On The Cover/Top Stories
02.28.11, 6:00 PM ET
Two years after Wall Street nearly caused the end of the world, the convulsive melodrama continues. A handful of protagonists are gone, some barely escaping prosecution, to say nothing of a prison cell. But the usual cast of characters is still stealing headlines--popping up at the White House or Davos or on the society pages.
Then there's Jay S. Fishman, chief executive of the Travelers Companies. If you've never heard of him--maybe you remember the insurance company's trademark red umbrella--there's a reason for that. Fishman is a little limelight-phobic. Until now there has never been a profile of him, just a handful of stories written a decade ago by two Minnesota newspapers after he took over an all-but-forgotten insurer called the St. Paul Cos.
The man has nothing to hide. In fact, his is a remarkable tale of straight-talking his way to success. This is a guy who was once a protégé of Sandy Weill's and walked away from a big job at Citigroup; who preemptively said no thanks to any bailout from then Treasury Secretary Hank Paulson, even as his peers were taking handouts; who warns his investors that his company's returns might be lower from one year to the next; who frets that, left unchecked, the government debt crisis will turn into a death spiral; who expresses misgivings about his own abilities; who takes a very long view of his custodianship. "I don't want to be [just] a caretaker," he says during a rare couple of interviews. "I want to leave something behind that was better than what I got."
You'd expect that from the head of the Nature Conservancy. But from a Wall Street mogul?
Jay Fishman is a throwback to the days before credit derivatives, collateralized debt obligations and subprime mortgage securities. He runs Travelers as a pretty simple business: It writes policies on commercial properties, autos and homes, and invests the insurance premiums largely in fixed-income securities, mostly bonds. "We focus on the long term here," he says. "That is how we do things." Over that horizon the company has done quite well. While the hellfires tore through most of Wall Street in 2008, Travelers emerged unsinged, netting $2.9 billion on $24.5 billion in revenue. Last year it earned $3.2 billion on $25.1 billion. Steady, if unexciting progress. Taking few, but calculated, risks, says Fishman, "you underperform when things are good and, as a result, do better when things are bad."
Still, in the last five years Travelers' stock has returned an annual average of 7%, more than the shares of Goldman Sachs, JPMorgan Chase & Co. and Berkshire Hathaway (see graph, p. 77). "I think he has done a great job there," says JPMorgan Chief Jamie Dimon, a friend who has known Fishman since 1988, when they both worked for Sandy Weill as he was building the multiheaded monster Citigroup. "He does the nuts and bolts right, he hasn't strayed from his strategy, he bought back a lot of stock and is willing to use the capital wisely for the shareholders." He adds: "It's not his personality to take bows."
That's for sure. I chased him for a year before Fishman and his staff finally agreed to sit down for an extensive series of interviews. A standing nail always gets whacked, he told me, paraphrasing the Japanese proverb. Now he feels comfortable enough about himself and his business--and its place among its humbled peers--to risk the hammer. That said, you will never catch Fishman talking about doing God's work (Lloyd Blankfein) or throwing a $3 million-plus birthday party for himself (Steven Schwarzman) or exploding in a colorful cloud of curses (Jamie Dimon). His favorite four-letter word is "risk"--and it's usually preceded by "thoughtful" and followed by "management."
At 58, fighting off a bit of a paunch, with a thick mane of gray hair, Fishman resembles the family doctor who gives it to you straight--and who doesn't overdo expensive tests and medications. "We are an insurance company first and an asset manager second," he says, sitting on a couch in his modest office, with no view to speak of, in midtown Manhattan. That's no diss to investors; Fishman is simply describing his priorities. "We take only that amount of investment risk that we need to be a top-notch insurance company."
But--and it's a big but--the very conservatism that helped Travelers tack through the worst of the financial typhoon is now something of a liability. On the revenue side the demand for insurance has been weak, and competitors, rescued by taxpayers, are coming back strong. On the investment front the company has a huge exposure to municipal bonds (54% of its sizable $73 billion portfolio), which has the scent of peril to some investors and is reflected in the fact that Travelers shares, a recent $57, have been trading at close to book value.
