Fitch Downgrades Marsh & McLennan Again
NU Online News Service, Dec. 20, 9:42 p.m. EST?Fitch Ratings said it has downgraded the senior debt rating for Marsh & McLennan Companies to "triple-B-minus' from "triple-B", citing a material decline in the firm's franchise value and falling brokerage margins.[@@]
Profits could drop steeply over the next 18 months Fitch suggested.
The ratings agency said MMC's long-term and short-term ratings remain at "triple-B" and "F2″, respectively. All ratings remain on "Rating Watch Negative" pending resolution of all matters related to recent suits brought by New York Attorney General Eliot Spitzer, as well as the outcome of Marsh's new business model and operating profile.
Mr. Spitzer is suing the company for punitive damages alleging that its Marsh brokerage unit violated state anti-trust law by rigging bids with large insurers. The suit alleges Marsh took payoffs disguised as incentive fees and commissions for steering business to the insurers.
MMC has announced in the wake of Mr. Spitzer's suit that it will disband all its contingent compensation arrangements.
To date, Marsh's senior debt rating has been lowered five notches and commercial paper rating was cut one notch by Fitch since the civil suit was announced.
But regardless of the ultimate outcome of the suits, Fitch said it believes Marsh will suffer "a material decline in its franchise value" because of these allegations.
Furthermore, Fitch warned that it believes there is a fundamental change in Marsh's operating profile in which the firm will "fade from a superb profit generator."
The ratings agency predicted that Marsh's pretax brokerage margins could drop from the 24-28 percent level historically to as low as 12-15 percent over the next 18 months.
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