Put Macquarie's Junkyard Dogs on Leash

Christopher Joye

Coolabah Capital

In The AFR I dive deeper into Macquarie's junk debt portfolio, which is leveraged approximately ten times and currently worth $10.1 billion (or a touch more than the bank's $9.8 billion in common equity) and find that the default rates on their circa $7 billion of distressed home loans are a staggering 6.1% pa or 12 times higher than major bank averages. This is the first time someone has been able to reverse-engineer Macquarie's junk defaults: UBS previously reported they were running at 1.89% pa when including both the good and bad loans. Now while Macquarie has paid cents in the dollar for these assets, which are therefore generating attractive returns with reportedly very low loss rates of just 0.2% pa, I argue that both Macquarie's board and APRA need to engage in more aggressive oversight, including examining the mark-to-market value of these assets, which are likely to be around 10% lower than 12 months ago based on movements in Bank of America Merrill Lynch's high yield index. Read free here (VIEW LINK)

3 topics

1 stock mentioned

Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.