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Vegas Casinos Fold on Expansion Plans - (online.wsj.com) After a six-year building frenzy that transformed this city, casino companies are shifting strategies dramatically toward slower growth, paying down debt and cutting back on spending. Many casino executives don't expect to break ground on another major building project in Las Vegas for at least 10 years. "The old model has been thrown out the window," says MGM Mirage Chief Executive Jim Murren. For most of this decade, casinos embarked on a debt-fueled expansion, plowing more than $30 billion into casino and hotel projects around Las Vegas. When the economy collapsed, it left casino companies with dwindling revenues and mountains of debt. Several entered bankruptcy-court proceedings. Now, casino companies are eschewing capital-intensive projects to focus on increasing profit margins through branding, marketing and customer loyalty. MGM Mirage spent the past few years planning an $8.5 billion hotel and casino complex called City Center, slated to open later this year. But in the future, it will adopt a more conservative strategy of trying to lure more customers to its existing properties, "and it doesn't take a $3 billion building to do it," Mr. Murren says. The new approach represents a challenge for an industry that has relied on glitzy casino and hotel openings as one of its primary draws. "It's the theme-park dilemma," says Robert LaFleur, an analyst for Susquehanna Financial Group. "You've got to build a new roller coaster. Everyone likes to go but you need a reason to keep them going back." In the past, Las Vegas was considered fairly recession-proof as gamblers returned to the city despite economic downturns. But the industry's reliance on non-gambling revenue from hotels and restaurants and other entertainment means it is more dependent on business and leisure tourism than in the past.
Goldman to be paid $1bn if CIT fails - (www.ft.com) Goldman Sachs stands to receive a payment of $1bn – while US taxpayers would lose $2.3bn – if embattled commercial lender CIT files for Chapter 11 bankruptcy protection, people familiar with the matter said. The payment stems from the structure of a $3bn rescue finance package that Goldman extended to CIT on June 6 2008, about five months before the Treasury bought $2.3bn in CIT preferred shares to prop it up at the height of the crisis. The potential loss for taxpayers would be the biggest to crystalise so far from the government’s capital injection plan for banks. The agreement with Goldman states that if CIT defaults or goes bankrupt, it “would be required to pay a make-whole amount” that totals $1bn, the people familiar with the matter said. While Goldman is entitled to demand the full amount, it is likely to agree to postpone payment on a part of that sum, these people added. A CIT filing last week said that it was in negotiations with Goldman “ concerning an amendment to this facility”. Goldman said: “This would not be a windfall payment. The make-whole payment is simply the present value of the spread to be earned over the life of the facility.” CIT declined to comment. In an effort to prevent bankruptcy, it is working on a debt exchange offer that would virtually wipe out equity holders. In the event of bankruptcy, Goldman would reap more than $1bn because it also holds credit insurance that would be paid off. Goldman said: “The credit default swaps Goldman Sachs purchased to prudently manage the risk associated with the CIT financing are not a directional ‘bet’ on CIT, but were bought to protect against the possibility of a precipitous decline in the value of the collateral.”
HSBC chief fears a second downturn - (www.ft.com) Michael Geoghegan, chief executive of HSBC, is so convinced there will be a second downturn in the coming months that he plans to delay any rush to expand the bank. “Is this a V recovery or a W?” Mr. Geoghegan asked in an interview with the FT. “[I think] it’s the latter. [If I’m right], we have to be very careful we don’t grow the balance sheet so far before the recovery has come only to write it back into the impairment line later on. I’m cautious about growing too fast.” At the same time, Nani Beccalli – head of GE International, who runs the conglomerate’s businesses outside the US – said he was worried that talk of governments preparing exit strategies from the huge amount of cash they have poured into their economies was “premature”. Mr Beccalli was one of the first business leaders to detect “glimmers of hope” in an interview with the FT in March. His concerns come as policymakers face the dilemma of when to withdraw their stimulus packages. Act too soon and they could precipitate a double-dip recession, but act too late and there are worries about a return of inflation and sowing the seeds for the next crisis. Mr. Geoghegan was speaking after HSBC announced a shake-up of its governance 10 days ago. He is now responsible for strategic issues that previously lay with Stephen Green, chairman. “I’m not as convinced we’re through the worst as others are. The reality is that profits will be quite reduced.” His comments come in spite of expectations that in his amplified role he will push HSBC to grow more aggressively.
