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10/5/2007
Cramer Says Dump Toll Road Giant Macquarie Bank
CNBC Mad Money host Jim Cramer recommends selling stock in toll road giant Macquarie Bank.

Jim Cramer
CNBC stock analyst Cramer yesterday joined the growing chorus of voices in the investment community raising questions about the financial practices of Australia's Macquarie Bank. The Mad Money host cited the work of New York hedge fund manager Jim Chanos who raised red flags about the toll road giant in May.

"Sometimes a company will do something so devious -- not illegal -- that you just need to clear out," Cramer said. "When you see any kind of smoke and mirrors -- remember on my desk was always, 'Accounting irregularities equals sell' -- you gotta say 'bye bye' to its stock."

Over the past several years, Macquarie Bank has purchased or leased several US transportation assets, including the Chicago Skyway, Indiana Toll Road and the Dulles Greenway in Virginia. Except the bank does not directly own the assets. Macquarie sells shares in infrastructure funds to investors to finance the purchases, using debt to fund about 85 percent of the purchase price. The funds own the assets and Macquarie Bank manages the funds in return for hefty management fees. This creates reports of consistently high profits while the significant debt load of the assets is tucked away in the infrastructure funds' accounting ledgers.

"It's hard to tell just how much debt is on Macquarie's books unless you really know where to look," Cramer said. "This is what Enron felt like to me.... The debt's there, but it's not there."

To maintain growth in management fees, the infrastructure funds must continue to buy new assets. According to Chanos and Cramer, Macquarie funds have been overpaying for those assets. The model, they argue, is unsustainable.

On March 27, 2006, Cramer urged viewers of his then new program to buy Macquarie's stock, then trading at A$64. Today, the stock trades at A$86, a 33 percent gain.

"So I'm telling you right now, if you bought Macquarie on my recommendation I want you to sell it," Cramer said. "I don't want any association with Macquarie Bank."

View video clip of episode on CNBC website.



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