Ironically, perhaps, the property and casualty business used to be seen as one of the more volatile financial enterprises because it can get rocked each time the earth shakes (as it did in 1989 with the Loma Prieta earthquake) or the wind blows (Hurricane Andrew, 1992). Fishman's company is a big insurer of businesses, writing policies on everything from commercial trucks to farm equipment and workers' compensation. It also has a large consumer business, insuring home and car owners. Most of those products are sold through independent agents.
Fishman has always been up front about his MO. In the years preceding the credit mess he told investors time and again he would not run Travelers the way many other insurance firms operate--essentially as a publicly traded investment company that happened to be funded by writing insurance. In an era when some investment banks and insurance companies often looked more like debt-fueled hedge funds, increasing the assets on their balance sheets to as high as 30 times equity, Fishman stuck to his core business and leveraged Travelers' assets only up to 4 times equity. "We never think about investing in something just to earn another 10 cents a share," he says. "We tell investors, ‘If you are going to buy a stock just because you think the earnings next year are going to be higher, we are not your company.'" He has repeatedly said that the company should produce return on equity in the midteens over time, stressing that the company might not meet that target every year (in 2010 its ROE hit 12.1%). While he doesn't expect it will happen, Fishman is telling shareholders that he may lower his long-standing profitability target if some current conditions become more permanent. What conditions? High unemployment, low GDP growth and low returns on capital.
"Once you tell your people that you don't care if they grow or make more money this year over last, but that they manage the capital they are given in ways that produce superior results over time--you remove from the organization the impetus to do dumb things," says Fishman. "People ask me what went wrong with these other companies, and, while I don't know what goes on anywhere else, my experience is that if you tell employees what you want them to do, they will try their hardest to do what you ask them."
"Trying hardest" is a family hallmark. Born in the Bronx, Fishman watched his father work long hours at his small printing company so that he could send Jay to private school (he attended Barnard School for Boys); every cent went to pay tuition and the rent on a two-bedroom apartment. His grandmother, Fishman heard over and over again, had been sent by her family in Latvia at age 13 to work as a seamstress on Manhattan's Lower East Side, sending money back to her family so they could join her. Hard work paid off: Fishman graduated from the Wharton School at the University of Pennsylvania with a bachelor's degree in economics and a master's in accounting.
He was 15 when he met his future wife, Randy, then 13. Fishman was working at the golf course at a summer resort in the Catskills, in upstate New York; Randy was a guest. They ran into each other one night in the hotel lobby after a dinner. "He was wearing a mock blue turtleneck, and he was very good looking," she recalls, sitting in the living room of their stately but relatively modest redbrick colonial in Englewood, N.J., where the Fishmans have lived since 1998. "I told my friends that I knew it sounded crazy, [but] this was a guy I could marry." Fishman's parents drove the couple on their first date to a restaurant in Paramus. (The couple has two grown sons but prefers not to discuss them in order to shield them from publicity.)
Fishman worked as an accountant at American Can Co., then jumped to the company's acquisitions unit--and fortuitously to an impressive career path. Later, while working at merchant bank Shearson Lehman, he wound up negotiating with Dimon in an effort to acquire Fingerhut, the catalog marketing company owned by Primerica. The deal fell through, but Dimon convinced Fishman to join Sandy Weill's gang. After Primerica bought a chunk of Travelers in 1992, Weill dispatched Fishman and Robert Lipp, plucked from Chemical Bank, to Hartford, Conn. to troubleshoot. (Primerica later acquired all of Travelers; in 1998 Fishman was tapped to run it.)
Then came a critical juncture. In December 2000 Weill named Fishman and Chuck Prince co-chief operating officers at Citi--a bone thrown to the board, which was concerned that Weill wasn't adequately preparing for his succession. One of these two guys, it seemed, would likely end up running the financial colossus. Fishman's new job was huge: continuing to run Travelers' property-and-casualty and life insurance businesses, as well as overseeing consumer banking units in Europe and Japan.
