------------------------------------------
Net (increase) decrease in operating assets (40,813) 5,251
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in operating liabilities -
Collateralized short-term financing agreements 29,687 (16,448)
Short-term borrowings 1,219 (3,014)
Financial and commodities-related instruments sold,
not yet purchased, and contractual commitments 3,551 14,175
Payables and accrued liabilities 3,733 (1,011)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in operating liabilities 38,190 (6,298)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,188) (423)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of term debt 4,055 2,621
Issuance of preferred stock, Series E - 250
Employee stock purchase and option plans 5 -
Term debt maturities and repurchases (1,192) (1,969)
Collateralized mortgage obligations (63) (284)
Purchase of common stock for treasury (103) (49)
Dividends on common stock (34) (34)
Dividends on preferred stock* (30) (35)
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Net cash provided by financing activities 2,638 500
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Cash flows from investing activities:
Assets securing collateralized mortgage obligations 63 351
Proceeds from sale of Basis Petroleum 365 -
Property, plant and equipment (27) (69)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 401 282
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Net increase in cash and interest bearing equivalents 851 359
Cash and interest bearing equivalents at January 1, 1,230 1,454
- ----------------------------------------------------------------------------------------------------------------------
Cash and interest bearing equivalents at June 30, $ 2,081 $ 1,813
======================================================================================================================
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
and the Unaudited Consolidated Summary of Options and Contractual Commitments
are integral parts of this statement.
* For the six months ended June 30, 1997 and 1996, dividends on preferred stock
were reduced by the aftertax impact ( $8 million and $12 million) of interest
rate swaps that effectively convert the Company's fixed-rate obligations to
variable-rate obligations.
</FN>
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Salomon Inc and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
1. Basis of Presentation
The Unaudited Condensed Consolidated Financial Statements are prepared
in accordance with generally accepted accounting principles in the U.S.
and prevailing industry practice, both of which require the use of
management's best judgment and estimates. Estimates, including the fair
value of financial instruments, may vary from actual results. In the
opinion of management, the statements of income, financial condition
and cash flows include all normal recurring adjustments necessary for a
fair presentation for the periods presented. Certain reclassifications
have been made from amounts previously reported to conform to the
current year presentation. The Unaudited Condensed Consolidated
Financial Statements include the accounts of Salomon Inc and all
majority-owned subsidiaries (collectively, the "Company"), with the
exception of Basis Petroleum, Inc. ("Basis"), which is presented as
discontinued operations as discussed in Note 3. The Unaudited Condensed
Consolidated Financial Statements should be read in conjunction with
the Audited Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
2. Accounting Policies
Derivatives Used for Trading Purposes
Derivative instruments ("derivatives" or "contractual commitments")
used for trading purposes are carried on the balance sheet at either
market value or, when market prices are not readily available, fair
value, with changes in value recognized currently in earnings.
Contractual commitments used for trading purposes include interest rate
swap agreements, swap options, caps and floors, options, warrants,
futures and forward contracts as well as commodity swaps, options,
futures and forward contracts. Contractual commitments in a net
receivable position, as well as options owned and warrants held, are
reported as assets in "Options and contractual commitments." Similarly,
contractual commitments in a net payable position, as well as options
written and warrants issued, are reported as liabilities in "Financial
options and contractual commitments" or "Commodities, including options
and contractual commitments." This category also includes the Company's
long-term obligations that have principal repayments directly linked to
equity securities of unaffiliated issuers for which the Company holds
in inventory a note exchangeable for the same equity securities. Margin
on futures contracts is included in "Receivables" and "Payables and
accrued liabilities." The market values (unrealized gains and losses)
associated with contractual commitments are reported net by
counterparty, provided a legally enforceable master netting agreement
exists, and are netted across products and against cash collateral when
such provisions are stated in the master netting agreement. Revenues
generated from derivative instruments used for trading purposes are
reported as "Principal transactions" and include realized gains and
losses as well as unrealized gains and losses resulting from changes in
the market or fair value of such instruments.
