MMC Posts $210M Loss On Kroll Charge

Marsh & McLennan Companies Inc. posted a $210 million net income loss on a $425 million goodwill impairment charge on Kroll, which plans to sell off several divisions of the risk consulting and technology division.

The New York-based parent company of insurance broker Marsh and reinsurance broker Guy Carpenter, MMC reported today that net income dropped $478 million in the first quarter of this year from net income of $268 million in 2007. This translated in earnings to a loss of 40 cents a share, down 87 cents from the comparative period. Revenues improved 8 percent in the quarter by $235 million to more than $3 billion.

MMC said excluding the goodwill impairment charge, net income would have stood at $215 million, or 41 cents a share, a decrease of $53 million, or 6 cents a share, from the same period last year.

Brian Duperreault, president and chief executive officer of MMC, said when Kroll--part of MMC's risk consulting and technology division--was acquired, the plan was to merge it into Marsh. This has not been done, he said, and the unit has undergone examination to determine what fits into the MMC portfolio.

While most of the business fits, some will be sold off, he said. He mentioned during an analyst's conference call today that some divisions potentially on the selling block are Factual Data Corp., which sells services to mortgage lenders, and its government services business.

The potential sale of some Kroll divisions, plus restructuring charges and integration of other segments, drove the goodwill impairment charge, Mr. Duperreault noted.

Cost containment and staff reductions appeared to be the major theme for promoting revenue growth within MMC. Mr. Duperreault admitted during a question and answer period that MMC is still suffering from the loss of contingent fee revenue.

The company lost the fee revenue in an agreement with the New York Attorney General's Office back in 2005 over allegations of kickbacks and steering of insurance contracts. Related to the agreement, MMC will pay $107 million this June to a settlement fund, completing the payment of $850 million to resolve the legal actions brought by New York.

Mr. Duperreault said he told risk managers at the recent Risk and Insurance Management Society Inc. meeting that while there is no intention to disturb the teams they work with, "we need to get more money from you guys."

Working to gain efficiency and meet the challenges in lost revenue in the reinsurance brokerage segment, Mr. Duperreault said the company is restructuring that segment by eliminating more than 300 positions, or 10 percent of the workforce. This comes at a cost of approximately $30 million and annual savings of $40 million.

"These reductions are being done with great care and precision so it does not affect Carpenter's strength and client capabilities," he said.

Marsh also saw additional head count reductions of 150 positions, said Daniel S. Glaser, chairman and CEO of Marsh. He said retention rates remain high and the firm won significant new business in the past year.

In terms of segment performance, Marsh reported revenue growth of 7 percent, or $85 million, to $1.23 billion. Organic growth grew by 1 percent.

On Marsh's results, Mr. Duperreault said "we know we have a lot of work ahead of us, but we are pleased with the actions we have taken today to generate positive results."

Guy Carpenter saw its revenues in the quarter drop 6 percent, or $19 million, to $273 million, with organic growth dropping 8 percent.

In other segments, consulting reported revenue gains of 15 percent, or $166 million, and risk consulting and technology grew 14 percent, or $24 million, to $259 million.

"We took initial steps this quarter to build a foundation for sustainable growth," Mr. Duperreault said, referring to MMC, which he took over at the helm earlier this year. "It's a start; it's only that. I didn't take this job to be a caretaker. We are overseeing incremental improvement in results. We don't have immodest ambitions."

Reacting to the results, Alain Karaoglan an analyst with Bank of America Securities commended the broker in a note, saying "it's a good start to 2008." He said MMC beat street estimates by 1-cent. The firm said MMC increased its transparency, but asked management to share more information about how it manages its business.

(This story was updated on May 8, at 2:00 p.m. EST)