Salomon May Lose Role in S&L; Cleanup

Salomon Bros., whose bond market practices sparked a scandal that has cost it several major clients, Tuesday was notified that it may lose its coveted role in the sale of assets seized from failed savings and loans.

In addition, New York-based Salomon, long known as one America’s premier investment houses, lost Colorado’s pension fund as a client, adding to a list that has grown since the scandal broke earlier this month.

The Resolution Trust Corp., the federal agency charged with selling off assets from failed savings institutions, said it was considering whether it will bar further business dealings with Salomon.

During the past year the investment house earned about $3 million in fees by advising the agency on the sale of assets from failed savings and loans. It also is a major buyer of junk bonds and other securities that the RTC has seized from the institutions.

RTC said there is no suggestion of wrongdoing in Salomon’s dealings with the agency, but Felisa Neuringer, a spokeswoman for the agency, said, “The situation is of obvious concern.”

The Wall Street investment bank is being investigated by several federal agencies, as well as the New York Stock Exchange, after admitting that it violated bidding rules at government bond auctions.

The scandal caused Salomon’s top executives to resign and several big clients to cut ties. The move by Colorado state’s pension fund comes after California and that state’s pension fund suspended trading with Salomon.

RTC staff is preparing a report for a special committee on any potential business problems or ethical concerns raised by Salomon’s admissions, and the panel may reach a decision in the next few weeks, Neuringer said. RTC will not probe wrongdoing, only Salomon’s fitness to continue contracts with the agency, she added.

Kenneth Bacon, RTC’s assistant director of asset sales, said the agency’s policy is to continue doing business with the firm unless its review panel decides that Salomon is no longer qualified.

Salomon is one of seven lead underwriters for mortgages held by RTC that are packaged and sold as securities.

Bacon said he has seen no evidence that Salomon’s marred named has affected its ability to underwrite RTC securities. Last week it managed a $373-million offering of multifamily mortgages. But its services are dispensable, he said.

“I’ve got seven firms. Is Solly (Salomon) important to me? Yes. Would it cripple me? No,” he said in an interview.

Neuringer said that a private law firm has reviewed Salomon’s business dealings with RTC for conflict of interest and that its preliminary findings have found no problems.

Salomon’s largest RTC contract, worth $2.2 million, is to advise on block sales of mortgages and loans. The firm also is the agency’s sole financial adviser on the sale of junk bonds, which were a large part of the holdings of many failed thrifts.

Before getting its first RTC contract, Salomon won a waiver from RTC’s conflicts panel. It failed to meet minimum qualifications because of certain lawsuits. Neuringer said such waivers are not uncommon for large financial firms and accountants, which are subject to many lawsuits.