Macquarie stock down 10% y'day, capitalization now 60% below peak

Macquarie shares dropped almost 10% in price in heavy trading on Australian stock exchanges yesterday and are now down 24% from their August 13 price of A$54.10. Yesterday they dropped from A$46.05 to A$41.61. (A$ trades in the range US85c to 90c.)

Local reporters said the selloff was a fallout from a collapse in confidence in Babcock & Brown another investment group heavily into infrastructure (though not tollroads.) Also a UBS stock picker yesterday issued a less encouraging assessment of Macquarie, questioning the strength of their balance sheet, notably their claim to have A$3b liquidity.

But how reporters can know what makes thousands of individual investors buy and sell and at what prices, beats this reporter. Why would there be "fallout" from from a different company? Isn't it just as likely that investors enamored of infrastructure on becoming disillusioned with B&B would move their funds into Mac tending to boost its share price?

And that nuclear allusion: "fallout"? Does the nasty dust really take so long to settle?

An important fund of Macquarie's the Infrastructure Group last week wrote down the value of many of their toll concessions substantially, and an airports fund announced a scaling back. The parent group earns rich management fees and commissions on the transactions of funds like these. The drop in price could be related to that.

For years there have been analysts who say that the Macquarie model is fundamentally unsound. Maybe, maybe not, we can't work it out. But nothing has happened lately to swing opinion on that.

It certainly does look to be more difficult to safely borrow cheap and 'leverage' equity. That realization is affecting many sectors, housing most spectacularly, but others too.

There are analysts and reporters who make plausible arguments Macquarie has paid too much for major assets - we tried our hand at that, thinking they heavily overpaid for the Chicago Skyway especially but also ITR - which is the total opposite of those who say concessions are "giveaways". The prices are set in a competitive environment - in responses to requests for proposals with lots of diverse brains and pockets applied to what the thing is worth so quarreling with the price attained is difficult when the thing has its future ahead of it. It's easy to say afterward what the right price was.

Macquarie has been doing more unlisted funds - going private. And that has its downside, not least of which is that investors in the parent bank know less about what's happening, and are more susceptible to act on rumors and fears.

Their drop could be just a manifestation of a wider loss of faith in the health of capital markets.

The Australian Stock Exchange yesterday asked the company for a comment on the reasons for the decline in its share price. The company said it had "no explanation."

But regardless of explanations Macquarie is looking less formidable (unless ttheir stock price recovers).

Macquarie's capitalization has gone from A$27.6 billion with the share price near A$100 at a peak in May 2007 to A$11.6b now, an approx 60%.

TOLLROADSnews 2008-08-29