BNB gone, Macquarie next?

[Garpal Gumnut]

It would not surprise me if MQG were to go the way of BNB. Their styles of investment were so similar. BNB was a gonnabe MQG. The price action on MQG is interesting, it appears to be moving up slightly but the volumes are pathetic and my guess is that the big players are feeding stock out.

gg

 

[cutz]

G'Day GG

Are you just laying in on for the MQG die hards,

Seriously though, volume appears to be reverting back to the long term average, looking back over its downward period that’s when it had above average volumes (which it may be coming out of now).

 

[sammy84]

Just what we needed, another MQG bashing thread. Different assets, different leverage, different exposure...there really arent that many similarities between BNB and MQG.

 

[michael_selway]

Good article below

EPS & DPS Forecast (cents per share)
2008 2009 2010 2011
EPS 653.5 313.8 365.4 460.1
DPS 345.0 220.0 204.2 247.6

http://business.smh.com.au/business/battered-n-bruised-20090227-8kbl.html?page=-1

Battered 'n' bruised Feb 28, 2009

While no one is game enough to predict Macquarie's demise, the global economic downturn is forcing the group to rethink its famed business model, writes Lisa Murray.

Indiana Governor Mitch Daniels basked in the applause as he entered a room full of state officials and reporters to officially announce the close of the state's $US3.8 billion toll road privatisation.

It was June 29, 2006, and Daniels had received the final payment from Macquarie Infrastructure Group and its Spanish partner, Cintra, which had taken over a 75-year lease on the Indiana Toll Road, the so-called "Main street of the Midwest".

Daniels was confident the deal would turn around the state's financial fortunes and he had big plans for the proceeds.

But he was not the only one celebrating.

In Sydney, Macquarie Group executives were riding high. Not only did its investment bankers just rake in $US32.6 million in fees but the group had also officially cracked the elusive US infrastructure market. The Indiana transaction followed deals to buy Virginia's Dulles Greenway and the Chicago Skyway, which was the first US road privatisation.

Together, the three infrastructure plays had netted Macquarie $US74.7 million in advisory and debt arrangement fees and had substantially boosted the assets under management of its biggest fund, MIG. That meant higher management and performance fees for Macquarie.

The stage was set for more deals to come. Despite a public backlash against selling off state assets, Daniels's counterparts, from New York to Alaska, were lining up to flog their roads and bridges to the highest bidder. What had started with a small motorway in north-western Sydney was working its way across the world's biggest economy. The "Macquarie Model" had arrived in the US.

It's a well-told story. Macquarie became a global brand buying up toll roads, ports, airports, car parks and water companies around the world, at times paying over a billion dollars more than the next bidder. The assets were piled with debt, often up to 85 per cent of the purchase price, and then rolled into listed and unlisted funds, which paid Macquarie advisory, management and performance fees. Yes, the group still had its traditional trading, funds management and banking businesses but it was the specialist infrastructure funds which put it on the map and drove earnings growth to dizzying levels.

However, the world changed in September last year, with the collapse of US investment bank Lehman Brothers, which ended any hopes that the subprime mortgage crisis would blow over.

Funding dried up, asset valuations started plummeting and debt became a dirty word, leaving the "Macquarie Model" all but dead and its management team scrambling to avoid disaster.

The US roads, a cause of so much celebration 2 ½ years ago, are struggling to repay their debts and Macquarie's share price, held hostage to a market awash with capital raising rumours, slumped this week to its lowest level since June 1999.

It is not just day traders and rumour mongers selling the stock; long-term investors, including its biggest US shareholder, Capital Group, have been abandoning ship. The shine has well and truly come off the silver doughnut.

"The strategy of buying an asset and gearing it up to generate returns - that game is clearly up," says Perpetual Investment's head of equities, John Sevior. Perpetual does not own any shares in Macquarie or its satellite funds. "It's an opaque business and it's very hard to understand the level of gearing. The gearing in the group is above our level of tolerance."

Copycats Babcock & Brown and Allco have already disappeared under a mountain of debts. While Macquarie's balance sheet is strong - thanks to a government guarantee on wholesale funding for banks, which has allowed it to raise a whopping $12 billion in offshore markets in just over two months - its satellite funds are struggling. Macquarie's Australian-listed infrastructure funds have had more than $12 billion wiped off their market value since the start of last year. The local real estate funds have lost a further $5.6 billion.

Total losses for shareholders in the funds over the past 12 months range from 52 to 91 per cent, compared to a 37 per cent drop in the market's main index.

MIG's chairman, Mark Johnson, a former senior executive and deputy chairman of the group, says he "can't understand why prices have been marked down so savagely".

But he acknowledges the "Macquarie Model" will need to change. "Inevitably it must change quite radically because we are seeing the biggest crisis in credit markets since the 1930s," he told the Herald.

"Investors want certainty of survival. Anything that has high leverage is seen as risky and not what investors want. The flagship funds are under great pressure to adapt and to convince investors that their survival is assured and they are appropriate investments."

