MQG - Macquarie Group

You guys been reading paper lately? a few short paragraphs pop up here and there up but I guess people who love MacBank dont want to know.

1. Their Fortress Fund that expose to sub prime worth very little today
2. Their ALPS5 investors got a nasty surprise that they wont get any income or capital growth until at least 2013. So much for double digit income.

Damn maybe they predicting 2013 is when the cheap credit returns

No we don't really Buts here is an interesting fact Citigroup shares have dropped 40% over reported sub prime billion dollar losses and Macguarie Group has lost also 40% in share price value despite forcasting 1.8 billion profit.

nick2fish said:

No we don't really Buts here is an interesting fact Citigroup shares have dropped 40% over reported sub prime billion dollar losses and Macguarie Group has lost also 40% in share price value despite forcasting 1.8 billion profit.

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The chart is all that matters my friend.....

Citigroup have just been honest with their investors and taken their losses on balance sheet...... MQG so far claim they are immune, but I will be having a good look at the number when they come out, because brighter people than MQG have lost a lot of money in this market....... Me thinks a bit of creative accounting has taken place...

Cheers

reece55 said:

The chart is all that matters my friend.....

Citigroup have just been honest with their investors and taken their losses on balance sheet...... MQG so far claim they are immune, but I will be having a good look at the number when they come out, because brighter people than MQG have lost a lot of money in this market....... Me thinks a bit of creative accounting has taken place...

Cheers

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Reece, I don't know MQG's business model that well, but I am really interested to see what comes out of their accounts in the coming months. The market has taken quite a few $$ (50%) off their value for a reason, as with the other financial institutions subject to question.

I agree there may could possibly have been some Hogwarts accounting taking place here, and across the industry, and some heads will roll.....

There are a lot of mums and dads in this stock, including mine (along with ship loads in CBA) who are going to be really feeling this in the coming weeks/months.

As the financials have underpinned our market for so long (along with BHP and RIO) it's beyond looking extremely tenuous....

reece55 said:

The chart is all that matters my friend.....

Citigroup have just been honest with their investors and taken their losses on balance sheet...... MQG so far claim they are immune, but I will be having a good look at the number when they come out, because brighter people than MQG have lost a lot of money in this market....... Me thinks a bit of creative accounting has taken place...

Cheers

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They really didn't have much off a choice...now did they... given the size of their losses. BNB have also lost 40% on ok news and my point is that investors have used paranoia to access company worth rather than rational fundamental thinking. Anyway if they have been creative, well maybe they are the brighter ones after all cause they have quite a few brokers/investors looking for potential calamities (other than yourself) and the result ... hypothesis.

nick2fish said:

They really didn't have much off a choice...now did they... given the size of their losses. BNB have also lost 40% on ok news and my point is that investors have used paranoia to access company worth rather than rational fundamental thinking. Anyway if they have been creative, well maybe they are the brighter ones after all cause they have quite a few brokers/investors looking for potential calamities (other than yourself) and the result ... hypothesis.

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Nick...

I have absolutely no idea what you are going on about....

What I was referring to was not their property losses, but all the other crap they have invented, spun off, securitised off balance sheet lying in Bermuda/the Caymans and any other tax haven you can think off since our asset bubble that started back in about 92... If you look deep into MQG's notes, the notional value of just the derivatives they have written (supposedly completely hedged out) in 2007 amounts to just under 1 trillion AUD..... Doesn't take much to screw that up, or you only need one counterparty to default (and god knows there are a few dropping off the perch). This is but one wonderful stat in the MQG world...

If it is all just my imagination, what an overreaction....... MQG now back to a 3 year low with the announcement today that Macquarie Securitisation will wind back it's mortgage business, which accounts for 2.5% of the outstanding housing loans in Australia.. But don't worry folks, it's not material to MQG's bottom line.... I love the "it only makes up for a small portion of our profits".. I wouldn't be worried about the interest income, I would be concerned about the capital exposure in the event that they have take some of it back on their balance sheet and capital drain... Jan housing loan data inclusive of securitisation is 924 BIL in housing loans, 2.5% of that is 23.1 Bil... that's a fair chunk if they can't continue to fund it using traditional securitisation techniques.....

Cheers

anybody know where i could find a decent, no bulls**t explanation of mac's investing model? mabye even a comparison between macquaries and babcocks model?

i just want to try to understnad the fundamental differences between the two and since both have been slaughtered (down roughly 40% since Nov) if there is any potentail value in either or has it just been a reprofiling of risk in to the sp's?

cheers

dale

reece55 said:

Nick...


Jan housing loan data inclusive of securitisation is 924 BIL in housing loans, 2.5% of that is 23.1 Bil... that's a fair chunk if they can't continue to fund it using traditional securitisation techniques.....

