This Is Why MGM Resorts Shares Are Getting Crushed Today
December 8, 2016
MGM Stock Drops Following China Crackdown
Shares of casino operators like MGM Resorts International (NYSE:MGM) stock are getting hammered in response to China’s attempts to address automatic teller machine (ATM)-based crimes.
The Monetary Authority of Macau’s action is understood to be a crack down on attempts by illicit money movers to circumvent Beijing currency controls, according to a report in the South China Morning Post. Earlier this year, the authority introduced a 100,000 yuan cap on UnionPay withdraws. The announcement follows the discovery that as much as 10 billion patacas ($1.3 billion) in China UnionPay ATM withdrawals were made in one month alone. (Source: “Beijing takes aim at Macau gaming industry to cut currency flight,” South China Morning Post, December 8, 2016.)
Beijing is cutting the amount of money account holders of China UnionPay can withdraw from ATMs in half from Macau casinos. The limit imposed by the Monetary Authority of Macau will take effect Saturday, cutting the withdrawal limit from 10,000 to 5,000 patacas ($1,300 to $650).
What has happened is that individuals are turning up at ATM machines with stacks of cards from individual account holders and are withdrawing 10,000 a time.” a Macau industry insider told the South China Morning Post. “The authorities have decided it is time to act and Beijing is backing the move.’’
Based on the market’s reaction, MGM stock could be taking it on the chin. Shares dropped $1.30 per share of 4.3% to $28.65. Rivals Wynn Resorts Ltd. (NASDAQ:WYNN) and Melco Crown Entertainment Limited (NASDAQ:MPEL) dropped 10.6% and 13.5%, respectively.
The development is another blow for U.S. casino operators in China. The industry has invested billions of dollars in the country, seeing a huge expansion opportunity in the world’s biggest gambling market. Recent government crack downs on corruption, however, a resulted in a two year industry slump. Today’s announcement will mean even less disposable cash wagered at U.S. casinos in Macau.
MGM stock could survive the carnage better than most. The company business is primarily based in the U.S., with on a handful of properties in Macau. Owners of MGM stock will have to wait until the companies’ next round of earnings in January to assess the extent of the damage.
