SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
October 21, 1998
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SALOMON SMITH BARNEY HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 1-4346 22-1660266
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
388 Greenwich Street, New York, NY 10013
(Address of principal executive offices) (Zip Code)
(212) 816-6000
(Registrant's telephone number, including area code)
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SALOMON SMITH BARNEY HOLDINGS INC.
Current Report on Form 8-K
Item 5. Other Events
Results of Operations
(Preliminary and Unaudited)
This report summarizes the results of operations of Salomon Smith Barney
Holdings Inc. (the "Company") for the three month and nine month periods
ended September 30, 1998 and 1997 and provides certain additional financial
information.
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<TABLE>
<CAPTION>
SALOMON SMITH BARNEY HOLDINGS INC.
SELECTED FINANCIAL DATA
(Preliminary and Unaudited)
(In millions)
September 30,
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1998 1997
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<S> <C> <C>
Total stockholder's equity $ 8,716 $ 8,405
Total assets under fee-based management $247,300 $ 216,200
Three Nine
Months Ended Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 797 $ 783 $2,376 $2,185
Investment banking 531 597 1,799 1,556
Principal transactions (1,331) 790 (236) 2,261
Asset management and administration fees 563 448 1,614 1,236
Other 28 41 102 94
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Total noninterest revenues 588 2,659 5,655 7,332
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Interest and dividends 3,338 3,207 10,124 8,706
Interest expense 3,013 2,841 9,003 7,588
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Net interest and dividends 325 366 1,121 1,118
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Revenues, net of interest expense 913 3,025 6,776 8,450
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Noninterest expenses:
Compensation and benefits 915 1,627 4,181 4,548
Communications 118 127 351 372
Floor brokerage and other production 111 99 326 271
Occupancy and equipment 105 108 315 324
Advertising and market development 80 70 218 202
Professional services 69 53 166 141
Other operating and administrative expenses 39 113 288 347
Restructuring credit - - (324) -
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Total noninterest expenses 1,437 2,197 5,521 6,205
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Income (loss) before income taxes (524) 828 1,255 2,245
Provision (benefit) for income taxes (199) 321 477 876
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Net income (loss) $ (325) $ 507 $ 778 $1,369
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Note: Certain prior year amounts have been reclassified to conform to the
current year's presentation.
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o The Company reported a loss of $325 million for the quarter. Included
in this is an after-tax loss of $700 million related to Global
Arbitrage and Russian related credit losses. Extreme volatility in
the global fixed income markets affected trading results negatively
for the quarter, while Private Client and Asset Management performance
continued at high levels.
o Total revenues, net of interest expense, were $913 million in the
1998 quarter and $6.776 billion in the nine months ended
September 30, 1998 compared to $3.025 billion in the 1997 quarter and
$8.450 billion in the nine months ended September 30, 1997.
o Commission revenues were relatively unchanged from the prior year
quarter. An increase in listed commissions was offset by decreases
in other commissions. In the nine months ended September 30, 1998
commission revenues increased over the comparable 1997 period due to
an increase in listed, OTC, and mutual fund commissions.
o Investment banking revenues decreased to $531 million in the 1998
quarter compared with $597 million in the 1997 quarter. Record
merger and acquisition fees were more than offset by declines in
equity, high yield, high grade debt, and unit trust underwritings.
The Company held its number one rank in municipal underwriting
for the third quarter of 1998. For the nine months of 1998, the
Company held its number two ranking in overall U.S. debt and equity
underwriting. For the nine months ended September 30, 1998,
investment banking revenues increased over the comparable 1997
period primarily due to increased merger and acquisition fees.
o Principal transaction revenues decreased in the quarter to a loss of
$1.331 billion. Decreases in fixed income trading results include
losses due to risk reduction of U.S. fixed income arbitrage, losses in
other Global Arbitrage, and losses in the customer business. These
were partially offset by an increase in equity trading results.
