Macquarie Group shares came roaring back from the abyss today, jumping by up to 50% in value, after their worst ever performance the previous day.
Macquarie closed $9.85, or 37.8%, higher at $35.90, after having leapt by as much as 50% around midday. Yesterday, in its biggest one-day loss, the stock fell 23% to $26.05, its lowest close since May 2003. Huge volumes of Macquarie shares were traded, as the stock was targeted aggressively by hedge funds.
The slide came despite emphatic denials that it had any financial problems, and finally forced Macquarie's senior management to call a hastily arranged lunchtime meeting on Thursday with major shareholders.
Today buyers leapt back into the stock with some new confidence, as global markets recovered on news the US government is considering a more comprehensive solution to the financial market turmoil, which spurred a major rally on Wall Street last night.
But questions remain about the long-term viability of Macquarie's investment banking model.
Analysts say Macquarie has suffered from the perception of being too risky and over-reliant on debt to grow its business, a reputation that overshadowed its core business of providing advice for a fee and acting as a traditional deposit-taker.
The bank, with the corporate regulator alongside, said it was campaigning against fear and innuendo rather than valid concerns. The insinuation is that hedge funds have been driving Macquarie into the ground in order to profit from short-selling the stock.
"While we believe the hedge fund 'short Macquarie' arguments do not bear closer scrutiny the direction of Macquarie's price is telling us Macquarie is broken." JPMorgan analysts Brian Johnson, Scott Manning and David Disney-Willis wrote in a note to clients.
"In this environment, with the hedge funds driving the agenda, it is hard to identify a catalyst to turn Macquarie's price direction around, but we note that massive binges of short selling in Macquarie have previously been followed by commensurate bouts of short covering."
With investment banks around the world in meltdown, no one was willing to listen to the voices insisting Macquarie is different.
The share price dive followed a rout among investment banks on Wall Street the previous day, triggered by concerns their access to fresh funding has been cut off.
Macquarie's share price has fallen as much as 65% this year, a long way from nearly $97 a share in May last year.
Commonwealth Bank and National Australia Bank were among those most speculated to be prepared to do a deal with Macquarie, either through an alliance or equity stake.
This would follow the lightning sale of the securities giant Merrill Lynch to the Bank of America, and reports that the Wall Street powerhouse Morgan Stanley is in talks with several banks.
A Macquarie spokeswoman declined to comment.
The fall in Macquarie's share price has also drawn into sharp focus long-standing concerns about the viability of its business model. Its level of debt is one concern, as is its reliance on income from satellite funds that are now in trouble. Yesterday, Macquarie Infrastructure Group fell nearly 5 per cent and Macquarie Airports dropped nearly 14 per cent.
But for the most part, market analysts are backing Macquarie.
A day after Standard & Poor's cut the group's rating outlook to negative, Moody's reaffirmed its rating but dropped its outlook from positive to stable.
Moody's commentary on the bank was relatively upbeat, reflecting Macquarie's own assessment of its position. "Macquarie Group's stable rating outlook reflects its very strong liquidity and capital positions, and its minimal exposure to troubled asset classes and counterparties," said Moody's analyst Patrick Winsbury.
Macquarie's chief financial officer, Greg Ward, has said it has "at most" $25 billion in short-term debt, all of which it could repay.
In a way, it is academic. As Goldman Sachs JBWere pointed out, "until there is greater confidence around Macquarie's ability to refinance its term funding, investors are likely to remain cautious on the stock".
Traders are betting things will only get worse.
