But what of the many others non-bank institutions that are currently unable to raise money in the market? Do we have complete transparency in the system? This is “the broken model” of investment banking that David Murray speaks about in the Australian.

The guy running the show (Nicholas Moore) used to run the central risk management division within the bank

According to scuttlebutt they’re going to have some real funding issues when their 5 billion revolving credit line comes up over the next 3 months. They’re getting indications of around 12%. if we do the math on the back of a piece of paper that’s going to add 400 basis points to costs of funding on that alone. With people thinking they’ll only make 500 million in profits this year on the previous funding bases, it means this year’s profit comes in at $300 million. this puts the stock even lower and under further pressure. With 11,000 employees, it looks pretty overstaffed…. 5,000 or so.

Fred:

We have an inverted yield curve. this is hardly a safe place to be at the moment. I actually don’t think the RBA people really understand the gravity of the situation. Judging from the governor’s speech earlier this week the guy has no idea. He’s living in cloud 9 thinking we have an inflation problem

The high funding cost exposure MBL has would largely be for future transactions, not the array of vehicles that have been spun off for management fees. The various institutions and individuals who bought tranches of those vehicles are the ones exposed, not MBL directly (other than through an exposure to ongoing management fees they rely on for income). The more traditional banking, prop trading, commodity trading and bullion banking business are most likely making money hand over fist at the moment. Sure, the advisory and other high profile stuff will suffer, but the core business has always been built on a diversified set of largely traditional banking activities. Further, the reporting requirements here are more stringent and arguably the RBA has a much better idea of the kinds of exposures our local banking sector is exposed to – their office is a short walk from MBL’s head office in Sydney.

The guy running the show (Nicholas Moore) used to run the central risk management division within the bank – he knows with stultifyingly boring detail just about every nook and cranny of those businesses. It’s not Lehmans, and Moss/Moore are definitely not Dick Fuld types – if anything, they are overly risk averse and occasionally miss opportunities because of it (at least, if you listen to some of the hairier businesses proposed there).

Secondly I don’t think it’s fair to lump Macquarie in with BNB. Extremely different situations.

Thirdly your line about falling value in asset backed securities sounds as if you’re just throwing a bit of jargon around without any basis. Which ABS are MQG and BNB exposed to that are ‘failing’ (sic) so hard?

Also not really sure what your point is with regards to rising bad debts. I don’t think BNB would have any substantial loans business whatsoever and whilst Macquarie does do a small amount of residential and commercial loans, of those that are still on balance sheet I doubt there would be a higher delinquency rate than for those loans at the Big Four.

Overall this seems a very poorly thought out post.

“About $1 billion in excess capital can be attributed to the holding company and about $2 billion to the bank.” http://www.businessspectator.com.au/bs.nsf/Article/Macquaries-unseen-enemies-JKE2K?OpenDocument&src=sph

It claims that it is not dependent on rolling over short term funding so, even if it is being heavily shorted, it should be able to sit tight.

B&B: if it should fail it is hardly likely to drag down the Australian financial system.

Clearly the make-a-deal clip-the-ticket on fees every time they touch it model isn’t viable in the present market, as BrisConnections 4.1 cent price on its $1 units yesterday illustrates. So there will be tight belts all round and plenty of gardening leave before the market returns to normal.

But APRA and the RBA are concerned mainly that Macquarie’s banking division survives in some shape or form and that the licensed banks have manageable exposures to Macquarie and B&B. The rest is dispensible.