Bad Texas Deal to Create a Loss for Shearson

Shearson Lehman Hutton Inc., Wall Street’s largest firm, said Friday that it would report a loss for the fourth quarter of 1988 due to bad investments in a troubled Texas bank.

The company also said it would revise downward its profit for the rest of 1988 because of previously reported accounting problems at Boston Co., a subsidiary that caters to wealthy clients.

Shearson did not estimate the amount of quarterly loss from devalued securities in MCorp of Dallas but said it would release fourth-quarter figures later this month. One stock analyst put the loss at $15 million to $16 million.

With capital exceeding $4.5 billion, 40,000 employees and more than 700 offices worldwide, Shearson is the largest U.S. investment firm. About 61% of it is owned by American Express Co., the financial services giant.

Suspended With Pay

Shearson said it will record a pretax charge of $70 million in the fourth quarter ended Dec. 30 to reflect a further reduction in the value of MCorp securities. Shearson initially lowered the value of the holdings in early 1988.

To correct an overstatement in Boston Co. earnings, Shearson said it would restate profit for the first three quarters of 1988 that will lower Shearson’s earnings for that period by $30 million, to about $110 million.

Shearson spokesman Michael O’Neill said the problem at Boston Co. stemmed from recording revenues that should have been deferred and deferring expenses that should have been recorded.

He said an unidentified employee disclosed the problem and there was no misuse of company or client assets.

Last month, Shearson estimated the restatement would result in a $15-million profit reduction. It also said three top Boston Co. officers were suspended with pay over the improper accounting.