Macau is getting rocked by reports of a $258 million casino heist
On Thursday, the Hong Kong-based investment bank Daiwa Capital Markets published a report saying that as much as $258 million had been stolen from a junket operating inside Wynn Macau.
In Macau, junkets operate as third parties within casinos, bringing in cash that high rollers - the VIPs who bet big at the casino - use to leverage their bets.
It is suspected that employees of Dore Holdings, the junket working inside the casino, made off with the cash.
For its part, Wynn told Bloomberg its casino didn't lose any money, but the company's stock has still fallen 9% on the news.
The reason for the drop is that the heist has the potential to do serious damage to the high-roller market in Macau, which makes up a chunky 50% of gambling revenue on the island.
China's general economic slowdown is one factor, but more important is Chinese President Xi Jinping's anticorruption drive.
It has scared people into being more conservative in the world's largest gambling hub.
The number of visitors to the island has been capped, their debit cards are monitored, and authorities have gone after illegal gambling ads on the mainland.
High rollers have been hit the hardest in this scenario. They are the ones with the conspicuous cash, and the conspicuous consumption. As a result, revenue from high-roller play is down 56% since this time last year.
Then there are the heists.
A $1.3 billion heist from the junket Kimren in April 2014 zapped liquidity from the junkets. Some analysts called it Macau's "Lehman Moment."
That money has to come from somewhere, and that somewhere is investors. Since Macau started to boom in the early 2000s, investors in junkets have come to expect returns of 1% to 2% on their investment in high rollers' luck.
When the heist happened in April 2014, investors started withdrawing their funds. Daiwa analysts think that will happen again.
"As a whole, the junket segment never recovered from this liquidity squeeze since," it wrote in its note reporting the heist. "We are already seeing signs of this today, with individuals purportedly rushing to the junket (Dore) in an attempt to withdraw funds."
What's more, the worst may not be over for Wynn. It's still unclear how much Dore lost, and the casino may still have to step up for some losses once the dust has settled.
"Wynn may still face some form of bad debt in the event that the junket's remaining capital base is unable to absorb the loss," Daiwa wrote. "Continued junket closures are a real possibility, and as previously highlighted, we have already witnessed an acceleration of junket closures in the past 2 months. There are at least 11 VIP rooms slated for closure in Aug/Sep 15 alone, based on our count."
Here is Wynn's stock since last week:
These are the type of conditions that prompted Rob Goldstein, president and chief operating officer of Las Vegas Sands Corp., to say last week that the junket system in Macau was "broken."
He may not have gone far enough in saying that. Wells Fargo analyst Cameron McKnight estimates a 29% to 33% decrease in gambling revenue for the island as a whole.
It seems there is worse still to come for Macau and its high rollers.