From Russia With, Er, Oligarchs
By Thomas Heath
I talked to Joseph E. Robert Jr., chairman and founder of J.E.R. Companies, the McLean-based real estate firm, today. Robert had just returned from an "intelligence gathering" business trip to Russia, London and other points east.
He declined to discuss his company's earnings, which came in today and appear disappointing.
JER Investors Trust, a publicly held specialty finance company, had a third quarter net loss of $35 million compared to a net income of $10 million for the same three months a year ago, according to a company press release. The company has had a net loss of $73 million for the nine months ending in September compared to a $30 million net income for the same period a year ago.
JRT was down about 26 percent in later afternoon trading.
It looks like the company is getting buffeted by the same economic crisis that is slowing everything else down. The company executives said on a JRT conference call with analysts that they are not anticipating a turnaround in the economic cycle this year but are hopeful that the credit crisis may end and lending pick up in 2009.
"We prepare for the worst and hope for the best," JER Investors Trust President Mark Weiss said on today's conference call.
Robert said in a telephone conversation later that his view of the global economy is bleak. He said there are freighters off Russia's shores waiting for letters of credit that would allow them to unload their goods.
"There is no economic bright spot in the world," he said, adding that he spent most of his time on his recent trip in Moscow in meetings. "You are seeing quietly in Russia that people are doing things that they were not doing before, such as hoarding salt, sugar and flour. The population is beginning to brace for tough times ahead...preparing for a significant economic downturn. But this is a population that is used to hard times."
Robert can riff for hours on the Russia ruble and exchange rates and how the country is burning through its foreign currency reserves at a rate of $20 billion a month. The drop in the price of oil is also hurting Russia because it makes so much of its foreign currency from the export of petroleum.
What really caught my attention was when Robert told me that Mikhail Fridman, a Russian oligarch estimated to be worth around $20 billion by Forbes magazine, is one of his business partners in Russia.
Fridman had been in the news earlier this year because he is a part-owner of Russia's third largest privately-owned oil company TNK-BP, which is a joint venture between Fridman and two other Russian billionaires and BP, the British oil company formerly known as British Petroleum.
Fridman and his allies got into a nasty dispute with BP over control of TNK-BP earlier this year over strategic decisions. It looks like the Russians have won this round, forcing a change of management at the top.
I asked Robert what effect the Russian economy would have on the United States.
"I'm not sure the Russian economy has much impact, if any, on the U.S. economy, except to the level of fear in the market about countries that were seemingly quite healthy six months ago and could be running into serious trouble now."
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