NEW YORK – Marsh & McLennan Companies Inc. (MMC), the nation's largest insurance brokerage, on Tuesday reported a wider-than-expected loss of $676 million for the fourth quarter as it absorbed a host of restructuring charges, regulatory fines and related expenses.
The New York-based company also announced several steps aimed at cutting costs and raising income following its $850 million settlement of New York Attorney General Eliot Spitzer's (search) bid-rigging and price-fixing probe.
The steps include:
— Halving its dividend to 17 cents for the first quarter.
— Cutting 2,500 workers from Marsh Inc., the risk and insurance services unit that was at the center of Spitzer's investigation.
— Spinning off its MMC Capital private equity unit.
— Stopping its dealings with thousands of small companies that the brokerage considers unprofitable.
— Introducing new, higher commission rate schedules designed, in part, to make up for the incentive fees that Spitzer had targeted as "kickbacks."
Michael G. Cherkasky, president and chief executive officer, told The Associated Press that the moves were aimed at improving the company's performance.
"We're going to be a better and more-profitable and more-efficient company," Cherkasky said. "We're confident this is going to put us in a position that, by the end of '05 and beginning of '06, we'll see appropriate returns for our shareholders."
In afternoon trading, Marsh & McLennan's (search) shares rose $1.08, or 3.3 percent, to $33.73 on the New York Stock Exchange. The company's shares are still significantly below the $46.13 they brought before the Spitzer probe was launched last October.
The New York-based brokerage said its net loss, which translated to a loss of $1.28 a share, compared with a profit of $375 million, or 69 cents a share, for the October-December period a year earlier.
Analysts surveyed by Thomson First Call had expected a fourth-quarter loss of 60 cents a share.
Revenues for the quarter totaled $2.99 billion, down 1 percent from $3.02 billion a year earlier.
As part of its earnings announcement, Marsh & McLennan said it was cutting its dividend from 34 cents to 17 cents, payable on March 30 to shareholders of record as of March 15.
Marsh's plan to lay off more workers follows some 3,000 job cuts that were made across all divisions last fall. The company employed about 60,000 people worldwide at year's end.
The decision to spin off Marsh & McLennan's private equity unit, MMC Capital, aims to eliminate "any appearance of a conflict of interest," Cherkasky told The AP.
MMC Capital manages three private-equity funds that make investments in insurance-related businesses, with assets of about $2 billion. Marsh & McLennan's money represents some 25 percent of the total, and senior Marsh & McLennan executives invested individually in the past.
Cherkasky said that by spinning the unit off, "we can retain the economic benefit for MMC, but do away with that appearance-of-conflict issue by not controlling the investments or owning that company."
In a similar move on Tuesday, JPMorgan Chase & Co. (JPM), the nation's No. 2 bank, announced that it was spinning off its private equity unit.
Asked in a call with financial analysts if the company would consider selling its consulting division, Mercer, or its investment division, Putnam Investments, Cherkasky said: "It's not going to happen."
On Jan. 31, when Marsh & McLennan agreed to pay $850 million in restitution to end Spitzer's investigation, it also pledged to reform its practices in the sale of property and casualty insurance.
The company earlier eliminated incentive fees, also known as contingent commissions or market service agreements. These fees — beyond ordinary commissions — were paid by insurance companies in exchange for having more business sent their way.
On Tuesday, Marsh & McLennan said it was "standardizing" its regular commissions and had distributed new rate cards to insurance companies around the country.
Cherkasky told the analysts that the new schedules were aimed at ensuring that Marsh & McLennan "will be paid fairly for the value we provide to clients." He added that they should also help Marsh & McLennan recoup some of the revenue it no longer gets from incentive fees.
But the move also means that thousands of small, commercial accounts will no longer be profitable, and the company will begin eliminating those customers, Cherkasky said.
Net income for the year was $180 million, or 34 cents a share, down from $1.54 billion, or $2.81 a share, in 2003.
The income figures included a previously announced $618 million pretax charge in the fourth quarter to cover the Spitzer settlement and a $232 million provision taken in the third quarter. Operating income for the full year also was depressed by a $304 million decrease in incentive fee collections.
Revenues for the full year were $12.16 billion, up 5 percent from $11.54 billion in 2003.