Many Large Clients Say They’ll Stand By Embattled Salomon

Salomon Bros.’ quick steps to deal with its government securities scandal brought some positive results Monday as a number of big clients said they will continue to do their usual level of business with the company.

But the scandal showed signs of broadening as sources confirmed that the Securities and Exchange Commission has requested documents from more than a dozen other big firms that trade Treasury securities.

The sources said the letters, sent out several days ago, seek evidence of possible collusion among firms in fixing bids for Treasury notes and bonds and of other illegal practices, including making bids in the names of customers who hadn’t authorized them.

William R. McLucas, the SEC’s enforcement chief, declined comment on whether the agency’s investigation has been extended beyond Salomon.

At Salomon, signs of customer support Monday eased fears of a massive defection of clients from the New York investment banking and brokerage company that recently admitted cornering more than an allowable share of the huge Treasury market.

Nevertheless, Salomon’s stock lost $1.625 Monday to close at $26.25, continuing last week’s selloff.

Big institutional investors that do business with Salomon on Monday seemed reassured by the appointment of the respected Nebraska financier Warren E. Buffett as interim chairman. Buffett has moved swiftly to tighten Salomon’s internal controls and name replacements for senior executives who quit or were fired.

The Teachers Insurance and Annuity Assn.-College Retirement Equities Fund, which claims to be the largest U.S. pension fund, said it will continue to do business with Salomon, although it will closely monitor government investigations of the firm.

“Salomon Bros. appears to be taking appropriate actions to deal with the situation, and we are pleased that they have chosen a person of Warren Buffett’s expertise and integrity to lead the firm through its difficulties,” the pension fund said in a statement.

The giant Boston-based Fidelity group of mutual funds also said it has no plans to cut back its business with Salomon.

Salomon spokesman Robert F. Baker Jr. asserted that “clients are coming back.” He declined to give numbers or identify them. Deryck C. Maughan, named Sunday as Salomon’s chief operating officer, was said to have received a 1 1/2-minute ovation at the firm’s morning meeting Monday.

Salomon has admitted repeatedly purchasing more than its permitted share of 35% of Treasury notes and bonds at auctions. It also acknowledged making bids in clients’ names without their approval.

On Sunday, Chairman and Chief Executive John H. Gutfreund, President Thomas W. Strauss and Vice Chairman John W. Meriwether resigned from Salomon. And the Treasury Department suspended Salomon’s right to make bids on behalf of customers in Treasury auctions.

The scandal has led to reports of possible widespread collusion among government securities firms in bidding at Treasury auctions. The firms have strongly denied it.

But traders say that with much greater scrutiny now in a market that long was lightly regulated, they’re going to be more cautious. In particular, they expect less of the routine, permissible contacts with each other designed to get a sense of market demand for securities.

“Market participants will be more conservative in the way they approach what has been their everyday way of doing business for years and years,” said William Brachfeld, an executive vice president of Daiwa Securities America Inc. and a former Salomon official.

The new conservatism and caution by traders, he said, probably will force the government to pay slightly higher interest rates on the notes and bonds that it auctions to finance the national debt.

Salomon on Monday named Eric R. Rosenfeld, 38, to temporarily head its government bond department. He replaces Paul Mozer, a Salomon managing director, who was fired Sunday by Buffett.

Rosenfeld was co-head of U.S. fixed-income arbitrage at Salomon. The firm also named Hans Ulrich Hufschmid, 35, as head of its global foreign exchange department in New York. Hufschmid has been manager of Salomon’s foreign exchange operation in London.

In a separate development, the New York Stock Exchange said it is “closely monitoring” Salomon because of its admitted violations of Treasury rules.