Aug 28, 2012
Las Vegas Sands (NYSE:$LVS) is currently under investigation from U.S. Justice Department for its alleged involvement in money laundering. The U.S. attorney's office in Los Angeles is investigating two instances of laundered money transferred to its casinos by high-rolling Las Vegas gamblers: one by a Mexican pharmaceutical businessman in mid-2000s, who in 2007 was indicted on drug trafficking and another by a California executive with Fry's Electronics.
According to the reports LVS high profile CEO Sheldon Adelson has not been included in the investigations yet. Adelson’s connections to various factions of the Republican party have been well-documented having spent more than $100 million influencing first the primaries and second the general election for nominee Mitt Romney. Given the proximity to the presidential election one has to wonder about the timing of this investigation.
The same thing can be said in many ways about the money laundering charges being leveled at HSBC (NYSE$:HBC) and Standard Chartered Bank. That investors have to handicap a company’s stock performance based on the level of their contributions to particular U.S. political figures says something even less salutary about the U.S. political system than what’s been said about the banking industry in the past 5 years.
Responses and Effects
These allegations of money laundering given authorities the wherewithal to focus on other casinos as well and raises concern that the industry as a whole lacks proper auditing to overcome money laundering and other illegal activities.
Singapore has introduced new and stricter rules for its casinos both to limit the deleterious effects of gambling on the island nation’s community as well send a strong signal that certain types of business are not welcome. Singapore has made a number of moves to both appearing like they are bowing to international pressure but also setting themselves up as safe and predictable environment for legitimate business activities. The forcing of over-the-counter derivative trading onto publicly cleared exchanges is another example of this.
Las Vegas Sands Corp. owns and operate as several resorts & casinos in Las Vegas, Singapore and Macau. Its Marina Bay Sands is the fastest growing casino/resort in the world which has likely prompted the recent changes by Singapore. Macau a former Portuguese colony near Hong Kong, is the world's biggest gambling market. But last month, according to the data released by Macau gambling authorities, growth was slowest since 2009 global recession with slowdown in China affecting the tourism and gamblers from heading to Macau. For July, revenue rose by 1.5 percent compared to last year. Macau is the only place in China where casino gambling is legal, in 2011 revenue soared 42% to $33.5 billion. This rise has formed the backbone for not only Las Vegas Sands but Wynn Resorts (NASDAQ:$WYNN).
The industry is facing a number of adverse conditions, including investigation, permitting and local politics, in the case of WYNN and a slowdown in Macau. LVS, which owns four casinos in Macau, reported that second- quarter profit fell 34%, which tracks with a drop in the 2nd quarter for Macau in general (11% drop in gambling revenue). Net income for the quarter dropped to $240.6 million or $0.29/share from $367.6 million or $0.45 a year earlier. The main reasons for the dismal performance are as good a channel check on the Chinese economy as reports of electricity usage used to be. Weather played a factor with typhoon activity suspending ferry service, but that should be reflected seasonally. Revenues for the quarter grew by 10% to $2.58 billion.
Wynn’s results were no better reporting a fall in revenues for the second quarter on lower gambling revenue in Las Vegas and Macau. Earnings were up but top-line revenue was down by 10%.
As the failures of politicians to solve economic problems of their devising through their interventions in the economy mount there will be a commensurate increase in their looking for scapegoats to deflect blame. Many the opportunistic Senator, MP or even PM will be out in full force to prove they are tough on crime in an attempt to grasp for votes and avoid the responsibility of their ineptitude.
It’s a story as old as the hills and gambling tycoons who ally themselves against the incumbent are convenient targets as are London-based banks that don’t lobby and handle accounts for those who engage in activities that may run counter to failed domestic (Drug War) and foreign policy initiatives (Sanctions vs. Iran) that still have cache with the voting public. While obvious theft by U.S. banks like JPMorgan (NYSE:$JPM) during the MFGlobal and Peregrine Financial meltdowns go unprosecuted and remain unresolved and nothing is being done to investigate the role of U.S. banks like Citigroup (NYSE:$C) in the manipulation of LIBOR.