Is the bubble about to burst for the Millionaire Factory? The SMH produced an excellent Saturday read on the Qantas saga, which buried the fascinating fact that James Packer dumped his one million Macquarie Bank shares earlier this year.

Maybe it finally dawned on James that owning the stake was a conflict of interest for a Qantas director as Airline Partners Australia tried to get their bid over the line. Or, maybe, it also reflected a basic assessment that Macquarie was over-priced?

Combine that with the view expressed by legendary Wall Street bear James Chanos in this New York Times piece on Friday and investors have good grounds to be nervous. Chanos was described as “the short-seller who catapulted to fame by questioning Enron” and was reported by the Times to have had this to say about the Millionaire Factory at the biggest funds management conference of the year in New York last week:

Mr Chanos’s short idea was Macquarie Bank, an Australian bank that has made a lot of money by raising big investment funds, using the money to buy expensive assets at soaring premiums and selling to separate Macquarie entities and capturing a lot of fees along the way. He drew some comparisons between Enron and Macquarie — whose business model Wall Street is desperately trying to replicate. A spokesman for the bank rejected Mr Chanos’s observations.

No wonder Macquarie shares tumbled from a peak of $97 last week back below $90 in just four days. The stock is down another 83c to $88.62 in a buoyant market this morning.

The forthcoming share purchase plan at $87 is now looking marginal and institutions who shelled out an effective $88.90 for $750 million worth of new Macquarie Bank shares two weeks ago must be feeling a little nervous knowing that James Packer and James Chanos both think this was a mistake.

Then again, Macquarie Bank has faced these sorts of criticisms before. Everyone thought the Sydney Airport purchase was a disaster and even Alan Jones launched a vicious campaign suggesting it was headed for a fall. History shows that the stock just keeps going up over time.

Finally, it’s worth pointing out that Macquarie Bank’s true market capitalisation is much more than the $23.5 billion claimed in the various newspaper league ladders published this morning. You see, Macquarie has 34 million options outstanding, all of which are comfortably in the money, so the true market cap is closer to $27 billion.

Peter Fray

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