The Fall of a Billionaire’s Wife

 

 

By Robert Frank 

When media billionaire John Kluge and his wife Patricia divorced in 1990, she walked away with a settlement reported to be more than $1 billion.

Now, her 45-room Virginia estate has been sold off after foreclosure and her prized vineyard and luxury-real estate development have been seized by creditors. She has even sold off jewelry and antiques.

According to an article in The Washington Post, Ms. Kluge and her husband have “decamped to a $3 million spec home” behind their failed development.
So how does someone go from billionaire to debtor?
According to the Post piece, it was a combination of a “tanking economy, an ill- timed expansion and other bad business decisions.” I would add a fourth factor that was probably the most important: debt.

Ms. Kluge owed more than $60 million in loans to various banks and lenders. Among them:
A reported $34 million from the Farm Credit of the Virginias for the 960-acre Kluge Estate Winery Vineyard. The bank is now operating the winery and plans to sell it at an auction scheduled for April 9.
Ms. Kluge owed $23.9 million in unpaid principal and interest on a a loan Bank of America against her mansion, Albermarle House.

An $8.5 million loan from Southern National Bancorp of Virginia Inc. on a 22-lot development property called Vineyard Estates.

Of course, $60 million in loans may have been manageable as long as they were covered by the value of her assets. Yet Albermarle House, which first went on the market in 2009 for $100 million, was bought by Bank of America for $15.3 million.

The Vineyard was selling only half of its production and the luxury real-estate development ran smack into the housing bust.

The lesson: No matter how rich you might be, or how much you think your assets are worth, you are only as smart as your debt. It is a lesson even billionaires can easily forget.

The 25 Best Financial Blogs

The thinking man's finance blog it is not. But if you are looking for all manner of business and economic news, as well as Wall Street gossip and what's hot on the Web, Business Insider is the best place to go. Unfortunately, more and more of the content on the blog is basically plucked from elsewhere without a lot of original analysis or reporting. But Business Insider, which is headed by former Wall Street analyst Henry Blodget, does a good job of picking its stories. A recent photo gallery of what hotels look like in brochures versus what they look like in person was a lot of fun. And when Blodget does write, it is usually worth the click. A recent story on why an analyst was fired from Merrill Lynch — a subject Blodget knows a lot about — for writing negative reports about Irish banks was a very good read. Along with Blodget the site has a reliable market commentator in Joe Weisenthal, though the length of his articles, like those on the rest of the site, seems to have dramatically shrunk. Add that up along with a usually insightful daily chart, and Business Insider is well worth the regular visit.

Read more: http://www.time.com/time/specials/packages/article/0,28804,2057116_2057343_2057278,00.html #ixzz1G3EP4Y2z

Preview: Next Week’s Saudi ‘Day of Rage’

All eyes are on Saudi Arabia right now, especially on Wall Street, as an upcoming planned protest there could send shockwaves through global markets.  Here are some items for investors to be aware of:

1.  There are actually two planned protests being organized on Facebook in Saudi Arabia – one on March 11th followed by one on March 20th.

2.  Unlike what we’ve seen in Libya and in Egypt, the demands of the protesters are not quite so ambitious as to call for an overthrow of the ruling royal family.  Rather, the 17,000 or so members of the Facebook group would like to see free elections for some of the higher government positions and more representation of the people.

3.  The Saudi ruling class has just committed to a $37 billion bribe for their subjects and is expected to announce a cabinet shuffle – both ploys aimed at calming the populace down ahead of any protests.  They have also offered a 15 percent salary hike for public employees to “offset inflation” and to release scores of people from their state-run debtors’ prison.

4.  60% of Saudi Arabia’s population of 18 million people is under 30.  The official statistics say that Saudi Arabia has an 11% unemployment rate, critics scoff at the legitimacy of those numbers.

5.  The two possible hotspots for democratic protest are Riyadh (4 million  people) and Jeddah (2 million people).  The Shia underclass, inhabitants of the oil rich Eastern Province, are also expected to hold their own demonstrations.

6.  King Abdullah is said to have a personal net worth of $21 billion.  He is 86 years old and his successor is 82 years old.

7.  Saudi Arabia produces 8 million barrels of crude oil a day, roughly 10 percent of the world’s daily consumption.  One fifth of the world’s known oil reserves sit beneath Saudi Arabian soil.

8.  Crude oil futures are now trading above $100 a barrel for the first time in almost 3 years ahead of next Friday’s first Saudi Day of Rage.

9.  While the protests are meant to be peaceful, organizers are alleging that Faisal Ahmed Abdul-Ahadwashas has already been shot.  He was 27-years-old and one of the administrators of the Facebook group, his fellow activists say that his body has been hidden by state security.

Josh Brown- Forbes