The Australian had an interesting story today on the saga of last week’s Pacific Brands profit downgrade which finished as follows:

Speculation the company was giving selective
briefings arose because PacBrands investor relations manager Katherine
Cooper made a phone call to an unnamed Macquarie Bank equities analyst
on Thursday. Macquarie flagged a review of the rating of PacBrands in
the hours after the phone call but said it had been analysing the
company for some time in light of the difficult retail conditions.

PacBrands
has denied any wrongdoing, with a company spokesman adding that Ms
Cooper had no knowledge the company would not meet first-half targets
before she called the Macquarie analyst. The company has argued the
call was nothing more than a one-off briefing PacBrands often gives to
analysts when queried – as Macquarie did – about the share price.

Reporter Kevin Andrusiak should have added that Macquarie Bank was joint lead manager of the 2004 Pacific Brands float, as this awards page on the Macquarie website shows.

In
other words, Macquarie was paid many millions to market the Pacific
Brands float and allocated the shares to their various institutional
clients. Then Macquarie Equities flagged a bearish report last Thursday
which included the following:

The generally slower macro conditions have been felt across
all divisions. Underwear and hosiery has been hindered by continued
intense competition. Bedding has been hit by significant commodity cost
increases in foam… previously highlighted issues in outerwear and
sport don’t seem to have been resolved. And discounting remains in the
shoe market.

The market correctly assumed that this was accurate because it was
coming from the house broker. Regardless of what Katherine Cooper knew
at the time of her phone call, the market’s interpretation was that a
selective briefing had taken place and Macquarie Equities was on the
money, as proved to be the case.

If Katherine Cooper didn’t know about the downgrade, why couldn’t she
talk the analyst out of his bearish state of mind? It would be nice if
this was a great example of analyst independence, but the fact remains
that Macquarie clients were able to dump Pacific Brands ahead of other
investors. ASIC and the ASX needs to drill down and establish exactly
what Pacific Brands told Macquarie Equities. Heaven forbid, is this a
journalist calling for someone to disclose their sources?

Peter Fray

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