Derivatives Used for Non-Trading Purposes
Non-trading derivative instruments which are designated as hedges must
be effective at reducing the risk associated with the exposure being
hedged and must be designated as a hedge at the inception of the
derivative contract. Accordingly, changes in the market or fair value
of the derivative instrument must be highly correlated with changes in
the market or fair value of the underlying hedged item. The Company
monitors the effectiveness of its hedges by periodically comparing the
change in value of the derivative instrument with the change in value
of the underlying hedged item. Contractual commitments used as hedges
include interest rate swaps, cross currency swaps and forward currency
contracts.
<PAGE>
Interest rate swaps, including cross currency swaps, are utilized to
effectively convert the Company's fixed rate preferred stock and
guaranteed preferred beneficial interests in Company subordinated debt
securities ("TRUPS"), a portion of its short-term borrowings and the
majority of its fixed rate term debt to variable rate instruments.
These swaps are recorded "off-balance sheet," with accrued inflows and
outflows reflected as adjustments to interest expense and/or dividends,
as appropriate. Adjustments to preferred stock dividends are recorded
on an after tax basis. Upon early termination of an underlying
hedged instrument, the derivative is accounted for at market or fair
value. The impact of recording the market or fair value of the
derivative instrument "on-balance sheet" is recognized immediately
in earnings. Changes in market or fair value of such instruments, or
realized gains or losses resulting from the termination of such
instruments, are recognized currently in earnings.
The Company utilizes forward currency contracts to hedge a portion of
the currency exchange rate exposure relating to non-U.S. dollar term
debt issued by Salomon Inc (Parent Company). The impact of translating
the forward currency contracts and the related debt to prevailing
exchange rates is recognized currently in earnings. The Company also
utilizes forward currency contracts to hedge certain investments in
subsidiaries with functional currencies other than the U.S. dollar. The
impact of marking open contracts to prevailing exchange rates and the
impact of realized gains or losses on maturing contracts, both net of
the related tax effects, are included in "Cumulative translation
adjustments" in Stockholders' equity as is the impact of translating
the investments being hedged. Upon the disposition of an investment in
a subsidiary with a functional currency other than the U.S. dollar,
accumulated gains or losses previously included in "Cumulative
translation adjustments" are recognized immediately in earnings.
Derivative instruments that do not meet the criteria to be designated
as a hedge are considered trading derivatives and are recorded at
market or fair value.
3. Discontinued Operations
On May 1, 1997, the Company completed the sale of all of the
outstanding stock of Basis Petroleum, Inc. to Valero Energy Corporation
("Valero"). Upon closing, the Company received cash proceeds of $365
million and Valero common stock with a market value of $120 million. In
July 1997, the Company paid Valero $3 million in connection with the
final determination of working capital. In addition, the Company is
entitled to participation payments based on a fixed notional throughput
and the difference, if any, between an average market crackspread, as
defined, and a base crackspread, as defined, over each of the next ten
years, but subject to the limitation that the total of the
participation payments is capped at $200 million, with a maximum of $35
million per year. Basis is classified as a discontinued operation in
the Company's Condensed Consolidated Financial Statements.
4. Commitments and Contingencies
Outstanding legal matters are discussed in Note 17 to the Audited
Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. Management of
the Company, after consultation with outside legal counsel, believes
that the ultimate resolution of legal proceedings and environmental
matters (taking into consideration applicable reserves) will not have a
material adverse effect on the Company's financial condition; however,
there could be a material adverse impact on operating results in future
periods depending in part on the results for such periods. Additional
information on legal proceedings is included in "Item 1. Legal
Proceedings."
<PAGE>
The Company's ongoing process of upgrading its financial and operating
systems is focused on: supporting the multi-entity, multi-currency,
multi-time zone aspects of its businesses; improving control over
complex, cross-entity transactions; facilitating standardized
technology platforms, operating procedures, and fungibility of
resources around the world; eliminating redundant regional
applications; reducing future technology and operations costs; and
efficiently meeting market and regulatory changes. Additionally, in
order to adapt systems for Year 2000 processing and the European
Monetary Union, the Company anticipates incurring $100 million to $150
million in additional expenses through the Year 2000.
5. Guaranteed preferred beneficial interests in Company subordinated debt
securities
The Company has $345 million, or 13,800,000 TRUPS units, outstanding.
