(FORTUNE Magazine) – What brokerage house is going to pay the largest fine in securities industry history, yet still claims it will wind up booking a tiny profit? You guessed it, Drexel Burnham Lambert. The company has been quietly setting aside reserves for two years with which to pay the great bulk of the $650 million in government fines, and a Drexel source says the beleaguered broker will take the hit in the last quarter of 1988. ''For the full year income was up substantially from 1987's net of $130 million,'' says the source, ''and even after the penalty Drexel expects to be in the black.'' Being in the black is not quite the same as being in the clear. Drexel is privately held and discloses only limited financial information. But the firm's profit margins have slipped, declining from 13% in 1986 to 4.1% in 1987. They recovered only slightly, to 5.7%, in the first half of last year, when Drexel earned $110 million on revenues of $1.9 billion. (Drexel sources say the firm had a much better second half.) Jeffrey Bowman, a brokerage analyst at Standard & Poor's, which rates Drexel's commercial paper, believes that the pinch has come from legal fees -- which a Drexel source puts at $200 million -- as well as the reserves set aside for the fine, and lower investment banking revenues. Drexel no longer enjoys the junk bond monopoly that it used to, although it still garners 43% of the underwritings. The supreme test of how well Drexel gets through its guilty plea to six felony counts and its settlement with the Securities and Exchange Commission will come early next year. That's when the firm will pay its bankers the bonuses they earned in connection with the giant RJR Nabisco financing. Big recipients like Leon Black and Peter Ackerman could take their money and run. Both reportedly threatened to resign over the settlement that CEO Frederick Joseph negotiated with former U.S. Attorney Rudolph Giuliani. They think their friend and partner Michael Milken, who virtually invented the junk bond business that propelled Drexel to the top rank of U.S. underwriters, got a raw deal. As part of its plea, Drexel agreed to fire Milken, withhold his salary and bonus for 1988, and assist the government in any case against him. Black is the son of Eli Black, the head of United Brands Co. who committed suicide 14 years ago by jumping from Manhattan's Pan Am building after United Brands disclosed that it had paid bribes to the Honduran government. Leon Black is a Drexel director and heads the mergers and acquisitions department in New York City. Ackerman, who has a Ph.D. from the Fletcher School at Tufts University, runs the high-yield capital markets group in Beverly Hills. Both worked on KKR's successful $5 billion offering of increasing-rate notes in the RJR Nabisco deal. Drexel says the men will stay. Money was the glue binding Milken's Beverly Hills operation and Joseph's Manhattan outfit. Yet many of those who work in junk bonds cannot forgive the people they refer to as ''Drexel East'' for selling Milken out. ''Most of the people on the board who supported the settlement were made rich by Michael Milken,'' says a Beverly Hills loyalist. ''All they cared about was preserving their capital. They are nonproducers. Why should we, the producers, stick around to tote their baggage?''