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Marsh & McLennan (MMC)
Marsh Offers $600M to Settle
Marsh & McLennan Companies has offered to pay $600 million to settle the bid-rigging and price-fixing charges leveled against it by New York Attorney General Eliot Spitzer. In a report published today in the Wall Street Journal, "people privy to the talks" added Spitzer's office is seeking $150 million more than that "and a public statement of contrition." Marsh shares rose as much as 6% in early trading.
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On October 14th of last year, Spitzer had launched a lawsuit against Marsh, much of which revolved around "contingent commissions," which are fees that insurance companies such as American International Group paid in exchange for more business from Marsh. The lawsuit was part of an industry-wide probe launched by his office, and has already resulted in the ouster of Marsh Chief Executive Jeffrey Greenberg and several other executives, the appointment of a new general counsel, elimination contingent commissions, and far-reaching changes in the board of directors.
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In response, the world's largest insurance broker offered to pay $500 million as settlement, a figure that was rebuffed by Spitzer. Many analysts believe a settlement of less than $1 billion would be within analysts' and investors' expectations. Marsh has already set aside $232 million to pay for a settlement and has also set up a new $3 billion financing package with leading banks, including Citibank, Bank of America and Deutsche Bank. A settlement would allow Marsh's management to focus on its operations and the future.
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However, the company is uncomfortable with the possible requirement of a statement of contrition, fearing it could make it and certain individuals vulnerable to lawsuits, according to people privy to the talks. In 2003, Marsh raked in $845 million from the contingent commissions, or a total of $1.2 billion in the 18 months ended last June.
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The insurance industry, rocked by scandals, is now witnessing much change. New broker regulations proposed by Insurance Commissioner John Garamendi, following the scandals, are under attack from the industry. Marsh's talks are expected to resume in earnest next week, and it shall try its best to come out of it further unscathed. As Marsh Chief Executive Michael Cherkasky said in November, most clients were waiting to see the outcome of Spitzer's lawsuit before deciding whether to take their business elsewhere. Marsh, Chicago-based Aon Corp., and Willis Group Holdings controlled about 60% of the market last year. Already, Spitzer's probe has lowered their market share, as the industry's basic business model comes under attack. With such a drastic change in the industry in the space of a few months, and with the possibility of Marsh striking a pact as early as next week, the insurance industry will be worth closely following in the next few weeks.
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Profile |
Marsh & McLennan Co's is primarily a holding company which, through its subsidiaries and affiliates, provides clients with analysis, advice and transactional capabilities in the fields of risk and insurance services, investment management and consulting.
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