Casino Boogie in Macau

Plus: Cheap airfare giant Ryanair bets big on expensive jet fuel ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

May 23, 2023

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TOGETHER WITH

Good morning.

Whatever remains of crypto-mania will be out in full force in Miami this week, where the annual bitcoin convention is being held. And things are definitely looking a lot different than last year, back when celebrities like Serena Williams could make a speaking appearance without fear of being ensnared in a securities fraud lawsuit, before bitcoin lost more than a third of its value, and back before Sam Bankman-Fried became an internet-age Bernie Madoff.

“No Bears Allowed” read one sign at the convention’s main entrance, according to a report from The Wall Street Journal. Perhaps that explains why attendance is expected to come in at half of last year’s 26,000. Keep on HODL-ing, true believers…

Morning Brief

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Japan’s journey into US investment banks.

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Ryanair knows when to hold ‘em.

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Macau’s casinos are on a hot streak.

Banking

Japan’s Mizuho Buys US Investment Bank GreenHill for $550 Million

Play The Godfather theme song because Mizuho Bank CEO Tatsufumi Sakai believes in America.

At a time when more foreign banks seem to be going rather than coming, the Japanese mega-lender announced Monday it’s buying New York-based Greenhill & Co.

Let Us In

Historically, foreign banks haven’t had the best success in America. In roughly the past two years, France’s BNP Paribas, Spain’s BBVA, and the UK’s HSBC have all sold much of their US operations.

“European banks have underperformed, having attracted second-tier staff, second-rate clients, and what a former bank boss calls a ‘serious negative selection issue’ on strategy,” Financial Times editor Patrick Jenkins wrote in an opinion piece.

The problem foreign banks often run into is that they’re trying to do it all — asset management, commercial banking, sales and trading, equity research — just like they do back home. But domestic legacy lenders like JPMorgan, Goldman Sachs, Morgan Stanley, and CitiGroup already cornered that everything-everywhere-all-at-once market a long time ago.

But that dismal track record isn’t stopping Mizuho. The Japanese bank considers itself a big game hunter, and is bullish on adding Greenhill, which is well known for its M&A division, to its other services in the States:

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“Mizuho offers a full complement of products ranging from debt, equity, capital markets, derivatives, fixed income and equity sales and trading, securitization,” Jerry Rizzieri, the president and CEO of Mizuho Securities USA, told Bloomberg of the $550 million, all-cash deal to buy Greenhill. “The piece that’s been missing has been M&A.”

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This is only the latest push by a Japanese firm to get involved in the US investment banking sphere. Last month, Sumitomo Mitsui Financial Group announced it’s expanding its partnership with Jefferies to bolster its US capital markets and M&A business. MUFG has ties with Morgan Stanley going back to the Great Recession, when the Japanese bank bought a 21% stake in the American lender and the two formed an alliance to focus on corporate and investment banking.

Take That to the Bank: When foreign lenders do find success in the US, it’s often thanks to a slow and steady approach, going regional and focusing much of their efforts on a particular service. For instance, Spain’s Santander has really honed in on being a go-to name for subprime auto loans in the North East. During the pandemic, people who were rejected by domestic banks and had just gotten their Covid relief funds began turning to Santander when they wanted a new car. Santander’s US operations went on to be more profitable than the group’s Spain, Brazil, and UK units.

– Griffin Kelly

Aviation

Ryanair Wins Big On Operating Results and Hedging

(Photo Credit: Lucas Davies/Unsplash)

Is it any surprise that the airline which sells in-flight scratch-offs hit the jackpot?

Ireland’s Ryanair announced on Monday it bagged a full-year net profit of €1.4 billion ($1.5 billion). The airline’s CEO Michael O’Leary told the Financial Times he wants the company to chase aggressive growth, and its earnings suggest a key tactic will involve a dash of gambler’s luck.

