Macquarie Group, Australia's biggest investment bank, held off calling a recovery in markets, after larger-than-expected writedowns forced it to consider raising cash just two months after saying it had no current plans to raise funds.
The firm, once dubbed the ‘Millionaires Factory’ for paying big bonuses, is struggling with a sharp drop in asset values, stoking doubts over whether the investment banking model has a future in a post-crisis financial landscape.
Fund managers said today Macquarie is looking to raise around $400 million, even as bigger, global rivals such as Goldman Sachs have been forced to tap state funds.
The company reported a 64 per cent fall in second-half profit to A$267 million, and its first fall in full-year profit in 17 years. Year profit fell 52 per cent, in part due to A$2.5 billion of asset writedowns.
“We think they pushed through a few more writedowns than people expected in the 2009 year, but that to a certain extent clears the decks a little more, so there's less chance of writedowns in 2010,” said Angus Gluskie, managing director at Australian fund manager, White Funds Management.
Macquarie chief executive Nicholas Moore said short-term forecasting was extremely difficult as market conditions were likely to remain challenging.
“While there were some early signs of markets stabilising in March and April, significant uncertainties remain and it is still too early to make any judgments on sustained market improvements,” Mr Moore said in a statement.
Trading in Macquarie shares has been halted pending the completion of the capital raising. Macquarie has not given any details on the fund raising.
Last traded at A$33.48, the shares have doubled over the past two months, feeding speculation the bank might exploit the rally to raise funds, giving it a bigger buffer against any further asset writedowns, especially in its unlisted property units.
Fund managers told Reuters Macquarie had approached them today about a raising at A$27.00 per share, a 20 per cent discount to the last traded price.
The risk of Macquarie defaulting on its debt, as measured by credit default swaps, decreased.
Five-year contracts on Macquarie senior bonds, which fall as perceptions of credit quality improve, lost around 50 basis points to around 300 bps, according to ABN AMRO. Five-year credit default swaps on its subordinated bonds shed around 100 bps to the high 500s-600 bps.
Reuters