NEW YORK (CNN/Money) -
Marsh & McLennan Cos., the leading insurance broker charged with cheating its customers, said Tuesday it will cut about 3,000 jobs, or roughly 5 percent of its worldwide staff.
The company's earnings tumbled 94 percent as the result of a settlement with the Securities and Exchange Commission. Also contributing to the lower earnings forecast was a cash reserve the company set aside to cover other pending charges. Marsh & McLennan posted a profit of 4 cents per share in the third quarter compared to 65 cents per share a year earlier.
The job cuts are needed because of expected declines in revenue, the New York-based company said. Three-quarters of the cuts will come from its Marsh Inc. risk and insurance services unit, and other cuts will affect its Putnam Investments mutual fund unit and its Mercer human resources consulting unit.
"This is a crisis that is being actively managed," Chief Executive Michael Cherkasky said on a conference call, cited by Reuters. "We're cognizant of the dangers of the new business model. We need to create a flatter, more efficient organization." But he added that "the sky is not falling."
The company said it had reached a $40 million settlement agreement with the SEC regarding its Putnam mutual fund unit.
It also set aside $232 million for any settlement agreement with New York Attorney General Eliot Spitzer, who in October filed a civil complaint alleging bid rigging that led to the resignation of CEO Jeffrey Greenberg.
Prior to taking over as CEO from Greenberg, Cherkasky had run Marsh Inc., a risk and insurance services subsidiary of Marsh & McLennan. He was once Spitzer's boss as the New York County district attorney's investigations chief.
On Monday, Marsh removed two senior Marsh Inc. executives linked to practices Spitzer is probing -- President Roger Egan and global placement chief Christopher Treanor.
Neither was accused of wrongdoing, but Cherkasky said "freedom from criminal culpability is not our standard." Marsh's general counsel also stepped down.
Shares dip
Shares of Marsh & McLennan (Research), which have lost more than 40 percent since Spitzer's lawsuit was announced, slipped as much as 3 percent in the first half of Tuesday's trading before regaining some to trade 0.7 percent lower in the afternoon.
"MMC has acted quickly and decisively to address legal and regulatory issues and restore confidence in the company," the company's statement said. "We are examining all parts of the company's cost structure to identify areas where expenses can be reduced appropriately.
"Unfortunately, we must also adjust staff levels based on the realities of the marketplace and our current situation," it added.
The staff cuts will result in restructuring charges of approximately $325 million during the next six months, though that did not affect third-quarter results. The company said reduction of certain discretionary expenses and the staff cuts should result in annual cost savings of approximately $400 million when fully implemented.
The world's No. 1 insurance broker, based in New York, said net income fell to $21 million, or 4 cents per share, from $357 million, or 65 cents, a year earlier. The drop is a 94 percent decrease.
The company took the charges in the third quarter, even though it ended Sept. 30, two weeks before Spitzer's lawsuit. It said that the charge for the reserve reduced earnings per share by 27 cents, while the SEC settlement reduced earnings by another 7 cents.
It also said earnings were hurt by the decline in market services revenue and an increase in the tax rate. Those two items collectively reduced EPS by 21 cents a share.
Excluding the reserve and SEC settlement charge, the company earned 38 cents a share in the quarter. It wasn't immediately clear which items would be excluded by analysts for purposes of comparison to their forecasts, however.
Analysts surveyed by earnings tracker First Call had a consensus forecast of 67 cents, so the company missed forecasts, even if all reductions in earnings outlined by the company were excluded.
Revenue at the company increased 5 percent to $3 billion during the quarter.
-- Reuters contributed to this story.
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