19 March 2009
The 7.30 Report story aired by the ABC on 18 March 2009, "Analysts anxious for Macquarie Bank", contains a large number of errors about Macquarie Group that are inconsistent with generally available market information, consensus analyst views and statements previously made by Macquarie.
We note that The 7.30 Report provided some balance and included comments that:
There were, however, a large number of errors which are summarised and corrected below.
CLAIM: Macquarie's assets are greatly overvalued and it may have to raise more capital
FACT: On 26 February 2009, Macquarie informed the market that it had no current plans for a capital raising given its strong regulatory capital position ($A2.9 billion of capital in excess of the Group's minimum capital requirements at 31 December 2008).
Macquarie's capital position has remained strong because it raised $4 billion in approximately 18 months preceding market turmoil. On 5 February Macquarie informed the market that profit for the year to 31 March 2009 is anticipated to be approximately $0.9 billion after allowing for estimated impairments of $2 billion. The carrying value of Macquarie's balance sheet investments in its listed and unlisted specialist funds have, in accordance with Australian accounting standards, either been written down in light of market conditions or if not, are valued below metrics of recent transactions in the sector.
CLAIM: The recent collapse of Australia's second biggest investment bank Babcock & Brown has left market analysts anxious about Macquarie
FACT: As reported at the Operational Briefing on 5 February, Macquarie is profitable, well capitalised and well funded. Macquarie Group is regulated by APRA as the owner of Macquarie Bank Limited, an Australian bank and authorised deposit taker. Comparisons with other institutions such as Babcock & Brown, which is not a bank, are erroneous.
CLAIM: Nicholas Moore has not emerged since November
FACT: This statement implies Macquarie has not provided information to the market since November. This is incorrect. Macquarie continually updates the market. Outside of normal reporting requirements, the Group has this year made announcements to the market on 2 March, 26 February, 5 February and 8 January.
Macquarie Group Chief Executive Officer Nicholas Moore provided a detailed Operational Briefing on 5 February as part of Macquarie's regular communications with analysts and investors. Media were invited to dial-in to the briefing. Nick Minogue (Risk Management Group Head), Andrew Downe (Treasury and Commodities Group Head), Roy Laidlaw (Macquarie Securities Group Head) and Shemara Wikramanayake (Macquarie Funds Group Head) also spoke at the two hour and 30 minute briefing.
On 26 February the Group lodged a statement with the ASX regarding its capital position and confirmed it has no current plans for a capital raising. As recently as the beginning of March, Macquarie released substantial information to the market about the listed specialist funds.
CLAIM: Standard & Poor's downgraded its outlook for MQG from stable to negative
FACT: While Standard and Poor's (S&P) revised its outlook from stable to negative in September 2008 "due to heightened dislocation of the global financial markets", it reaffirmed its ratings for the Macquarie group of companies, noting:
CLAIM: There are concerns related to the relationship between the funding profile of the bank and the asset profile of the bank
FACT: Macquarie has an exceptionally strong balance sheet. Over the past 12 months, Macquarie has improved its already strong balance sheet position, with term debt almost entirely funding all of Macquarie's business assets on its funded balance sheet.
Macquarie's term debt and equity more than matches term assets. As at 31 December the Group has cash and liquid assets on hand of approximately $A32.1 billion, comfortably exceeding short term paper (see slide 5) and a very substantial capital buffer comprising $A2.9 billion of capital in excess of regulatory requirements (see slide 8).
CLAIM: The cream of Macquarie's profits were driven by borrowing heavily and acquiring major assets around the world, floating them off into funds listed on the stock exchange and charging hefty fees to set them up, run them and advise them
FACT: Macquarie's specialist funds business, while well known and important, is only one of many businesses operated by the Group. For the half year to 30 September 2008, income from specialist funds and related activities contributed approximately 11% of total Macquarie Group operating income (after impairments) (see slide 26).
On 2 March Macquarie stated to the market that its listed specialist funds are expected to provide less than 5% of the Group's operating income (before impairments) for the full year to 31 March 2009.
Almost all assets are acquired by the specialist funds directly from the market and historically only a very small number of assets have been sold by the Group to the specialist funds. At their recent results presentations major ASX listed Macquarie managed infrastructure funds provided operational performance data for their key assets which demonstrated continued growth in EBITDA despite the deteriorating global economic environment (see slides 9 to 11).
Macquarie's fees in relation to its specialist funds business are in line with market for the types of funds it manages. All fees are disclosed and agreed to with investors.
CLAIM: Macquarie's share price has been the weakest of the banks and has already fallen 40% this year
FACT: Macquarie Group's share price performance over the past 12 months has largely tracked indices comprised of its global peers (e.g. MSCI World Diversified Financials Index. See graph below). Unlike many other financial services firms however, Macquarie has remained profitable, well-capitalised and has a strong balance sheet.
It is misleading to compare Macquarie's share price to that of Australia's Big Four commercial banks rather than its global peers.