We want to remind you of Deutsche Bank’s continuing ownership of 19 casinos in Las Vegas, Nevada. The bank did not disclose it owned casinos in its 2014 annual report, nor did it mention it in the recent announcement regarding anticipated impairment charges on October 7th.

Deutsche Bank currently owns 25% of the economic interests in Station Casinos LLC.[i] Station Casinos owns 19 casinos in Las Vegas including the 495-room Green Valley Ranch, the 796-room Red Rock, and the 1,011-room Palace Station. The company operates 19,465 slot machines and 310 table games at its Las Vegas properties and had over $1.29 billion in net revenues in 2014.[ii]

While this is not the only time that Deutsche Bank has been a “casino bank” in a literal sense, we are alarmed by its continuing ownership in 19 Las Vegas casinos, which should be a non-strategic asset for Germany’s largest lender. Deutsche Bank became the owner of the Cosmopolitan of Las Vegas after the developer defaulted on a $768 million construction loan provided by the bank.[iii] Deutsche Bank invested nearly $4 billion dollars in the Cosmopolitan,[iv] never turned a profit,[v] and sold the casino for $1.73 billion in May 2014.[vi] The sale was representative of the bank’s cost-cutting plan to dispose of Non-Core Operations Units.[vii] Deutsche Bank has begun narrowing its operations with plans to sell more non-core assets such as Postbank, Abbey Life, and its stake in Hua Xia Bank Co.[viii],[ix],[x] In spite of the recent announcement by Station Casinos that it was preparing for a public offering, it is unclear whether the bank intends to sell its stake in the casino firm.

Deutsche Bank’s continuing legal and regulatory troubles have led to questions about the bank’s suitability as a participant in Nevada’s gaming industry. The Culinary Workers Union, which represents 55,000 workers in the state, has issued repeated requests calling on state gaming regulators to investigate and call Deutsche Bank forth for a licensing hearing and suitability review (http://www.dbriskalert.org/dbra-reports/). As reported by Bloomberg: “When someone presents us with information alleging that a licensee has done something inappropriate, we independently investigate that,” [Nevada Gaming Control Board Chairman A.J.] Burnett said in an e-mail. “Here, we have not reached any conclusions.”[xi]

As investors wait for new Mr. Cryan’s strategy to streamline Deutsche Bank’s operations, it is important for investors to know why Deutsche Bank continues to hold ownership in a Las Vegas casino company.[xii] (JP Morgan, which also acquired an ownership stake in Station Casinos as a result of the company’s bankruptcy reorganization in 2011, sold its ownership stake in 2012.[xiii])

We encourage you to ask Mr. Cryan directly about the bank’s Las Vegas casino ownership and the risk of potential regulatory investigation in Nevada. For instance:

  • How much is Deutsche Bank’s stake in Station Casinos worth?
  • Is the bank being investigated by Nevada gaming authorities as a casino owner, given the concerns the Culinary Union has raised with regulators?
  • What potential liabilities does an investigation by gaming regulators present to Deutsche Bank?
  • Is casino ownership going to be part of Mr. Cryan’s new strategy for Deutsche Bank?
  • If casino ownership is not going to be part of Mr Cryan’s strategy for Deutsche Bank, when will the bank dispose of its stake in Station Casinos?

Furthermore, after Deutsche Bank’s Oct. 18th announcement on an overhaul of its senior management and a major restructuring of its business divisions, it is unclear who at the bank is responsible for the 25% stake in 19 Las Vegas casinos.[xiv] Is Jeff Urwin responsible as the new head of the Corporate and Investment Banking unit? Is it Jacques Brand, who continues to oversee U.S. operations? Or is it Mr. Cryan, who has assumed responsibility of the Non-Core Operations Unit?

 

Notes:

[i] Station Casinos LLC. SEC Form 10-K. March 10, 2015. Pg. 81.

[ii] Station Casinos LLC. SEC Form 10-K. March 10, 2015, Pg. 31.

[iii] Craig, Susanne. Deutsche Bank’s $4 Billion Las Vegas Bet. New York Times. April 18, 2014. http://dealbook.nytimes.com/2011/04/18/deutsche-banks-4-billion-las-vegas-bet-3/

[iv] Berzon, Alexandra, and A.D. Pruitt. Deutsche Bank Doubles Down With a Casino. Wall Street Journal. November 17, 2010. http://www.wsj.com/articles/SB10001424052748703628204575619044069421202

[v] Palmeri, Christopher, and Beth Jinks. Deutsche Bank Said to Seek Sale of Cosmopolitan Resort. Bloomberg Business. April 16, 2014. http://www.bloomberg.com/news/articles/2014-04-16/deutsche-bank-said-to-seek-sale-of-cosmopolitan-las-vegas-resort

[vi] de la Merced, Michael J. Deutsche Bank to Sell Cosmopolitan Casino to Blackstone. New York Times. May 15, 2014. http://www.forbes.com/sites/greatspeculations/2014/05/20/deutsche-bank-finally-sells-cosmopolitan-for-1-73-billion/

[vii] Trefis Team. Deutsche Bank Finally Sells Cosmopolitan For $1.73 Billion. Forbes. May 20, 2014. http://www.forbes.com/sites/greatspeculations/2014/05/20/deutsche-bank-finally-sells-cosmopolitan-for-1-73-billion/

[viii] Henning, Eyk. Deutsche Bank Leaning Toward Disposing of Postbank. Wall Street Journal. April 19, 2015. http://www.wsj.com/articles/deutsche-bank-leaning-toward-disposing-of-postbank-1429376182

[ix] Comfort, Nicholas. Deutsche Bank Said to Mull Sale of Abbey Life Insurance Unit. Bloomberg. October 11, 2015. http://www.bloomberg.com/news/articles/2015-10-11/deutsche-bank-said-to-weigh-sale-of-abbey-life-insurance-unit

[x] Bloomberg News. Deutsche Bank May Swell $14 Billion Selloff in China Bank Stakes. Bloomberg. October 8, 2015. http://www.bloomberg.com/news/articles/2015-10-08/deutsche-bank-may-swell-14-billion-selloff-in-china-bank-stakes

[xi] Palmeri, Christopher. Deutsche Bank’s Casino Investment Challenged Over Libor Plea. Bloomberg. July 9, 2015.

http://www.bloomberg.com/news/articles/2015-07-10/deutsche-bank-s-casino-investment-challenged-over-libor-plea

[xii] Henning, Eyk. Deutsche Bank CEO Warns Staff Not to Expect ‘Sweetness and Light.’ Wall Street Journal. July 1, 2015. http://www.wsj.com/articles/deutsche-banks-new-co-ceo-delays-strategy-update-1435739327

[xiii] Station Casinos LLC. SEC Form 10-K. March 22, 2013. Pg. 12-13.

[xiv] Deutsche Bank AG. SEC Form 6-K. October 19, 2015.