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|HBOS played leading role in £11.5bn loans to US gambling
| Full extent of
failed bank's lending to Vegas casinos and resorts revealed
HBOS, the lender now subsumed into
partially state-owned Lloyds Banking Group, played a major role in loaning
$18.4bn (£11.5bn) to the struggling US casino industry during the height
of the credit boom.
The level of
the bank's involvement in the US gaming sector has emerged after it made a loss
of more than $500m last week on loans it provided to M Resort Spa Casino in Las
Vegas the second massive financial hit Lloyds has taken in America in as
many months. Loans to casino groups accounted for 35% of the value of all US
deals on which HBOS acted as an agent between 2004 and 2007, according to data
held by financial information group Thomson Reuters.
It is not clear
how much HBOS lent to US casinos in total, although it will be only part of the
$18bn as most of the loans would have involved a syndicate of banks. However,
in 2004 and 2005, the US division of HBOS was one of the main banks in a
syndicate arranging loans of $1bn and $2bn to Station Casinos, which filed for
Chapter 11 bankruptcy protection last year, as well as the bank being involved
in a 2007 loan of $430m to Aliante Gaming, a Station subsidiary.
Furthermore, in 2004, HBOS was also among
the banks leading a $680m loan to casino operator Aztar Corporation. Aztar's
owner, Tropicana Entertainment, filed for bankruptcy protection in 2008. Other
HBOS casino customers during the period included MGM Mirage, Wynn Las Vegas and
Penn National Gaming.
Lloyds declined to comment on specific deals but
it is understood that its US casino portfolio has been passed to the bank's
"business support unit" where the lender is reducing its exposure
through sales, restructurings and writedowns. Lloyds has previously said that
impairments on group loans have peaked and are starting to fall.
frequency of HBOS's dealings with US gambling reveals how it entered the
financial crisis with large bets placed on Las Vegas, the centre of the
country's casino industry, which proved to be one of the American cities hit
hardest by the credit crunch.
Las Vegas's ongoing troubles were again
illustrated this week when MGM Resorts reported third-quarter figures in which
casino revenue declined by 9%, slot machine revenue was 3% lower and revenue
per available room on the Las Vegas Strip decreased by 2%. Michelle Chang, an
equities analyst at Morningstar in Chicago, said: "We believe these figures
reflect continued struggles in the Las Vegas market, as the region is dealing
with excess capacity while an economic recovery is still in the early stages."
Last week, Penn National Gaming paid $230.5m for about $860m owed to
HBOS, which included $700m the bank loaned to M Resort plus another $160m loan
that HBOS had acquired from MGM Resorts at an undisclosed price. The deal gave
Penn a Las Vegas casino for a fraction of what it cost to build the 390-room
The debt sale came two months after it emerged that HBOS was
set to lose "tens of millions of pounds" from dealings with another US client,
Sea Island, the exclusive Georgia holiday retreat that filed for bankruptcy in
Lloyds is understood to have already written down the value of
the M Resort loans and does not expect to make further material downgrades on
its US casino portfolio. Lloyds has been winding down or selling HBOS-owned
assets ever since acquiring Britain's largest mortgage lender. The acquisition,
which was encouraged by the UK government, helped Lloyds book losses of
£6.3bn last year.
The mounting US losses at the bank are thought
to have been incurred in the division previously run by Colin Matthew, a former
HBOS board member whose responsibilities included the international business.
He retired when HBOS was acquired by Lloyds TSB in January 2009 with a pension
entitlement of £416,000 a year, having been paid £652,000 in 2008.