Shearson Expected to Split Into Pair of Operating Units : Securities: Investment banking and retail brokerage operations will be separated in the reorganization. The firm lost $1 billion last quarter.

Shearson Lehman Hutton, charting a new course after bruising losses and management turmoil, is expected soon to create separate units for its principal businesses of investment banking and retail brokerage.

The investment firm, a unit of American Express, may give the new retail brokerage division the Shearson name, people close to the firm said Friday. The new investment banking division may be called Lehman Bros., after the respected investment house acquired by Shearson in 1984.

The reorganization is intended to bring the divisions closer to their clientele, and, analysts say, to further distance the firm from travails that began after the 1987 stock market crash. The move is also a further repudiation of Shearson’s 1980s strategy of fast growth and diversification.

Shearson reported nearly $1 billion in losses in the first quarter, including a $630-million charge to restructure operations. It has recently closed 67 branch offices and cut its work force by about 2,000, to roughly 33,500. In Southern California, Shearson merged branches in Pasadena, San Diego and La Jolla into other branches in those cities.

The reorganization, made public in a Wall Street research report this week, may not be announced for two or three weeks, and is still subject to change, a source said.

The new divisions will report to a new holding company, which will probably be called Shearson Lehman Holdings Inc. or SLH Holdings Inc. Shearson’s Boston Co. money-management unit will report to the holding company.

The new investment banking unit, which will also include trading operations, is likely to be headed by Sherman R. Lewis Jr., current head of investment banking, and Richard S. Fuld Jr., head of “capital markets” operations. These operations include many employees from the old Lehman Bros. firm.

The new brokerage unit is likely to remain under the leadership of Hardwick Simmons and Joseph J. Plumeri II.

With the reorganization, Shearson would more closely reflect the organization of parent American Express, which is decentralized and divided according to lines of business.

The reorganization would further obscure Shearson’s ties to E.F. Hutton, the once-high-flying retail brokerage that Shearson absorbed in early 1988.

Some on Wall Street are speculating that American Express is tidying up Shearson with plans to sell it. But this week an American Express spokesman denied the speculation.

While the reorganization again highlights the firm’s transformation, it would be a relatively minor change compared to others Shearson has made recently.

In addition to staff cutbacks, Shearson this year replaced chief executive Peter A. Cohen with Howard L. Clark Jr., a former American Express official. American Express, which owns 61% of Shearson, recently agreed to buy the remaining shares. And the diversified financial services company has been compelled to inject another $1 billion in capital into Shearson.

Michael L. Goldstein, an analyst with the Sanford C. Bernstein investment firm in New York, said he looked favorably on the reorganization plan, asserting that history has shown that building big brokerage operations does not bring economies of scale.

Goldstein said reviving the Lehman Bros. name “could have some positive impact.”