CEO quits targeted insurance brokerage

Marsh & McLennan chief leaves 11 days after suit

Spitzer's ex-boss takes over

October 26, 2004|By BLOOMBERG NEWS

NEW YORK - Jeffrey W. Greenberg, chief executive of Marsh & McLennan Cos. Inc., resigned yesterday, 11 days after New York Attorney General Eliot Spitzer accused the company's subsidiary of rigging insurance prices and taking kickbacks.

Greenberg ran the world's largest insurance brokerage for five years. He was replaced by Michael G. Cherkasky, the head of Marsh Inc., the Marsh & McLennan subsidiary that is the focus of accusations of misconduct.

Cherkasky, the former head of Kroll Inc., the risk consultant Marsh & McLennan bought in July, was Spitzer's boss at the Manhattan district attorney's office more than a decade ago.

He was promoted to head Marsh Inc. after Spitzer filed his lawsuit against the firm Oct. 14.

"It is now time for the company to move forward to resolve the issues confronting it," Marsh & McLennan directors said in a statement.

Spitzer's investigations have wrested $4.4 billion in penalties from mutual funds and Wall Street banks. Marsh & McLennan, based in New York, has lost two-fifths of its market value since the suit by Spitzer, who refused to negotiate with the company's current management.

Marsh & McLennan's shares fell 37 cents to close at $26.42 yesterday on the New York Stock Exchange.

Cher- kasky, 54, joined Kroll in February 1994 after serving in the Manhattan district attorney's office, where he was chief of investigations and where Spitzer was among his lieutenants.

In 2001, he became CEO of Kroll, which provides security services, background checks and crisis consulting. Stephen F. Cooper, chairman of subsidiary Kroll Zolfo Cooper LLC, has been interim CEO of Enron Corp. since 2002, overseeing the energy company's bankruptcy.

"Mr. Cherkasky is a person of real integrity," Darren Dopp, a Spitzer spokesman, said Oct. 14, the day Cherkasky was appointed to run Marsh Inc., Marsh & McLennan's flagship subsidiary, which provides brokerage and risk consulting services.

Insurance dynasty

Greenberg's departure is a blow to an insurance dynasty that includes his father, Maurice R. "Hank" Greenberg, who is chairman and chief executive of American International Group Inc., and his brother, Evan, who runs ACE Ltd., a Bermuda-based insurer.

The three companies represent 40 percent of the market capitalization of the S&P 500 insurance index even after Marsh & McLennan's tumble.

As CEO, Jeffrey Greenberg doubled Marsh & McLennan's net income to $1.54 billion in 2003 from $726 million in 1999, while expanding revenue to $11.6 billion from $9.16 billion. He didn't return phone calls over the past several days to his New York home.

The investigation has been the most damaging of many regulatory probes targeting Marsh & McLennan.

CEO ousted

Putnam Investments, the company's mutual-fund unit, forced out Lawrence J. Lasser as CEO last year after investigations spearheaded by Spitzer and Massachusetts regulators uncovered trading abuses.

Spitzer's civil suit accused Marsh Inc. of colluding with insurers to rig bids and simulate competition.

Marsh also had an entire business unit dedicated to collecting fees from insurers that Spitzer said represented "payoffs" and were a conflict of interest with brokerage's duties to its clients.

Fees eliminated

Marsh Inc. eliminated the fees the day after Spitzer's civil suit was filed, a step that will probably cut Marsh & McLennan's profit next year by 28 percent, or 95 cents a share, said Prudential Equity Group analyst Jay H. Gelb, who also factored in lost clients.

The payments contributed $845 million to revenue in 2003, a year in which the company had net income of $1.54 billion. Spitzer said Marsh & McLennan should disgorge the money to clients.

Jeffrey Greenberg began his insurance career as a Marsh broker in 1976, then joined his father's company two years later and spent 17 years at AIG.

He resigned as executive vice president of AIG in 1995, less than two weeks after his younger brother, Evan, was given the same title. He joined Marsh & McLennan's investment arm four months later. He has been CEO since 1999.

Some investors said Greenberg's departure wouldn't be enough to revive Marsh & McLennan's fortunes.

"I just don't know if it matters," said Anton V. Schutz, who manages the $225 million Burnham Financial Services Fund. The stock is "too treacherous to own."

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