M&M Slashes Work Force As More Execs Leave

The move comes as the company begins restructuring its finances after announcing it would no longer accept any form of contingent commissions. Contingent commissions accounted for about $845 million in earnings last year, or 7% of the company’s income. M&M says about 75% of the cuts would come in its Marsh division.

Cherkasky said the cuts would come primarily in management and redundant support positions to create a “flatter organization.” He added that the cuts would seek to avoid affecting face-to-face encounters with clients.

“We want to keep costs consistent with revenues,” he said. “We can and will re-engineer this company to keep our best employees, our clients and provide an appropriate return to our shareholders.”

The company set aside $232 million in reserves in the quarter toward a settlement with Spitzer’s office in the suit. It also announced a $40 million settlement with the Security and Exchange Commission over an alleged mutual fund nondisclosures to clients of Putnam Investments, another M&M unit.

M&M said it expects to take a pre-tax $325 million restructuring charge over the next 6 months. It also expects that cutbacks in certain discretionary spending and the elimination of positions would result in an annual savings of $400 million.

For the third quarter of this year, M&M reported net income was off 94%, going from $357 million to $21 million. Revenues rose 5%, from around $2.8 billion to almost $3 billion.

For the 9 months, net income dropped 27%, from less than $1.2 billion to $856 million. Revenues during the period increased 8%, from less than $8.6 billion to more than $9.2 billion.

Sandra Wijnberg, M&M chief financial officer, said during the conference call that while M&M has $700 million in cash on hand, it is looking to improve its liquidity and plans to announce a new multiyear credit facility soon. She said the agreement would be completed before year’s end but would give no additional details.

The revenue increases came on an 8% increase in revenues from Marsh, from $1.64 billion to $1.77 billion in the third quarter, and 11% revenue increase at Mercer, from $690 million to $766 million. Putnam’s revenues fell 16% in the quarter, from $507 million to $429 million.

While revenues continued to see declines at Putnam, the investment firm is controlling expenses, cutting its work force by 11% to date. Wijnberg said Putnam has a new agreement with trustees over transfer agency fees. Fees will now be fixed instead of on cost reimbursement.