Each TRUPS unit includes a 9 1/4% mandatorily redeemable preferred
security of the SI Financing Trust I (the "Trust") and a purchase
contract which requires the holder to purchase, in 2021 (or earlier if
the Company elects to accelerate the contract), one depositary share
representing a one-twentieth interest in a share of Salomon Inc's 9
1/2% Cumulative Preferred Stock, Series F. The Trust, which is a
wholly-owned subsidiary of the Company, was established for the sole
purpose of issuing the 9 1/4% preferred securities and common
securities and investing the proceeds in $356 million aggregate
principal amount of 9 1/4% subordinated debt securities issued by
Salomon Inc due June 30, 2026.
6. Net Capital
Certain U.S. and non-U.S. subsidiaries are subject to securities and
commodities regulations and capital adequacy requirements promulgated
by the regulatory and exchange authorities of the countries in which
they operate. The Company's principal regulated subsidiaries are
discussed below.
Salomon Brothers Inc ("SBI") is registered as a broker-dealer with the
U.S. Securities and Exchange Commission ("SEC") and is subject to the
SEC's Uniform Net Capital Rule, Rule 15c3-1, which requires net
capital, as defined under the alternative method, of not less than the
greater of 2% of aggregate debit items arising from customer
transactions, as defined, or 4% of funds required to be segregated for
customers' regulated commodity accounts, as defined. Although net
capital, aggregate debit items and funds required to be segregated
change from day to day, at June 30, 1997, SBI's net capital was $1.0
billion, $938 million in excess of regulatory requirements.
Salomon Brothers International Limited ("SBIL") is authorized to
conduct investment business in the United Kingdom by the Securities and
Futures Authority ("SFA") in accordance with the Financial Services Act
1986. The SFA requires SBIL to have available at all times financial
resources, as defined, sufficient to demonstrate continuing compliance
with its rules. At June 30, 1997, SBIL's financial resources were $483
million in excess of regulatory requirements.
Salomon Brothers Asia Limited ("SBAL") and Salomon Brothers AG ("SBAG")
are also subject to requirements to maintain specified levels of net
capital or its equivalent. At June 30, 1997, SBAL's net capital was
$305 million above the minimum required by Japan's Ministry of Finance.
SBAG's net capital was $1 million above the minimum required by
Germany's Banking Supervisory Authority.
In addition, in order to maintain its triple-A rating, Salomon Swapco
Inc ("Swapco") must maintain minimum levels of capital in accordance
with agreements with its rating agencies. At June 30, 1997,
<PAGE>
Swapco was in compliance with all such agreements. Swapco's capital
requirements are dynamic, varying with the size and concentration of
its counterparty receivables.
<TABLE>
<CAPTION>
7. Summary of Revenues from Continuing Operations
The following tables present revenues, net of interest expense for the three and
six months ended June 30, 1997 and 1996.
Three Months Ended June 30, 1997
Principal
Transactions
& Net
Interest and Investment
(Dollars in millions) Dividends Banking Commissions Other Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed income sales and trading $ 529 $ - $ 3 $ - $ 532
Equity sales and trading 132 - 97 - 229
Global investment banking - 221 - - 221
Commodities trading 91 - - - 91
Asset management 5 - - 15 20
Other (1) - - (2) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues, net of interest expense $ 756 $ 221 $ 100 $ 13 $ 1,090
==================================================================================================================================
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<CAPTION>
Three Months Ended June 30, 1996
Principal
Transactions
& Net
Interest and Investment
(Dollars in millions) Dividends Banking Commissions Other Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed income sales and trading $ 703 $ - $ 3 $ - $ 706
Equity sales and trading 196 - 72 - 268
Global investment banking - 251 - - 251
Commodities trading (18) - - - (18)
Asset management - - - 11 11
Other 5 - - - 5
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues, net of interest expense $ 886 $ 251 $ 75 $ 11 $ 1,223
==================================================================================================================================
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<CAPTION>
Six Months Ended June 30, 1997
Principal
Transactions
& Net
Interest and Investment
(Dollars in millions) Dividends Banking Commissions Other Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed income sales and trading $ 1,046 $ - $ 5 $ - $ 1,051
Equity sales and trading 278 - 194 - 472
Global investment banking - 441 - - 441
Commodities trading 116 - - - 116
Asset management 8 - - 29 37
Other (3) - - (2) (5)
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues, net of interest expense $ 1,445 $ 441 $ 199 $ 27 $ 2,112