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They didn't say they can't continue it They said they would substantially reduce origination of new residential mortgages, but would continue to provide full service to existing customers. I don't know where you got the idea that they are having trouble funding or is that just more conjecture.

nick2fish said:

They didn't say they can't continue it They said they would substantially reduce origination of new residential mortgages, but would continue to provide full service to existing customers. I don't know where you got the idea that they are having trouble funding or is that just more conjecture.

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I said IF mate, if they have to take it on balance sheet...... I say this because funding loans via normal securitisation methods in Australia or indeed the world are basically dead.......

Do you have any friends in banking who are actually trying to fund paper at the moment? Cause I do and they basically say it's impossible. Everyone is being forced take it back on balance sheet because they can't fund it externally...... This is why I mention the risks.....

Cheers

reece55 said:

I said IF mate, if they have to take it on balance sheet...... I say this because funding loans via normal securitisation methods in Australia or indeed the world are basically dead.......

Do you have any friends in banking who are actually trying to fund paper at the moment? Cause I do and they basically say it's impossible. Everyone is being forced take it back on balance sheet because they can't fund it externally...... This is why I mention the risks.....

Cheers

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Ain't that the truth. As I mentioned on another thread recently:

How about just more mundane stuff such as securitization? In 2006 Aussie banks securitized $62.7 billion into Residential Mortgage Backed Securities (RMBS). Through the end of July 2007 they were well on their way to a record year having securitized $53 billion of RMBS. From August - December they securitized just $3.8 billion.

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Securitization of RMBS has just simply gone away. Banks are forced to retain them on balance sheet. The leverage your way to prosperity party is over for the likes of MQG and BNB.

reece55 said:

I said IF mate, if they have to take it on balance sheet...... I say this because funding loans via normal securitisation methods in Australia or indeed the world are basically dead.......

Do you have any friends in banking who are actually trying to fund paper at the moment? Cause I do and they basically say it's impossible. Everyone is being forced take it back on balance sheet because they can't fund it externally...... This is why I mention the risks.....

Cheers

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No I don't, nor do I have the financial knowledge that you or your friends do. I am a mug investor who reads a bit and participates in forums such as this so I can improve my ability to make informed and well judged investments. Because this is the Macquire Group thread and not a Why Macquire Group Will Fail thread I will continue to question your opinions. If what you and your banking friends are saying is true (and I believe securitisation could be a problem at present) MQG have followed the correct procedure in not pursuing a non profitable line of their enterprise? They have many more strings to their bow and 6 billion of secured funds to invest. I appreciate your dislike or distrust of the MQG business model, though I can't understand why , it has been around in its most simplistic form for ever. The Sicilian mafia and the Roman empire to name a few. Now and its more complicated form it still stays true to the original in that the investment which they rely on for fees must be strong ie: infrastructure, airlines, leisure, retirement, all are activities that we as a society need and rely on. Their income funds are assured unless we as a society fail. Thats my fundamentalist point of view and I await your reply for that is how I will learn

Dale, I'm no expert on Mac but... a no bull explanation of the Mac model.....its so diverse that I don't really want to write the paras...here goes

1. Basically, I understand 'normal' banking operations have been hived off elseware....can anyone say the code of that entity??

2 The company on a basic level is a funds management enterprise specialising in 'alternative' asset classes like infrastructure. Most of these funds are ASX listed. The beauty of Mac is that they practically invented the exploitation of infrastructure for example, which has placed them right at the bottom of the bubble

3. Macquarie's income comes from their diverse range of services across the asset acquisition and management supply chain. To an entent they own part of their funds (to control them) and they thus benefit from any performance from them. Most of their income comes in lovely fees which the highly paid Mac people earn right across their own supply chain and of course providing services to others.

4. The drivers of Mac are complex but basically they require a demand side of ignorant, I mean, high yeild seeking Aussies and others who wish to investment their cash, pay high fees to receive a 'yield'. On their broader services, Mac depends on booming M & A activity.

On the supply side, Mac can pretty much only supply competitive investment products if the cost of debt is low. That's because their assets, similar to real estate, only make decent returns if you add much debt. Macs ridiculous fees can only be derived if investors make returns so pretty much low cost leverage.

5. The key risk in Mac is its off balance sheet obligations which are to some extent unknown. The actual business carries little debt. The risk to their ongoing performance is a bear market and high cost of debt.....

