What’s going on at the ABC? Rather than celebrating the enormous global success of Macquarie Bank, Aunty has unleashed quite a blitzkrieg against the Millionaire Factory which is now getting out of hand.
It started with Ticky Fullerton’s Four Corners report that trawled over the Qantas fiasco and then attempted to paint the $20 billion takeover of Thames Water as a debt-laden house of cards.
Stephen Long then scored quite a scoop on Wednesday for PM when he interviewed James Chanos, the famous Enron whistleblower and short-seller who reckons the Macquarie Model is both “flawed” and “unsustainable”.
Chanos is a credible figure who deserves to be listened to, but PM then followed up with a ridiculous lead story on Thursday night relying on an essay written by US analyst Edward Chancellor, who likened the Macquarie Model to a Ponzi scheme as follows:
EDWARD CHANCELLOR: What they’re doing is taking companies, paying more, outbidding their competitors for them, extracting huge amounts of fees, paying large dividends to the investors in Macquarie funds, which are, in the end, based on the revaluation profits that Macquarie models actually generate, and they’re funded with extra loans. And so, to my mind, that pretty much conforms to what we call a Ponzi scheme, a scheme in which distributions to investors are funded by borrowed money.
STEPHEN LONG: Ponzi schemes pay abnormally high returns to investors, either from funds flowing in from new investors or from borrowed money. They owe their name to the infamous Charles Ponzi. He became a millionaire in 1920s Boston selling a fraud that offered to “double your money” in 90 days.
The mastermind of the Macquarie Model, Nicholas Moore, gave an impressive performance at a conference in Melbourne last year when he claimed that only two of 92 assets that Macquarie had bought were worth less than the bank or its funds paid. This is the key. The Macquarie Bankers are incredibly smart, they buy extremely well and then they make the assets sweat, thereby justifying the accounting write-ups.
For the critics to have any credibility, they need to identify specific assets that Macquarie over-values on its books. I can’t think of any major examples, because Macquarie’s record is summed up by last week’s Birmingham Airport deal.
Macquarie Airports bought its 24.125% stake for £84 million in 2002 and sold out last week to the Victorian Government and a Canadian pension fund for £210 million.
As long as Macquarie continues to justify the valuations as it cashes out of assets, the model remains utterly defendable.