Put Macquarie's Junkyard Dogs on Leash

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)