Enjoy

cheap debt is over get used to it.. MQG is based on a cheap debt model
get used to them shutting up funds they cant find cheap debt to pay for.

there are many smart people who already questions MacBank model during the bull market and of course no one want to listen.
when smart people speak you listen and I certainly listen when it hits 75 bucks and did some research and stay the hell out and
I still do

Like uncle Warren said you get to see who is swimming naked When the tide goes out

ROE said:

cheap debt is over get used to it.. MQG is based on a cheap debt model
get used to them shutting up funds they cant find cheap debt to pay for.

there are many smart people who already questions MacBank model during the bull market and of course no one want to listen.
when smart people speak you listen and I certainly listen when it hits 75 bucks and did some research and stay the hell out and
I still do

Like uncle Warren said you get to see who is swimming naked When the tide goes out

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This stock might have further downside if it is highly leveraged on "cheap debt" imo

thx

MS

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 569.8 674.6 668.6 719.2
DPS 315.0 365.0 369.0 405.0

Date: 6/3/2008
Author: Jacob Saulwick
Source: The Sydney Morning Herald --- Page: 29
The global credit crisis is having an impact in Australia. On 5 March 2008,Macquarie Group revealed that it will cut back new lending for home loans. Thismeans less competition for the big banks, which will remain in the market andwill continue to be the key providers of home loans to Australians. Smallerrivals in the mortgage lending field are feeling the heat of the higher price ofmoney. The crisis in the globe's debt markets means that no group wants tobuy home loans that are bundled together to form one financial package.Macquarie Group cannot completely withdraw from the mortgage market, because ithas to fulfil contracts signed with other lenders that repackage its home loans,such as Virgin Money

Date: 6/3/2008
Author: Brendan Swift
Source: The Australian Financial Review --- Page: 25
The global liquidity crisis hit Macquarie Group on 5 March 2008, with theannouncement that it would stop selling new mortgages to customers. Macquariebanking and financial services group head, Peter Maher, said the bank could not"see any immediate prospect of a change in conditions". Over the past12 months, RAMS Home Loan Group was forced to sell its brand and stores toWestpac Bank and the Allco-owned Mobius was put up for sale after it stoppedlending to new customers. According to Credit Suisse, the gap between theofficial cash rate and the 90-day bill rate averaged 0.57 percentage points inthe first quarter of 2008. Virgin Money Australia's CEO, David Wakeley,said Macquarie's decision would not affect plans for an expanded productrange

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dhukka said:

Securitization of RMBS has just simply gone away. Banks are forced to retain them on balance sheet. The leverage your way to prosperity party is over for the likes of MQG and BNB.

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The major problem was the Societe Generale scandal, as most of the non-securitised funds had been wharehoused with them. No Frenchies, no funding.

If the securitisation drama was short or medium term, Mac could ride them out. It is only in the past few weeks just how entrenched the securitisation issue has become, and how long it is likely to last for (as the gold bulls keep mentioning, CDOs are next to impossible to sell & many OTC derivatives are worthless as the counter-parties wont be able to meet their obligations anyway). Cost of funds for some lenders spiked 55+ basis points in a week!

At $23b+, Mac had the most securitised funds in the land. Next biggest? St George & Ade Bank at over $30b combined. Food for thought & an good possibilities to add to your "avoid like the plague" list, since lending operations are a major driver of profit in these two comapnies.

FWIW at $56m profit, the mortgage business wasn't exactly a great driver of Mac's profits.

nick2fish said:

No I don't, nor do I have the financial knowledge that you or your friends do. I am a mug investor who reads a bit and participates in forums such as this so I can improve my ability to make informed and well judged investments. Because this is the Macquire Group thread and not a Why Macquire Group Will Fail thread I will continue to question your opinions. If what you and your banking friends are saying is true (and I believe securitisation could be a problem at present) MQG have followed the correct procedure in not pursuing a non profitable line of their enterprise? They have many more strings to their bow and 6 billion of secured funds to invest. I appreciate your dislike or distrust of the MQG business model, though I can't understand why , it has been around in its most simplistic form for ever. The Sicilian mafia and the Roman empire to name a few. Now and its more complicated form it still stays true to the original in that the investment which they rely on for fees must be strong ie: infrastructure, airlines, leisure, retirement, all are activities that we as a society need and rely on. Their income funds are assured unless we as a society fail. Thats my fundamentalist point of view and I await your reply for that is how I will learn

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Nick
I certainly appreciate that you may be frustrated in trying to understand the MacBank model..... If you review this thread in it's entirety, you will note I have been as vocal against it when MQG was at $95 as when it is some 47.00 as it is now.......

The reason you don't understand why I am vocal against the model is because you actually don't understand it yourself. You think their funds are built on a stable foundation of fundamental value. It is true that their funds themselves contain assets that are crucial to life. However, what MQG have done is turn these assets into tradeable instruments, revalued them up using ridiculous valuation assumptions, extracted the life out of the cash flows by charging high management fees, distributing excessive dividends to shareholders and have relied on capital recycling to fund operating cash flow.....

