There were two pieces of interesting news out of the Macquarie Bank AGM
yesterday and both were related. The bank wants APRA to let it risk the
balance sheet on a global asset spree without raising new capital and
also declared that it would fall between $300 million and $600 million
short of the $1.337 billion in assets sales that were predicted for the
half year to 30 September 2006.

This is the list of assets that Macquarie announced were on the
chopping block in April, a move we now know was partly driven by
pressure from APRA:

Region Asset Acquisition Date book value
US Baldwin County Bridge Dec 05 $95m
Europe Brussels Airport Dec 04 $27m
Europe UK Broadcast Jan 05 $66m
Asia CJ Cablenet June 05 $36m
Europe European Directories June 05 $168m
Europe Creative Broadcast Services July 05 $97m
Europe Isle of Man Ferries Oct 05 $87m
NZ Global Retirement Trust Dec 05 $99m
Global Smarte Carte Feb 06 $198m
US Icon Parking Feb 06 $174m
Asia HK Properties Oct 05 $145m
Asia Chinese Shopping Malls Oct 05 $145m
Total 7.3 months average $1.337bn

The bank announced a $700 million capital raising two days after
revealing this to satisfy APRA’s concerns. Macquarie now manages $150
billion in global assets but most of this is for third parties, unlike
the above list which are actually owned 100% by the bank itself.

Macquarie has been rumoured to be chasing everything from the London
Stock Exchange to PCCW and Eurotunnel in recent months but APRA will
clearly force them to raise more money if the balance sheet is further
leveraged. This explains why Macquarie now wants a new regulatory model
to separate its banking assets from its global asset flipping binge.

Chief executive Allan Moss revealed yesterday that only $250 million in
asset sales had been achieved so far this half and the only successful
disposal from the above list was the Hong Kong properties.

I asked Moss to explain the situation with the four biggest exposures
that hadn’t been moved and we got this amusing lecture on the beauty of
market power which can be summarised as follows:

Smarte Carte: great monopoly, each airport only gives out one franchise to a trolley company and we’re the biggest;
New York car parking: busy city, not much space for cars there, what a great business;
Chinese shopping centres: lots of people in China so it’s hard for anyone to build new centres near the ones we’ve bought;
European directories: no-one wants more than one copy of the Yellow Pages and we’re the biggest in most markets.

The question was actually whether shareholders were facing a book loss
on any of these investments but instead we got a simplistic lecture on
the “privileged positions” each had in their respective markets.
Another shareholder then got up and said, “if these assets are so good,
why are we selling?”

Indeed, the only explanation is that Macquarie’s business model is now
a game of pass the parcel that relies on ever-rising markets. The
sudden downturn in May has left the bank with a series of assets that
it doesn’t want but is struggling to sell in the face of a regulator
who is not happy with the risk it is running.

Peter Fray

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