==================================================================================================================================
</TABLE>
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<CAPTION>
Six Months Ended June 30, 1996
Principal
Transactions
& Net
Interest and Investment
(Dollars in millions) Dividends Banking Commissions Other Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed income sales and trading $ 1,430 $ - $ 8 $ - $ 1,438
Equity sales and trading 175 - 157 - 332
Global investment banking - 432 - - 432
Commodities trading 217 - - - 217
Asset management 1 - - 22 23
Other 19 - - - 19
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues, net of interest expense $ 1,842 $ 432 $ 165 $ 22 $ 2,461
==================================================================================================================================
</TABLE>
8. Impact of New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company
is currently assessing these statements, which are effective for fiscal
years beginning after December 15, 1997 and establish standards for
the reporting and display of comprehensive income and disclosure
related to segments.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
<TABLE>
<CAPTION>
SUMMARY OF CONSOLIDATED OPERATING RESULTS
Dollars in millions, except per share amounts Three Months Percent Six Months Percent
Period ended June 30, 1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues, net of interest expense:
Global investment banking:
Advisory $ 83 $ 72 15% $ 155 $ 132 17%
Equity underwriting 72 132 (45) 130 185 (30)
Debt underwriting 66 47 40 156 115 36
- --------------------------------------------------------------------------------------------------------------------------------
Total global investment banking 221 251 (12) 441 432 2
Fixed income sales and trading 532 706 (25) 1,051 1,438 (27)
Equity sales and trading 229 268 (15) 472 332 42
Commodities trading 91 (18) n/m 116 217 (47)
Asset management 20 11 82 37 23 61
Other (3) 5 n/m (5) 19 n/m
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues, net of interest expense $ 1,090 $ 1,223 (11)% $ 2,112 $ 2,461 (14)%
================================================================================================================================
Income from continuing operations $ 220 $ 298 (26)% $ 393 $ 608 (35)%
================================================================================================================================
Per common share:
Primary earnings from continuing operations $ 1.89 $ 2.65 $ 3.34 $ 5.41
Fully diluted earnings from continuing operations* 1.77 2.40 3.14 4.89
Cash dividends 0.16 0.16 0.32 0.32
Book value at period-end* 42.52 40.08 42.52 40.08
================================================================================================================================
Annualized return on average common stockholders'
equity from continuing operations:
Primary 17.9% 29.7% 16.0% 31.5%
Fully diluted* 17.0 26.7 15.2 28.2
================================================================================================================================
<FN>
*Assumes conversion of redeemable preferred stock unless such assumption
results in higher earnings per share, book value or return on equity than
determined under the primary method.
</FN>
</TABLE>
The Company recorded income from continuing operations of $220 million, or $1.77
per common share on a fully diluted basis, for the second quarter of 1997,
compared with $298 million, or $2.40 per common share for the second quarter of
1996. Income from continuing operations for the six months ended June 30, 1997
was $393 million, or $3.14 per common share on a fully diluted basis, compared
with $608 million, or $4.89 per common share for the first half of 1996.
Global investment banking revenues (underwriting plus advisory) for the three
months ended June 30, 1997, were $221 million, essentially unchanged from the
1997 first quarter though down from the record revenues of $251 million in the
second quarter of 1996. Advisory and debt underwriting revenues improved year
over year while equity underwriting revenues were below the record level of last
year's second quarter. Investment banking revenues for the six months ended June
30, 1997 were $441 million, moderately above $432 million for the comparable
1996 period and slightly ahead of the record pace for all of 1996. On a lead
managed basis, Salomon Brothers ranked fourth in underwriting U.S. debt and
equity public issues for the first six months of 1997.
Fixed income sales and trading net revenues were $532 million in the second
quarter of 1997, down from $706 million in the year ago quarter. The decrease
reflects lower revenues in both proprietary trading and customer sales and
trading compared with very strong results for the second quarter of 1996. Net
revenues for the six months ended June 30, 1997 were $1,051 million compared
with $1,438 million for the six
<PAGE>
months ended June 30, 1996. The year-to-year decrease was attributable entirely
to lower proprietary trading revenues.