But Fishman was starting to agonize about his future at Citi. "I didn't think Sandy was going anywhere," he muses. Worse, he was cankered by self-doubts. "What became apparent to me was that my experience base was such that there were better candidates to run [Citi] . . . I had next to no experience in sales and trading, limited experience in investment banking and no experience in commercial banking." He concludes modestly, but firmly, "I wouldn't have been an effective CEO."
On the other hand, he desperately wanted to run his own show. When a recruiter called in 2001 about heading the troubled St. Paul Cos., Fishman decided to take a look. Over two consecutive Saturday nights he walked the empty St. Paul headquarters, wrestling with the decision. He returned to New York City and finally cornered Weill to tell him he was leaving. Fishman tried to remind Weill that he himself had quit the number two post at American Express to go off on his own. Weill's disappointment, Fishman recalls, turned into irritation. "I told Sandy, ‘I am not the guy.'"
Weill confirms the unpleasant encounter. Sitting in his massive and eerily quiet office on the 46th floor of the General Motors Building--adorned with memorabilia from his careers in business and philanthropy and offering magnificent views of Central Park--Weill says at first he took Fishman's exit personally. "Jay, I thought, was a very important person in the future of the company and maybe the person who would end up running it," says Weill, adding that his disappointment subsided within days and he wished Fishman well. Still, he says, "I was really annoyed that he was leaving."
In retrospect Fishman's exit looked shrewd--and lucky: He quit long before he could be tagged with the bank's fiasco. Chuck Prince, a lawyer who had little operational experience, ended up presiding over one of the biggest disasters in the history of Wall Street, after Weill backed him for the top job at Citi in 2003. For his part, Fishman doesn't think Citi's structure was inherently unwieldy--or that he did anything that contributed to the bank's collapse seven years after his departure. "I left Citi, the stock was at $50 a share," says Fishman. "It was a great success." Today it trades at $4.75.
St. Paul Cos. was a mess. Several top executives had left, and its medical malpractice unit and reinsurance business were gushing losses; Fishman got rid of them. He quickly found a lieutenant--a lucky coincidence. He was being driven up Park Avenue in Manhattan (he never completely adapted to Minneapolis) when he saw William Heyman, who had led Citigroup Investments. Asking the car to stop, Fishman jumped out, wanting to know what his former colleague was up to. Heyman said he had just quit Citi. He had an offer letter from Jamie Dimon at Bank One, but Fishman talked him into heading up investments for St. Paul. "I thought Jay and Jamie were the best two businessmen at Citi," says Heyman. At St. Paul he dumped large stock and venture capital holdings that he felt were too risky. (Later he managed Travelers' portfolio unscathed through the credit crisis.)
Another chance encounter in New York proved crucial to St. Paul's--and Fishman's--future. In 2003 he bumped into his mentor at Citi, Robert Lipp, in the foyer of the New York City Ballet. (Fishman likes dance, but his passion is music.) Lipp had gone on to become chief of Travelers, Citi's p&c business that Weill had spun off in 2002. Both men had recently grappled with big charges stemming from asbestos claims. Now that they were through the worst, Fishman suggested a merger of the two companies to create the second-largest commercial insurer, right behind AIG. In April 2004 St. Paul's acquired Travelers in an $18 billion (all stock) deal. Fishman remained CEO; Lipp became executive chairman. For Fishman, who had spent almost nine years at Travelers--and three years after that in a kind of diaspora--returning to the company felt like "coming home again."
There were more jeers than cheers from investors, who battered the stock in the first six months as the combined companies grappled with their different approaches. St. Paul Travelers increased reserves by $1.6 billion months after the merger closed. New business declined, as independent insurance agents adapted to the underwriting standards of the new company.
"I could have done a better job managing expectations, including my own," Fishman reflects today. The company sliced 10% of its workforce--3,000 positions--to save $350 million. Within a year the company was humming as Fishman sat down with agents, resolving their issues one by one.
