How close did Macquarie get to the edge?
As Lehman went under and Merrill Lynch lost its independence last year, attention turned to investment banks across the world. What of the pretender from the southern hemisphere?
At first glance there were plenty of reasons to wonder about Macquarie. There were widespread questions about leverage in the funds model, the strain impairments in those funds might cause on the parent, and the fact that two Australian groups that imitated that model, Babcock & Brown and Allco, both went bankrupt. The market clearly had its doubts – the stock fell from more than A$80 to A$15.50 in a little over a year from early 2008 to March 2009. But perhaps more ominously, credit default swaps blew out alarmingly: to 1,800 basis points on its subordinated debt in October, compared with a 200bp to 400bp range over the previous six months.
Logically there shouldn’t have been any cause for alarm, because of Macquarie’s capital position. Greg Ward, chief financial officer, says that Macquarie had been selling off lower-yielding assets such as margin lending and Italian mortgages through early 2008, realizing about A$15 billion ($12.5