AIG DEAD

I have been writing a lot of these "dead" headlines lately, haven't I?


http://financeinvestments.blogspot.com/2008/09/interesting-day-on-wall-street.html

http://www.ft.com/cms/s/0/271257f2-83f1-11dd-bf00-000077b07658.html?nclick_check=1

AIG Downgrades

AIG downgraded from AA to A. This of course increases the amount of capital they need to raise.

AIG in BIG trouble

May follow Lehman and Merrill into the dustbin of history before too much longer. Shares down 50% to $6 a piece. AIG needs to borrow $40B (their losses over the last three quarters) from the Fed window just to survive. I would be very concerned if the Fed opened their window to an insurer; that's unprecedented.

Cobb County Pension Plan

Citing a $115 million gap in its employee pension fund, Cobb County told workers late Thursday that it wants to alter its pension formula to increase employee contributions and reduce some benefits, among other changes. With about $349 million in assets and about $578 million in obligations, the plan is under-funded by about 40%, one of the worst ratios in the metro area. To meet acceptable standards, it must cut that rate to 20%.

[Thanks to MPC for the link]

Aon buying Benfield

After this deal goes through, the top four reinsurance brokers would be:
1. Aon = $1.615 billion
2. Guy Carpenter = $902 million
3. Willis Re = $606 million
4. Towers Perrin = $156 million

Passed APMV

I just learned that I passed the Society of Actuaries Portfolio Management exam I took on May 9th. Just one more exam to go to earn Fellowship in the Society.

ING buys CitiStreet

As reported in this blog back in February, CitiStreet was on the block. ING closed on its purchase of the company today. Price tag: $900M.

Northrop Grumman Closing Pension Plan

Northrop Grumman will stop offering its cash balance plan to new employees (generally effective 7/1/2008) but instead is moving them into an existing defined contribution plan with a matching contribution. New employees will receive an automatic company contribution of 3% to 5% of base pay per pay period based on age to a retirement account in the Northrop Grumman Savings Plan. Existing employees still have the cash balance plan, but the company is decreasing the pay-based credit component of the payout formula depending on the employee’s age.

HP and EDS discussions complete

Hewlett-Packard will buy EDS for $13.9 billion in a deal that will turn it into a more-formidable rival to IBM but will also likely entail significant job cuts in order to achieve the necessary cost savings. The combination would make HP the second largest global provider of IT services after IBM. Under terms of the deal, H-P will pay $25 a share in cash for EDS and expects the deal to close in the second half of 2008.

Again, I am wondering where ExcellerateHRO measures up in all this.

Edited (6/9/09) to add: Towers Perrin has sold its 15% stake in ExcellerateHRO to HP. I wonder if HP will keep the company as a division of its business or spin it off?

HP and EDS in "advanced discussions"

HP and EDS confirmed that they are in "advanced discussions" that could result in HP acquiring EDS to create a more formidable competitor to IBM. Such a deal could be worth between $12 billion and $13 billion. The news sent EDS shares surging $5.27, or almost 28%, before a halt closed trading at $24.13. The rumored value of the deal would imply a price between $24 and $26 a share for EDS, a level the stock has not traded at since last August. HP's stock fell $2.48, or 5%, to $46.65 [before also being halted, something the story doesn't mention].

Source: MarketWatch

This could be interesting for the HR outsourcing industry. EDS owns 85% of ExcellerateHRO; I doubt this is a business HP wants anything to do with that particular business. I'd wager they will put their interest in ExcellerateHRO on the block as soon after buying EDS as their contractual obligations allow.

Khan Leaves Hewitt - You Heard It Here First

Rohail Khan, Leader of North America Benefits Outsourcing, is no longer at Hewitt. The prediction in this blog that he would be gone within a year turned out to be correct with a margin of error of one week.

Wachovia Fires Hewitt BPO

Wachovia is shifting HR functions that it outsourced in 2005 to Hewitt Associates back in-house or to other vendors. HR head Shannon McFayden said the bank will transition tasks such as payroll, pay-related customer service and human resources technology back to Wachovia or to other vendors. Benefits administration and benefits customer service will stay with Hewitt. Moving HR functions back in-house will take up to 18 months. Bank spokeswoman Christy Phillips-Brown could not comment on Hewitt's performance, but Wachovia and Hewitt "agreed this was the best decision for our companies." Hewitt spokeswoman Amy Wulfestieg said the company will work closely with Wachovia in the transition and looks forward to "building on our long-standing partnership together."