That sort of outreach is pure Fishman, who routinely travels the country to get a ground-eye view of his businesses, customers and employees. After Hurricane Katrina he was the only insurance chief to visit then Senate Majority Leader Trent Lott, who had lost his beachfront home and was furious with the industry. Recently Fishman traveled to Texas, where he put on headphones at Travelers' consumer call center, and to funerals in North Carolina, for a claims adjustor who was in a fatal car accident, and in upstate New York, for the son of an employee killed in Afghanistan. "We do hugs, not handshakes," laughs Lipp, who left Travelers in 2005 to become an adviser to Dimon at JPMorgan before going off to Stone Point Capital, a private equity firm.
When Lipp departed, Fishman lost his closest adviser. But by 2005, as the housing market started to reach a high boil, he and Heyman, whose fixed-income team managed investments from St. Paul, knew exactly what course to take: Ignore the siren calls of higher returns. "Nobody goes to Minnesota to work at an insurance company because he is a frustrated hedge fund manager," says Heyman. When bankers came around selling big structured products like collateralized debt obligations, he refused to bite because CDOs were so thinly traded that they couldn't be unloaded easily. Travelers didn't get into any auction-rate securities or structured investment vehicles, either. Yes, the company had bought $200 million of subprime mortgage-backed securities--a sliver of its then $68 billion investment portfolio. But Fishman and Heyman instinctively shrank from securities that had no track record and yielded only 25 basis points more than the mortgage paper backed by government-sponsored Fannie Mae and Freddie Mac. Fishman correctly figured that Uncle Sam would always stand behind those and held on to billions of dollars' worth. But he and Heyman eschewed preferred securities issued directly by Fannie and Freddie, which the feds ultimately declined to support, because they found them too much of a gamble.
Fishman says he is in the business of taking calculated risks against the 1-in-1,000 chance of a catastrophe. "We're not in the luck business," he insists. Perhaps that experience offers some protection from the hubris that seems to bring down Wall Street Olympians time after time.
In 2007 one thing he did buy--and perhaps overpaid for--was the Travelers' red umbrella logo. Weill loved it and had Citi hang on to it after he ditched the insurer. Chuck Prince was willing to part with it, for a price. "It was not inexpensive" is as far as Fishman will go. "But worth every penny," including what it cost to cut the 6-ton sculpture into three sections and move it from Citi's downtown building to Travelers' rotunda plaza in Hartford. (At that time "St. Paul" was dropped from the company name.)
Fishman doesn't pretend to have seen the financial crisis coming. "We were not that prescient about the collapse of the mortgage market," he says. Just prepared by an insurer's conservative habits and suspicion of investments that always seemed to be too good to be true. Travelers rebuffed offers to create a securities lending program that would have used the proceeds to buy mortgage-backed assets. This very scheme created such prodigious losses at AIG that the government had to backstop it with $38 billion in taxpayer funds, part of several infusions.
As AIG caved in on itself in September 2008, Fishman put together a videoconference for all employees to reassure them. Travelers, he said, was "in terrific shape" and had committed none of the sins of its competitors. He invoked Aesop's Fables and quipped that a new company logo might involve "the red umbrella with a tortoise underneath it--in the context of the tortoise and the hare. . . . When times are hot and fast, we're not going to be in the lead in that race" because "financial performance is really a marathon." He also called then Treasury Secretary Hank Paulson to tell him that Travelers didn't need a bailout.
As 2009 drew on Fishman had cause to feel more confident of his strategy. He gave lower-paid staffers a one-time $500 contribution to their 401(k) accounts. He declined several overtures to run struggling financial giants, which he refuses to name. In June Robert Thomson, managing editor of the Wall Street Journal, called to tell Fishman that Travelers would be replacing Citi in the Dow Jones industrial average. Thomson explained he wanted a company that would not have to be removed in the near future.
