The financial regulator, the Australian Securities and Investments Commission, is not renowned for its largesse when releasing information - particularly when it relates to a specific company. So it raised plenty of eyebrows this week when it announced it was looking into false rumours and market manipulation in relation to Macquarie Bank.
ASIC stated earlier this year it was investigating market manipulation, "rumourtrage" and collusion between hedge funds aimed at driving down particular share prices and enabling short sellers to profit. Babcock & Brown appeared at the time to be the impetus for this, although it was not named.
History has shown B&B genuinely had a weak pulse and while its share-price demise was undoubtedly hastened by short selling and too many investors with margin loans, it would probably be where it is today regardless.
The irony is that one reason B&B and Macquarie became vulnerable to rumourtrage is that transparency is inadequate. Part of this is dealt with in a report issued yesterday by international corporate governance group RiskMetrics. But more on that later.
The fact is that B&B is still an operating company but in a formal or legal sense only. And it was inevitable that once B&B had been dealt with, the focus would move to Macquarie.
The former chief executive of Macquarie, Allan Moss, left the bank a few months ago demonstrating impeccable timing.
The demons that haunted B&B are essentially the same as those now dogging Macquarie. But there are two differences.
The first is that Macquarie has a couple of other viable businesses inside the structure that are not part of the listed asset vehicle model which is now having trouble. B&B doesn't have these.
The second difference is one of degree.
A report in the media this week that said Macquarie Group needed to refinance $45 billion of debt by March 2009 and that $5 billion requiring refinancing could prove difficult to get away was immediately refuted by Macquarie's governors.
They responded: "Since March 31, 2008, the Group has raised term funding of $6.4 billion from a variety of sources. In addition, from March 31, 2008, to July 31, 2008, Macquarie Bank Limited increased deposits by $3.8 billion to $17 billion. The Group also has an undrawn $3.8 billion senior credit facility.
"Macquarie remains well-funded and well-capitalised with liquid assets of more than $20 billion as at June 30, 2008, which is twice the level of a year ago."
Macquarie is larger and more robust than B&B but asset devaluation and rising interest costs can change the financial dynamics of companies without anyone changing even an office chair.
Remember, this was a $100 stock a year ago and a $50 stock a few weeks ago. It's halved again
since then. Clearly its earnings capacity has dived but then so has investor sentiment.
And in my view, it's the latter that Tony D'Aloisio over at ASIC is trying to address. The Federal Government and the regulator would be devastated to have their former home-growth
pin-up company blow up or even look like blowing it. It would cause enormous psychological damage to the Australian financial market.
Meanwhile, the response from the likes of Macquarie and B&B has been to sell assets and attempt to privatise listed investment satellites.
RiskMetrics argues that now would be the time for these listed investment satellites
to attract the attention of raiders but it says there are
various features of these vehicles creating serious impediments to a third party buying them or the removal of their external managers.
The trouble is that in many cases, many of these impediments are not disclosed. And this brings us back to ASIC and the Australian Stock Exchange. Neither wants to see the savaging of B&B or Macquarie or their respective satellites.
These investment companies are called captive to their parent companies for a good reason and, as such, we are forced to rely on the managers to release them and, sadly, on terms that are not always well enough explained to investors. In turn, these investors are understandably running scared.
The author has an indirect holding in Macquarie Bank shares.
