Magazine article American Banker

Drexel Rides High on Flood of Profits; Takeover and Junk Bond Activities Send Income Soaring; Staff Gets Big Bonuses

Magazine article American Banker

Drexel Rides High on Flood of Profits; Takeover and Junk Bond Activities Send Income Soaring; Staff Gets Big Bonuses

Article excerpt

NEW YORK -- Riding a flood tide of corporate takeovers and junk bond finacings, Drexel Burnham Lambert Inc. will post record profits and revenues for 1985 and is doling out fat bonuses to staffers as a reward.

A privately held firm, Drexel does not report its earnings publicly. However, according to a memo circulated Monday to all employees, the fast-growing Wall Street investment house will nearly double its 1984 gross revenues of a then-record $1.2 billion to an estimated $2.25 billion for 1985.

The memo, signed by chairman Robert E. Linton and Frederick H. Joseph, the vice chairman and chief executive, did not specify profits, but noted that they would reach record levels.

Industry analyst Perrin Long estimates Drexel's profits at $280 million to $300 million for the year, based on a net profits-to-revenues ratio of about 12%.

"They have done very well over the last couple of years with their junk bonds and their mergers and acquisitions [activity]. They've always been a high-quality firm," Mr. Long said.

During the year, Drexel boosted its capital base to more than $900 million, of which more than 75% -- or at least $675 million -- is equity. Entering 1985, according to Mr. Long, the firm had total capital of $561 million, of which $415 million was equity. Staffing increased in 1985 to nearly 8,000 employees from 6,500 the previous year.

In the memo, the Drexel officials attributed their banner year to a combination of a strong equity market, lower interest rates, and "our emergence as the primary source of funds to finance leveraged buy-outs, acquisitions, and corporate financings boht private and public."

Drexel is the dominant underwriter of so-called junk bonds, high-interest securities issued by lower-than-investment-grade companies. These securities have become a major corporate financing vehicle in takeovers and leveraged buyouts. …

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