Disappointing second-quarter results will not force Marsh & McLennan Cos. to break itself up, the scandal-plagued company's president and chief executive officer said.
"I think it's still too early in the recovery process for us to discount what I think are the substantial advantages of being one company," Michael G. Cherkasky, who took the reins at the New York company in October 2004, said Thursday in a conference call with analysts.
But Mr. Cherkasky called the period "the first quarter of the six I'm disappointed we didn't do better."
Marsh said its net income rose 3.6% from a year earlier, to $172 million, in part because of cost-cutting measures. But earnings per share of 31 cents fell 8 cents short of the average projection of analysts surveyed by Thomson First Call.
By midafternoon Thursday the stock had dropped 7.4% from Wednesday's close, to $24.90 a share.
Revenue from Marsh's risk and insurance services unit fell 4.9%, to $1.35 billion, because of falling insurance prices and lost business in Europe. Revenue from Putnam Investments, the company's Boston mutual fund unit, dropped 10% as average assets under management fell 2.8% from the first quarter and 6.3% from a year earlier, to $185 billion.
Jon Balkind, an analyst at Fox-Pitt, Kelton Inc., called the earnings a "fairly sizable disappointment."
David Anthony, an analyst at Argus Research Co., said talk in the investor community of selling parts of Marsh had centered on Putnam.
"Everybody's been trying to get rid of Putnam," he said.
However, owners of insurance company stocks have traditionally been patient investors, Mr. Anthony said, and there is little precedent for "unfriendly actions" in which the investors would force dramatic moves.
Marsh's stock price has fallen by nearly half since 2004, when New York Attorney General Eliot Spitzer charged the company with rigging bids, fixing prices, and using hidden incentive fees to steer property/casualty insurance contracts.
Early last year, Marsh agreed to pay $850 million of restitution and change its commission practice; that change has lowered its revenue.
Putnam has been hurt by scandal as well. In 2003 federal and state authorities charged the company with allowing market timing in its funds.
Mr. Cherkasky said Marsh has passed through a "crisis" phase and a "stabilization" phase, and it is now entering a "growth" phase.
Responding to an analyst's question about whether the company is in a position to buy back stock to boost share prices, he said that Marsh's priority has been paying down $300 million of debt in the last 12 months.
This fall it also plans to conduct training programs that will cost "tens of millions of dollars," Mr. Cherkasky said. "We're going to invest in those key things that make a difference for us in the future."
Marsh will not bow to pricing pressures in the United States, he said. "This company is not competing on price to retain revenue."
Given the market conditions in the quarter, Putnam met expectations, according to Mr. Cherkasky. Marsh attributed $2.8 billion of the unit's $6 billion of net redemptions to the end of an alliance with an Australian partner. Institutional net flows turned positive in the first quarter, he said, and Marsh expects net flows to be neutral by yearend.
"That will be real progress," he said.
