Putnam Settlement Weighs on MMC’s Q1 Results

April 22, 2004

Marsh & McLennan Companies, Inc. reported financial results for the quarter ended March 31, 2004. Consolidated revenues increased 13 percent to $3.2 billion from $2.9 billion in the first quarter of 2003. Net income rose to $446 million, and earnings per share increased to $.83.

Profits, however, rose by less than one percent as a result of “Putnam’s previously announced regulatory settlements [$110 million], which are not tax deductible, severance, and expenses related to regulatory issues,” said the company’s announcement.

MMC noted that these deductions from income “were partially offset by the final insurance settlement related to the World Trade Center,” but they effectively reduced the group’s Q1 net income by $59 million and earnings per share by 11 cents. In the first quarter of 2003, net income and earnings per share were $443 million and $.81, respectively.

Chairman and CEO Jeffrey W. Greenberg commented: “We are gratified that Putnam reached settlement agreements with regulators relating to market timing issues, a critical step in restoring investor confidence. We believe the changes that Putnam is making will result in a stronger organization, and we are positive about Putnam’s long-term business prospects.

“MMC’s risk and insurance services business had a good quarter, reflecting Marsh’s ability to deliver services across a wide spectrum of client needs, from transaction execution to advisory services. Mercer continued to expand revenues and profits in the quarter, led by growth in its international operations.”

MMC’s bulletin also noted the following highlights:
— Risk and insurance services revenues in the first quarter rose 12 percent to $2 billion, and operating income increased 14 percent to $637 million.
 Marsh recently completed the acquisition of the Australia and New Zealand operations of Heath Lambert and Alaska’s largest insurance broker Brady & Company, Inc.
— Excluding the effects of foreign exchange, acquisitions, and dispositions, revenues grew 7 percent. On the same basis, risk management and insurance broking, which accounts for approximately three quarters of this sector’s revenues, grew 6 percent; reinsurance broking and services increased revenues 9 percent; and related insurance services grew 11 percent. The recent trend in insurance premium rates continued in the first quarter with declines in property lines and increases in casualty lines.
— Putnam’s revenues in the first quarter increased 4 percent to $461 million, reflecting modest investment gains in the current year, compared to a loss in 2003, as well as increased revenues from its equity investment in Thomas H. Lee. Average assets under management during the first quarter were $234 billion, compared with $244 billion last year. Total assets under management on March 31, 2004 were $227 billion, comprising $157 billion of mutual fund assets and $70 billion of institutional assets. Assets under management were $240 billion at December 31, 2003.
— On April 8, 2004, Putnam reached settlement agreements with the Securities and Exchange Commission and the Office of the Secretary of the Commonwealth of Massachusetts on market timing issues for $110 million of penalties and restitution. Since $10 million was provided in the fourth quarter of 2003, $100 million is included in first quarter results. Also, $25 million of severance as well as $15 million of costs related to regulatory issues were incurred. As a result, Putnam had a $26 million operating loss. Operating income in last year’s first quarter was $103 million.

The report also noted that Putnam sold its 20 percent equity interest in Fineco Gestioni to its joint venture partner in Italy, FinecoGroup, resulting in an investment gain of $25 million, which will be included in second quarter results.

Concerning the WTC, claims, MMC said the final settlement for insured losses totaled $278 million, noting that “the replacement value of assets exceeded book value by $105 million, reducing corporate operating expenses by this amount in the quarter.”

“Cash flow from MMC’s operations continued to be strong. During the first quarter, the company repurchased 7 million shares of its common stock for $330 million and paid $163 million in dividends to shareholders,” the announcment concluded.

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