Macquarie caught in Babcock fall-out
August 28, 2008
Danny John and Jacob Saulwick - The
Sydney Morning Herald
THE financial giant Macquarie Group
suffered a huge market sell-off
yesterday as fallout from the collapse
of investor confidence in Babcock &
Brown drove its share price down to
levels not seen since late 2004.
Macquarie's day mirrored other downfalls
this year, its shares plummeting nearly
10 per cent - or $4.44 - to $41.61,
prompting a "please explain" from the
Australian Securities Exchange.
The ASX query raised concerns about a
sustained decline in Macquarie's share
price. Over the past two weeks it has
fallen 24 per cent, from $54.10 on
August 13. That is part of an even
bigger erosion in the group's value,
which hit almost $100 a share in May
Macquarie was then worth $27.6
billion. Yesterday its market
capitalisation was $11.6 billion after a
day of sustained selling thought to have
involved hedge funds and institutional
investors concerned about its
debt-driven business model.
Last week's fall from grace of
Babcock & Brown, whose debt troubles
prompted the dumping of its financing
structure and the departure of its chief
executive, Phil Green, has focused
renewed attention on Macquarie, the
first and most successful asset and fund
Despite its stronger financial base
and a much-wider range of businesses,
Macquarie was caught in the crossfire of
US investment banks crippled by the
credit crisis and its shares were sold
off. Yesterday's fall was more sharply
focused on Macquarie itself, and wiped
away the final gains from the bull
One of the triggers was a broker's
report from the investment bank UBS,
which cut its "buy" recommendation on
the stock to "hold" and reduced its
target price from $60 to $48 on concerns
about the company's ability to withstand
another year of the credit crunch.
UBS also questioned the strength of
the balance sheet. Macquarie claims to
have excess capital of $3 billion but
the broker estimates the real buffer
could be $150 million to $500 million.
Macquarie refused to comment about
the fall in its share price, but told
the ASX in a formal response it could
offer no explanation for what had
happened over the past fortnight.
In a statement to the Herald,
Macquarie reiterated recent market
announcements of its solid earnings
results, the diversity of its wide
operations and that its specialised
funds management operations make up only
20 per cent of its income.
Market traders indicated that
Macquarie had been relatively insulated
from the turmoil surrounding more
debt-laden investment funds because of
the focus on B&B.
"There has been a lot of questions,
especially from the US, as to why
Macquarie had been holding up recently
after what has happened to Babcock &
Brown [and] that sooner or later the
negative sentiment was going to flow
through to them," Goldman Sachs JBWere
said last night. But concerns about
Macquarie's funding problems had been
"well and truly overplayed", it said,
and it was in the enviable position of
not having to raise extra finance.
"Quite a bit of it is people catching
up with what has gone on at Babcock,"
the managing director at Cannae Capital
Partners, Hugh Giddy, said.
The areas where Macquarie derived
most of its revenue had begun to slow
significantly, prompting questions about
where the group could generate value, he
"The markets they operate in have
really slowed up. The only thing that is
really open for business at the moment
is rights issues and placements, with
companies needing to acquire capital."