We hear the highly anticipated hit-piece on Macquarie Bank (ASX:MBL) is scheduled to hit newsstands in America this week. “Fortune magazine has hit out at Macquarie Bank’s ‘rapacious’ fees, high debt levels and its ‘too complex’ structure as its shares take a volatile ride,” reports Glenda Korporaal in today’s Australian.
It’s hard to tell if the Fortune article is scalp-hunting from a journalist looking for the next Enron—especially since we haven’t read it yet. But the language certainly sounds colourful. The article describes Macquarie’s assets as “flammable” and says figuring out how the company actually works is like, “wrestling in the dark with a ghost”.
If you can’t see a ghost in the daylight, why would wrestling in the dark be any harder than wrestling in broad daylight?
We suspect the real Achilles heel for Macbank is something much more mundane: debt. “It’s impossible to independently calculate how much debt there is across the entire empire,” the Fortune article claims. “Macquarie uses debt of as much as 85 per cent to purchase an asset and pay for the necessary capital expenditures.” The debt, however, “doesn’t reside on Macquarie’s books, instead it’s at the asset level”.
You mean Macquarie bank has a lot of debt-based assets? Uh oh.
AngloSaxon banks have become skilled in recent years at taking dangerous liabilities, turning them into assets, and moving them off the official balance sheet in order to free up capital for more loan-making. Today, those banks are being forced to take those assets back on the balance sheet. This reduces the amount of money available to fund private equity deals and the papering over of the world with even more debt. Sigh. A fancy name for this process is the “repatriation of lending risk”.
Markets and Money