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BusinessWeek: January 28, 1991 |
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Finance
THE BELZBERGS' BATTERED EMPIRE Not too many years ago, the mere hint that brothers Samuel, William, and Hyman--a trio of scrappy entrepreneurs from western Canada--were stalking a U. S. company would send the executive suites into panic. In the heyday of corporate raiders, the Belzbergs ran with the likes of T. Boone Pickens Jr., Irwin L. Jacobs, and Carl C. Icahn. But these once dreaded raiders don't look so fearsome anymore. On Jan. 11, the U. S. Office of Thrift Supervision seized Far West Savings & Loan Assn., the main holding of Far West Financial Corp., which is 57% owned by the family and chaired by William Belzberg. The thrift, said the regulators, was operating in an "unsafe and unsound condition." The bailout could cost taxpayers as much as $500 million, estimates Miami thrift consultant Kenneth H. Thomas. DEEP SLUMP. "Sure, it's a personal blow to their egos and to their pocketbooks," says Alan C. Greenberg, chairman of Bear, Stearns & Co., the Wall Street securities firm that has worked for the Belzbergs. "But remember there is no mention of theft or impropriety here." The loss is estimated at $25 million. A Belzberg spokesperson said there would be no comment on the seizure. Business isn't so great back on their home turf either. First City Financial Corp., the Canadian holding company run by brother Sam Belzberg, is in a deep slump, too. (First City has no corporate connection with Far West.) The shares, which traded at about $11.50 (Canadian) at the start of 1990, now go for about $4.50. That cut the value of the Belzbergs' 79% interest in the company from nearly $500 million to less than $200 million. The company reported losses of $165.6 million (Canadian), or $3.16 per share, for the nine months ended Sept. 30. Part of the problem is the recession in Canada. First City, which once profited from Belzberg bids on such companies as Gulf Oil and Bache Group, has lost money on such ventures in recent years. Indeed, the last big windfall was the $15.4 million (U. S.) the company made in 1986 from a run at Ashland Oil Inc. That victory soured when a U. S. judge found that First City concealed the extent of its ownership in Ashland, forcing the company to disgorge $2.7 million. The brothers' unsuccessful fight for Armstrong World Industries Inc., the flooring manufacturer, resulted in an $18.5 million (Canadian) loss for First City last year. An ill-fated investment in Britain's ASDA Group PLC, a supermarket chain, was also dumped last year, at an estimated loss of $65 million (U. S). To stem the losses, First City said it would quit the securities-trading and investment business and stick to its core trust and real estate operations. It took a $48.4 million (Canadian) provision for expected securities losses. Says Eric W. Evans, a First City vice-president: "We're going to refocus the company, and we expect to be profitable in 1991." HAUNTED. While First City recently injected $25 million in capital to bolster its First City Trust subsidiary, the Belzbergs' refusal to pump capital into Far West is what led to the government takeover. "Why should they throw $300 million down a rat hole?" asks Bert Ely, an Alexandria, Va., thrift consultant. Far West, with $3.8 billion in assets and 28 branches throughout Southern California, was one of the thrifts that loaded up on the junk bonds that poured out of Drexel Burnham Lambert Inc.'s Beverly Hills office in the 1980s. The junk portfolio, valued at $668 million, is now worth less than half of that. The thrift's commercial mortgages also came back to haunt it. Loans on apartments, shopping centers, and other properties in California and Colorado were the most troublesome. Another Belzberg company, Industrial Funding Corp., is closing offices and cutting staff. The Portland (Ore.) leasing company only went public in December, 1989, selling shares at $12.25 each. Today, they trade below $2. The Belzbergs' raiding days may be history, but it's hard to imagine them sticking only to such mundane First City businesses as home mortgages and savings accounts. Indeed, First City's investment-banking arm has formed a joint venture with American Capital and Research Corp., a Fairfax (Va.) environmental-engineering firm. The idea, says CEO James O. Edwards, is for American Capital to design, build, and operate such facilities as waste-water treatment plants and for First City to provide the financing for the projects. While the venture looks intriguing, it has yet to pitch a deal. And even if it gets going, a Belzberg-backed sewage plant isn't likely to strike fear in the boardrooms of Corporate America. | |
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