European Banking Monitor: Risk Takes a Holiday, For Now

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .


Key Takeaways:


* Last week was interesting as rising confidence around an ECB-led bailout gave way to disappointment, only to be followed by an extraordinary rally on better than expected US econ data. All told, both Sovereign and company-specific default swaps were broadly tighter last week. 



If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.


Matthew Hedrick

Senior Analyst





Security Market Program – As of 2PM EST today the ECB had not updated its secondary sovereign bond purchasing program, the Securities Market Program (SMP), for the week ended 8/3, which it usually does by 10AM EST on Mondays. Excluding last week, the program had been dormant for twenty straight weeks. This lack of reporting could be a glitch, yet in any case its timing is interesting given ECB President Draghi’s remarks on the interest rate conference call last Thursday (8/2) in addressing rising yields in the periphery and saying that the ECB “may undertake” non-standard  measures. We think it is highly likely that the ECB will reactivate the SMP in the coming weeks and may also re-engage the EFSF to buy bonds on the primary market. We’ll publish the data as soon as it becomes available.


European Financials CDS Monitor Spanish, German, French, Italian and Greek banks tightened.  Overall, 37 of the 39 European financial reference entities we track saw spreads tighten last week.


European Banking Monitor: Risk Takes a Holiday, For Now - 1. banks


Euribor-OIS spread – The Euribor-OIS spread tightened by 6 bps to 29 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 


European Banking Monitor: Risk Takes a Holiday, For Now - 1. Euribor


ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  


European Banking Monitor: Risk Takes a Holiday, For Now - 1. facility

VIX: It’s About Time (To Sell)

With the S&P 500 flirting with 1400, our levels indicate that it’s about time for a sell off in US equities.


The CBOE Volatility Index, better known as the VIX, measures just how volatile the stock market can be. The lower the number, the less volatility and swinging around there is. Currently, the VIX is hovering around 15. This is an extremely low and important number. Over the last five years, whenever the VIX was between 14-15, the market sold off stocks and did so aggressively.






According to our current quantitative levels, the next immediate-term sell level for the S&P 500 is at 1406. The line of support is currently at 1375. If we snap 1375, we’re in for a bumpy ride. We’ll be ready to short when our volume and volatility signals say so. For now, keep a close eye on the VIX and S&P 500 correlation.


For reference, please take note of this video from back in April when Hedgeye CEO Keith McCullough appeared on CNBC’s Fast Money discussing the VIX/S&P 500 trade.


July mix much more favorable.  LVS ramping even before the September expansion.



As we already knew, July GGR growth came in at +1.5% (+1.9% in USD).  The good news is that when we take into account the impact of the typhoon and slightly low hold in July coupled with a difficult YoY comparison, July would have been 5-6% better than the 1.5% YoY print.  Mass and slot revenues continuing to come in strong, posting 32% and 15% YoY growth, respectively.  Slot revenue continued to chug along, increasing 15% YoY. The bad news, which should come as no surprise, is that VIP volume was down 2.4% YoY, marking the second month of YoY decline. For the 2nd month in a row, 4 of the 6 concessionaires experienced YoY declines in Junket RC volume.


We estimate that total direct play this month accounted for 6.4% of the market, compared with 7.1% in July 2011.  The total VIP market held at 2.89% vs. 3.03% in July 2011.  Adjusting for direct play and theoretical hold of 2.85% in both months, July revenues would have increased 5.5% YoY.


LVS was the clear cut winner this month – finally capitalizing on the significant investment it made in Sands Cotai Central (SCC).  High hold and an easy comparison certainly helped their position.  Here are our company takeaways:

