You've heard of the term "death by 1,000 cuts." It refers to an old Chinese execution method whereby the condemned received 1,000 little cuts, which cumulatively were lethal.
This seems a fairly agonizing way to die.
I was reminded of the death by 1,000 cuts when I came across two pieces of news this week regarding Marsh & McLennan
New management seems up to the task of cleaning things up, but the fallout, the hits to shareholder equity and earnings power at the company, keep coming. On Tuesday Marsh announced that it was halving its dividend, getting rid of unprofitable clients, and slashing more than 2,500 jobs. Marsh also announced that it was spinning out its private equity arm, MMC Capital, to its managers.
The decision to cut the dividend ends a streak of uninterrupted dividend increases at Marsh that spanned more than four decades. But the reality for Marsh is that it has to make up for revenues that it has lost from ceasing to accept commissions from insurers for placing business with them, a practice that netted the company more than $800 million in extremely high-margin revenue in 2004.
That's 2004's scandal; 2003's scandal was Marsh subsidiary Putnam allowing big money investors to market-time some of its funds by letting them buy at prices that were out-of-date, scalping a penny or two per share in the process. Do that in a large enough scale thousands of times and you've got a pretty good return.
Putnam agreed last April to pay $110 million in fines and restitution to settle fraud charges. The agreement had a built-in provision that Putnam's fines would be larger if an independent consultant determined that damages to investors were larger than assumed at the time. Yesterday that verdict came in: They were quite a bit larger. As such, Putnam will pay an additional $83 million, bringing the total to $193 million. Of that amount, $153 million will be distributed to investors harmed by the activity.
So will there be a cut 183? Yeah, I suspect there will be, as new CEO Michael Cherkasky continues to restructure and exorcise the company, and as the New York Attorney General continues to subpoena folks in the insurance business. But there will be nowhere near the 1,000 that would be necessary for this to be a potentially fatal outcome for Marsh & McLennan. As such, after all the pains the company has endured, what's coming out on the other side looks pretty strong and viable indeed.