Salomon Projects $65-Million Quarterly Loss

Salomon Inc. shocked investors Tuesday by projecting it lost $65 million in the second quarter due to losses in its Phibro commodities trading business that traders said were linked to bad bets on silver prices.

But the Wall Street firm’s Salomon Bros. brokerage arm eked out a profit as a strong client-related business just managed to offset losses on trading for its own account.

The earnings warning, which follows a $204-million loss in the 1994 second quarter, stunned investors and sent Salomon’s stock down $3.625 to $37.25 on the New York Stock Exchange.

The after-tax loss in the quarter ended June 30 comes to about 50 cents per share, compared to average expectations of profits of 69 cents per share, according to Zacks Investment Research. In last year’s second quarter, the investment firm lost $204 million, or $2.08 a share, on revenue of about $1.28 billion.

Following Salomon’s announcement, Standard & Poor’s Ratings Group said it was reviewing its rating of $15 billion in Salomon debt for a possible downgrade.

S&P; said that Salomon’s bid to return to profitability is getting hampered by frustrated attempts to cut costs. This past spring, Salomon was forced to scrap a controversial money-saving change in employee bonuses that would have tied compensation to the firm’s overall financial performance.

The reversal was prompted by mounting defections among its top performers, who faced sharp cuts in compensation as the firm’s earnings faltered.

“I am encouraged by the very substantial improvement in the client-related businesses of Salomon Bros., even though the overall results of Salomon Inc. are disappointing,” Chairman Robert Denham said.

Salomon, which will release its quarterly results July 25, also repeated a warning that proprietary trading is a volatile business.

Salomon said Phibro’s losses contributed significantly to the group’s overall loss. A spokesman declined to be more specific.

But precious metals traders said the most likely culprit for the loss was a losing bet that Phibro made on silver earlier this year.