As if things weren't bad enough with the worst recession in 75 years, the political backlash on lavish spending by financial institutions receiving government aid was a further blow to operators of luxury hotels and resorts like the Tisch family's Loews Corp, writes Darrell Delamaide.
Loews, founded by James Tisch's father, Laurence, and his brother, Preston Robert, 60-some years ago, has been battered by the economic downturn. The stock has plummeted more than 35% over the past year, squeezing even so well-endowed a family as the Tisches, who still own 24% of the business.
A company that began with Larry and Bob buying up luxury resorts, hotels and Loews movie chain grew into a behemoth that diversified into tobacco, insurance and offshore drilling. Larry was a controversial head of the CBS television network from 1986 to 1995.
The current recession seems designed to clobber Loews' holdings. Hotel occupancy nationwide fell to 55% in March, down 12 percentage points from a year earlier, as business and leisure travel both declined precipitously. CNA Financial Corp, a Chicago-based property and casualty insurer, in May reported a loss of $195 million for the first quarter, compared with a profit of $187 million a year earlier, for its third unprofitable period in a row. Diamond Offshore Drilling, a leading deepwater oil driller, managed to buck the decline in oil prices to boost revenue and profit but other energy units were hit by the price declines. Loews divested its Lorillard Tobacco unit in 2008.
The Tisches are often compared to Warren Buffett, following a similar strategy of investing in a few key industries and holding on to them as they grow in value, and then exiting in timely fashion. Even Buffett's Berkshire Hathaway has suffered losses in the recession and that iconic stock is down more than 25% on the year. The normally festive shareholders meeting in Omaha, Neb, was a much more sober affair this May as a result, and Buffett said he had not covered himself in glory during the past year.
Jim Tisch was more upbeat in his 4 May conference call with analysts to discuss first-quarter earnings for Loews Corp. "The Wizard of Oz famously said, 'Pay no attention to that man behind the curtain,' and I feel like saying that today with respect to our first quarter earnings," he said. "Our subsidiaries are in good shape relative to the current business environment and are doing much better than what's reflected by the earnings reported today."
Loews reported a first-quarter loss of $647 million, or $1.49 a share, compared with a profit of $409 million, or 77 cents a share, in the year-ago period. Total revenue for Loews fell 16% to $3.02 billion in the first quarter from $3.61 billion.
But the Tisches have a track record, and a certain resilience is built into the genes. Loews is managed conservatively, with relatively little leverage and had a cash hoard of $4 billion in December.
Larry Tisch died in 2003, and Bob followed him two years later to the day. Their heirs were seven Tisch children and 23 grandchildren. Jim became CEO of Loews while Bob's son Jonathan became chief executive of the hotels. A third son, Andrew, became chairman of the executive committee on the Loews board, and all three sons became equal members of the office of the president – a power-sharing arrangement designed to head off family discord.
Jim, now 56, and his wife Merryl, are the power couple of the clan. They maintain the strong philanthropic tradition that has made the family one of the biggest donors in the country, particularly for Jewish causes – Merryl's father is a rabbi. According to a recent newspaper account, the 82-year-old rabbi still comes to breakfast every day at his daughter's house and drives Jim to work.
The couple recently pledged $40 million to Mt. Sinai Medical Center in New York and last fall bought a Fifth Avenue townhouse with 12,000 square feet and nine fireplaces that they are now renovating, so it doesn't seem at first blush that the recession has put a crimp in their personal finances.
With US government officials growing more optimistic about the prospects for economic recovery, it may be that Jim Tisch is right to ignore that man behind the curtain. If the economy picks up on schedule, it looks like the Tisch family's life in Oz may continue unimpaired.