Equity sales and trading net revenues were $229 million in the 1997 second
quarter compared with $268 million for the second quarter of 1996. Equity sales
and trading results continued at a level well above the quarterly average for
1996. For the six months ended June 30, 1997, equity sales and trading net
revenues were $472 million, up from $332 million in the year ago period,
reflecting improved results in both customer sales and trading and proprietary
trading.
Net revenues from non-financial commodities trading activities, which are
conducted by Phibro Inc., were $91 million in the second quarter of 1997,
compared with negative revenues of $18 million in the year ago quarter. Net
revenues for the six months ended June 30, 1997 were $116 million compared with
$217 million for the six months ended June 30, 1996.
Asset management revenues for the 1997 second quarter were $20 million, nearly
double the $11 million recorded in the second quarter of 1996. Revenues for the
six months ended June 30, 1997 were $37 million, up from $23 million in the six
months ended June 30, 1996.
<TABLE>
<CAPTION>
Noninterest Expenses
Dollars in millions
Three Months Six Months
Period ended June 30, 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Compensation and employee-related expenses $ 546 $ 546 $ 1,111 $ 1,096
================================================================================================================
Compensation expense ratio* 61% 52% 64% 52%
================================================================================================================
Total non-compensation expenses $ 194 $ 180 $ 372 $ 352
================================================================================================================
Non-compensation expense ratio** 18% 15% 18% 14%
================================================================================================================
<FN>
*Compensation and employee-related expenses as a percentage of earnings
before income taxes and compensation and employee-related expenses.
**Non-compensation expenses as a percentage of revenues, net of interest
expense.
</FN>
</TABLE>
Although operating results for the first six months of 1997 were lower than the
comparable 1996 period, compensation and employee related expenses were about
the same, due to increased headcount and higher levels of market compensation in
1997.
The increases in non-compensation expenses in 1997 are primarily the result of
higher technology expenses and clearing and exchange fees. The increase in
clearing and exchange fees reflects increased volume. The growth in technology
expenses is due to increased technology consulting fees and desktop hardware and
software costs. Higher levels of technology consulting costs will continue,
given the systems related demands of Year 2000 and European Monetary Union.
<PAGE>
<TABLE>
<CAPTION>
Capital and Liquidity Management
Dollars in millions
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
Quarter ended 1997 1997 1996 1996 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average Weekly Balance Sheet Information:
Government and government agency securities - U.S. $ 50,279 $ 48,983 $ 48,978 $ 45,464 $ 43,106
Government and government agency securities - non-U.S. 42,923 35,928 35,946 32,017 34,770
Financial options and contractual commitments 6,700 6,936 6,637 5,061 5,619
Other financial instruments owned 28,032 25,867 25,594 21,481 20,372
- ------------------------------------------------------------------------------------------------------------------------------------
Total financial instrument inventories 127,934 117,714 117,155 104,023 103,867
- ------------------------------------------------------------------------------------------------------------------------------------
Securities purchased under agreements to resell 73,378 69,983 64,573 60,971 60,087
Securities borrowed 13,749 13,201 16,488 16,672 15,170
Other assets 9,443 9,638 11,245 9,300 13,380
- ------------------------------------------------------------------------------------------------------------------------------------
Average total assets $ 224,504 $ 210,536 $ 209,461 $ 190,966 $ 192,504
====================================================================================================================================
Period-end total assets $ 235,953 $ 214,051 $ 194,881 $ 190,987 $ 181,445
====================================================================================================================================
Period-end net assets* $ 173,406 $ 143,733 $ 138,345 $ 129,335 $ 125,434
====================================================================================================================================
Average net assets* $ 151,126 $ 140,553 $ 144,888 $ 129,995 $ 132,417
====================================================================================================================================
Average net assets, excluding securities borrowed and
government and government agency securities* $ 44,175 $ 42,441 $ 43,476 $ 35,842 $ 39,371
====================================================================================================================================
Average equity** $ 5,786 $ 5,728 $ 5,700 $ 5,612 $ 5,295
====================================================================================================================================
Ratios at period-end:**
Working capital coverage 1.14 1.13 1.12 1.11 1.13
Total capital basis double leverage .65 .74 .76 .81 .82
Average net assets to average equity 26.1 24.5 25.4 23.2 25.0
====================================================================================================================================
Common shares outstanding (in millions) 107.4 109.2 109.0 105.3 105.2
====================================================================================================================================
<FN>
* Net assets are total assets less the lower of securities purchased under
agreements to resell or securities sold under agreements to repurchase.
