Sandy Weill's Fingerprints Are All Over Travelersby
Edward H. Budd and Sanford I. Weill first met in 1983. Weill, newly installed atop the ailing Fireman's Fund unit of American Express Co., wanted to learn more about the insurance business. So he invited Budd, chairman and CEO of Travelers Corp., to spend the weekend with him in Boca Raton, Fla. "Sandy analyzed issues and problems quickly," Budd remembers. Says Weill: "It was a comfortable relationship from the beginning."
Ten years later, Weill and Budd are talking again--this time, about Travelers. They talk a lot. Last Sept. 21, Weill's Primerica Corp. put up $722.5 million for a 27% stake in troubled Travelers. Now, Budd's company is turning around--and Weill's fingerprints are all over the rebound. "I don't think any decision on Travelers' future is reached without discussions with Primerica," says Lawrence G. Mayewski, senior vice-president at A.M. Best Co., the insurance rating agency.
Travelers has shed 3,300 jobs since June, 1992, and plans to cut 1,700 more by the end of 1994. It has shut down the executive dining room and sold the corporate jet (but kept a helicopter). It's evaluating all its businesses and is set to exit its index-fund operation, which accounted for $2.6 billion of the $17 billion of assets under Travelers' management.
LOOKING UP. The result: After three years of so-so to poor performance, Travelers on July 19 reported a 40% gain in net profits, to $93 million, for its second quarter. Analysts raised estimates of 1993 profits from $1.76 to $2 a share. And Travelers stock jumped to 31 3/8, up 79% since Weill bought in. That's a $571 million profit for Primerica.
Travelers started the restructuring on its own. And it was Budd who went searching for an outside investor. Although Travelers' core insurance operations were sound, underperforming mortgage loans and souring real estate had topped $5 billion. The company's $658 million loss last year included a $485 million addition to real estate loss reserves. At one point, Budd even considered selling Travelers.
Instead, he found Weill. Primerica's boss isn't wielding the draconian blade many expected. But Primerica Vice-Chairman Robert I. Lipp, appointed to oversee the Travelers investment, spends two days a week at the insurer. Another Primerica executive, Frank G. Zarb, was named to Travelers' operating committee--giving Primerica five members to Travelers' four.
Weill says Budd still calls the shots, and others play down the committee's preeminence. But Weill admits he's pressuring Travelers to sell at least $600 million of its problem real estate this year--twice what was sold in 1992.
TESTING, TESTING. Travelers has sold just $100 million worth of assets so far this year, but it predicts an uptick in sales in the second half. There had better be. "Right now, they know the big issue is real estate," says A.M. Best's Mayewski. The weak property portfolio has kept Mayewski and other credit raters from upgrading the insurer. Best has given the company's insurance operations a grade of A-. That, in turn, has hurt Travelers' ability to attract investment assets. Its assets under management dropped to $17.1 billion on June 30, down from $18.8 billion a year earlier.
Weill also wants to combine more of Travelers' operations with Primerica's. The companies plan to push Travelers variable annuities and life insurance policies through Primerica's network of 10,900 Smith Barney Shearson Inc. brokers. Commercial Credit Co., Primerica's consumer finance company, is testing the sale of Travelers' home insurance to customers in Indiana. And Shearson mutual funds may someday be sold by Travelers agents. "There are lots of ideas for distribution of Travelers products through Primerica's distribution system, and vice versa," Lipp says.
Travelers and Primerica must still rationalize their overlapping insurance empires. One thing they won't do is combine any of Travelers' operations with those of Primerica Financial Services, formerly the A.L. Williams Life Insurance Co., which serves lower-income consumers. Whatever they do, expect Sandy Weill to be in the thick of the decision-making. Budd may have the last word, but he still talks to Weill. A lot.