Cue “Danny Boy”

Ryanair has a reputation for two things in Europe: a distinctly sassy social media presence, and alarmingly cheap airfares. Some Ryanair tickets go for as little as €9.99, although tragically those ticket prices may now become a relic, CFO Neil Sorahan told Bloomberg. “The days of the 9.99s are possibly behind us for some time,” Sorahan said, adding those tickets may now double in price.

But exorbitant €20 tickets aren’t the only wind beneath Ryanair’s wings. O’Leary was keen to highlight the airline’s aggressive use of fuel hedges, which saved the company €1.4 billion on the year (matching the company’s total profit).

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Fuel hedging is when a company places contracts for fuel in advance at a fixed rate. It’s essentially a bet that the cost of fuel is going to rise. If the price of fuel drops then the airline is out of luck.

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Ryanair says it’s 80% hedged, which aviation analyst Sindy Foster tells The Daily Upside is a pretty hefty bet, as most airlines hedge between 30-64%. “It indicates they expect fuel prices to remain unstable and unpredictable, so by hedging a high percentage they minimize the risk. If they have called it wrong, it will be the opposite,” Foster said.

Although fuel hedging is a gamble, it also creates a sense of certainty. “If you have fixed a large percentage of your costs it gives you the ability to focus on generating maximum revenue at the right price to cover your costs and generate profit,” Foster said, adding: “You aren’t always chasing your tail as you would be with fluctuating fuel prices.” The returns can also be pretty staggering. Southwest Airlines and Air France-KLM said in August 2022 that they’d each saved around $1 billion from hedging.

Dogfight: O’Leary told the FT he wants Ryanair to run the competition out of town. “As long as we don’t do something stupid — which is a daily challenge in this industry — we will continue to wipe the floor with every other airline in Europe,” he said. Given Ryanair’s infamously spartan flights, it might have fliers wiping the floors of its planes soon, too.

– Isobel Asher Hamilton

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Gambling

Macau Casinos Claw Back Pandemic Losses

In gambling, the house always wins. Except maybe during a pandemic.

Fortunately for Macau, an island city and a special autonomous region of China, the motherland’s staunch zero-covid policies are finally over. With one-quarter of post-pandemic life in the books, it’s clear the so-called “Las Vegas of Asia” is bouncing back in a big bad way.

What Happens in Macau…

Back in pre-pandemic times, Macau held the title of the gambling capital of the world. Yes, even bigger than Las Vegas in terms of gross gambling revenue. But while the shimmering strip in the Nevada desert more or less applied its “play at your own risk” betting ethos to the upper-respiratory illnesses, Macau languished under Beijing’s stringent health codes. It’s been especially hurt by Beijing’s travel restrictions — because what happens in Macau stays in Macau, but first you have to get there.

But with those restrictions now largely lifted, Macau casinos are on a hot streak:

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MGM China reported around $613 million in net revenue in its first quarter, or roughly 84% of revenue in the same period in 2019, after plummeting to around just 30% of pre-pandemic levels in 2021.

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Galaxy Entertainment, which owns and operates two casinos on the island, saw its gross gaming revenues jump nearly 80% year-over-year in the quarter, beating most analysts’ expectations. Sands China, which sold the Las Vegas Sands in 2021, saw net revenue jump 132% year-over-year in Q1 to roughly $1.27 billion.

Bad Beat: In fact, of the six major operators in the gambling mecca, only SJM holdings posted disappointing results to start the year. “It’s the only Macau earnings this quarter that’s not a strong beat,” JPMorgan analyst DS Kim told the Financial Times. “[But] it is still reassuring that even SJM … has seen demand ramping up month after month.” In other words, it may be time to look at futures bets for Macau.

– Brian Boyle

Extra Upside

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No, the Pentagon is not on fire: Fake pictures of explosions shared on blue check Twitter accounts spread mass confusion.

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I’m going to need to see your palm: Amazon will let users buy booze with a swipe of their hands.

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Just For Fun

Touch down.

Playing catch.

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