Thursday 18th September 2008
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Shares of Australia's biggest investment bank fell to a four-year low in Sydney yesterday amid concern about its strategy of debt-funding acquisitions. Babcock & Brown, which uses a similar model of bundling assets bought with debt into funds, fell 12% yesterday and has lost almost 100% of its market value this year.
Macquarie stock fell A$2.87 to A$33.93 yesterday and has the company has lost A$12 billion of market value this year. Wall Street plunged overnight, led by financials, amid concern the U.S. government's US$85 billion bailout of American International Group won't be enough to contain a credit crisis that's already sunk Lehman Brothers and led to Merrill Lynch being swallowed up by Bank of America.
Standard & Poor's said the negative outlook on all five of the Macquarie group of companies implies "roughly a one-in-three chance of a rating downgrade."
Macquarie has a buffer against deteriorating conditions because it has "limited direct exposure to the impact of the current global financial market turmoil, and very capable management of its liquidity, capital, and counterparty exposures," Standard & Poor's credit analyst Sharad Jain said in a statement. The group also holds high levels of cash and liquid assets, he said.
Still, reduced financial flexibility could arise from "heightened dislocation of the global financial markets in recent days, and weakening of investor sentiment," he said.
Babcock & Brown's international unit credit rating was cut to BB from BB by S&P, further into junk territory, while the outlook is negative.
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