Macquarie doing writedowns, but still profitable, cash rich, & looking for bargains

Macquarie, Australia's leading investment bank with a presence in tollroads is continuing to writedown assets but remains profitable, has a healthy balance sheet, and shows no sign of going the way of the fallen Wall Street giants - according to data presented at an "operations briefing" by senior managers today. The Sydney-based investment bank which manages major shares of Indiana Toll Road, Chicago Skyway, Dulles Greenway, South Bay Exwy, Dulles Greenway, 407ETR and pikes in Europe and Asia had less exposure to toxic US real estate and derivatives than the likes of Citicorp, Merrill Lynch, Lehmans, Bear Stearns and JP Morgan.

With cash and liquid assets of $31 billion exceeding short term debt of around $13b (all $s are A$s worth about 65c US) the group has a strong balance sheet. Today the group said indications are FY09 profit (ending Mar 31) will be around $900m or half of the previous year's, though they caution that conditions are so volatile such forecasts may well be off.

The likely $900m profit for the year allows for $900m of extra writedowns of assets after writedowns of $1100m in the first half of the year.

Operating income for FY2009 will be around 15% lower than FY2008 without the writedowns.

In answer to questions CEO Nicholas Moore said he couldn't comment about prospects for profitability next financial year.

Divestiture plans & staff cuts

The group plans to get rid of $9.1b more of unidentified "low yielding assets" on top of $4b already disposed of, but don't feel pressure to sell.  Their cash position is stronger than a year ago.

In the past four months they have reduced their staff numbers by over a thousand from about 13.9k to 12.8k or by 7.5% to lower their costs. But staff numbers may grow again with acquisitions.

The group recently took advantage of an Australian government guarantee extended to banks to the tune of $10.9b.

Total managed assets are valued at $73b down about 7% from March 2008.

Moore said that "global market conditions remain exceptionally challenging."

He said that the group's risk managers had got pessimistic about markets early, helping reduce its exposure to losses.

"We have strong risk management across the Group which has served us well during the market dislocation of the past 18 months. We have a strong balance sheet, strong team and strong core businesses. We continue to maintain a cautious stance with a conservative approach to funding and capital,”

Moore said that despite current market conditions the bank is profitable and is well placed to advance "medium term."

Buying US nat gas business

Macquarie this week announced an agreement to buy the downstream natural gas division of Constellation Energy based in Houston TX. It plans to merge the Louisville Kentucky unit with Cook Energy which it bought earlier.  Together they will retail some 13bcf of gas making them one of the larger natural gas distributors in the US.

They haven't disclosed the terms of the acquisition which hasn't gone to financial close.

Funds group manager Shemara Wikramanayake said that Macquarie funds are well positioned to expand their activities in North America. She said they are excited about President Obama's emphasis on improving infrastructure and see new opportunities developing here.  Macquarie funds continue to attract strong support from investors, she said, though management fee margins are under pressure.

Macquarie recently added to their toll concessions portfolio in North America with the Port Mann Bridge project in British Columbia, she said.

"Once-in-decades opportunities"

Difficult market conditions and competitors falling by the wayside provide what Wikramanayake described as "once in decades" opportunities for growth and buying assets, but they plan to move cautiously.

So, Macquarie doesn't look like Wall Streeting into oblivion like Lehmans and Bear Sterns, or becoming a quasi-US governmental bank like Citicorp and Bank of America.

No $500k Obama salary caps for these guys!

http://www.macquarie.com.au/au/about_macquarie/investor_information/ops_briefings.htm

TOLLROADSnews 2009-02-05