USF&G slashes dividend, posts big 4th-quarter loss

February 28, 1991|By Peter H. Frank

USF&G Corp., slashing its dividend further and promising additional layoffs, said yesterday that it lost a record $610 million in the final three months of 1990.

The announcement marked the latest round in a 4-month-old corporate retooling at the financially troubled company as it confronts a stubborn downswing in its property and casualty insurance operation and a painful loss of value in its real estate and "junk" bond holdings.

The big Baltimore-based insurance company said $130 million of the fourth-quarter loss stemmed from its insurance and financial-services businesses, the remainder from various investment losses and expenses related to the corporate restructuring.

"USF&G has taken a series of decisive actions to significantly strengthen our balance sheet, sharpen our business focus and lower our cost of doing business to enable us to be a vigorous competitor in our markets," Norman P. Blake Jr., USF&G chairman and chief executive, said in a statement.

"These actions are based on a comprehensive review of our business strategy, asset base and all aspects of our operations, which have been the focus of several internal task forces over the past three months," said Mr. Blake, who joined USF&G in late November.

Mr. Blake said the company had further decided to "discontinue several of its operations, including leasing, travel services and other non-core businesses." He did not elaborate except to say the areas that will be abolished lost $108 million last year, including a one-time $68 million expense in the fourth quarter.

In addition, the company said it had again slashed its quarterly dividend, this time to 5 cents a share, and reaffirmed that additional "significant" layoffs were coming. Nearly four months ago, USF&G cut its dividend to 25 cents a share from 73 cents, and last month it eliminated 900 of its 11,800 jobs.

For the final quarter of 1990, USF&G lost $610 million, or $7.32 a share, in contrast to earnings of $104 million, or $1.20 a share, during the same period in 1989. The fourth-quarter loss resulted in a loss for all of 1990 of $569 million, or $6.99 a share, in contrast to earnings of $119 million, or $1.24 a share, in 1989.

Revenue for the quarter fell to $1.17 billion from $1.22 billion during 1989's fourth quarter. The company had revenue of $4.5 billion in all of 1990, compared with revenue of $4.7 billion the year before.

Analysts said yesterday that the company was expected to lose money in the fourth quarter but that the magnitude of the loss and the dividend cut was surprising.

"Most people were expecting that Mr. Blake, who has a strong reputation as a cost-cutter, would certainly address up front a lot of these problems," said James F. Guenther, who follows USF&G as vice president at Duff and Phelps in Chicago. "I think Mr. Blake has made a statement, and it's one that should serve to improve the credibility of the organization."

USF&G's stock fell $1.75 a share yesterday to close at $8.75 on the New York Stock Exchange. It was the eighth most actively traded stock on the Big Board.

Beneath the figures driving yesterday's earnings statement were business decisions that including getting rid of $1.17 billion worth of junk-bond holdings, real estate holdings and common stocks. At the end of last year, USF&G said it held for sale $750 million in common stock, $264 million in high-yield bonds and $152 million worth of real estate.

In all, USF&G has investments of about $11.2 billion and total assets of $13.9 billion. The company's stockholder equity was $1.2 billion at the end of 1990, down from $2 billion a year earlier.

"As we went through the evaluation over here in the last several months, one of the things we focused on was how to improve the balance sheet," said Edwin G. Pickett, the company's executive vice president and chief financial officer. "We feel that as a result of these actions that we have significantly improved the stability of this balance sheet and the strength of the organization."

One of the concerns of the company, Mr. Pickett said, was that the volatile nature of its investments was causing a key financial ratio to fluctuate, leading to a number of operating problems. Insurance companies are expected to maintain a surplus level -- a financial cushion required by regulators -- that is equal to no less than one-third the amount of premiums written each year.

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