WALLSTREET’SHONESTMAN

FEBRUARY 28 • 2011 EDITION

INTELLIGENT INVESTING: STEVE FORBES AND NOURIEL ROUBINI

TRAVELERS’ JAY FISHMAN.

STRAIGHT-UP TALK GOT HIM

THROUGH THEWORST. NOW

COMES THE MUNI-BOND CRISIS.

FORBES

COVER STORY — JAY FISHMAN

WALLSTREET’S

HONEST MANWITH STRAIGHT TALK AND CONSERVATIVE INVESTMENTS TRAVELERS’

JAY FISHMAN SAILED THROUGH THEWORST. NOW A MUNI-BONDUPHEAVAL THREATENS HIS SUCCESS.

BY NATHAN VARDIPHOTOGRAPH BY MIKE McGREGOR FOR FORBES

Two years after WallStreet nearly caused theend of the world, theconvulsive melodramacontinues. A handful of

protagonists are gone, some barely es-caping prosecution, to say nothing of aprison cell. But the usual cast of char-acters is still stealing headlines—pop-ping up at theWhite House or Davosor on the society pages.

Then there’s Jay S. Fishman, chiefexecutive of the Travelers Companies.If you’ve never heard of him—maybeyou remember the insurance com-pany’s trademark red umbrella—there’sa reason for that. Fishman is a littlelimelight-phobic. Until now there hasnever been a profile of him, just ahandful of stories written a decade agoby twoMinnesota newspapers after hetook over an all-but-forgotten insurercalled the St. Paul Cos.

The man has nothing to hide. Infact, his is a remarkable tale ofstraight-talking his way to success.This is a guy who was once a protégéof SandyWeill’s and walked away froma big job at Citigroup; who preemp-tively said no thanks to any bailoutfrom then Treasury Secretary HankPaulson, even as his peers were takinghandouts; who warns his investorsthat his company’s returns might belower from one year to the next; whofrets that, left unchecked, the govern-ment debt crisis will turn into a deathspiral; who expresses misgivings about

his own abilities; who takes a very longview of his custodianship. “I don’twant to be [just] a caretaker,” he saysduring a rare couple of interviews. “Iwant to leave something behind thatwas better than what I got.”

You’d expect that from the head ofthe Nature Conservancy. But from aWall Street mogul?

Jay Fishman is a throwback to thedays before credit derivatives, collater-alized debt obligations and subprimemortgage securities. He runs Travelersas a pretty simple business: It writespolicies on commercial properties,autos and homes, and invests the in-surance premiums largely in fixed-in-come securities, mostly bonds. “Wefocus on the long term here,” he says.“That is how we do things.” Over thathorizon the company has done quitewell. While the hellfires tore throughmost of Wall Street in 2008, Travelersemerged unsinged, netting $2.9 billionon $24.5 billion in revenue. Last year itearned $3.2 billion on $25.1 billion.Steady, if unexciting progress. Takingfew, but calculated, risks, says Fish-man, “you underperform when thingsare good and, as a result, do betterwhen things are bad.”

Still, in the last five years Travelers’stock has returned an annual averageof 7%, more than the shares of Gold-man Sachs, JPMorgan Chase & Co.and Berkshire Hathaway (see graph,p. 77). “I think he has done a great jobthere,” says JPMorgan Chief Jamie

Dimon, a friend who has known Fish-man since 1988, when they bothworked for SandyWeill as he wasbuilding the multiheaded monsterCitigroup. “He does the nuts and boltsright, he hasn’t strayed from his strat-egy, he bought back a lot of stock andis willing to use the capital wisely forthe shareholders.” He adds: “It’s nothis personality to take bows.”

That’s for sure. I chased him for ayear before Fishman and his stafffinally agreed to sit down for an exten-sive series of interviews. A standingnail always gets whacked, he told me,paraphrasing the Japanese proverb.Now he feels comfortable enoughabout himself and his business—and itsplace among its humbled peers—torisk the hammer. That said, you willnever catch Fishman talking aboutdoing God’s work (Lloyd Blankfein) orthrowing a $3 million-plus birthdayparty for himself (Steven Schwarz-man) or exploding in a colorful cloudof curses (Jamie Dimon). His favoritefour-letter word is “risk”—and it’s usu-ally preceded by “thoughtful” and fol-lowed by “management.”

