Posted: Aug 2, 2021, 7:00 a.m.

Last update on: Aug 2, 2021, 10:25 a.m.

JP Morgan is betting that Crown Resorts will be found unfit for licensing in the Australian state of Victoria. But Crown will continue to operate its flagship complex in the state capital, Melbourne, as the cancellation of its license is delayed, speculates Don Carducci, an analyst at the investment bank.

Crown hotels
Commissioner Ray Finkelstein, seen at a recent hearing into the Crown Resorts adequacy inquiry in Melbourne. (Image: The Australian)

A Victorian royal commission is examining Crown Melbourne’s operations after a similar investigation in New South Wales found that Crown had authorized organized crime-related junkets. The purpose of the junkets was to launder money on Crown properties in Melbourne and Perth.

Lawyers assisting the Victoria Commission accuse the operator of evading up to A $ 480 million (US $ 350 million) in state gambling taxes, while facilitating the laundering of at least $ 160 million. Australian dollars ($ 117 million) in dirty cash.

Carducci said The Australian Financial Review he believes the struggling operator will be required to undertake far-reaching reforms and initiate large-scale layoffs in exchange for continued trading in the state.

Nervous investors

It comes as the company’s shares fell to AU $ 8.61 on ASX on Friday. That’s a 34% drop since the Victoria Royal Commission began its inquiry in mid-May.

Investors fear Crown may have its license forfeited, as it did in New South Wales. But Carducci believes the company’s shares are undervalued.

He expects Crown to emerge rehabilitated in a position of strength over the next several years as a dominant player in the lucrative Australian gaming market. JP Morgan considers Crown stock to be “overweight”.

However, some analysts have adopted a more cautious tone. Goldman Sachs has a neutral rating for Crown and has warned investors that the company faces serious risks from impending regulatory action. Crown Melbourne is the operator’s largest casino, generating up to 75% of its profits.

Hit or miss

On Tuesday, Crown will argue her case before the commission to find out why she should be allowed to keep her license.

While lawyers assisting the commission questioned whether Crown is capable of reforming its corporate culture and anti-money laundering protocols, they suggested a potential escape route for the operator.

This would involve an 18 month adjournment period which would give the Crown the opportunity to rehabilitate itself. Should this ultimately prove necessary, it would also allow a transition to a new incumbent with a minimum of disruption.

The final decision rests with Commissioner Ray Finkelstein, a former judge who asked whether Crown Melbourne should be privately owned.

Finkelstein accused Crown of breaking an agreement with the state which stipulated that the Melbourne casino should be “managed by Victoria, operated by Victoria, with Victoria’s economic and social interests as the main concern”.

Thus, according to Finkelstein, Crown’s ownership of properties outside of Victoria could represent a conflict of interest.

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