  • LVS grew GGR 51% YoY with Mass up 57%.  Market share climbed 280bps from June to a 2 year high.  Luck played a role in the market share gain but not so much in the MoM gain since LVS held high in both periods (3.06% in June and 3.27% in July).  While we don’t think its 21.4% share is sustainable until the new amenities open on 9/20/12, it is clear that volumes are moving in the right direction and 19-20% should be sustainable.  This might be the Macau stock to own.
  • WYNN GGR fell for the 4th consecutive month, each at an increased rate, -24% for July.  Hold was close to normal and close to June’s hold; although significantly below last year.  Market share fell to 11.3%, tying an all-time low.  Mass share for WYNN was an all-time low by far as the property managed to eke out only a 5% YoY gain in Mass revenues.
  • MPEL’s GGR fell 13% due to a 22% drop in VIP.  Mass was up 28%, however.  Although hold was normal, it was about 34bps below last year’s.  Market share did rebound a little from the last two months, up to 13.3%.
  • Low hold pushed MGM’s share down to 8.8%, the lowest since last July, but GGR did increase 11% YoY.  Mass growth trailed the market and was up 21%.
  • Galaxy finally took a break from its string of market share gains.  Share fell to 18.9% on only a 3% YoY GGR gain.  Hold was a little soft and the YoY comparison was difficult.  Mass was strong, up 61%, but VIP fell 8%. 


Y-o-Y Table Revenue Observations


Total table revenue growth came close to a halt, at just 1.4% in July.  Mass revenue growth was 32%, compared with 38% growth in the last twelve months.  VIP revenues fell 7%, while Junket RC declined 2%, the 2nd consecutive decline since June 2009.



Table revenues grew 54% YoY, garnering the best growth in the market by a mile.  Sands China’s strong performance in the month of July was aided by high hold across its portfolio and an easy YoY comparison.  Their properties held at 3.27%, vs 2.80% last July, adjusted for direct play.

  • Sands table revenues declined 1% YoY, its best YoY performance in 4 months, but still mark the 4th consecutive month of declines.  The good news is that the entire YoY decline came out of the lower yielding VIP segment.
    • Mass grew 25% YoY, its best YoY growth month since Feb 2010.  On an absolute basis, Mass revenues had their best month since July 2008.
    • VIP declined 19% YoY.  Hold was low, but last year's comparison was even easier.  We estimate that Sands held at 2.66% in July compared to 2.54% in the same period last year.  We assume 9% direct play in July vs 15% in July 2011 (in-line with what we saw in 2Q12).
    • Junket RC was down 20%.  This was the 8th consecutive month of YoY declines in VIP RC at the property.
  • Venetian table grew 25% YoY, breaking a 3-month losing streak.  Strong July performance was driven by strong Mass win and high hold and an easy comp on the VIP side.
    • Mass increased 37%
    • VIP grew 17% while junket VIP RC dropped 18%
    • Assuming 28% direct play, hold was 3.84% compared to 2.72% in July 2011, assuming 24% direct play (in-line with 3Q11)
  • Four Seasons continued to perform well, growing 38% YoY despite a difficult hold comp
    • Mass revenues increased 25%
    • VIP grew 41%, while Junket VIP RC soared 288% YoY
    • If we assume that monthly direct play volume of ~$500MM is in-line with 2Q12 absolute levels, that implies a direct play percentage of 16% and a hold rate of 2.94%.  In comparison, if June 2011 direct play was $460MM (or 68%), then hold was approximately 3.29%.
  • Sands Cotai Central produced $135MM in July, compared with $117MM in June and May's $135MM
    • Mass revenue expanded to $37MM, $3MM higher MoM
    • VIP revenue of $98MM, $15MM higher MoM but below the record $102MM seen in May
    • Junket RC volume of $2,620MM, a 11% MoM increase and a record for the property
    • If we assume that direct play was 11%, hold would have been 3.34%


Wynn’s share fell 40bps to 11.3%, far below its 6-month trailing average of 12.2% and 2011 average of 14.1%.  We expect Wynn’s share to continue to struggle in the face of a ramping Sands Cotai Central.

  • Mass market share was 7.9%, a new low
  • VIP market share fell 30bps to 12.5%, the lowest share in 10 months
  • Junket RC share fell 1% to 12.3%


MPEL table revenue fell 14%, the second worst concessionaire performance.  Although hold across MPEL’s two properties was normal at 2.88%, last’s year's comparison was difficult at 3.22%.

