Posted on 03/01/2005 7:52:19 PM PST by zarf
By Aleksandrs Rozens
NEW YORK (Reuters) - Insurance broker Marsh & McLennan Cos (NYSE:MMC - news) on Tuesday posted a quarterly loss related to charges from a settlement of a bid-rigging scandal, and cut its dividend by half while warning of more job cuts.
The world's biggest insurance broker said an ongoing restructuring of its business could result in the loss of another 2,500 jobs, pushing recently announced layoffs to 5,500.
In a conference call with investors, the company also said it plans to spin off its MMC Capital private equity unit, which runs the $3 billion Trident Funds operation, to a team of MMC Capital employees. But it said it will not sell its Putnam Investments or Mercer consulting units.
Marsh, which has a worldwide work force of about 60,000, said the new round of job cuts is expected to result in annual savings of more than $375 million.
The latest round of cuts -- which Chief Executive Officer Michael Cherkasky told investors he expects will be the end of such reductions -- is likely to be focused on the company's brokerage unit, Marsh Inc., which employs 40,000. The job cuts announced in the fall were companywide.
The dividend cut, to 17 cents a share down from 34 cents, would reduce the company's annual payout by close to $360 million, based on 529 million shares outstanding as of the fourth quarter.
The New York-based company reported a fourth-quarter loss of $676 million, or $1.28 a share, compared with a profit of $375 million, or 69 cents a year, a year earlier.
Cherkasky in a statement forecast profitable growth next year "with an operating margin in the upper-teens, and with the opportunity for further margin expansion."
Some analysts said the cost-cutting plans were a positive move.
"The fact that we will have $375 million of cost savings and recoup a meaningful portion of the lost revenues, the contingent commissions, gives reason for optimism," said Alain Karaoglan, an analyst at Deutsche Bank. "Earnings in the $2.50 to $3.00 a share range by 2006 are realistic. On the negative side, the dividend was cut and debt outstanding increased."
Contingent commissions refers to fees that Marsh received in 2003 for steering more business to brokers. Marsh has since scrapped those fees.
Marsh and McLennan's consolidated revenue fell 1 percent to $3 billion. Revenue of Putnam Investments, the company's money management business that last year settled federal and state charges of improper trading, fell to $421 million from $554 million.
In October New York Attorney General Eliot Spitzer sued Marsh & McLennan, accusing it of rigging bids and fixing prices, while steering business to insurers that paid the highest placement fees.
In January, Marsh agreed to pay $850 million to settle the suit, in line with placement fees it collected in 2003, and to change its business practices. Marsh took a pretax charge of $618 million in the fourth quarter for the settlement, in addition to a $232 million charge taken in the third quarter.
The company also took a $337 million restructuring charge in the fourth quarter.
Marsh said that under its plans to spin off MMC Capital to a group of employees, Marsh will continue to be the largest investor of capital but will not have direct ownership of MMC Capital or involvement in investment decisions or company management. MMC Capital's Trident Fund invests in the insurance, employee benefits and financial services industries.
The company said it will pay a quarterly dividend of 17 cents a share on March 30 to shareholders of record as of March 15.
Marsh shares rose 35 cents, or 1.07 percent, to close at $33 on the New York Stock Exchange (news - web sites).
Dogcrap indeed does flow downhill. Some are blaming Spitzer, saying this is what happens when crusaders like him stick their noses in somebody else’s business and spoil all the fun.
These suckers should be doing jail time and taking it up the pie hole.
sell while you still can.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.