Marsh & McLennan Cutting 750 Jobs

September 18, 2006

Marsh & McLennan Cos. Inc., the world’s biggest insurance brokerage, said last Friday it will cut 750 jobs, consolidate some locations and revamp its information technology structure to cut costs.

Marsh & McLennan, which has struggled with profitability since it changed operating procedures after New York Attorney General Eliot Spitzer in 2004 accused it of bid rigging, said the actions would save it roughly $350 million a year by the end of 2008.

The 750 job cuts come on top of some 5,000 layoffs Marsh had made previously in the fallout of the Spitzer probe.

It said the plan will result in charges of about $225 million over the next three years. Roughly 15 percent of the charges will be recorded this year, about 55 percent in 2007, and 30 percent in 2008.

Marsh & McLennan said it expects the savings to come in areas including finance, human resources and procurement.

Most of the job cuts will occur in the company’s Marsh insurance unit and Mercer Human Resource Consulting arm, a company spokeswoman said. The New York-based company employs roughly 55,000 workers in more than 100 countries.

None of the cuts will affect Putnam Investments, Marsh & McLennan’s Boston-based mutual fund unit, said Robin Leibowitz, a spokeswoman for the parent company.

Putnam employs more than 3,000. In addition to its Boston headquarters, Putnam has offices in London and Tokyo, and Massachusetts offices in Andover, Franklin and Norwood.

The latest restructuring news comes one month after Marsh & McLennan, which is also the parent of security and risk consulting firm Kroll, reported a tepid rise in second-quarter profit that fell short of analysts’ forecasts.

Restructuring and legal costs hampered the quarter’s results, but revenue in the company’s insurance brokerage unit, its largest business, declined due to weakness in Europe as client defections rose.

Given last month’s disappointing results, the job cuts did not surprise analysts. Cost cuts will allow Marsh & McLennan room to improve profit margins, but will also push back its turnaround by another year, Bear Stearns analyst David Small said.

“Investors may be concerned that Marsh & McLennan’s top-line will continue to lag, as employees worried about their jobs may not be as focused on their clients or new business opportunities as they might otherwise be,” Small wrote.

“This announcement suggests it may not be until 2008 that we will be able to truly understand the profit potential of this company,” he wrote.

Still, investors were pleased with Friday’s news, sending Marsh & McLennan shares up 49 cents, or 1.8 percent, to close at $27.69 on the New York Stock Exchange. The stock hit a 52-week low of $24 on Aug. 3 and is down 12 percent so far this year on a dividend-adjusted basis.

Marsh & McLennan was one of several big insurance brokers that came under regulatory scrutiny by Spitzer in 2004 over charges that it steered business to favored insurance companies in exchange for bigger commissions. In January 2005, it agreed to pay $850 million to settle the allegations.

After its second-quarter results were released in August, the company’s president and chief executive, Michael G. Cherkasky, told The Associated Press that since Spitzer’s investigation, the company has dealt with “get over the crisis” and “stabilization” phases and now was in a growth phase. In an earlier conference call with analysts, Cherkasky said “we knew it was going to take more than 18 months” to recover from the loss of “contingent commissions,” the type of fees that sparked the probe.

The probe led to the departure of former Chief Executive Jeffrey W. Greenberg, the son of Maurice “Hank” Greenberg, who was forced from the top spot at American International Group Inc. due to Spitzer’s probe of the insurance industry.

Marsh & McLennan’s Putnam Investments arm was also among the first mutual fund companies probed by Spitzer for allegedly allowing improper trading of fund shares.

As part of Friday’s announcement, Marsh & McLennan also said it expects savings from various profit enhancement and business process improvements. It also said it would cut costs by selling excess real estate and improving facilities management.

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