Macquarie sets out to disprove its critics

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Following suggestions that it's about to report record first half profits, some analysts are wondering if Sydney-based Macquarie investment bank can keep up the pace.

Macquarie, also known as the millionaire's factory because of the massive salaries earned by its executives, announced last month that it expects to achieve a half-year profit of around AU$1bn when it reports in November. This will be down on its AU$1.46bn record result for the last full year, but remains impressive compared to results at international rivals like UBS, which have reported third-quarter losses thanks to the credit crunch.

However, some analysts have raised concerns about the investment bank's underlying debts, its investment processes and long-term prospects.

An article published in a September edition of Fortune magazine focused on Macquarie Bank's "rapacious" fees, high debt levels and its "too complex" structure. The report claims Macquarie has an "unsustainable" business model and that it overpays for assets.

But Macquarie Bank boss Allan Moss says such suggestions are flawed and were made by people who had "not taken the trouble to study Macquarie Bank" closely. "They are not views that have been given any serious credit by serious investors or serious analysts."

Last week, Moss told the UK's Financial Times that average leverage in Mac Bank's infrastructure funds is no less than 60%, which he described as "reasonably conservative for very high-quality assets."

White Funds Management analyst Angus Gluskie tells us Macquarie remains sound, evidenced by its results and the growth in its share price to around AU$90. "The overall picture is of a comparatively resilient company compared to other global investment banks," he says.

Pattersons Securities banking analyst Mark Topy says the market is impressed by the size of Macquarie's recent profit forecast. "Volatility means the level of business goes up in a lot of areas like broking, and that can offset a fall in merger and IPO activity."

If Topy is right, Mac Bank may yet produce another batch of millionaires when full year resuls are announced in 2008.

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