  • Altira revenues fell 37%, due to a 42% decrease in VIP.  Mass grew 46%. Results were negatively impacted by low hold and a difficult YoY comparison.
    • VIP RC decreased 19%, marking the 8th consecutive month of declines which have averaged -20%
    • We estimate that hold was 2.56%, compared to 3.57% in the prior year
  • CoD table revenue grew just 2%, the properties' slowest YoY growth since lapping its first year of operations
    • Mass revenue grew a healthy 27%, while VIP revenue declined 6%
    • RC declined 8%
    • Assuming a 15.5% direct play level, hold was 3.07% in July compared to 2.99% last year (assuming 15.7% direct play levels in-line with 3Q11)


Table revenue fell 4%, the 3rd consecutive month of declines

  • Mass was up 16%, offset by a 12% drop-off in VIP
  • Junket RC was down 16%.  This was the 6th month of consecutive declines for VIP volume across SJM’s portfolio.
  • Hold was 2.86%, compared with 2.75% last July


After 14 months of market leading growth, Galaxy’s growth slowed to just 2%.  Mass growth still led the market though with growth of 61% which was offset by an 8% decline in VIP growth. Results were negatively impacted by a soft hold and a difficult hold comparison.

  • StarWorld table revenues fell 12%
    • Mass grew 51%, off-set by a 17% drop in VIP
    • Junket RC fell 2%, marking the 2nd decline in a row
    • Hold was 3.04%, compared with last July’s even higher hold of 3.59%
  • Galaxy Macau's table revenues grew 21%.  Growth was negatively impacted by low hold and a difficult YoY comp.
    • Mass grew 84%
    • VIP grew 7%, while RC increased 34%
    • Hold was 2.62% vs 3.46% last year


With 8% YoY table growth, MGM took second place behind LVS for best table growth

  • Mass revenue grew 21%
  • VIP revenue grew 5%, while VIP RC declined 1.4%.  MGM was only 1 of 2 concessionaires to exhibit YoY VIP rev growth.
  • If direct play was 7%, then July hold was 2.6% compared to 2.4% in July 2011


Sequential Market Share



LVS was the biggest share gainer in July, closing the month at 21.4%, +2.8% MoM, the highest share since June 2010 as SCC ramps up.  This compares to a 6 month trailing market share of 17.8% and 2011 average share of 15.7%.

  • Sands' share was 3.9%.  For comparison purposes, 2011's share of 4.6% and 6M trailing average share was 3.9%
    • Mass share was 6.5%, the property's best share since the opening of SCC
    • VIP rev share was 2.8%
    • RC share was 2.8%, 10bps better than its 6M average
  • Venetian’s share increased an impressive 1.5% to 8.9%.  2011 share was 8.4% and 6 month trailing share was 7.7%.
    • Mass & VIP share increased 1.4% to 14.6% and 6.6%, respectively
    • Junket RC share increased 60bps to 3.8%
  • FS increased 1% to 3.7%.  This compares to 2011 share of 2.2% and 6M trailing average share of 4.1%.
    • VIP share increased 1.5% to 4.5%.  
    • Mass declined 20bps to 1.7%
    • Junket RC gained 10bps to 3.9%
  • Sands Cotai Central achieved table market share of 4.6% in July, the property's best market share since opening
    • Mass share of 4.3% in-line with June
    • VIP share of 4.7%
    • Junket RC share of 3.9%, up 10bps from June’s share


Wynn’s share fell 40bps to 11.3%, far below its 6-month trailing average of 12.2% and 2011 average of 14.1%.  We expect Wynn’s share to continue to struggle in the face of a ramping Sands Cotai Central.

  • Mass market share was 7.9%, a new low
  • VIP market share fell 30bps to 12.5%, the lowest share in 10 months
  • Junket RC share fell 1% to 12.3%


MPEL gained 40bps of share in July to 13.3% which is in-line with their 6 month trailing share of 13.3% but below its 2011 share of 14.8%.

  • Altira share fell 10bps to 3.8%, which is below its 6M trailing share of 3.9% and the property’s 2011 share of 5.3%
    • Mass share increased 20bps to 1.5%
    • VIP fell 30bps to 4.7% while VIP RC share actually ticked up 10bps to 5.5%
  • CoD’s share grew 60bps to 9.4%; above its 2011 and 6M trailing share of 9.3% and 9.2%, respectively
    • Mass market share increased 20bps to 9.7%
    • VIP share grew 70bps to 9.2%
    • Junket RC fell 40bps to 7.8%


SJM’s share grew 1% to 26.2% in July.  However, July’s share was still lower than its 2011 average of 29.2% and its 6M trailing average of 27.0%.

