The Livable Blog

It looks like Macquarie, the banking arm of the consortium which is now the sole bidder for the Highway 1 / Port Mann section of Gateway, is becoming well known for their Ponzi scheme like practices.

Mugshot of Charles Ponzi

This Australian Broadcasting Corporation news story explains in plain language how it worked, and why most analysts think it has stopped working. Of course if everything unravels Macquarie will just line up for a multi-billion dollar bail out from the public purse. Even bankruptcy can be profitable for some.

In this case, like most P3s, none of the contract details are public, and almost all of the risks have likely been shifted back onto taxpayers (or hapless investors and pension holders).

If this is the kind of "legal but questionable" stuff they do in public, what do they get up to when they are the sole bidder on a project like Gateway without a publicly announced price, scope or conditions?

But don't worry about all this, at least Macquarie knows how to throw a Christmas party.

You can listen to the story in REAL AUDIO and WINDOWS MEDIA and MP3 formats at
http://www.abc.net.au/pm/content/2008/s2448202.htm

Macquarie bank suffers as credit crunch hits
PM - Tuesday, 16 December , 2008 18:18:00
Reporter: Stephen Long
MARK COLVIN: The credit crunch is starting to do serious damage to Macquarie Bank.

One of its key funds, which operated tollways on several continents, today slashed the value of its assets by nearly a quarter.

The big downgrade has raised questions about its practice of paying investors dividends out of borrowed money - money borrowed against rising asset valuations.

Economics Correspondent Stephen Long.

STEPHEN LONG: Across the world, Macquarie takes its toll. Its flagship fund, Macquarie Infrastructure Group or MIG, owns and operates tollways in Europe, North America and Australia.

For years, MIG has delivered strong returns to investors by legal but questionable means. It pays dividends and high yields out of borrowed money - money borrowed against rising valuations it puts on its own assets.

Critics have long argued that it's unsustainable. This is what an ex-Macquarie staffer, Steve Johnson from the Intelligent Investor, said more than two years ago.

STEVE JOHNSON: If you look at some of the valuations in MIG's portfolio, the valuations in our opinion are crazy. When we do some valuations ourselves of those assets, we don't get numbers that are anywhere near as high as what Macquarie Bank gets.

STEPHEN LONG: Now the valuations are crashing.
[snip]

Macquarie Infrastructure Group still has its supporters. Andrew Chambers at Austock Securities has been promoting MIG for years and says it's now a great buy.

ANDREW CHAMBERS: We still see very good value in MIG. You know, with the share price of just above $1.50, we still think it's worth in the vicinity of $3-odd dollars.

STEPHEN LONG: Macquarie Infrastructure Group's market value is less than two thirds of what its directors reckon the company's assets are worth.

That implies either that the stock is a screaming buy, or that despite the huge cut, its assets are still overvalued. Or it could be that investors have simply lost faith in the Macquarie model.

Full text and streaming audio at http://www.abc.net.au/pm/content/2008/s2448202.htm