Marsh McLennan (MMC) executives did their best to explain efforts to turn Putnam's business around in a second quarter earnings call, but analysts on the call did not seem convinced.

Analysts were concerned with ongoing regulatory costs, the bottom-line effect of Putnam's move to merge its defined contribution business with Mercer HR Outsourcing, future revenue streams, and ramped up marketing efforts.

Jeffrey Greenberg, chairman and chief executive officer of MMC stated "Putnam’s business is not where we want it to be. However, we see some signs that are encouraging. Redemptions occurred at a decreasing rate. Investment performance is improving with competitive results across all fixed income products, in selected equity mutual funds, and in several institutional classes such as structured products."

"Putnam has increased its marketing efforts to improve sales of these investment products. It has reduced its costs, streamlined its management, and made a number of key promotions and new hires in the investment division," Greenberg stated.

A Putnam executive said in the earnings call that the marketing initiative was a broad-based brand ad campaign, adding that it is the "first time in anyone's memory that we've had such an extensive brand positioning campaign."

The personal outreach that the company is conducting is more important than the ad campaign, said the executive. The outreach efforts include bringing in people to meet with portfolio managers in Putnam's Boston offices, sending Chief Executive Officer Ed Haldemann and wholesaling head Richard Monaghan to meet with distributors and consultants, and sending out shareholder letters.

Greenberg said MMC was cost-cutting at Putnam, but that even after efforts to reduce management costs at Putnam, the investment management unit will suffer from excess capacity. A "partial answer" to deal with Putnam's excess capacity include MMC's recent move to combine Putnam's defined contribution unit with Mercer HR's outsourcing arm. Greenberg said that investors would see the benefits from the combination into 2005.

Putnam will retain asset management fees from the arrangement with Mercer HR Outsourcing, but will pay Mercer for its recordkeeping services.

A Putnam executive estimated during the call that legal and regulatory costs would continue until the end of this year and would "dissipate" starting next year. Putnam charged $34 million in legal and other costs this quarter. The executive estimated that ongoing legal and regulatory costs would be $20 million per quarter.

MMC reported second quarter diluted earnings of $0.73 per share, one penny more than analysts' estimates.

The Tide Isn't Turning
Putnam's Mutual Fund Assets ($ Billions)	6/30/2004	3/31/2004	12/31/2003
Growth Equity	$41	$45	$46
Value Equity	$41	$42	$43
Blend Equity	$28	$30	$32
Fixed Income	$38	$40	$42
Total Mutual Fund Assets	$148	$157	$163
% Change	-5.7%	-3.7%	-4.9%
Source: Putnam earnings release

Total assets under management for Putnam decreased from $227 billion at the end of March to $213 billion at the end of June -- a drop of $14 billion, or 5.7 percent.

Putnam lost $5.7 billion in mutual fund assets from the first quarter to the second quarter, from $157 billion to $148 billion. Growth equity funds lost $4 billion, value equity funds lost $1 billion, blend equity funds lost $2 billion and fixed income funds lost $2 billion in assets.

Revenues for the lagging MMC unit declined 10 percent from the same quarter last year to $446 million. The revenues reflected $38 million due to a sale of a joint venture, $27 million in severance, a $25 million credit due to a settlement with Putnam's former chief executive, and $34 million in legal, compliance and regulatory costs.

In response to several questions from analysts concerning the efforts to turn Putnam around, Greenberg said "we're as committed to this business as we've ever been." 

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