Deutsche Bank Sells Cosmopolitan To Blackstone For $1.7B

Deutsche BankBy Deutsche Bank AG (GIF format logo) [Public domain], via Wikimedia Commons

Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB) announced today it has sold the loss-making Cosmopolitan of Las Vegas casino and resort to the world’s largest private-equity firm The Blackstone Group L.P. (NYSE:BX) for $1.7 billion.

The sale ends the Germany’s largest lender’s six-year money-losing venture into the casino development.

Deutsche Bank: Loss-making venture

As reported earlier, Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB) had been seeking to exit the Casino business for around $2 billion. In fact, Deutsche Bank AG didn’t ask to get into the Las Vegas casino business, the acquisition occurred as a result of a margin call that couldn’t be met.  Deutsche Bank loaned the money to the developer Eichner, who defaulted.  The bank then took possession in 2008 with some very bad timing – just as Nevada property values sank and tourist travel to Las Vegas dropped as well.

In completing the project, the budget almost doubled under the bank’s watch. Among the many issues occurring when digging on the construction site was bumping into an aquifer that now requires the casino to pump groundwater from its subterranean parking garage 24 hours a day.

The lender foreclosed on the Cosmopolitan after developer Ian Bruce Eichner defaulted on a construction loan in January 2008, and has labeled it a temporary investment. The resort, a two-tower complex on the Las Vegas Strip, cost more than $3.9 billion to build and hasn’t turned a profit since opening in December 2010.

Positive impact for bank’s capital

Las Vegas has been struggling to recover from the downturn, with many of its casinos unable to lure the volume of business they enjoyed before the bust. But lately there has been some good news.

The Blackstone Group L.P. (NYSE:BX) is betting that the recent uptick in Las Vegas’ economy will continue and that the less-known casino won’t be a major drawback in a rapidly changing Las Vegas tourism industry.

The sale comes two years after Deutsche Bank formed an internal unit for unwanted assets to cut its balance sheet and improve its equity capital. In a statement, Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB) said that the sale will have a “positive impact” on the bank’s Tier 1 capital ratio, which is a key measure of balance-sheet strength that compares equity to assets weighted by riskiness.

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About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports

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