CS calling BS on the Macau story
UPDATE: Macau Spooked By Beijing’s Illicit Fund Crackdown; No News, Says Credit Suisse
Beijing will launch a major crackdown on the multibillion-dollar flow of illicit funds through Macau casinos, according to South China Morning Post.
The newspaper’s Niall Fraser wrote:
The unprecedented move – confirmed by documents seen by thePost that were sent to Macau’s banks late yesterday by the city’s monetary authority – turns up the heat on controversial VIP junket operators who generate the bulk of Macau gaming revenues as they come under increasing law enforcement scrutiny amid the “tigers and flies” anti-corruption drive by President Xi Jinping.
According to sources with knowledge of the situation, the new security drive will give the ministry’s Economic Crimes Investigation Bureau electronic access to all transfers through the state-backed China UnionPay bank payment card to identify suspicious transactions.
The key involvement of the Ministry of Public Security – which met with senior Macau officials last month to hammer out the details of the crackdown – also provides confirmation of the long-held belief by many in law enforcement that Macau casinos are a major conduit for capital flight from the mainland.
When told of the plan yesterday, a senior casino industry insider told thePost: “This is big. They’re calling it the ‘new normal’ here in Macau. This is direct control over transactions by the Ministry of Public Security. It’s serious and key people are going to be scared.”
China’s President Xi Jinping will visit Macau later this week for the ex-colony’s 15th year anniversary of return to China and UnionPay is China’s monopoly credit card payment system.
This headline news from Hong Kong’s largest English-language newspaper spooked the market this morning and Macau stocks fell. Galaxy Entertainment (0027.HK) fell 7.5%. Wynn Macau (1128.HK), part of Wynn Resorts (WYNN), dropped 4.9%. MGM China (2282.HK), a subsidiary of MGM Resorts (MGM), retreated 7.5%. Sands China (1928.HK), part of Las Vegas Sands (LVS), was down 5.4%. Melco Crown’s (MPEL) Hong Kong listed shares fell 4.6%.
UPDATE: South China Morning Post’s story is no breaking news, according to Credit Suisse‘s Kenneth Fong and Isis Wong, who questioned the validity of the newspaper’s claims.
“We checked with several sources including banks, pawn shops and casinos, none of them has heard of the notice and the new measures. One of the Macau based Chinese bank management we talked to said he has NOT received such a notice from the Macau monetary authority,” according to the analysts.
The chance of an electronic tracking of UnionPay transactions is also low:
Union pay is a form of China debt card. As such, all the Union Pay transactions should already be recorded in both China and Macau banks. We believe that if the China authority wants to monitor suspicious transactions, they don’t need to involve the Macau Monetary Authority as stated in the news article. For example, we heard several cases that the some of the players’ China bank accounts are frozen for people having consistent and big transactions in Macau. Besides, there are already existing procedures in place in the Macau banking system to monitor suspicious transactions. As such, we believe this is not a new procedure.
For the transactions going through Union Pay, the pawn shops will normally charge a 3-5% transaction costs. As such, Union Pay is an expensive way to transfer a large amount of money out of China. In fact, for most of the Macau VIP, they normally use the credit junkets extended to gamble instead of transferring physical cash through Union Pay. This is the same case for high end premium mass players. As such, if the authority really wants to target the big and suspicious monetary transactions or the “tiger” mentioned in the article, Union Pay may not capture those.