At 58, fighting off a bit of a paunch,with a thick mane of gray hair, Fish-man resembles the family doctor whogives it to you straight—and whodoesn’t overdo expensive tests andmedications. “We are an insurancecompany first and an asset managersecond,” he says, sitting on a couch inhis modest office, with no view to

JAY FISHMAN —TRAVELERS

In Brief: The Straight Shooter

THE SETUPFishman walks away from Sandy Weill and a big jobat Citigroup to head up an insurance company inSt. Paul, Minn. “I told Sandy, ‘I am not the guy.’”

THEACTIONMerging with Travelers, Fishman charts a planof lower-risk investments, helping to steer clearof the housing crisis and the financial meltdown.

THEOUTCOMEThe conservative strategy that helped Travelersescape the worst on Wall Street now poses a newpotential risk: a portfolio filled with municipal bonds.

speak of, in midtown Manhattan.That’s no diss to investors; Fishman issimply describing his priorities. “Wetake only that amount of investmentrisk that we need to be a top-notchinsurance company.”

But—and it’s a big but—the veryconservatism that helped Travelerstack through the worst of the financialtyphoon is now something of a liability.On the revenue side the demand forinsurance has been weak, and com-petitors, rescued by taxpayers, arecoming back strong. On the investmentfront the company has a huge expo-sure to municipal bonds (54% of itssizable $73 billion portfolio), whichhas the scent of peril to some investorsand is reflected in the fact that Travel-ers shares, a recent $57, have beentrading at close to book value.

Ironically, perhaps, the propertyand casualty business used to be seenas one of the more volatile financialenterprises because it can get rockedeach time the earth shakes (as it did in1989 with the Loma Prieta earthquake)or the wind blows (Hurricane Andrew,1992). Fishman’s company is a big in-surer of businesses, writing policies oneverything from commercial trucks tofarm equipment and workers’ compen-sation. It also has a large consumerbusiness, insuring home and car own-ers. Most of those products are soldthrough independent agents.

Fishman has always been up frontabout his MO. In the years precedingthe credit mess he told investors timeand again he would not run Travelersthe way many other insurance firmsoperate—essentially as a publicly

traded investment company that hap-pened to be funded by writing insur-ance. In an era when some investmentbanks and insurance companies oftenlooked more like debt-fueled hedgefunds, increasing the assets on theirbalance sheets to as high as 30 timesequity, Fishman stuck to his core busi-ness and leveraged Travelers’ assetsonly up to 4 times equity. “We neverthink about investing in something justto earn another 10 cents a share,” hesays. “We tell investors, ‘If you aregoing to buy a stock just because youthink the earnings next year are goingto be higher, we are not your com-pany.’” He has repeatedly said that thecompany should produce return on eq-uity in the midteens over time, stress-ing that the company might not meetthat target every year (in 2010 its ROEhit 12.1%). While he doesn’t expect itwill happen, Fishman is telling share-holders that he may lower his long-standing profitability target if some

current conditions become more per-manent. What conditions? High unem-ployment, low GDP growth and lowreturns on capital.

“Once you tell your people that youdon’t care if they grow or make moremoney this year over last, but that theymanage the capital they are given inways that produce superior results overtime—you remove from the organiza-tion the impetus to do dumb things,”says Fishman. “People ask me whatwent wrong with these other compa-nies, and, while I don’t knowwhat goeson anywhere else, my experience isthat if you tell employees what youwant them to do, they will try theirhardest to do what you ask them.”

“Trying hardest” is a family hall-mark. Born in the Bronx, Fishmanwatched his father work long hours athis small printing company so that hecould send Jay to private school (he at-tended Barnard School for Boys); everycent went to pay tuition and the renton a two-bedroom apartment. Hisgrandmother, Fishman heard over andover again, had been sent by her familyin Latvia at age 13 to work as a seam-stress onManhattan’s Lower East Side,sending money back to her family sothey could join her. Hard work paidoff: Fishman graduated from theWharton School at the University ofPennsylvania with a bachelor’s degreein economics and a master’s in ac-counting.

