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Heard on the Street: Reliance’s Saul Steinberg, 56, Boasts of Gains By Firm as He Recovers

December 6, 1995

Heard on the Street: Reliance’s Saul Steinberg, 56, Boasts of Gains By Firm as He Recovers From a `Mild Stroke’

Saul Steinberg, the 1980s corporate raider, is facing two big challenges: nursing his company, and himself, back to good health.

``I’m just now getting the use of my left arm and hand back,″ the 56-year-old chairman of Reliance Group Holdings says in a recent interview at his New York office, five months after suffering what the company has described as a ``mild stroke.″ He still receives several hours of daily physical therapy.

Wearing black tennis shoes, he stands and slowly paces across the room to demonstrate that he can walk without a cane. He concentrates intensely, like a beginning gymnast on a balance beam. His younger brother Robert, Reliance’s president, sits nearby, encouraging him. ``He was never a fast walker,″ he offers by way of explaining the chairman’s halting gait.

The Steinbergs would rather talk about Reliance’s corporate recovery. Indeed, the company didn’t acknowledge the stroke until it was reported by CNBC-TV a month after the fact. And that reluctance to readily disclose the news, some say, is one of a series of reasons why many investors hesitate to give the insurance operations full credit for improved performance.

Mr. Steinberg’s Reliance Group, a seller of property-casualty insurance to corporate customers, has posted strong and consistent earnings in recent quarters. The company has picked up some fans on Wall Street, such as the Dreyfus unit of Mellon Bank, which has acquired more than 1.2 million shares. And its stock price is up more than 85 percent this year thanks partly to falling interest rates that have generally lifted financial stocks.

``The view is Saul Steinberg has mellowed,″ says Max Holmes, a junk-bond analyst at Salomon Brothers. ``He’s running his company more like an insurance company and a little less like a hedge fund.″

Still, shares of Reliance, once the vehicle for Mr. Steinberg’s headline-grabbing runs for companies such as Chemical Banking and Walt Disney, remain below the $10-a-share price tag at which Reliance went public in 1986. The Steinberg family still owns 47 percent. Never a standout operationally, Reliance suffered from two bad investments and fierce competition in the property-casualty field.

And the stock still trades at a lower price-to-earnings multiple than some peers, at about 10 times projected 1996 earnings, compared with an industry average of about 11.4. Alan Levin of Standard & Poor’s Ratings Group says Mr. Steinberg retains a reputation for having ``a pretty significant tolerance for various forms of financial risk″ in an industry that generally eschews heavy debt, junk bonds and common stock.

Mr. Steinberg says Reliance has pared debt and unconventional asset classes, such as junk bonds and big stock positions, from the days when Reliance was a big client of former junk-bond king Michael Milken, and keeps most of its money in conventional bonds. But Mr. Steinberg retains a fascination for equities, and his current favorites include Internet issues and biotechnology stocks.

On the operations side, Mr. Steinberg decided to restrict sales of thin-margin, commodity-like insurance lines, and also recruited respected, entrepreneurial industry executives. Among their initiatives: selling specialized coverage such as pollution insurance.

``The old strategies aren’t productive now,″ Mr. Steinberg says. ``To create shareholder value, which we’re interested in, you have to have growing operating earnings, not just capital gains.″ He says the company ``gets no credit for capital gains from the stock market.″

Another switch is a more moderate salary for Mr. Steinberg. Once dubbed the $6 million man for high pay despite mediocre results, he says he ``took the biggest pay cut″ in the company about two years ago. ``We got used to paying more than we should have,″ he explains. ``It appeared that we were over-reaching.″

Loren Schifman, who specializes in financial services at Dreyfus, says: ``One can look at the numbers and see it’s there: This is a restructured company.″ Sanford C. Bernstein analyst Weston Hicks rates the stock ``outperform,″ calling Reliance ``a model″ for revamping a property-casualty company.

Why didn’t Reliance disclose the stroke sooner? Mr. Steinberg says he wasn’t involved in the decision. He says ``senior management and outside counsel″ stayed mum based on his doctor’s belief that ``I’d have full recovery.″

Mr. Steinberg says he now likes to work at home, and is thinking of getting a camera for video conferences. ``I find working at home more productive than the office,″ he says, adding: ``The food is good, the paintings are nice and there’s lots of time to think about big issues.″