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Marsh & McLennan's

(MMC) - Get Marsh & McLennan Companies, Inc. Report

third-quarter earnings fell 94% from a year ago, torpedoed by a slew of charges that include a $232 million reserve to cover a possible settlement of Eliot Spitzer's allegations of insurance industry bid-rigging.

The company, which has been under attack from Spitzer on several fronts for a year, also said it would cut 3,000 jobs, or about 5% of its workforce, and forecast pretax restructuring costs of $325 million over the next six months. The company vowed to consider "any modifications" that would help erase the cloud of scandal that first rose over its Putnam Investments unit in 2003 and now clouds its much larger insurance brokerage unit.

Marsh earned $21 million, or 4 cents a share, in the latest quarter compared with $357 million, or 65 cents a share, a year ago. Items in the latest quarter included charges of 27 cents a share for possible regulatory settlements; 16 cents a share for a decline in market services revenue; 7 cents a share related to a settlement at Putnam; and 5 cents a share for a higher tax rate.

Backing out the items, Marsh appeared to earn roughly 59 cents a share on revenue that rose 5% from a year ago to $3 billion. Analysts surveyed by Thomson First Call had been forecasting earnings of 67 cents a share on revenue of $3.03 billion.

The stock fell 60 cents, or 2.2%, to $26.76 in early Tuesday trading.

Three-quarters of Marsh's job reductions will occur in its risk and insurance services operation. The cuts come amid a companywide review of discretionary spending that is expected to result in annual cost savings of $400 million when fully implemented.

"These initiatives will allow us to continue to provide excellent service to clients, make the best use of our global capabilities, and establish a level of profitability that will contribute to maximizing long-term value for shareholders," Marsh said.

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Marsh said it biggest unit -- risk and insurance services -- saw underlying revenue fall 7% from a year ago, reflecting the unclear status of contingent commission fees that are at the heart of Spitzer's probe. Marsh said market services revenue was $46 million in the third quarter, down from $177 million a year ago, in part because the company doesn't know if it can collect many fees that were billed during the period.

"Due to the filing of the New York attorney general's civil complaint, Marsh & McLennan was unable to complete the normal process to verify amounts earned or determine that the collection of these amounts was reasonably assured for certain contracts," the company said. "As a result, Marsh & McLennan did not accrue a significant portion of market services revenue expected from placement activity in the third quarter."

Marsh said "almost all" of the decline in market services revenue in the third quarter is due to the above factors and not to a decline in the amount of business placed.

The company announced late Monday that it fired two executives at its Marsh brokerage subsidiary. The departing executives are Roger Egan, president and chief operating officer, and Christopher Treanor, chairman and chief executive of the firm's global placement division.

The moves come as Marsh continues to deal with the fallout from the insurance industry kickback and bid-rigging scandal. Last month, New York Attorney General Eliot Spitzer filed civil fraud charges against Marsh & McLennan and effectively forced the resignation of Jeffery Greenberg, the chief executive.

Within days of the lawsuit's filing, Greenberg resigned. Replacing him was Michael Cherkasky, a former colleague of Spitzer's and a top executive at Kroll, the corporate investigative firm that Marsh acquired this summer.

Cherkasky and the Marsh board have been scrambling the past few weeks to salvage the company's reputation and reach a settlement with Spitzer. The company fired five other executives who've been implicated in the mushrooming scandal.

"These management decisions were difficult and were not based on any suggestion of culpability," said Cherkasky. "However, at the end of the day, Mr. Egan and Mr. Treanor were accountable for the areas of the business that have been the focus of

the investigations."

In a separate move, the company also announced that William Rosoff has stepped down as senior vice president and general counsel of the firm. It's been reported that Rosoff had a number of run-ins with Spitzer's staff in the days leading up to the filing of the lawsuit.