** Average equity is based on month-end balances; for equity-based ratios,
"total equity" includes common equity, perpetual preferred stock, TRUPS
and redeemable preferred stock.
</FN>
</TABLE>
Average assets for the second quarter of 1997 were $225 billion, up from $211
billion in the first quarter of 1997. Due to the nature of the Company's trading
and funding activities, including its matched-book activities, it is not
uncommon for the Company's asset levels to fluctuate from period to period.
The Company's long-term capital includes common equity, redeemable preferred
stock, perpetual preferred stock, TRUPS, unsecured obligations and long-term
deferred taxes. Long-term capital includes all amounts maturing beyond one year
and a portion of amounts maturing between six months and one year (weighted by
maturity), and excludes all amounts scheduled to mature within six months.
Long-term capital increased from $16.8 billion at December 31, 1996 to $19.3
billion at June 30, 1997, principally due to the net increase of approximately
$2.7 billion in the level of term debt since year-end. The Company manages the
level of long-term capital to be the greater of 110% of working capital or the
capital required to maintain a total capital basis double leverage ratio of 1.0.
The Company's long-term debt to equity ratio was 2.5 at June 30, 1997. For this
ratio, redeemable preferred stock is treated as common equity; preferred stock
and TRUPS are treated as equity only to the extent that, in total, they are not
greater than 15% of total equity. Amounts in excess of 15% are treated as
long-term debt. Long-term debt excludes 50% of first year maturities.
<PAGE>
As of July 31, 1997 the Company's credit ratings were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Duff & Thomson
Moody's S&P Fitch Phelps IBCA Bankwatch
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt Baa1 BBB A- A- A- A
Commercial paper P-2 A2 F-1 D-1 A1 TBW-1
Issuer - - - - B/C B/C
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Salomon Brothers' trading portfolio of high-yield securities, carried at market
value, totaled $4.6 billion at June 30, 1997, compared with $4.4 billion at
December 31, 1996. High-yield securities include corporate debt, convertible
debt, preferred and convertible preferred equity securities rated lower than
"triple B-" by internationally recognized rating agencies as well as sovereign
debt issued by less developed countries in currencies other than their local
currencies and which are not collateralized by U.S. government securities. For
example, high-yield securities exclude the collateralized portion of "Brady
Bonds," but include such securities to the extent they are not collateralized.
Unrated securities with market yields comparable to entities rated below "triple
B-" are also included in high-yield securities. The largest single high-yield
exposure to a single counterparty was $329 million at June 30, 1997. In
addition, at June 30, 1997 the Company had $50 million in bank loan commitments
outstanding.
Book value per share increased to $42.52 at June 30, 1997, from $40.03 at
December 31, 1996. Through June 30, 1997, the Company repurchased two million
common shares for treasury in 1997 at an average price of $51.65 per share.
Shares authorized for additional repurchase by the Company's Board of Directors
totaled approximately 6.5 million at June 30, 1997.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
Three Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
Dollars in millions, except per share amounts 1997 1997 1996 1996 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the quarter:
Revenues, net of interest expense:
Global investment banking:
Advisory $ 83 $ 72 $ 75 $ 65 $ 72
Equity underwriting 72 58 66 83 132
Debt underwriting 66 90 93 39 47
- ------------------------------------------------------------------------------------------------------------------------------------
Total global investment banking 221 220 234 187 251
Fixed income sales and trading 532 519 588 598 706
Equity sales and trading 229 243 83 (26) 268
Commodities trading 91 25 100 36 (18)
Asset management 20 17 15 13 11
Other (3) (2) 33 45 5
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 1,090 1,022 1,053 853 1,223
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest expenses:
Compensation and employee-related 546 565 502 441 546
Other noninterest expenses 194 178 186 180 180
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 740 743 688 621 726
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 350 279 365 232 497
Income tax expense 130 106 131 92 199
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 220 173 234 140 298
Loss from discontinued operations, net of tax - - (296) (28) (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 220 $ 173 $ (62) $ 112 $ 291
====================================================================================================================================
Annualized return on average common stockholders'
equity from continuing operations:
Primary 17.9% 14.0% 21.1% 12.4% 29.7%
Fully diluted* 17.0 13.4 19.6 11.7 26.7
====================================================================================================================================
Per common share:
Primary earnings from continuing operations $ 1.89 $ 1.44 $ 2.03 $ 1.15 $ 2.65
Primary earnings (loss) 1.89 1.44 (0.71) 0.88 2.58
Fully diluted earnings from continuing operations* 1.77 1.37 1.88 1.08 2.40
Fully diluted earnings (loss)* 1.77 1.37 (0.71) 0.85 2.34
Cash dividends 0.16 0.16 0.16 0.16 0.16
High market price 58 5/8 61 3/8 49 46 7/8 44 1/4
Low market price 49 46 44 1/8 38 36 1/8
Ending market price 55 5/8 49 7/8 47 1/8 45 5/8 44
Book value at period-end 42.52 41.13 40.03 40.67 40.08
====================================================================================================================================
Full-time employees:
Salomon Brothers 7,027 6,858 6,808 6,683 6,370
Salomon Inc (excluding Basis) 7,294 7,151 7,146 7,084 6,966
====================================================================================================================================
<FN>
* Assumes conversion of redeemable preferred stock outstanding unless such
assumption results in higher returns on equity or earnings per share than
determined under the primary method.
