Marsh & McLennan Cos., at the center of a bid-rigging scandal rocking the insurance industry, on Tuesday said it will cut 3,000 jobs and reported third-quarter profit sank 94 percent. The job cuts amount to 5 percent of Marsh's work force and are needed because of expected revenue declines, the company said. Three-quarters of the cuts will come from its Marsh Inc risk and insurance services unit.
New York-based Marsh, the world's No 1 insurance broker, estimated it will take $325 million of pretax restructuring charges over six months, but ultimately save $400 million a year.
"We recognise the seriousness of the problems we are facing and are moving quickly to correct them," Chief Executive Michael Cherkasky said in a statement. "Unfortunately, we must also adjust staff levels based on the realities of the marketplace and our current situation."
In an October 14 lawsuit, New York Attorney General Eliot Spitzer accused Marsh of rigging bids and colluding with American International Group Inc and other insurers to fix prices.
Jeffrey Greenberg was ousted as Marsh chairman and chief executive on October 25. Cherkasky had run Marsh Inc and was once Spitzer's boss as the New York County district attorney's investigations chief.
Marsh shares fell 86 cents, or 3.1 percent, to $26.50 in pre-market trading on the INET electronic brokerage system. Through Monday, they had fallen 43 percent this year, compared with a 1 percent drop in the Standard & Poor's insurance index .GSPINSC.
On Monday, Marsh ousted two senior Marsh Inc executives, including President Roger Egan, linked to the practices being investigated by Spitzer. Neither was accused of wrongdoing. Marsh's general counsel also stepped down.
The company set aside $232 million as the "minimum expected liability" for any civil settlement with Spitzer. Individual employees might still face criminal charges.
It also said its Putnam Investments mutual fund unit agreed in principle to pay $40 million to settle US Securities and Exchange Commission charges over its brokerage practices.
"Roger Egan stepping aside was a surprise," said Wayne Bopp, an analyst for Fifth Third Investment Advisors in Cincinnati, whose $34 billion of assets include Marsh shares. "You have to wonder how deep the problems are."
Bopp called the $232 million reserve "a good start" but added, "I would expect them to pay more. The lower number may be a good starting point for negotiations." Marsh said third-quarter net income fell to $21 million, or 4 cents per share, from $357 million, or 65 cents per share, a year earlier.
Per-share profit was reduced by 27 cents for the reserve for regulatory settlements, by 16 cents from lowered market services revenue, by 7 cents for the Putnam settlement, and by 5 cents from a higher tax rate.
Operating income at Putnam fell 60 percent to $55 million, including the settlement.
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