Have a look through just about any MQG satellite fund except for the property trusts, particularly MAP and MIG, and you will see one central theme - in order to fund Australia's lust for yield, MQG have done the equivalent of a reverse mortgage on a house. The simple answer is that this is because the operating cash flows aren't even sufficient to fund the yield (note you will have to have a look through approach at times to determine this, because MQG hide this by holding less than a 50% interest in many of the assets). So what MQG has done is revalue the asset, take out more debt, pay themselves a fee for the process as well extract a management fee and then deposit the difference to the investors.

Now look at the environment we are in - do you think this model will succeed or fail? Do you think the value of these capital investments, whilst essential, should be going up or down in light of recent market movements?

At the present stage, I have no vested interest in seeing MQG go down - but that won't stop me from telling people that I think this business is a load of crap........

At the end of it all, I do wish you all the best with your investments, especially in these volatile times.... And perhaps, if anything, I have made you question the model the MQG market team is presenting you with so that you might come up with informed decision for yourself. Because at the moment, every broker in town is still saying "Wow, MacBanks never been this cheap, top rated buy"............. This baby has consumed a lot of super fund $$'s lately...........

Cheers

reece55 said:

Have a look through just about any MQG satellite fund except for the property trusts, particularly MAP and MIG, and you will see one central theme - in order to fund Australia's lust for yield, MQG have done the equivalent of a reverse mortgage on a house. The simple answer is that this is because the operating cash flows aren't even sufficient to fund the yield (note you will have to have a look through approach at times to determine this, because MQG hide this by holding less than a 50% interest in many of the assets). So what MQG has done is revalue the asset, take out more debt, pay themselves a fee for the process as well extract a management fee and then deposit the difference to the investors.

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Looking at the MAP accounts they are paying dividends out of operating cashflow, not through revaluations and borrowing to pay the dividend. Also they have not overpaid for assets as witnessed by the rome airports divestment booking in a nice profit. Maybe I'm looking at the accounts wrong, but I don't see any flaws in MAP. Macquarie funds are structured to use the maximum debt to maximize tax benefits, but at the same time not over doing it with the leverage.

I have not looked at MIG so I can't comment on that.

Bloodwynch said:

Looking at the MAP accounts they are paying dividends out of operating cashflow, not through revaluations and borrowing to pay the dividend. Also they have not overpaid for assets as witnessed by the rome airports divestment booking in a nice profit. Maybe I'm looking at the accounts wrong, but I don't see any flaws in MAP. Macquarie funds are structured to use the maximum debt to maximize tax benefits, but at the same time not over doing it with the leverage.

I have not looked at MIG so I can't comment on that.

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Bloodwynch...

Look again my friend....
Operating cash flow 07 = 1,124,513
Less:
Borrowing costs in Financing activities: (530,257)
Capital returns to MI: (826,832)

Add back:
MI Contrbution of capital: 233,007

Equals: 431
Distribution: (324,393)

And this is being very generous, if we actually count the interest income from convertible notes, not sure if there is sufficient cash flow from the associates to cover the payments...

All I can say is don't buy the story, read the cash flows properly...

The P&L really tells the story however... NPAT = 1,530,655
Less: revaluation income (1,873,967)
Add Depn: 516,318
Add downwards reval: 77,656
Equals= 250,662 (which is earnings before depreciation and amortisation, which theoretically is what they have left to distribute to you). On average MAP owns about 50% share of the entities it consolidates, so say even $130 Mil is attributable to them. Bare in mind that MAP's consolidated entities accounts for about 92% of the investment portfolio. So, we are squeezing a $330 Mil distribution from $142 Mil distributable earnings (assuming the non controlled entities operate on similar margins etc). See how the equation doesn't quite stack up?

What did MAP pay MQG for this wonderful service - $230 Million dollars in 2007. This doesn't include anything they might have received from transactional advice that might be capitalised.... Does anyone except for me think this one is a golden goose for the MacBank?????? Adding insult to injury is that MacBank are using your capital to fund their own business - at 31 December 2007, MAP had 880 Mil invested in MacBank certificates of deposits and commercial paper...... Do they want to ride this baby any more????

Cheers

Thanks Reece, for your detailed responses to my queries, sometimes you have to push hard to get answers even if those answers are not the ones you want to hear. The fence is looking like a great place to sit at the moment Cheers

This one is looking oversold at present. If the credit crunch does not get worse (and I know that is a big IF) it will head north, especially if the Hedgies start shifting out of commodities and back into the financials. I bought in near its lows and realise that I may have to hold for a while, but looks a solid bet IMO.