</FN>
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
An action for civil penalties of up to $800,000 was filed on May 1,
1997 against Basis Petroleum, Inc. by the U. S. Department of Justice
for alleged violations of the New Source Performance Standards ("NSPS")
under the Clean Air Act at Basis' Texas City, Texas refinery. The
action, United States v. Basis Petroleum, Inc. (S.D. Tex, Houston Div.,
Case No. H-97-1494), alleges that a certain process unit, oil and water
separator and storage tank failed to meet applicable NSPS requirements
on certain occasions or during specified periods from May 1990 to April
1994. Under the terms of the Company's sale of all of the outstanding
stock of Basis Petroleum, Inc. to Valero Energy Corporation on May 1,
1997, the Company retains liability for certain pre-sale violations of
environmental laws. The Company cannot determine at this time the
extent of its liability, if any, for the violations alleged in the
lawsuit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12.a Calculation of ratio of earnings to fixed charges*
12.b Calculation of ratio of earnings to combined fixed charges and
preferred dividends*
27 Financial Data Schedule*
*filed herewith
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated July 17, 1997,
reporting under Item 5 ("Other Events") and Item 7 ("Financial
Statements, Pro Forma Financial Information and Exhibits") the issuance
of a press release.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SALOMON INC
(Registrant)
Date August 12, 1997 /s/ Jerome H. Bailey
-------------- --------------------
Chief Financial Officer
Date August 12, 1997 /s/ Arnold S. Olshin
-------------- --------------------
Secretary
<PAGE>
Form 10-Q Exhibit Index
The following exhibits are filed herewith:
Exhibit Number
12.a Calculation of ratio of earnings to fixed charges
12.b Calculation of ratio of earnings to combined fixed charges and
preferred dividends
27 Financial Data Schedule
<TABLE>
<CAPTION>
EXHIBIT 12.a
SALOMON INC AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
Six
Months
Ended
June 30, Years Ended December 31,
---------------------------------------------------
Dollars in millions 1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing operations:
Income (loss) from continuing operations before
income taxes and cumulative effect of change
in accounting principles $ 629 $ 1,610 $ 799 $ (849) $ 1,511 $ 1,103
Add fixed charges (see below) 2,542 4,711 5,786 4,898 4,625 4,347
Other adjustments 3 1 0 0 22 20
------------ -------- ------- -------- -------- --------
Earnings as defined $ 3,174 $ 6,322 $ 6,585 $ 4,049 $ 6,158 $ 5,470
============ ======== ======= ======== ======== ========
Fixed Charges from continuing operations:
Interest expense $ 2,527 $ 4,679 $ 5,754 $ 4,873 $ 4,581 $ 4,299
Other adjustments 15 32 32 25 44 48
------------ -------- ------- -------- -------- --------
Fixed charges from continuing operations as defined $ 2,542 $ 4,711 $ 5,786 $ 4,898 $ 4,625 $ 4,347
============ ======== ======= ======== ======== ========
Ratio of earnings to fixed charges 1.25 1.34 1.14 0.83* 1.33 1.26
============ ======== ======= ======== ======== ========
<FN>
NOTE:
The ratio of earnings to fixed charges from continuing operations is calculated
by dividing fixed charges into the sum of income (loss) from continuing
operations before income taxes and cumulative effect of change in accounting
principles and fixed charges. Fixed charges consist of interest expense,
including capitalized interest and a portion of rental expense representative of
the interest factor.
