Aon May Have to Restate Earnings
Aon Corp. said Wednesday that it may have to restate several years’ earnings after regulators questioned its accounting practices. The world’s No. 2 insurance broker also put its underwriting unit up for sale, dropping plans to spin it off.
Aon shares fell as much as 34% to a seven-year low of $13.95 on the New York Stock Exchange as investors recoiled from another firm with potentially unreliable accounts. The stock, which has fallen more than 55% this year, recovered slightly to finish at $14.77, down $6.43, or 30%.
The Chicago-based company also said earnings would be lower than forecast as it struggles to keep down costs.
The move by the Securities and Exchange Commission and the resulting stock slide hurt overall confidence in the company’s management, with no sign of abating.
“The outstanding SEC accounting issues, even if they prove benign, will likely hang over the stock,” Salomon Smith Barney analyst Ron Frank said.
The SEC questioned several items in Aon’s accounts, including the reporting of investment write-downs, the timing of some costs and a reinsurance recoverable item and the decision not to consolidate certain special purpose vehicles.
Aon said it may have to restate earnings for the last three years.
“If [the SEC] thinks additional disclosure is appropriate, we’re going to do it,” Aon Chief Executive Patrick Ryan told analysts during a two-hour conference call.
The SEC’s questioning of Aon’s accounts suggests that the firm was aggressive with its profit reports. To remedy the situation, the SEC demanded that the firm release more information in its financial reports and stop using EBITDA (or earnings before interest, taxes, depreciation and amortization) numbers, which are potentially misleading.
Meanwhile, Aon said it was looking to sell its underwriting unit, Combined Specialty Group, which it had planned to spin off. The company said poor stock market conditions forced its hand.
Wednesday’s news caps several years of problems for Aon, which has been struggling to consolidate its operations and cut costs after a string of acquisitions in the 1990s. The firm grew rapidly over the decade, becoming the only serious rival to Marsh & McLennan Cos., the world’s leading broker.
The news came as Aon reported it broke even for the second quarter, contrasted with a profit of 11 cents a share a year earlier.
Results were hurt by a $36-million charge for losses from an underwriting agency Aon has sued, accusing it of fraud.
Excluding such one-time items, Aon reported operating earnings of 13 cents a share, compared with 44 cents a year earlier.
