Marsh & McLennan Cos. announced plans to lay off 3,000 workers as its profits nosedive and it prepares for a potentially costly settlement related to bid-rigging charges.
The company said it has set aside a $232 million settlement reserve, which hurt third-quarter profits, the Wall Street Journal reported. Earnings dropped 94 percent to $21 million, or four cents a share, compared with $357 million, or 65 cents a share, a year earlier.
A tentative $40 million settlement between its Putnam Investments unit and the Securities and Exchange Commission would settle allegations of improper disclosure of how Putnam allocates its portfolio trades. The settlement further depressed results because it isn't tax-deductible, pushing up Marsh's tax rate.
The embattled firm is struggling to recover from a civil suit filed Oct. 14 by New York Attorney General Eliot Spitzer, who alleges that the insurance brokerage Marsh Inc. rigged bids for insurance contracts and directed business to firms that paid Marsh contingent commissions.
The practice of collecting the commissions, which Spitzer compared to kickbacks, has been stopped. Even so, stock prices have fallen more than 40 percent and several high-ranking executives have been forced out. Marsh Chief Executive Jeffrey W. Greenberg stepped down.
The announcement of the job cuts came a day after two executives from Marsh Inc. were forced to resign. Roger E. Egan, the president and chief operation officer, and Christopher M. Treanor, the chairman of Marsh Inc. and the chief of Global Placement, left the company on Monday.
"These management decisions were difficult and were not based on any suggestion of culpability," Michael Cherkasky, president and chief executive officer of Marsh and McLennan Cos., said in a written release. "However, at the end of the day, Mr. Egan and Mr. Treanor were accountable for the areas of the business that have been the focus of investigations...and, therefore, we thought it was appropriate to make these changes."
The 3,000 job cuts, which amount to about 5 percent of the firm's staff, would contribute to $400 million in expected annual savings. About three-quarters of the job cuts will come from Marsh Inc.