Nick Mathiason
In Australia, Macquarie Bank is known as the "millionaires factory" for good reason. In the past 10 years, it has come from nowhere to become one of the world's most aggressive buyers of airports, toll roads, energy firms and utilities. If an asset has a reliable cash flow, Macquarie, it seems, has pounced.
In so doing, the Sydney-based bank has left better-known institutions trailing in the dash to seize valuable prizes.
The rewards for being a "diversified financial services company", as Macquarie likes to style itself, are immense. Allan Moss, its bookish chief executive, is Australia's highest paid businessman with a $38.4 million package.
But as interest rates rose last year, and world credit markets seized up this summer, Macquarie was put in the uncomfortable position of being subject to speculation.
This boils down to fears that its ambitious growth is unsustainable.
With its hard-to-fathom structure placed under the spotlight, the talk has been that potential financial problems could rebound not just on Macquarie shareholders, but also citizens from dozens of countries which have key public services supplied by Macquarie.
In Britain, for example, this includes Thames Water, which Macquarie acquired from German firm RWE last year for £8 billion ($21 billion); the London Underground; Bristol airport; and the M6 toll road in the Midlands.
Thames Water faces fines of up £12.5 million from industry regulator Ofwat for misreporting poor processes that led to customers receiving unsatisfactory services.
Last week speculation about Macquarie turned up a notch after the publication of an eight-page report in the influential Fortune magazine. The author was Bethany McLean, the journalist who first spotted that Enron, rather than being a stock market darling, was instead a fraudulent web of off-balance sheet structures that was heading for the rocks.
Although there is no suggestion that Macquarie has behaved fraudulently, McLean's report made a number of allegations about the bank's finances. The most serious of these were that:
* Macquarie overpaid for assets to trigger performance fees.
* It is impossible to calculate independently how much debt the bank is exposed to.
* Though the practice is not illegal, the bank borrows money to pay dividends to shareholders on the assumption of future growth.
* The majority of deals on which Macquarie advises involve another Macquarie entity with a number of separate Macquarie funds holding the same asset.
To the bank the report made uncomfortable reading, but insiders say many of the claims have been aired before and can be rebutted. In a statement, Allan Moss said: "The sorts of comments to which you refer have been made, but they have been made by people who have not taken the trouble to study Macquarie Bank closely.
"They are not views that have been adopted by serious investors or serious analysts. Our view is that it is well understood that we have a very robust business model."
Macquarie believes that rather than being secretive, the fact that many of its funds are publicly quoted makes it more transparent than many of its rivals. Reacting to criticism that the aggressive financing model leads to excessive charges in some of its airports - like Sydney - and toll roads, the company says this scenario does not represent the way it runs its other airports.
Though concern is rising about Macquarie, it is nevertheless linked to many big infrastructure deals currently available.
When Royal Bank of Scotland last week signalled its intention to sell its €4 billion ($7 billion) Angel train leasing firm, Macquarie was understood to be interested.
And it has been widely rumoured that it is set to team up with US bank JP Morgan in the £4 billion bid battle for Southern Water. JP Morgan Asset Management's infrastructure investment fund has been in advanced talks to submit a joint offer with Macquarie and other smaller funds, according to well-placed sources.
The bank refuses to comment on any of these possible deals, which could consolidate its position as one of the country's most important businesses.
As a signal that the company is broadening into new areas, it recently signed a deal with troubled Wembley stadium building firm Multiplex worth £339.5 million to develop three hospitals in the UK.
The pair will build a 612-bed acute hospital, a 102-bed mental health unit and a 34-bed integrated care centre in Peterborough. The project is being worked through a special purpose entity called Progress Health, 30 per cent owned by Multiplex UK and 70 per cent by Macquarie Bank.
But the firm is in the business of selling. Two weeks ago, Australia's Victorian Funds Management and Canada's Ontario Teachers' Pension Plan bought a combined 48.25 per cent stake in Birmingham International Airport for £420 million.
The two funds bought the stake from Macquarie Airports and Ireland's Dublin Airport Authority.
As the firm ratchets up its activity throughout the world, questions about whether its finance structure is sustainable may increase as uncertainty in credit markets continue, whether the company likes it or not.
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