Bankers Learn What Happens in Vegas Can Land Back in D.C.Robert Schmidt
When Deutsche Bank AG foreclosed on a Las Vegas parcel in the depths of the 2008 crisis, it decided to double down. The bank spent $4 billion on a hotel and casino with private terraces, high-end restaurants and a multi-level nightclub to create one of the Strip’s hottest destinations.
One detail the bank didn’t account for when it opened the Cosmopolitan of Las Vegas: a labor dispute that has reached from Nevada into the bank’s dealings with the Federal Reserve in Washington.
The tenacious union that represents the hotel’s culinary workers hasn’t stopped at the usual tactics of picketing, sit-ins and traffic blockades. It has lobbied the Fed to tighten oversight of Deutsche Bank and launched a website that among other things encourages bank insiders to report allegations of wrongdoing to regulators.
While the union’s ranks of maids, dishwashers, cooks and cocktail servers may not pay much attention to financial regulation, its researchers have dug deep into the 2010 Dodd-Frank law to pressure the bank to the bargaining table.
“Our experience in Las Vegas over the years has been when you have a financial institution that has to run a casino for a little while, they just don’t understand the way labor relations work in the city,” said Marty Leary, a research director at Unite Here, the parent union of the culinary workers’ affiliate in Las Vegas. “We often find that we have to educate them.”
With union members in the private sector in decline for decades, organized labor has become more aggressive in targeting corporate owners during contract negotiations. The focus by the culinary workers on Dodd-Frank highlights a new vulnerability for banks, according to some former regulators and government officials.
Such activism “unfortunately works,” said Peter Wallison, a former general counsel at the Treasury Department who is now a fellow at the American Enterprise Institute. “Financial regulation has many drawbacks, but one is that it becomes highly political.”
Renee Calabro, a Deutsche Bank spokeswoman, declined to comment.
The hotel, nicknamed the Cosmo, began to take shape in 2004, when developer Ian Bruce Eichner bought 8½ acres on Las Vegas Boulevard. Deutsche Bank financed the deal.
By 2007, the excavation work and foundation was complete but costs were spiraling upward. The next year, the bank foreclosed and became the 100 percent owner. The complex opened in December 2010, quickly attracting crowds and buzz with its hip image and an edgy ad campaign featuring the slogan, “Just the right amount of wrong.”
Still, while reporting earnings of $103 million before interest, taxes, depreciation and amortization last year -- a 56 percent increase from 2012 -- the operation hasn’t been profitable, running about $100 million in the red annually.
The bank, Bloomberg News reported last month, is seeking to unload the property for more than $2 billion and has attracted at least four possible bidders.
Deutsche Bank isn’t the only Wall Street firm involved in the gambling business these days.
Goldman Sachs Group Inc. owns the Stratosphere Casino, Hotel and Tower on the Strip, as well as three other Nevada gaming properties in a real estate fund. The bank and a real estate investment trust also own the LVH, formerly the Las Vegas Hilton. They acquired the hotel in 2012 after Goldman Sachs foreclosed on its $252 million mortgage.
The Stratosphere and the LVH recently reached a new five-year contract with the culinary workers. Two other Goldman Sachs casinos in Las Vegas, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder, are non-union and haven’t faced much labor pressure.
Goldman Sachs spokesman Andrew Williams declined to comment.
Deutsche Bank also is part owner of Station Casinos LLC via a bankruptcy proceeding. The Las Vegas-based firm, catering to local gamblers, operates 18 properties in Nevada. The culinary workers have also been trying to organize Station.
John Kempf, an analyst at RBC Capital Markets, said the banks that own casinos in Las Vegas are mostly “clearing up the mess” from 2007 and 2008 investments that went sour.
“None of these banks want to be there long term, they want to go back to lending,” he said. “There has been some interest in the Cosmo, and Deutsche Bank will sell at some point.”
At the Cosmo, both Deutsche Bank and the Culinary Workers Union Local 226, which represents 55,000 people, initially took steps to avoid a labor dispute. They agreed to a “card check” in which workers could indicate they wanted to unionize by signing a form. The employees backed the union in 2011, setting the stage for contract negotiations.
Talks quickly stalled. Union officials say they aren’t sure why. The culinary workers began picketing in January 2013.
In March of that year, about 100 members were arrested for blocking traffic on the Strip outside the Cosmo’s entrance. Eight months later, workers staged an occupation of the casino, sitting on the floor chanting, “No contract, no peace” until police escorted them out, one by one, their hands bound behind their backs with zip-ties.
Meanwhile, Unite Here set up a website called Deutsche Bank Risk Alert to distribute a series of research reports on “the challenges facing Deutsche Bank in North America.” The site urged whistleblowers at the bank to come forward, highlighting a Dodd-Frank provision that allows payments for successful tips about wrongdoing.
Marcus Stanley, the policy director for the umbrella group Americans for Financial Reform, said pro-regulation organizations like his have identified “a lot of potential levers” in Dodd-Frank. Stanley, whose group counts Unite Here, the AFL-CIO, the International Brotherhood of Teamsters and other unions as members, attended a meeting at the Fed in November with Leary.
“Believe me, this affects Deutsche where they live,” Stanley said. “When you get people representing real working people in there and saying, ‘These issues matter to us,’ yeah, it makes a difference.”
The culinary workers have pressed especially hard on Section 165 of Dodd-Frank, which required the Fed to set up stricter capital, leverage and supervisory requirements for foreign banks.
As the rule was being considered last year, union members mailed in 925 postcards urging action against Deutsche Bank, according to the Fed. Emblazoned with a picture of a house with a foreclosure sign in the yard, the cards claim the bank received $367.8 billion of U.S. aid during the crisis by taking advantage of various bailout programs.
“We cannot afford to allow Too Big to Fail banks like Deutsche Bank to operate without stronger capital and liquidity position in their U.S. operations,” they stated.
To the union’s surprise, Leary said, the Fed has been “very accessible” and willing to listen to its arguments.
Leary said he told Fed Governor Daniel Tarullo at the November meeting about the union’s concerns that Deutsche Bank was holding too little capital.
A few months later, the Fed, as expected, adopted the rule, which forces foreign banks to consolidate U.S. operations into one subsidiary and keep the same capital minimums as large U.S. banks.
Morgan Stanley analysts said in a February research report that Deutsche Bank would feel the greatest impact among foreign banks from the rule. In a statement after the rule was completed, Deutsche Bank said it was “confident our U.S. franchise will continue to thrive.”
Ken Liu, a researcher at the culinary workers’ branch in Las Vegas, said that the actions involving the Fed are a natural extension of traditional labor campaigns where “we always take our message to different audiences.” The union, he said, is still hopeful Deutsche Bank will return to the table.
“We want to put pressure on Deutsche Bank,” Liu said. “Hopefully we are getting their attention.”