  • Mass market share fell 1.1% to 31.7%
  • VIP share increased 1.8% to 24.9%
  • Junket RC share fell 90bps to 27.0%


Galaxy was the biggest share loser in July, with share falling 3.1% to 18.9% below their 6M trailing share average of 19.6%

  • Galaxy Macau share dropped 2.9% to 9.7%
    • Mass share remained at 9.6% for the 3rd consecutive month
    • VIP share plunged 4% to 9.8%
    • RC share fell 90bps to 11.5%
  • Starworld share fell 50bps to 8.2%
    • Mass share was unchanged at 3.2%
    • VIP share fell 70bps to 10.2%
    • RC share picked up 30bps to 10.3%


MGM share fell 80bps to 8.8%, below its 2011 share of 10.5% and 6M average of 10.1%

  • Mass share fell 1.1% to 6.6%
  • VIP share fell 50bps to 9.2%
  • On a positive note, Junket RC grew 170bps to 10.1%


Slot Revenue


Slot revenue grew 16% YoY to $139MM in July, 4% below the all-time high set in May

  • MGM took the top prize for YoY growth of 54% to $25MM
  • GALAXY had the second best growth YoY at 19% to $16MM
  • LVS grew 18% YoY to $38MM
  • MPEL grew 3% YoY to $24MM
  • SJM was flat YoY at $15MM
  • WYNN had the worst YoY performance in slots with a 1% YoY decline to $21MM- 49% below their record of $32MM set in May 2011




Early Look

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DKS: London Calling

There’s opportunity in the stock of Dick’s Sporting Goods (DKS), but it will take a major effort from the company’s management to turn its investment in JJB Sports (JJB) around.


Dick’s Sporting Goods made an investment in JJB Sports – the UK equivalent of The Sports Authority – committing up to £30M back in April of 2012. It appears that JJB, which is on the brink of going under, will go under a restructuring plan put together by the two largest debt holders: Invesco and DKS. Both companies will then have to buy all the debt JJB.



DKS: London Calling - JJBsportschart



The situation is a bit precarious considering that Europe is undergoing a consumer spending and debt crisis.  But there could be value in this deal in the sense that it will help Dick’s grow its overseas business. Of course the market got excited, rallying shares in London trading. But think about this: shares are essentially flat year-to-date (as of writing), pegging JJB Sports at a value of just under £22 million. 

Fun: SP500 Levels, Refreshed ...

POSITIONS: Long Utilities (XLU), Short Industrials (XLI)


Growth Slowing is now something that everyone who was bullish on growth at the end of Q1 not only expected, but then expected people to get “too bearish” on. Fun.


In other news, the VIX 14-15 sell signal (for US Equities) remains in play inasmuch as lower-highs for the SP500 does. That said, despite not being confirmed by either our VOLUME or VOLATILITY signals, the SP500’s PRICE signal looks good (above TREND support) until it doesn’t.


Across all 3 of our core risk management durations, here are the lines that matter to me most: 

  1. Immediate-term TRADE resistance = 1406
  2. Intermediate-term TREND support = 1375 

If, by some act of gravity, we snap 1375 again, this will no longer be fun.


In the meantime, squeeze away.


Stay hedged,



Fun: SP500 Levels, Refreshed ... - SPX

GMCR: Zero Chance?

On April 5 of this year, Hedgeye Managing Director of Restaurants Howard Penney explained his bearish case for Green Mountain Coffee Roasters (GMCR), which was trading around $40 a share. Here’s the jist of it (and please note our #timestamp):



When we consider that GMCR has now declined for 10 days in a row and insiders are exiting the stock, it is easy to concoct a bearish story.  The question is: how bearish is bearish enough?  We think the stock could go to $25.”



GMCR: Zero Chance? - GMCR bleeding



GMCR makes the Keurig coffee brewing machines, which it has patented. Unfortunately for Green Mountain, that patent is set to expire next month. Penney noted that GMCR has the possibility of going to $25 a share; that came and went. Now we’re at $20 a share and continuing to head lower.  As you can see in the chart above, GMCR has lost 77% of its value over a one-year period. Penney reiterated his bearish stance today. The patent issue, combined with accounting irregularities that came forth this year and increasing pressure from Starbucks (SBUX) makes a tough case for Green Mountain.

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