Shearson to Receive $750-Million Cash Infusion : Securities: American Express also calls off plans to reduce its holding in the troubled brokerage unit to 45% from 70%.
American Express Co. said Monday that it plans to pump $750 million into Shearson Lehman Hutton Holdings Inc., which would lift its capital support for the troubled brokerage subsidiary to $1 billion since December.
American Express, which holds 70% of the firm, also called off plans to reduce its holdings to 45%, saying market conditions were too unsettled for a planned offering of Shearson shares.
The capital infusion is the latest attempt to shore up Shearson, the nation’s second-largest brokerage, which has been under profit pressure since the 1987 stock market crash and its merger with E. F. Hutton several months later.
American Express injected $250 million into Shearson in December, and the brokerage began to reorganize its operations a month later, when Shearson’s chairman, Peter Cohen, resigned.
“The steps taken today are designed to underscore our commitment to Shearson Lehman Hutton and our belief in its underlying value,” American Express Chairman James D. Robinson III said in a statement.
“The additional $750 million will substantially enhance Shearson Lehman Hutton’s balance sheet while Shearson Lehman Hutton and American Express study steps to strengthen Shearson Lehman Hutton’s operations,” Robinson added.
In January, American Express announced plans to reduce its holdings in Shearson to 45% by issuing stock to its shareholders in the form of a special dividend.
Under the offer, American Express planned to issue rights for 21 million Shearson shares, entitling holders to buy Shearson stock for $12 a share. The plan would have raised $250 million for Shearson.
But American Express reversed directions Monday and called off both the spinoff and share sale because of “unsettled market conditions.”
Wall Street brokerages have been slumping since the stock market crash, cutting back on highly paid staff, selling units and closing operations.
The most dramatic example of Wall Street’s woes appeared recently, when Drexel Burnham Lambert Inc., once the most profitable brokerage, filed for Chapter 11 protection from creditors and began to dismember its business.
American Express, however, said it remains committed to maintaining Shearson’s position as a premier securities industry firm.
It said the $750 million would be made available by the purchase of a combination of preferred and common stock for $11 a share. The announcement came after the close of trading.
Shearson stock closed unchanged Monday at $10.8750 a share in New York Stock Exchange trading. American Express disclosed its plans after the stock markets closed.