Wachovia is taking back a number of HR processes it had outsourced to Hewitt Associates, a potential blow for the BPO provider. The contract, which was one of a slew of wins for Hewitt in the wake of its Exult acquisition, was valued at $450 million. The deal was consummated in Hewitt’s glory days, when both buyers and vendors had high expectations of BPO. “I believe that this was one of those deals signed in the heyday with entirely too much optimism on both sides,” says Naomi Bloom, an industry consultant. Since then, Hewitt has admitted to struggling with its HR BPO business. “They haven’t made a mystery of the fact that they had gotten bogged under by a number of the contracts that they signed in the months after the Exult deal,” IDC analyst Lisa Rowan says. Many of these deals were “lift and shift” transactions, where the buyers expected the vendor to just take over all of their HR processes and do them at less cost. The Wachovia contract was one of these deals, according to one person familiar with the arrangement. It might actually be a relief for Hewitt to be able to offload some of this work and focus on what it does best, which is benefits administration, Rowan says. “If I had to get out my crystal ball, I would say they are going to go back to their sweet spot and just do benefits administration going forward,” she says. But Hewitt maintains it is sticking to the business. But whether Hewitt will be able to turn around its HR BPO business at the pace that shareholders want still remains to be seen.

CitiStreet for sale

CitiStreet, the record-keeping and administrative services firm co-owned by Citigroup and State Street, is for sale, according to banking and private equity sources familiar with the situation. Sources said investment bankers from Goldman Sachs have been hired to find a buyer for CitiStreet. Citigroup spokesman Michael Hanretta and CitiStreet spokesman Michael Bezdek declined to comment. Calls to officials at State Street were referred to CitiStreet. Executives at Goldman Sachs couldn’t immediately be reached for comment. CitiStreet has $230 billion in assets under administration. The firm serves corporate and public retirement plans with 12 million participants.

AIG Headlines

AIG says needs to clarify disclosures regarding CDOs - MarketWatch
AIG still calculating loss on some credit products - MarketWatch
AIG unsure of value of some of its credit derivatives - MarketWatch
AIG auditors cite "material weakness" in financial reporting - MarketWatch

That can't be good. Stock has been pretty much in freefall since the opening bell, as of 10:30 it is down 11.2% at $45, although the last few ticks indicate that might actually be the bottom.

Beck v PACE

The Supreme Court unanimously reversed the ridiculous 9th Circuit decision in Beck v PACE which stated that a merger is a permissible means of plan termination, much to the amazement of the Department of Labor, and that the company therefore had a fiduciary obligation to seriously consider a merger proposal, which it had failed to do.

Justice Scalia, writing for the Court, started off by presenting the fiduciary issue and then went on to acknowledge the plausibility of PACE’s argument. He immediately sidestepped the interesting fiduciary issue and launched into a non-fiduciary analysis from which it would never return. The Court restricted its analysis to whether a plan can be terminated through a plan merger. Ultimately, the answer was no.

It's a shame that the Court chose not to take up the fiduciary question. I swear more bad law comes out of the 9th Circuit than all the other courts of appeal put together. I would have liked the Court to go on record that BOTH parts of the decision were ludicrous, rather than restricting themselves to just one part of the decision.

Reference: http://www.thompson.com/public/headlines.jsp?id=71

Acquisitions Gone Bad

Hewitt Associates To Sell Cyborg Unit To Vista Equity

Worst. Idea. Ever.

Borrowing against your nest egg is becoming as easy as stopping at an ATM. A growing number of companies now offer employees the option of being issued a debit card that taps a 401(k) loan. The card, called ReservePlus, allows workers to withdraw funds from their 401(k)s.

What happens when the idiots who do this have $0 in their 401(k)? Are they going to tax those of us who don't have shit for brains to "help the poor"? Seriously, I feel like just tattooing sucker on my forehead.

Hang on ... it's going to be a rough ride!

The first baby boomers start collecting Social Security benefits today!

Marsh CEO Out

Marsh & McLennan has ousted its CEO, Michael Cherkasky, as part of a review that could lead to a break-up of the scandal-laden group. Mr Cherkasky was brought into Marsh & McLennan in October 2004 after Eliot Spitzer accused the company of colluding with competitors. The group in 2005 reached a settlement with insurance regulators and Mr Spitzer. The settlement caused Marsh & McLennan's profitability to collapse. Its shares have fallen by a fifth this year, while those of rivals such as Aon have advanced.

Investors such as KJ Harrison & Partners have been urging Marsh & McLennan to spin off some of its consulting businesses, including its Mercer human resources consulting unit and Oliver Wyman management consulting unit, arguing that they do not fit well with insurance broking.

Source: The Australian

Hewitt Is Sued Over Enron

Partial settlements in the litigation have resulted in $89 million for participants and beneficiaries in Enron's retirement plans. In 2006, Hewitt Associates was hired to allocate the money to the plans' approximately 20,000 members. Because of a flaw in Hewitt's computer system, the company miscalculated distributions, the suit alleged. The error was not discovered until late January 2007, when a participant questioned her allocation. In July, Hewitt accepted responsibility for its mistake in court, the suit says. Its lawyer told the judge the company's software used the wrong stock price to calculate the distributions and promised to fix the error. The company submitted revised calculations, but the numbers are still wrong, court papers said. Hewitt also refuses to fund any portion of the $22 million shortfall.

The Enron case is at least second time in recent months Hewitt has been sued by a client. In August, Schering-Plough alleged Hewitt had not met its contractual obligations after the company replaced Hewitt as its health-plan administrator.