He was 15 when he met his futurewife, Randy, then 13. Fishman wasworking at the golf course at a summerresort in the Catskills, in upstate NewYork; Randy was a guest. They ran into

“HE DOES THE NUTS AND BOLTS RIGHT, HEHASN’T STRAYED FROM HIS STRATEGY IT’S NOT

HIS PERSONALITY TO TAKE BOWS.”

JPMorgan Chase Chief Jamie Dimonon Fishman’s brand of success.

EVANAGOSTIN

I/AP

JAY FISHMAN —TRAVELERS

each other one night in the hotel lobbyafter a dinner. “He was wearing amock blue turtleneck, and he was verygood looking,” she recalls, sitting in theliving room of their stately but rela-tively modest redbrick colonial in En-glewood, N.J., where the Fishmanshave lived since 1998. “I told myfriends that I knew it sounded crazy,[but] this was a guy I could marry.”Fishman’s parents drove the couple ontheir first date to a restaurant in Para-mus. (The couple has two grown sonsbut prefers not to discuss them inorder to shield them from publicity.)

Fishman worked as an accountantat American Can Co., then jumped tothe company’s acquisitions unit—andfortuitously to an impressive careerpath. Later, while working at merchantbank Shearson Lehman, he wound upnegotiating with Dimon in an effort toacquire Fingerhut, the catalog market-ing company owned by Primerica. Thedeal fell through, but Dimon con-vinced Fishman to join SandyWeill’sgang. After Primerica bought a chunkof Travelers in 1992, Weill dispatchedFishman and Robert Lipp, pluckedfrom Chemical Bank, to Hartford,Conn. to troubleshoot. (Primerica lateracquired all of Travelers; in 1998 Fish-man was tapped to run it.)

Then came a critical juncture. InDecember 2000Weill named Fishmanand Chuck Prince co-chief operatingofficers at Citi—a bone thrown to theboard, which was concerned that Weillwasn’t adequately preparing for hissuccession. One of these two guys, itseemed, would likely end up runningthe financial colossus. Fishman’s new

job was huge: continuing to run Trav-elers’ property-and-casualty and lifeinsurance businesses, as well as over-seeing consumer banking units in Eu-rope and Japan.

But Fishmanwas starting to agonizeabout his future at Citi. “I didn’t thinkSandy was going anywhere,” he muses.Worse, he was cankered by self-doubts.“What became apparent to me wasthat my experience base was such thatthere were better candidates to run[Citi] . . . I had next to no experience insales and trading, limited experience ininvestment banking and no experiencein commercial banking.” He concludesmodestly, but firmly, “I wouldn’t havebeen an effective CEO.”

On the other hand, he desperatelywanted to run his own show.When arecruiter called in 2001 about headingthe troubled St. Paul Cos., Fishmandecided to take a look. Over two con-secutive Saturday nights he walked theempty St. Paul headquarters, wrestlingwith the decision. He returned to New

York City and finally corneredWeill totell him he was leaving. Fishman triedto remindWeill that he himself hadquit the number two post at AmericanExpress to go off on his own. Weill’sdisappointment, Fishman recalls,turned into irritation. “I told Sandy, ‘Iam not the guy.’”

Weill confirms the unpleasant en-counter. Sitting in his massive andeerily quiet office on the 46th floor ofthe General Motors Building—adornedwith memorabilia from his careers inbusiness and philanthropy and offer-ing magnificent views of CentralPark—Weill says at first he took Fish-man’s exit personally. “Jay, I thought,was a very important person in thefuture of the company and maybe theperson who would end up runningit,” says Weill, adding that his disap-pointment subsided within days andhe wished Fishman well. Still, hesays, “I was really annoyed that hewas leaving.”

In retrospect Fishman’s exit lookedshrewd—and lucky: He quit long be-fore he could be tagged with the bank’sfiasco. Chuck Prince, a lawyer who hadlittle operational experience, ended uppresiding over one of the biggest disas-ters in the history of Wall Street, afterWeill backed him for the top job at Citiin 2003. For his part, Fishman doesn’tthink Citi’s structure was inherentlyunwieldy—or that he did anything thatcontributed to the bank’s collapseseven years after his departure. “I leftCiti, the stock was at $50 a share,” saysFishman. “It was a great success.”Today it trades at $4.75.