Fixed income trading results were adversely impacted by significant
dislocations in the global fixed income markets, including greatly
reduced liquidity and widening credit spreads. Included in these
results are Russia-related credit losses.
o Asset management fees increased to a record $563 million and
$1.614 billion in the 1998 quarter and nine months ended
September 30, as a result of increased client assets under management.
o Net interest decreased to $325 million in the 1998 quarter from
$366 million in the 1997 quarter. Net interest in the nine months
ended September 30, 1998 was relatively unchanged from the comparable
1997 period.
o Total expenses declined by $760 million, reflecting a reduction in
compensation and benefits of $712 million, largely related to
performance based compensation accruals.
o As of October 1, 1998, the Company had mark-to-market exposure to
hedge funds of $2.122 billion, collateralized by $2.167 billion of
cash and government securities, resulting in excess collateral of
$45 million. Within these results, a portion of hedge funds have
collateral in excess of the mark-to-market deficit, and a portion
of hedge funds have deficits in excess of collateral held. The total
exposure to hedge funds with mark-to-market deficits in excess of
collateral held is $48 million. No single hedge fund had a
mark-to-market deficit which was more than $8 million in excess of
collateral held from that hedge fund. Mark-to-market exposure
includes those hedge funds which owe the Company on foreign exchange
and derivative contracts such as swaps, swap options, and other
over-the-counter options and only the uncollateralized portion of
receivables on reverse repurchase and repurchase agreements. This
exposure can change significantly as a result of extreme market
movements.
o In addition, the Company has no unsecured loans or loan commitments
to hedge funds. The Company has no investments in hedge funds other
than the previously disclosed investment in Long-Term Capital
Management, LP, made in concert with a consortium of banks and
securities firms.
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<TABLE>
Included in the Company's consolidated results is the following data relating
to the Company's Asset Management Division:
(Preliminary and Unaudited)
(In millions)
Three Nine
Months Ended Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Investement advisory, administrative
and distribution fees $217 $186 $633 $527
Unit Investment Trust revenues - net 18 19 38 35
Other 9 8 25 31
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Total revenues 244 213 696 593
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Expenses:
Compensation and benefits 41 38 127 108
Deferred commission amortization 31 32 97 96
Other expenses 56 45 152 137
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Total expenses 128 115 376 341
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Income before income taxes 116 98 320 252
Provision for income taxes 46 39 127 100
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Net income $ 70 $ 59 $193 $152
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o The Salomon Smith Barney Asset Management Division's ("SSBAM") strong
recurring revenues reflect continued strength in mutual funds, retail and
institutional managed accounts, and its share of unit trust revenues.
SSBAM's $169.6 billion in assets under management breaks down as 33%
in money market funds, 31% in mutual funds, and 36% in accounts managed
for high net worth individuals, pension funds, corporations, and other
institutions. The slight increase in money market funds as a percentage
of total assets reflects investor reaction to recent market volatility.
o Investment advisory, administration, and distribution fees rose 16%
to $217.3 million from the prior-year quarter, paralleling a 16%
increase in assets under management. The pretax profit margin from this
unit was 47.8%, up from 46.2% in the prior-year period, and among the
highest in the industry.
o During the quarter, SSBAM completed its acquisition of the Australian
asset management business of JP Morgan, which added $4.8 billion in
assets under management and establishes an important franchise in what
is expected to be the sixth largest investment market in the world by
2001. Included in this projected market growth are the rapid changes
taking place in the retirement market in Australia.
o In the mutual fund sector, there was a significant increase not only in
dollar sales, but also in performance, with the number of Morningstar
4- and 5-star funds rising to 22, up from 17 in the prior-year
period. Sales of proprietary Smith Barney mutual funds rose 34%, and
they account for an increasing percentage -- 29.3% year-to-date
compared to 26.6% for the prior year-to-date -- of the Company's total
mutual fund sales.
o New products successfully introduced in the third quarter include the
Smith Barney Mid-Cap Blend Fund which helps to round out the unit's group
of style pure funds.
o During the quarter, the division successfully offered the 1998 Uncommon
Values Unit Investment Trust Series, comprised of three portfolios,
Uncommon Values, Aggressive Growth, and Growth and Income, raising over
$2.1 billion in assets.
o In addition, in mid September, Citicorp Investment Services began
distributing Salomon Brothers mutual funds. This initiative is the
division's first rollout of several planned Citigroup cross-sell
opportunities.
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SIGNATURE
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.
Date: October 22, 1998 SALOMON SMITH BARNEY HOLDINGS INC.
By: /s/Michael J. Day
Michael J. Day
Controller
