A Cloud Over Xerox

Xerox Corp. faced catcalls on Wall Street 10 years ago for aggressively buying up financial-services companies. But by 1986, its mix of insurance, mutual funds, and real estate businesses contributed nearly half of Xerox's profits, a nice balance to the office-machine business, which was taking a pounding from the Japanese.

Now, the investment community is carping again. On Oct. 27, Xerox reported third-quarter results below analysts' expectations as problems at its Crum & Forster Inc. insurance unit offset steady growth in sales of new copiers and laser printers. Xerox earned $135 million, an 11% gain over the comparable 1991 period, on a 4.9% gain in sales, to $4.5 billion.

ON THE BLOCK? Xerox said it was putting $444 million of new capital into Crum & Forster to shore up a balance sheet battered by losses from Hurricanes Andrew and Iniki. The money is coming from capital gains from the insurer's bond portfolio. But Xerox warned that problems might continue to plague Crum & Forster in the fourth quarter. That uncertainty, plus the potential for further restructuring in the financial-services business, led Moody's Investors Service to downgrade the rating of a Crum & Forster subsidiary and place under review some $6 billion of Xerox debt.

Xerox may be cleaning up Crum & Forster's bond portfolio to make a sale of the unit more attractive. While Xerox officials would not comment on that possibility, the company has been aggressively casting off its financial-services units. In early October, it announced the sale of its Van Kampen Merritt Cos. money management operation to Clayton Dubilier & Rice for $360 million. Xerox will realize about $100 million on the sale, expected to close early next year. In 1991, Xerox pared $1.4 billion more in financial-services businesses.

Shedding the insurance operation would allow Xerox to focus on its more profitable office-automation business. Although financial services contributed one-third of Xerox's 1991 revenues of $13.8 billion, they accounted for only 3% of profits. And Xerox is gaining good notices for its new business machines based on digital technology. They might win some applause on Wall Street, too.

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