* For the year ended December 31, 1994, earnings as defined were inadequate to
cover fixed charges. The amount by which fixed charges exceeded earnings as
defined for the year was $849 million.
</FN>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12.b
SALOMON INC AND SUBSIDIARIES
Calculation of Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends
(Unaudited)
Six
Months
Ended
June 30, Years Ended December 31,
--------------------------------------------------
Dollars in millions 1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing operations:
Income (loss) from continuing operations before
income taxes and cumulative effect of change
in accounting principles $ 629 $ 1,610 $ 799 $ (849) $ 1,511 $ 1,103
Add fixed charges (see below) 2,542 4,711 5,786 4,898 4,625 4,347
Other adjustments 3 1 0 0 22 20
---------- ------- ------- ------- ------- -------
Earnings as defined $ 3,174 $ 6,322 $ 6,585 $ 4,049 $ 6,158 $ 5,470
========== ======= ======= ======= ======= =======
Fixed Charges from continuing operations and
Preferred Dividends:
Interest expense $ 2,527 $ 4,679 $ 5,754 $ 4,873 $ 4,581 $ 4,299
Other adjustments 15 32 32 25 44 48
---------- ------- ------- ------- ------- -------
Fixed charges from continuing operations as defined 2,542 4,711 5,786 4,898 4,625 4,347
Preferred stock dividends (tax equivalent basis) 48 111 106 129 83 131
---------- ------- ------- ------- ------- -------
Combined fixed charges and preferred dividends $ 2,590 $ 4,822 $ 5,892 $ 5,027 $ 4,708 $ 4,478
========== ======= ======= ======= ======= =======
Ratio of earnings to combined fixed charges
and preferred dividends 1.23 1.31 1.12 0.81* 1.31 1.22
========== ======= ======= ======= ======= =======
<FN>
NOTES:
The ratio of earnings to combined fixed charges from continuing operations and
preferred dividends was calculated by dividing the sum of combined fixed charges
and tax equivalent preferred dividends into the sum of income (loss) from
continuing operations before income taxes and cumulative effect of change in
accounting principles and fixed charges. Fixed charges consist of interest
expense, including capitalized interest and a portion of rental expense
representative of the interest factor.
The preferred stock dividend amounts represent the pretax earnings necessary to
cover preferred dividends after adjusting for the effects of interest rate
swaps, which effectively convert these fixed rate obligations into variable rate
obligations.
* For the year ended December 31, 1994, earnings as defined were inadequate to
cover fixed charges, including preferred dividends. The amount by which
fixed charges, including preferred dividends, exceeded earnings as defined
for the year ended December 31, 1994 was $978 million.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
EXHIBIT 27
THE SCHEDULE CONTAINS CERTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S June 30, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,081
<RECEIVABLES> 6,638
<SECURITIES-RESALE> 62,547
<SECURITIES-BORROWED> 28,773
<INSTRUMENTS-OWNED> 132,848
<PP&E> 505
<TOTAL-ASSETS> 235,953
<SHORT-TERM> 8,036
<PAYABLES> 9,785
<REPOS-SOLD> 105,999
<SECURITIES-LOANED> 2,815
<INSTRUMENTS-SOLD> 87,058
<LONG-TERM> 16,080
420
450
<COMMON> 159
<OTHER-SE> 4,479
<TOTAL-LIABILITY-AND-EQUITY> 235,953
<TRADING-REVENUE> 927
<INTEREST-DIVIDENDS> 3,045
<COMMISSIONS> 199
<INVESTMENT-BANKING-REVENUES> 441
<FEE-REVENUE> 27
<INTEREST-EXPENSE> 2,527
<COMPENSATION> 1,111
<INCOME-PRETAX> 629
<INCOME-PRE-EXTRAORDINARY> 393
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 393
<EPS-PRIMARY> $3.34
<EPS-DILUTED> $3.14
</TABLE>
