The 5000-word essay attacking Macquarie Bank by US analyst Ed Chancellor on the Breakingview.com website is exceptionally detailed and well-researched.

Such a piece of research has never been produced out of Australia, which is a little disappointing. In fact, it is so well researched that some observers are making a connection between the revelation that New York hedge-fund operator James Chanos has shorted Macquarie and the publication of this substantial attack.

Chancellor and Chanos are said to know each other, so is one being used by the other to profit from a short-selling operation? Macquarie Bank shares certainly weakened over the past few days.

Macquarie have come back with some pretty strong arguments of their own in a recent letter from Nicholas Moore to The Wall Street Journal and this press release directly attacking Chanos.

They raise a good point. If the asset write-ups in the funds are unsustainable, how is it that $US8.8 billion worth of infrastructure assets were sold between 1994 and 2007 and all eight deals went for more than book value.

Geraldine Doogue’s Saturday Extra program on Radio National has set up a debate with Chancellor for tomorrow in which I’ll be defending the Millionaire Factory. Who would have thunk it?

There are certainly plenty of conflicts of interest, but Macquarie Bank explains the governance in its associated funds in this policy which was released in April 2005.

I reckon it is unhealthy that PwC is auditor of the bank and many of its funds, but the empire does boast an impressive array of independent directors who do regularly veto deals thrown up the investment-banking divisions.

It’s hard to argue with the following from Macquarie as evidence that it retains discipline and independence in its funds:

Macquarie and its funds declined to increase their offer price for a number of assets in the last 12 months. These include London City Airport, SH121 Texas Tollway, Chicago City Car Parks, OOIL (Vancouver and New York ports), and Associated British Ports. Other notable public transactions in which Macquarie or its funds were unsuccessful by reason of price include the London Stock Exchange, Budapest Airport, the Cross City Tunnel and the Lane Cove Tunnel.

It’s pretty rare to gloat about your failures, but hindsight shows that Macquarie has rarely ever paid too much for an asset – especially once they’ve structured it out of Bermuda, exploited their monopoly power by raising prices and geared it to the gills.

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Peter Fray
Peter Fray
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