Monday, March 02, 2009

"A damning indictment of the Macquarie model."

Macquarie’s Shares Tumble on ‘Golden Goose’ Funds


By Malcolm Scott
Copyright 2009

Macquarie Group Ltd., Australia’s largest investment bank, tumbled for a record 10th day in Sydney on speculation it may book losses on stakes in some funds.

Macquarie’s shares, down 84 percent since a May 2007 peak, slumped 7.2 percent to A$15.75 in Sydney, the lowest close since Dec. 30, 1998. The Sydney-based bank released a statement today saying it has no outstanding commitments to provide capital to its listed funds.

Chief Executive Officer Nicholas Moore, confronted with plunging asset prices, is seeking to distance the company from the satellite funds that helped drive a ninefold increase in profit since 2000. Macquarie shares have fallen 45 percent this year, forcing Moore to reassure investors that the funds won’t be a drag on the firm’s balance sheet and that it doesn’t need to raise capital.

“If the satellites don’t perform, or even worse fail, it will be read as a damning indictment of the Macquarie model,” said Prasad Patkar, who helps manage A$1 billion at Sydney-based Platypus Asset Management. “They will reinvent themselves over time, but for the moment the golden goose of specialist funds may be dead.”

The company has no capital commitments to its listed funds and no plans to invest more in them, according to today’s statement. The funds will likely contribute less than 5 percent of operating income before impairments this fiscal year, Macquarie said.

Potential Writedowns

The market value of Macquarie’s interest in its listed funds has fallen by about A$1.4 billion ($886 million) since the end of September, representing about half the company’s valuation of those investments as of Sept. 30, said Brett Le Mesurier, an analyst at Wilson HTM Investment Group in Sydney.

“The potential for writedowns and the adverse impact on earnings is weighing on the shares,” said Le Mesurier, who has a “hold” rating on Macquarie’s shares.

The company said last month full-year profit will plunge 50 percent, snapping 16 years of rising earnings, as investments slump and trading losses mount. Macquarie had A$2.9 billion of capital in excess of minimum requirements as of Dec. 31, it said in a statement last week.

Macquarie Infrastructure, the world’s biggest owner of toll roads, reported a first-half loss of A$1.3 billion last month as it wrote down the value of its road assets.

In today’s note, Macquarie said restructuring steps by its funds may include “major asset sales, further debt refinancing, fund privatization, security buybacks and capital returns.” None of the businesses within Macquarie’s Australian listed specialist infrastructure funds has any uncovered refinancing requirements for 2009, it said.

For Macquarie Office Trust and Macquarie CountryWide Trust, the 2009 refinancing requirements “are currently anticipated to be covered by initiatives already completed or announced,” it said. Macquarie Office shares have tumbled 54 percent in 2009, while Macquarie CountryWide shares have lost 43 percent.

To contact the reporter on this story: Malcolm Scott in Sydney at

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