Macquarie shares hit four-year low
Article from: AAP
By David McIntyre
September 17, 2008 03:49pm
SHARES in Macquarie Group fell to a four year low today on concerns about its ability to repay debt, even as Australia's biggest investment firm said it remained well funded and capitalised.
Macquarie shares (mqg.ASX: Quote , News ) slumped $2.87, or 7.8 per cent, to close at $33.93, the lowest since August 2004. The stock was one of a number of financial companies that led the benchmark S&P/ASX200 index down 0.6 per cent today.
"In this fractious and nervous state of the market, among companies that have a lot of debt, Macquarie's in the firing line because they've shot down all the other companies that are in the same farm yard," Austock senior client adviser Michael Heffernan said.
This year's 56 per cent decline in Macquarie's share price was not as big as investment banking counterparts Babcock & Brown and Allco Finance Group, which have lost most of their market value to reach record lows.
All three companies used large amounts of debt to aggressively buy assets, which they packaged into investment products. The sub-prime crisis caused the interest they pay to surge over the past year, causing investors to sell their shares in the investment firms.
Investor concerns were exacerbated this week as US investment Bank Lehman Brothers filed for bankruptcy and the US government took over insurance giant American Insurance Group.
In a statement today, Macquarie rejected claims that it would struggle to refinance $5 billion of debt by March 2009.
"Macquarie remains well-funded and well-capitalised with liquid assets of more than $20 billion as at 30 June 2008, which is twice the level of a year ago," the Sydney-based company said.
Reports to the contrary were "false and inconsistent with information provided to the market by the group."
But investors are increasingly worried about the firm's ability to repay debt. Credit default swaps tied to Macquarie's debt have widened to 600 basis points from around 300 basis points a week ago, according to figures at ABN Amro.
Macquarie said that since March 31, it had raised term funding of $6.4 billion from a variety of sources.
The company also increased deposits by $3.8 billion to $17 billion in the period from March 31 to July 31 and has an undrawn $3.8 billion senior credit facility, according to the statement.
Babcock shares have plunged by 97 per cent this year to close today at 92 cents while Allco has dropped 98 per cent to 14.5 cents.
As credit rates surged, both companies admitted they had difficulty repaying debt, and had to renegotiate lending arrangements with their banks.
Most financial stocks fell again today as investors remain concerned that the global economy will falter because of the credit crisis.
The S&P/ASX200 Financials index fell 1.13 per cent today and has declined 35 per cent this year.
That was despite reports that the US Federal Reserve agreed to provide a $US85 billion ($107.08 billion) emergency loan to AIG.
In return, the US government will get a 79.9 per cent stake in AIG and the right to remove senior management.
That followed the bankruptcy of Lehman earlier in the week.