Europe News

Deutsche Bank's 'Casinos' Exposure Hits $4.9 Billion

Matthew Garrahan, Financial Times

Deutsche Bank’s exposure to “casino banking” in Las Vegas has reached $4.9bn, rivalling its exposure to countries affected by the eurozone debt crisis.

The bank has become one of the biggest investors and creditors in the US gambling capital. It has a $3.9 billion credit facility with the 3,000-room Cosmopolitan casino – a wholly owned subsidiary which Deutsche built when the developer defaulted on loans from the bank. It also holds $1 billion of debt, and 25 percent of the equity, in Station Casinos, which owns several casinos in the Las Vegas area.

This compares with Deutsche’s $5.1 billion exposure in the countries affected by the sovereign debt crisis – Greece, Italy, Ireland, Spain and Portugal.

Owning casinos was never part of Deutsche’s strategy in Las Vegas and the bank told the Financial Times the Cosmopolitan – which cost about $4 billion to build – was “neither a strategic nor a long-term investment”.

Las Vegas, described as “ground zero of the world economic crisis” by the Brookings Institution, has been badly hit by the recession and housing collapse.

Unemployment there is the highest in the US, a result of the stalled construction sector which has sent ripples through the local economy.

The slump has put pressure on debt-burdened casino operators and allowed opportunistic investors into the market, such as Carl Icahn, who bought the half-finished Fontainebleau Las Vegas, for a cut-price $156 million.

Deutsche has become the focus of a campaign by one of America’s largest labour unions for resisting workplace recognition at Station.

While Deutsche’s Cosmopolitan property recognises labour unions, Station – which Deutsche owns with the Fertitta brothers – does not.

“We believe Deutsche Bank is uniquely situated to use its influence to resolve the escalating labour dispute at Station Casinos, given its role as a significant owner and largest creditor of the company,” Unite Here said, which represents 250,000 gaming, food service, airport and hotel workers.

Deutsche declined to comment on the Unite Here campaign, or on the extent of its credit exposure in Las Vegas.

However, a spokesman pointed to the bank’s total assets of 1,850 billion euros ($2,500 billion). “You can see that we have a diversified portfolio.”

The opening of the Cosmopolitan at the end of last year added 2,400 jobs to the local Las Vegas economy. But other casino developments were less fortunate. Work on the multibillion-dollar Echelon was suspended, while the Norman Foster-designed Harmon tower, part of MGM Resorts’ CityCenter development, will soon be razed to the ground because of construction problems and safety concerns. The tower has been empty since work finished in 2009.