3000 MMC Layoffs Announced; 3 More Execs Exit

3000 MMC Layoffs Announced; 3 More Execs Exit

By Mark E. Ruquet

NU Online News Service, Nov. 9, 3:29 p.m. EST?Marsh & McLennan Companies announced today it will be laying off 3,000 employees in the wake of the insurance brokerage scandal over contingency fee commissions.[@@]

Yesterday the president of Marsh Inc., the MMC brokerage unit and two other executives were asked to step down.

New York-based MMC said Roger E. Egan, president and chief operating officer of Marsh, and Christopher M. Treanor, Marsh's chairman and chief executive officer of Global Placement, were asked to step down. In addition, William L. Rosoff, senior vice president and general counsel for MMC, has resigned.

All three will help with their replacements, MMC said.

Mr. Egan is to be replaced by Peter F. Garvey, president and chief executive officer of Marsh's North American Operations, and William A. Malloy, president and CEO of Marsh's Europe and Middle East Operations. Both were promoted to co-president of Marsh.

Philip V. Moyles Jr., chairman of Client Development-North America, was promoted to executive vice president of Marsh Inc.

This would make a total of seven executives who have been let go since New York Attorney General Eliot Spitzer announced a suit against MMC charging its brokerage operation was guilty of bid-rigging and other manipulation of insurance contract placements in return for payoffs labeled Market Service Agreements, a form of contingency fee commission based on account volume.

During an investor's conference call, Michael G. Cherkasky, president and CEO of MMC, and chairman and CEO of Marsh, said that the removal of the three executives was not a reflection of guilt.

"Freedom from criminal culpability is not our standard [for management] at MMC," he said. "The issues that surfaced over the last few weeks have occurred under the stewardship of these executives. Such leadership is not up to the MMC or Marsh standards of care and I have therefore replaced them."

He said that MMC's internal investigation has not unearthed any evidence of extensive acts of bid-rigging or other illegal activity and added, "I'm cautiously optimistic that it is confined to a limited area" of Marsh. He said the internal probe should be completed by the end of next week.

The company also announced it would be eliminating approximately 3,000 positions, or about five percent of its staff, on a global basis. The move comes as the company begins restructuring its finances after announcing it would no longer accept any form of contingent commissions that accounted for about $845 million in earnings last year, or 7 percent of its income.

MMC said three quarters of the personnel cuts will hit its Marsh division.

Mr. Cherkasky said that the cuts would primarily come in management and redundant support positions to create a "flatter organization." He added that the aim of the cuts would not be directed at the "face to face" operations with clients.

"We want to keep costs consistent with revenues," he said.

"We can and will re-engineer this company to keep our best employees, our clients, and provide an appropriate return to our shareholders," he remarked.

The company set aside $232 million in reserve in the quarter for use in settling the New York attorney general's lawsuit. MMC also announced a $40 million settlement with the Security and Exchange Commission over its Putnam unit's alleged mutual fund non-disclosures to clients.

MMC said it expects to take a pre-tax $325 million restructuring charge over the next six months.

The company said it also expects that elimination of certain discretionary spending and the elimination of positions will result in an annual cost savings of $400 million.

For the third quarter of this year, MMC reported net income was off $336 million, or 94 percent, going from $357 million, or 65 cents a share, to $21 million, or 4 cents a share. Revenues rose 5 percent, or $132 million, from less than $2.84 billion to less than $2.97 billion.

For the nine months, net income dropped 27 percent, or $309 million compared to the same period last year, going from less than $1.2 billion, or $2.12 a share, to $856 million or $1.60 a share. Revenues during the period increased eight percent, or $661 million, from less than $8.6 billion to more than $9.2 billion.

Sandra Wijnberg, MMC chief financial officer and senior vice president, said during the conference call that while MMC has $700 million in cash on hand, it seeks to improve its liquidity and plans to announce a new multi-year credit facility soon, but would give no additional details other than the agreement would be completed before year's end.

The revenue increases came on an 8 percent increase in revenues from Marsh, from $1.64 billion to $1.77 billion in the third quarter, and 11 percent revenue increase at Mercer, from $690 million to $766 million. Putnam's revenues fell 16 percent in the third quarter, from $507 million to $429 million.

However, earnings at Marsh reflected softening in the marketplace as domestic and European services showed flat to declining revenues. The performance was helped by Kroll, MMC's recently acquired risk consulting and technology services arm, which more than doubled its earnings in the quarter.

While revenues continued to see declines at Putnam, the investment firm is controlling expenses, cutting its workforce by 11 percent to date. Ms. Wijnberg said Putnam has a new agreement with trustees over transfer agency fees. Fees will now be fixed instead of on cost reimbursement.