It was a bad news week for Macquarie. MIG announced that traffic had slumped on the Indiana Toll Road and Dulles Greenway in the US and they were using all available cash to pay back debt. It also wrote down its investment in the San Diego South Bay Expressway from $133 million to $11.6 million.

Macquarie Airports, meanwhile, was forced to dump a share buyback so that it could tip equity into Sydney Airport for the second time in three months to ease its debt burden and Macquarie's media fund, MMG, wrote down the value of its US community newspaper group, American Consolidated Media, by $127 million. Macquarie CountryWide and Macquarie Office Trust have sold US properties to pay down debts, MIG sold part of its stake in the M7 tollway to prove to the market how much it was worth and shore up its balance sheet and MMG slashed its dividend by more than three-quarters.

All of this means fewer fees for Macquarie and more write-downs on its stakes in the funds. The group has already announced an estimated $2 billion of total write-downs for the year to March 31 and it expects to report that profit has halved to $900 million. That is not a bad result given that almost no other investment bank in the world is in the black.

Even so, these debt issues hang over Macquarie as does the March 6 deadline for Australia's short-selling ban, which many believe kept the hedge fund managers at bay at a crucial time for the group. Those same hedge fund managers will no doubt be furiously running the numbers over Macquarie in the coming weeks, ready to pounce on any signs of weakness should the ban be lifted. Even with the ban in place, Macquarie was bruised and battered this week and forced to deny it had any plans for a capital raising.

But the problem for Macquarie is that varying degrees of disclosure among its many funds make it difficult for the market to understand the businesses and their debt positions and how they relate to the group.

That allows rumours to run wild. No one really knows how much debt is held across the group, but some analysts estimate it is more than $160 billion.

Jim Chanos, the president of the US hedge fund Kynikos Associates - who became famous for his early warnings on Enron - has been a vocal critic of the Macquarie Model. He says the model gave the group incentive to overpay for assets because the shareholders in the funds picked up the tab while Macquarie's fees were based on the size of assets under management. The higher the price, the bigger the assets under management, the more lucrative the fees.

Macquarie funds and their co-investors paid over $1 billion more than the next bidder for both Sydney Airport and the Chicago Skyway. .

While assets in its funds are struggling with debt payments, there is no doubt Macquarie has always been very good at protecting the bank. Debt is held at the asset level. That means it is non-recourse to the funds, let alone to Macquarie, a clever strategy that essentially ring-fences any problems.

But it is not that simple. As one insider says, if an asset were to fail, while Macquarie may not be obligated to come to the rescue, the reputation risk would be "enormous". Taking action, on the other hand, could spook investors and affect its credit rating.

"At some stage, if a significant fund was in major strife, Macquarie might take the view that they need to protect the franchise," says Sharad Jain, a credit analyst at Standard & Poor's. "That would be a change in financial policy and we would need to consider that at the time as it is outside our expectations."

Macquarie says that will not need to happen as none of its funds is in "major strife". It has already managed $3 billion of refinancing since September. And in terms of its four main listed infrastructure funds, there is no outstanding refinancing for this year and only 12 per cent of debt needs to be refinanced over the next three years. But there are clearly some assets that are stretched.

MIG said at its results this week that the Indiana Toll Road had a debt service coverage ratio of just 1 times. That means that all of its operating income is being swallowed up by debt payments and is a concern given that traffic on the road, a mostly commercial toll road that runs 253 kilometres across northern Indiana, fell nearly 15 per cent in the last half. The ratio for Virginia's Dulles Greenway is 1.1 times.

Chicago Skyway's debt service coverage ratio was a more encouraging 2.1 times. However, a look at its 2007 full-year accounts, the latest available, shows the asset had total long-term debt of $US1.55 billion.

......for more see link

 

[Garpal Gumnut]

G'Day GG

Are you just laying in on for the MQG die hards,

Seriously though, volume appears to be reverting back to the long term average, looking back over its downward period that’s when it had above average volumes (which it may be coming out of now).

Mate I've been sus about MQG valuations for a long , long time.

I enclose a chart to yesterday which has a gann fan superimposed on it.

I won't go into gann. Ask trader paul or google gann fan.

If MQG is to recover it will need to convincingly move up out of its present downward trajectory.

I agree volume is important, however on 20/5/08 the volume was similar to yesterday.

Only difference was it closed at above $65 not above $19 as it did yesterday.

Funds work on capital invested, not volume.

Lets see how it goes on Monday. If the volume goes up and it dips below that gann line in the fan then its all bets off for a recovery.

gg

 

[nikemi]

It would not surprise me if MQG were to go the way of BNB. Their styles of investment were so similar. BNB was a gonnabe MQG. The price action on MQG is interesting, it appears to be moving up slightly but the volumes are pathetic and my guess is that the big players are feeding stock out.

gg

However there is difference in 'history' and 'legend', just because someone tried unsuccessfully to copy their concept and failed does not mean that the original is going to fall as well. i am not saying their share price won't get punished further as many people equate MQG to BNB but also those that bother to do their research know that their so called business 'models' are fundamentally different. in other words appart from the fact that they were both clasified under the same class in ASX200 there is very little in common between the MQG and BNB. But then again very few people go on fundamental analysis in today's market it is all psychology and emotion....