Travelers isn't going away anytime soon--but neither are some of its onerous challenges. It remains heavily invested in municipal bonds, which once seemed a sure if boring bet, but now, by dint of underfunded pensions and unmanageable state deficits, look somewhat radioactive. Travelers holds $39.7 billion of munis, though $7.2 billion of them are prerefunded--that is, refinanced, with the proceeds put into U.S. Treasurys. Fishman concedes he could be wrong, but he is sticking with muni bonds that carry specific contractual provisions or pledges. General obligation bonds issued by a particular county that Heyman will not disclose may have recently weakened, but Travelers doesn't own those bonds; it holds bonds secured by the county's sales tax receipts and still believes in that investment.
Fishman and Heyman also like the $800 million in higher education tax-exempt bonds the company owns from institutions like Harvard and Yale. Travelers has sold some state bonds in the last year and now owns only $1 billion of general obligations issued by the ten most fiscally challenged states--the ones on everyone's hit list. Still, Fishman is concerned that hysteria over shaky city budgets might damage Travelers' stock. "We could significantly reduce our muni exposure at a gain, given the mark-to-market position, but we don't want to, so we are trying to be clear to our investors about what we own," says Fishman. "I think transparency will overcome it." In a similar effort of full disclosure, Travelers has estimated that net investment income will be $92 million lower in 2013 if it is forced to reinvest maturing bonds at today's low rates. "It was unusual for a company to provide that level of clarity," Fishman says in a rare moment of self-congratulation. Last year Travelers helped nudge its stock price higher by repurchasing $5 billion of its shares.
What about the top line? Slow demand for insurance (buffeted by a weak economy) and strong competition are forcing Travelers to look outside its orbit. Growth by acquisition is tough because it must consider a target large enough to add appreciably to its $22 billion base of premiums earned. So Fishman is trying lots of things. He is launching his first direct-to-consumer effort, circumventing agents to take on the likes of Geico and Progressive. Travelers recently announced it would spend $370 million to form a joint venture in Brazil that sells surety insurance (contract guarantees issued to third parties) and will likely expand into writing property and casualty policies. Fishman is looking to do something similar in India.
Meantime, he is taking care of himself. Rising at 5:20 a.m., Fishman hops on his stationary bike; a torn meniscus keeps him off the elliptical machine. He is watching his diet, haunted by the memory of his mother, who died at 59 from heart disease. But it's a challenge, especially because of how much time he spends on the road.
He is compensated very well. In 2009 he took home $22 million--$1 million in salary, $7.5 million in bonus, $13.5 million mostly in vested shares and stock gains. Last October, after commuting to various offices for 35 years, he bought a $4.2 million apartment on Park Avenue.
He is trying to give back, serving on the board at Penn (where he funds two full scholarships a year) and the advisory committee of the Jazz Foundation of America. Fishman has also made the gaping federal deficit his own cause. He sometimes spends evenings watching C-Span; at other moments he dives, with an actuarial eye, into Congressional Budget Office data. He shares his growing alarm about the failure to tackle the debt crisis with anyone who will listen--policymakers, insurance agents, investment advisers, even with friends in social settings. Fishman seems to be speaking to Wall Street, as well as to Washington, when he says, "I don't think that a thoughtful person can say, 'I got mine, and I don't care about you.'"
Brilliant empire builder or creator of a financial doomsday machine, Sandy Weill left a complicated legacy. "A lot of very good managers worked at our company at one point or another," he says. Fishman is one. Among the others:
CEO, JPMorgan Chase
"What he has done in the universal banking model--the best of anybody," says Weill, who forced Dimon out of Citigroup in 1998, ending a long working relationship.
CEO, Willis Group Holdings
He spent 32 years working for Weill, first as a gofer and later as a sales and marketing exec at various companies, then headed Smith Barney.
Banga started out at Nestlé and PepsiCo, then joined Weill when Travelers Group merged with Citicorp in 1998; he racked up considerable global experience over 13 years at Citigroup.
President, global wealth management, Bank of America
Hired by Weill in 2002, the star analyst rose to become head of Citi's Smith Barney but clashed with Vikram Pandit, leaving in 2008.
Senior counselor, Albright Stonebridge Group
A lawyer, he was once Weill's closest confidant; he ran Citigroup from 2003-07 as the financial services giant collapsed under its own weight.
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