St. Paul Cos. was a mess. Several

“JAY WAS A VERY IMPORTANT PERSON IN THEFUTURE OF THE COMPANY, AND MAYBE THEPERSONWHOWOULD END UP RUNNING IT.”

Sandy Weill, creator of Citigroup, on Fishman’sprospects at the financial services giant.

PAULSA

KUMA/AP

top executives had left, and its med-ical malpractice unit and reinsurancebusiness were gushing losses; Fish-man got rid of them. He quicklyfound a lieutenant—a lucky coinci-dence. He was being driven up ParkAvenue in Manhattan (he never com-pletely adapted to Minneapolis) whenhe sawWilliam Heyman, who had ledCitigroup Investments. Asking the carto stop, Fishman jumped out, wantingto know what his former colleaguewas up to. Heyman said he had justquit Citi. He had an offer letter fromJamie Dimon at Bank One, but Fish-man talked him into heading up in-vestments for St. Paul. “I thought Jayand Jamie were the best two busi-nessmen at Citi,” says Heyman. AtSt. Paul he dumped large stock andventure capital holdings that he feltwere too risky. (Later he managedTravelers’ portfolio unscathedthrough the credit crisis.)

Another chance encounter in NewYork proved crucial to St. Paul’s—andFishman’s—future. In 2003 he bumpedinto his mentor at Citi, Robert Lipp, inthe foyer of the NewYork City Ballet.(Fishman likes dance, but his passion ismusic.) Lipp had gone on to becomechief of Travelers, Citi’s p&c businessthatWeill had spun off in 2002. Bothmen had recently grappled with bigcharges stemming from asbestos claims.Now that they were through the worst,Fishman suggested amerger of the twocompanies to create the second-largestcommercial insurer, right behind AIG.In April 2004 St. Paul’s acquired Travel-ers in an $18 billion (all stock) deal.

Fishman remained CEO; Lipp becameexecutive chairman. For Fishman, whohad spent almost nine years at Travel-ers—and three years after that in a kindof diaspora—returning to the companyfelt like “coming home again.”

There were more jeers than cheersfrom investors, who battered thestock in the first six months as thecombined companies grappled withtheir different approaches. St. PaulTravelers increased reserves by$1.6 billion months after the mergerclosed. New business declined, as in-dependent insurance agents adaptedto the underwriting standards of thenew company.

“I could have done a better jobmanaging expectations, including myown,” Fishman reflects today. Thecompany sliced 10% of its work-force—3,000 positions—to save$350 million. Within a year the com-pany was humming as Fishman satdown with agents, resolving theirissues one by one.

That sort of outreach is pure Fish-man, who routinely travels the countryto get a ground-eye view of his busi-nesses, customers and employees.After Hurricane Katrina he was theonly insurance chief to visit then Sen-ate Majority Leader Trent Lott, whohad lost his beachfront home and wasfurious with the industry. RecentlyFishman traveled to Texas, where heput on headphones at Travelers’ con-sumer call center, and to funerals inNorth Carolina, for a claims adjustorwho was in a fatal car accident, and inupstate New York, for the son of anemployee killed in Afghanistan. “Wedo hugs, not handshakes,” laughs Lipp,who left Travelers in 2005 to becomean adviser to Dimon at JPMorgan be-fore going off to Stone Point Capital, aprivate equity firm.

When Lipp departed, Fishman losthis closest adviser. But by 2005, as thehousing market started to reach ahigh boil, he and Heyman, whosefixed-income team managed invest-ments from St. Paul, knew exactlywhat course to take: Ignore the sirencalls of higher returns. “Nobody goesto Minnesota to work at an insurancecompany because he is a frustratedhedge fund manager,” says Heyman.When bankers came around sellingbig structured products like collater-alized debt obligations, he refused tobite because CDOs were so thinlytraded that they couldn’t be unloadedeasily. Travelers didn’t get into anyauction-rate securities or structuredinvestment vehicles, either. Yes, thecompany had bought $200 million of

“NOBODY GOES TO MINNESOTA TOWORKAT AN INSURANCE COMPANY BECAUSE

HE IS A FRUSTRATED HEDGE FUND MANAGER.”William Heyman, Travelers’ chief

investment officer, on risk management.

