Famed investor Warren E. Buffett reiterated his confidence in Salomon Brothers Inc. Monday at Berkshire Hathaway Inc.'s annual meeting here.
Addressing nearly 8,000 people in a sports arena, Mr. Buffett, chairman of Berkshire Hathaway, his publicly traded investment company, said there is a good chance he will convert his sizable bloc of preferred shares into Salomon Brothers stock by Oct. 31.
"The odds are overwhelming that we will convert," said Mr. Buffett, who has had an up-and-down 10-year relationship with the New York securities firm. "We have terrific confidence" in Salomon; "they have helped us through difficult times."
If Mr. Buffett converts his preferred shares into Salomon stock, it would affirm a change of heart since 1995, when he liquidated preferred stock for $140 million in cash instead of converting it into Salomon's common stock.
At the time, the market interpreted the billionaire's action as a loss of faith in the company. Although Mr. Buffett assured investors that he was not negative on it, Salomon saw its stock plummet.
Late last year, Berkshire Hathaway sold a $500 million issue of five- year notes that could be exchanged for some Salomon shares. As underwriter, Salomon sold the issue for $447.1 million.
Each $1,000 note is exchangeable for 17.6 shares and is callable.
Mr. Buffett said he has not made investment banking firms a large part of Berkshire's portfolio. "It is not one of the industries offering the kind of long-term results we are looking for," he said.
Nevertheless in the annual report, he emphasized that he was optimistic about Salomon's performance.
The five-year notes offer a yield of 3% to maturity for holders who do not exchange them for Salomon stock, counting the original issue discount and a 1% coupon, wrote Mr. Buffett in the annual report.
Mr. Buffett has traveled a bumpy road with Salomon. In 1991, he served for a time as its chairman, helping the investment firm regain its balance after revelations of illegal trading activities had cast a pall over the company.
Previously, Mr. Buffett had rescued Salomon in 1987 with a $700 million cash investment that blocked a takeover attempt by Revlon chairman Ronald Perelman and then-prominent junk bond king Michael Milken.
Mr. Buffett offered his investors and a legion of interested fans an unusual thought on the stock market, which he has previously said may be near its peak valuation. He said he pines for more volatility because this "creates more mistakes in the market" and hence more investment opportunities.