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 NEW YORK, Dec. 9 /PRNewswire/ -- Salomon Inc.'s senior debt is rated "A-" and commercial paper "F-1" by Fitch. The company's subordinated debt and preferred stock are rated "BBB+" and "BBB," respectively. The credit trend is stable. As of Sept. 30, 1993, Salomon had roughly $10.2 billion of senior term debt and $975 million of commercial paper outstanding. The ratings reflect Salomon's sound capital structure, prominent fixed-income businesses, and solid liquidity, offset by high earnings volatility and lack of revenue diversification relative to that of its industry peers.
 The company's $388 million net earnings, before a $37 million net charge for a cumulative effect of accounting principle changes, for 1993's first nine months were battered by proprietary trading losses in an environment that produced a record year throughout the industry. However, pretax profit margins remain relatively high at 26% for 1993's nine-month earnings due to low fixed costs from its institutional and proprietary business focus. Also, despite the Treasury settlement and reserves, as well as depressed energy businesses, the company posted solid 1992 net earnings of $550 million, with a return on average equity (ROAE) of roughly 13.9%.
 The company maintains a highly liquid balance sheet, with nearly 75% of its $173 billion of assets invested in U.S. and non-U.S. government and government-related securities as of Sept. 30, 1993. Salomon established well defined, conservative liquidity management practices to supplement its balance sheet, primarily composed of financial instruments that are marked to market. The company's strong credit quality and liquidity afford financial flexibility rarely seen in other industries. Also complementing its highly liquid balance sheet is its significant $2.65 billion in committed secured bank liquidity facilities. To reduce its dependence on short-term debt markets, the company increased its intermediate and long-term debt (term debt) significantly, rising 44% to roughly $10.2 billion as of Sept. 30, 1993, from approximately $7.1 billion as of Dec. 31, 1991. For asset/liability management, the company generally swaps long-term, fixed-rate debt for floating-rate debt. In addition, the company strengthened its capital structure by decreasing double leverage to 1.13 times (x) at Sept. 30, 1993, from 1.59x at Dec. 31, 1990. Salomon's adjusted leverage is high at 33.1x but appropriate on a risk- adjusted basis given the high liquidity and asset quality of its balance sheet.
 Salomon continues to focus on increasing its client businesses and further diversifying select global fixed-income businesses to help mitigate large profitability swings. While the company's business strength lies in fixed-income-related activities, stronger revenue from more predictable client fees and diversified trading businesses could help smooth earnings volatility. However, the securities business remains market sensitive and volatile.
 While Salomon's management has a relatively high tolerance for risk, it understands and manages its exposures to market changes. Despite weak performance in two of the past three quarters, Salomon's future rewards for its risk taking can be high. The company's proprietary trading pretax earnings exceeded $1 billion in both 1991 and 1992. Creditors and shareholders must anticipate earnings volatility within a band that management finds comfortable. Fitch's ratings accommodate quarterly earnings volatility, anticipating a long-term trend of good profitability.
 A Fitch research report on Salomon Inc. will be published Monday, Dec. 13.
 -0- 12/9/93
 /CONTACT: Teri L. Seelig, 212-908-0638, or Nancy E. Stroker, CFA, 212-908-0533, both of Fitch/

CO: Salomon Inc. ST: IN: FIN SU: RTG

TW -- NY020 -- 2122 12/09/93 10:02 EST
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Publication:PR Newswire
Date:Dec 9, 1993

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