JAY FISHMAN —TRAVELERS

subprime mortgage-backed securi-ties—a sliver of its then $68 billion in-vestment portfolio. But Fishman andHeyman instinctively shrank from se-curities that had no track record andyielded only 25 basis points more thanthe mortgage paper backed by gov-ernment-sponsored Fannie Mae andFreddie Mac. Fishman correctly fig-ured that Uncle Sam would alwaysstand behind those and held on to bil-lions of dollars’ worth. But he andHeyman eschewed preferred securi-ties issued directly by Fannie andFreddie, which the feds ultimately de-clined to support, because they foundthem too much of a gamble.

Fishman says he is in the businessof taking calculated risks against the1-in-1,000 chance of a catastrophe.“We’re not in the luck business,” he in-sists. Perhaps that experience offerssome protection from the hubris thatseems to bring downWall StreetOlympians time after time.

In 2007 one thing he did buy—andperhaps overpaid for—was the Travel-ers’ red umbrella logo. Weill loved itand had Citi hang on to it after heditched the insurer. Chuck Prince waswilling to part with it, for a price. “Itwas not inexpensive” is as far as Fish-man will go. “But worth every penny,”including what it cost to cut the 6-tonsculpture into three sections andmove it from Citi’s downtown build-ing to Travelers’ rotunda plaza inHartford. (At that time “St. Paul” wasdropped from the company name.)

Fishman doesn’t pretend to haveseen the financial crisis coming. “Wewere not that prescient about the col-lapse of the mortgage market,” he says.Just prepared by an insurer’s conserva-tive habits and suspicion of invest-ments that always seemed to be toogood to be true. Travelers rebuffedoffers to create a securities lendingprogram that would have used theproceeds to buy mortgage-backedassets. This very scheme created such

prodigious losses at AIG that thegovernment had to backstop it with$38 billion in taxpayer funds, part ofseveral infusions.

As AIG caved in on itself in Septem-ber 2008, Fishman put together avideoconference for all employees toreassure them. Travelers, he said, was“in terrific shape” and had committednone of the sins of its competitors. Heinvoked Aesop’s Fables and quippedthat a new company logo might in-volve “the red umbrella with a tortoiseunderneath it—in the context of thetortoise and the hare. . . . When timesare hot and fast, we’re not going to bein the lead in that race” because “fi-nancial performance is really amarathon.” He also called then Treas-ury Secretary Hank Paulson to tell himthat Travelers didn’t need a bailout.

As 2009 drew on Fishman hadcause to feel more confident of hisstrategy. He gave lower-paid staffers aone-time $500 contribution to their401(k) accounts. He declined severalovertures to run struggling financialgiants, which he refuses to name. InJune Robert Thomson, managing edi-tor of theWall Street Journal, called totell Fishman that Travelers would bereplacing Citi in the Dow Jonesindustrial average. Thomson ex-plained he wanted a company thatwould not have to be removed in thenear future.

Travelers isn’t going away anytimesoon—but neither are some of its oner-ous challenges. It remains heavily in-vested in municipal bonds, whichonce seemed a sure if boring bet, butnow, by dint of underfunded pensionsand unmanageable state deficits, looksomewhat radioactive. Travelers holds$39.7 billion of munis, though $7.2 bil-lion of them are prerefunded—that is,refinanced, with the proceeds put intoU.S. Treasurys. Fishman concedes hecould be wrong, but he is sticking withmuni bonds that carry specific con-tractual provisions or pledges. General

Citi’sKiddiesBrilliant empire builder orcreator of a financial dooms-daymachine, SandyWeill lefta complicated legacy. “A lot ofvery goodmanagers workedat our company at one pointor another,” he says. Fishmanis one. Among the others:

JAMIE DIMONCEO, JPMorgan Chase“What he has done in the universal bankingmodel—the best of anybody,” says Weill, whoforced Dimon out of Citigroup in 1998, endinga long working relationship.

JOE PLUMERICEO,Willis GroupHoldingsHe spent 32 years working for Weill, first asa gofer and later as a sales and marketingexec at various companies, then headedSmith Barney.