 

[Garpal Gumnut]

I have posted extensively on

Allco Finance AFG
Babcock and Brown BNB
Macquarie MQB

I will bet London to a brick that the unsustainable model I have alluded to in previous posts will have its nadir shortly.

AFG is gone
BNB is gone

https://www.aussiestockforums.com/forums/showthread.php?p=254330#post254330

gg

 

[white_goodman]

so your saying dont take a grad role with them next year lol

 

[prawn_86]

so your saying dont take a grad role with them next year lol

Thats if they are even hiring grads this year... And if you can get in if they are...

I would still take a job with them just for the experience

 

[Sean K]

Just what we needed, another MQG bashing thread. Different assets, different leverage, different exposure...there really arent that many similarities between BNB and MQG.

Really? Gee, I thought they were very similar. Can anyone else elaborate on this?

 

[sammy84]

Really? Gee, I thought they were very similar. Can anyone else elaborate on this?

Hi Kennas

Admittingly I don't bother myself to much with the company news of either. However at face value here are some of the noticable differences between MQG and BNB;

• Macs quality of assets is first rate (e.g Thames water)
• BNB asset purchases were more highley leveraged.
• Their exposure is less as in the last few months MQG has around $2b using the government guarenteed bonds. From memory MQG have about 3b in excess of their minimum capital requirments
• Mac's management is not to be underestimated. Their directors are some of the brightest in Aus.
• Most importantely, they are still producing a profit.
  
  
  Note: I am a holder of MQG

 

[Phillip]

Only issue I have with MQG is their assets are not liquid enough. RIO is a company with liquid assets and they had issues fire-selling their assets. MQG debt covenance is problematic as highlighted in the CDS where their spreads have ballooned. Not really a stock I would be bashing nor promoting. I am really here nor there with MQG, just like many others I believe their business model is flawed in the 'delevereging' world.

 

[skc]

BNB only ever copied one part of MQG's business. BNB was nothing more than a specialist infrastructure financier / manager.

MQG on the other hand is a lot more. They have many more parts:
- A bank operation
- A brokerage business with margin lending
- An investment bank, active in corporate advisory, ECM, DCM, M&A, underwriting etc
- Probably others like project finance, PPP, structure finance, financial product development etc

I am not saying MQG is doing well, as pass-the-infrastructure-parcel was a significant part of their business. But a casual glance at MQG's website and last results will tell you quickly that MQG is like a supermarket to BNB's little cornor store.

 

[shag]

the guys in mac aus branch might be bright but they bought into the absolutely shonky blue chip disaster in nz, despite the mac nz guys telling them how bad it was.

 

[vincent191]

I agree with those who say MQG is different from B&B. If you look at the MQG accounts you will see that it has a very diversified range of acitivities.

I think MQG will survive this downturn, most of their problems are in their satellite funds. Their core "banking" business is still profitable. Their earnings will suffer but I think they will be around for a while.

 

[Garpal Gumnut]

I agree with those who say MQG is different from B&B. If you look at the MQG accounts you will see that it has a very diversified range of acitivities.

I think MQG will survive this downturn, most of their problems are in their satellite funds. Their core "banking" business is still profitable. Their earnings will suffer but I think they will be around for a while.

They have still payed their executives more than their shareholders.

A chart.

gg

 

[goldchopper]

They have still payed their executives more than their shareholders.

A chart.

gg

I was telling a mate to sell at 60. Then at 40. Leverage has hurt them. When mac was @ 100 a share, they had 6000 staff. Now @20 they have 12000 staff. I would say media are not reporting on silent staff lay offs there. Estimate by y.e. some 3 to 5 thousand could be gone...

 

[Garpal Gumnut]

I was telling a mate to sell at 60. Then at 40. Leverage has hurt them. When mac was @ 100 a share, they had 6000 staff. Now @20 they have 12000 staff. I would say media are not reporting on silent staff lay offs there. Estimate by y.e. some 3 to 5 thousand could be gone...

Accept your comments.

I am still concerned that insiders may be selling out.

This uptrend would be more convincing if the volume were not falling as the price rises.

Perhaps ARG and the other big players have called it a day, or the MQG people have figured they have squeezed the apple dry.

gg

 

[Naked shorts]

I hope they go next, I staying with a guy who works there, he is the most arrogant, stupid, lying, insecure SOB I have ever met. It would make me extremely happy to see him lose his job.

 

[nunthewiser]

I hope they go next, I staying with a guy who works there, he is the most arrogant, stupid, lying, insecure SOB I have ever met. It would make me extremely happy to see him lose his job.

LOL u need a trip to the convent !