USF&G; charts drastic change in course


With the announcement of a massive restructuring that contributed to a $610 million fourth quarter loss, USF&G; Corp. has sent a dramatic message that it is no longer business as usual and it changing its course drastically.

The giant Baltimore insurance company yesterday announced that it was reducing its investment portfolio by $357 million, or $4.25 a share, as it sold and revalued junk bonds and problem real estate.

"USF&G; has taken a series of decisive actions to significantly strengthen our balance sheet, sharpen our business focus, and lower our cost of doing business to enable us to be a vigorous competitor in our markets," Norman P. Blake Jr., chairman and chief executive officer, said in a prepared statement yesterday.

As part of this effort, Blake said the company is getting out of the leasing, travel services and other "non-core" businesses.

"Going forward, USF&G; will concentrate its resources on its insurance and investment management businesses where it has a strong competitive position, expertise and prospects for an attractive return on investment," he said.

Blake said there will be further "significant reductions" in the company's work force, which now stands at about 10,900 nationwide, with 1,940 of those workers in the Baltimore area.

In January, the company announced a massive cost-cutting effort that included the elimination of 900 workers, cutting $28 million in unnecessary advertising and promotion costs and the selling of the corporate jet.

Even though jobs have not yet been eliminated, the company took a one-time charge of $34 million in the fourth quarter for the anticipated staff reduction.

USF&G; spokeswoman Kerrie Burch-DeLuca yesterday said jobs will not be eliminated until the company finishes a strategic review, which is scheduled to be completed in late March.

The company chopped its quarterly dividend from 25 cents to 5 cents a share. This prompted selling by investors, and the stock's price plummeted by $1.75 to close yesterday at $8.75 a share. It was unchanged at 10 a.m. today.

Insurance analysts said the previous dividend, which amounted to about a 10 percent return, had been holding up the stock's price.

The USF&G; announcement came before the New York Stock Exchange opened yesterday, causing an imbalance of buyers and sellers. The selling of the stock was delayed for 28 minutes because of the imbalance.

Although the stock price dropped, insurance analysts applauded the announcement. "I like the decisive action taken by the new management," said Frederick T. Sandburg, head of the insurance stock department for Legg Mason Wood Walker, a Baltimore-based brokerage firm.

"The only surprise was the magnitude of the charge-offs and the cut in the dividend," he said. But Sandburg, who works in Legg Mason's Chicago office, said new management often makes dramatic moves to get the bad news behind them. The tactic is called "throwing in the kitchen sink," he said.

Michael A. Lewis, an insurance analyst for Dean Witter Reynolds Inc., a New York-based investment brokerage firm, also applauded the company's actions, but questioned whether more is needed. "Is it enough and will we see more in 1991?" he asked.

The analysts also said that the action clearly showed that Blake, who was hired in November, is turning away from the diversification efforts of his predecessor, Jack Moseley. "He's really unwinding a whole mess of mistakes the previous management made," said Robert H. Branche, the managing director of Branche Research Group of Morris, Pa.

The $610 million loss, or $7.32 a share, compared to a profit of $104 million, or $1.20 a share, in the 1989 fourth quarter. More than half -- $357 million, or $4.25 a share -- came from losses from selling and restructuring investments.

Total revenues for the fourth quarter were $1.17 billion compared to $1.22 billion in the 1989 fourth quarter.

For all of 1990, USF&G; reported a loss of $569 million, or $6.99 a share, compared with a profit of $119 million, or $1.24 a share, in 1989. Investment losses for the year amounted to $354 million.

Revenues for the year were $4.5 billion compared to $4.7 billion in 1989.

One very obvious change from the Moseley years is the treatment of the dividend, which had been considered nearly sacrosanct. The company had maintained a high payout, declaring a quarterly dividend of 73 cents a share in October. But this was cut to 25 cents in January. The latest dividend of 5 cents is payable on April 30.

The investment restructuring, dividend payments and other losses last year reduced the USF&G; stockholders' equity to $1.2 billion, or $11.97 a share, a 40 percent drop from the end of 1989 when stockholders' equity was $2 billion, or $21.60 a share.

Even without the massive revamping of its investment portfolio, the company lost $130 million, or $1.55 a share, during the fourth quarter from its operations. In comparison, the company had an operating income of $56 million, or 67 cents per share, for the 1989 fourth quarter.

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