Marsh & McLennan Cos., the world's largest insurance broker, said Tuesday that its second-quarter profit fell 57% after the company scrapped fees from insurers to settle a lawsuit brought by New York Attorney General Eliot Spitzer.
Net income fell to $166 million, or 31 cents a share, from $389 million a year earlier, the New York company said in an e-mailed statement. Excluding costs for employee retention, regulatory expenses, and other items, Marsh earned 43 cents, exceeding the 41-cent average estimate of analysts surveyed by Thomson Financial.
Marsh & McLennan's brokerage revenue fell 18%, to $1 billion, hurt by the loss of fees Mr. Spitzer had called kickbacks as well as by falling insurance prices, which crimped client commissions. The company's market share could shrink by as much as 15% as employees and clients defect in the wake of Mr. Spitzer's allegations of collusion, said Cliff Gallant, an analyst at Keefe, Bruyette & Woods Inc. in New York.
"A lot of the business is up for grabs, and the business has become extraordinarily competitive,'' said Mr. Gallant, who had given the stock a "sell'' rating before the earnings were released. ``I think it will be mid-2006 before things begin to stabilize.''
Since Mr. Spitzer sued in October, Marsh & McLennan has ousted its former CEO, Jeffrey Greenberg, cut its dividend in half, and trimmed more than 5,000 jobs to reduce expenses. Raising client commissions should recoup about one-quarter of the $600 million of annual fees lost in the United States, chief executive officer Michael Cherkasky said in May.
"It will be very difficult to replace that revenue,'' said Stanley Nabi, a vice chairman at Silvercrest Asset Management Group in New York, which owned about 126,500 Marsh shares in March. "That's why the recovery in earnings is likely to be slow rather than rapid.''