California Blunts Budget Cuts - (online.wsj.com) California continues to kick their budget cuts down the road to future years. California officials are finding ways to avoid some of the dire consequences that were expected from closing the state's $24 billion budget gap. For most of the summer, state agencies and constituents had feared the worst as lawmakers hacked $16 billion from programs in order to close the deficit. But through a combination of new legislation, funding shifts and other cuts, the state has so far mitigated the potential effects of three significant budget reductions. The most recent move came two weeks ago, when Republican Gov. Arnold Schwarzenegger announced he wouldn't close 100 state parks as part of a $14.2 million cut to the Parks Department's budget. That followed new legislation passed last month that restored $196 million to California's Healthy Families insurance program. And in August, a planned cut of $7 million for an airplane used to fight wildfires was also restored through emergency funds. When the budget was passed in July, critics decried the deal as "catastrophic" and "devastating." But some of the grim impacts that many prognosticated haven't come to pass because cuts can change after a budget is passed, said Daniel J.B. Mitchell, professor emeritus in the UCLA School of Public Affairs. Sometimes, threats at the time of a budget's passing are "kind of a negotiating thing," he added. Not all state programs have been able to sidestep the cuts. A nearly $2 billion budget reduction to the state's higher-education systems has led to faculty furloughs and fewer class offerings. A $1.2 billion cut to the state's Department of Corrections and Rehabilitation has triggered the elimination of more than 1,800 positions. Aaron McLear, a spokesman for Gov. Schwarzenegger, said the state wasn't able to fund all the programs it has in the past but added that "if we can mitigate the effects of these budget cuts, we want to do that." In the case of the state parks, the California Department of Parks and Recreation said in July that a $14.2 million funding cut meant 100 of the state's 279 parks would close. But in late September, the state determined that if the Parks department reduced maintenance, stopped new equipment and vehicle purchases, and trimmed hours of operation at most parks, that would be enough to keep all state parks open. The state lopped $178 million from the Healthy Families insurance program, its version of the federal Children's Health Insurance Program, in July. The cut sparked concerns that more than 700,000 California children would lose health insurance. "That's when reality set in," said Democratic Assembly Speaker Karen Bass.
Treasury to say 3 more funds to buy toxic assets - (www.reuters.com) The U.S. Treasury Department will announce on Monday that three more funds have met requirements to get government financing that will let them begin purchases of banks' so-called toxic assets. Treasury said last Wednesday, which was September 30, that Invesco Ltd and Trust Company of the West, or TCW, were the first of nine public-private investment funds to raise the necessary capital to launch the program for buying toxic assets. Three more -- AllianceBernstein LP and its sub-advisors Greenfield Partners LLC and Rialto Capital Management LLC; BlackRock Inc and Wellington Capital Management -- each will be named on Monday as also having raised enough capital to participate in the program. The Public-Private Investment Program, known as the PPIP, has been scaled back as banks have shown they can raise capital in the private sector without first unloading troubled assets, many of which are tied to bad mortgages. When the plan was announced in March, Treasury hoped the funds could take up to $1 trillion of toxic assets from banks' balance sheets. But that target is now around $40 billion, made up of private and public investment plus debt financing. Treasury provides debt financing for up to 100 percent of the total capital commitments of funds in the program, representing about $12.25 billion of total debt and equity commitments from the first five funds now participating in the program.
Bair Says Secured Creditors Should Help Pay for Bank Failure - (www.bloomberg.com) Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators should consider making secured creditors carry more of the cost of bank failures. “This could involve potentially limiting their claims to no more than, say, 80 percent of their secured credits,” Bair said in a speech to a banking conference in Istanbul yesterday. “This would ensure that market participants always have some skin in the game, and it would be very strong medicine indeed.” Bair’s comments go beyond any of her previous proposals for changing the way large and so-called systemically important financial institutions are regulated. She has long supported broadening the government’s powers in order to limit the impact on the financial system of an event such as last year’s bankruptcy of Lehman Brothers Holdings Inc. The proposal would probably increase banks’ cost of funding and make it harder to find long-term financing because creditors would be watching closely for any signs of trouble, said William Black, associate professor of economics and law at the University of Missouri-Kansas City and a former U.S. bank regulator. “It would make it gratuitously more expensive for banks to raise funds, even on a secured basis,” Black said. Bair, while acknowledging her proposal could increase borrowing costs for banks, said it might encourage them to reduce their reliance on short-term funding while making the broader financial system more resilient. She also said it might reduce the burden of a failure on unsecured creditors, who would then be less likely to press for a government bailout.
OTHER STORIES:
Lehman Administrator Looks to Dole Out Assets – (www.cnbc.com) The administrators of Lehman Brothers' European assets may seek a direct agreement with hedge funds and other creditors to return money tied up since the firm's collapse.
US Officials Exaggerated Banks' Health: Watchdog – (www.cnbc.com)
Unemployment to Rise Through Most of 2010: Roubini – (www.cnbc.com)
Euro Banks May Have to Raise $78 Billion: JP Morgan – (www.cnbc.com)
Dollar Falls as G-7 Leaders Refrain From Criticizing Weakness - (www.bloomberg.com)
World stocks flirt with gains, dollar weak - (www.reuters.com)
Borrowing for Dividends Raises Worries - (online.wsj.com)
Buyout Firms Profited as a Company’s Debt Soared - (www.nytimes.com)
IMF Gets New Role of Serving the G-20 - (online.wsj.com)
Red Miniskirts Eclipse Mao Jackets at China Bash: William Pesek - (www.bloomberg.com)
China Yearns to Form Its Own Media Empires - (www.nytimes.com)
European Manufacturing, Services Expand, PMI Shows - (www.bloomberg.com)
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