AJAY BANGACEO,MasterCardBanga started out at Nestlé and PepsiCo, thenjoined Weill when Travelers Group merged withCiticorp in 1998; he racked up considerableglobal experience over 13 years at Citigroup.

SALLIE KRAWCHECKPresident, global wealthmanagement, Bank of AmericaHired by Weill in 2002, the star analyst rose tobecome head of Citi’s Smith Barney butclashed with Vikram Pandit, leaving in 2008.

CHUCK PRINCESenior counselor,Albright Stonebridge GroupA lawyer, he was once Weill’s closest confidant;he ran Citigroup from 2003-07 as the financialservices giant collapsed under its own weight.

obligation bonds issued by a particularcounty that Heyman will not disclosemay have recently weakened, butTravelers doesn’t own those bonds; itholds bonds secured by the county’ssales tax receipts and still believes inthat investment.

Fishman and Heyman also like the$800 million in higher education tax-exempt bonds the company owns frominstitutions like Harvard and Yale.Travelers has sold some state bonds inthe last year and now owns only $1 bil-lion of general obligations issued bythe ten most fiscally challengedstates—the ones on everyone’s hit list.Still, Fishman is concerned that hyste-ria over shaky city budgets might dam-age Travelers’ stock. “We could signifi-cantly reduce our muni exposure at again, given the mark-to-market posi-tion, but we don’t want to, so we aretrying to be clear to our investorsabout what we own,” says Fishman. “Ithink transparency will overcome it.”In a similar effort of full disclosure,Travelers has estimated that net in-vestment income will be $92 millionlower in 2013 if it is forced to reinvestmaturing bonds at today’s low rates.“It was unusual for a company to pro-

vide that level of clarity,” Fishman saysin a rare moment of self-congratula-tion. Last year Travelers helped nudgeits stock price higher by repurchasing$5 billion of its shares.

What about the top line? Slow de-mand for insurance (buffeted by aweak economy) and strong competi-tion are forcing Travelers to look out-side its orbit. Growth by acquisition istough because it must consider a targetlarge enough to add appreciably to its$22 billion base of premiums earned.So Fishman is trying lots of things. Heis launching his first direct-to-con-sumer effort, circumventing agents totake on the likes of Geico and Progres-sive. Travelers recently announced itwould spend $370 million to form ajoint venture in Brazil that sells suretyinsurance (contract guarantees issuedto third parties) and will likely expandinto writing property and casualtypolicies. Fishman is looking to dosomething similar in India.

Meantime, he is taking care of him-self. Rising at 5:20 a.m., Fishman hopson his stationary bike; a torn meniscuskeeps him off the elliptical machine.He is watching his diet, haunted by thememory of his mother, who died at 59

from heart disease. But it’s a challenge,especially because of howmuch timehe spends on the road.

He is compensated very well. In2009 he took home $22 million—$1 million in salary, $7.5 million inbonus, $13.5 million mostly in vestedshares and stock gains. Last October,after commuting to various offices for35 years, he bought a $4.2 millionapartment on Park Avenue.

He is trying to give back, serving onthe board at Penn (where he funds twofull scholarships a year) and the advi-sory committee of the Jazz Foundationof America. Fishman has also madethe gaping federal deficit his owncause. He sometimes spends eveningswatching C-Span; at other momentshe dives, with an actuarial eye, intoCongressional Budget Office data. Heshares his growing alarm about thefailure to tackle the debt crisis withanyone who will listen—policymakers,insurance agents, investment advisers,even with friends in social settings.Fishman seems to be speaking toWallStreet, as well as toWashington, whenhe says, “I don’t think that a thoughtfulperson can say, ‘I got mine, and I don’tcare about you.’”

A RACE BETWEEN THE TORTOISE AND THE HARES“FINANCIAL PERFORMANCE,” FISHMAN SAYS, “IS REALLY A MARATHON.” IN THAT LONGCONTEST TO DELIVER FOR INVESTORS, TRAVELERS BLOWS AWAY MOST OF THE COMPETITION.

5-YEAR ANNUALIZED TOTAL RETURN

PERFORMANCE THROUGH JAN. 31. SOURCE: INTERACTIVE DATA VIA FACTSET RESEARCH SYSTEMS.

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