Macquarie on rocky road as Carr rides off

It may be prove to be savvy timing, from a reputation perspective at least, that Robert John Carr has left Macquarie Group to become Australia’s Foreign Affairs Minister.

For the merchant bank to be linked to one China blow-up is regrettable, but to be tied up with two in quick succession would be doggone careless.

Last year there was Puda, the China coal float which was asset-stripped by its chairman before a Macquarie capital raising in North America.

And now another Chinese client of the bank whose stock is listed in the US, Focus Media, is busy batting off claims of dodgy disclosure by scam-spotter Muddy Waters. The bank reckons it is just Muddy Waters pushing its short-seller position to drive the stock price down. More on that in a moment.

Bob Carr had joined Macquarie, some said with unseemly haste, in October 2005, just three months after his 10-year stint as premier of NSW. It was a time of prosperity for NSW, and far greater prosperity for Macquarie.

Under Carr’s Labor government, and the Liberals which preceded him for that matter, Macquarie put its foot on most of the toll road concessions around Sydney. These were to become the bastions of the bank’s profit-churning powerhouse.

Thanks to its stapled-security trust structures, Macquarie managed to ”upfront” billions in revenues and deploy that cash to expand offshore and fund its $30 million salaries.

The toll road contracts, incidentally, remain a secret. There have been efforts to obtain them under freedom of information laws from time to time. The NSW Roads and Traffic Authority once tried to charge this reporter $70,000 for one set, and it was never clear what documents might have been forthcoming anyway.

Carr did some good things while premier of NSW – like banning jet skis from Sydney Harbour – but it is common sense that a lot more time than three months ought to elapse before a politician can jump ship for a bank which has been the beneficiary of his government’s decisions.

It’s just not a good look. Carr has nothing to do with Macquarie’s Chinese operations, of course, or with granting toll road concessions to Macquarie but the way things are going, he’s better out than in.

Now the bank’s halcyon days have passed and it has long since spun off its golden toll roads, it looks increasingly desperate to make a transaction.

And its chief executive, Nick Moore, the architect of the triumphant toll roads operation, and indeed the once-feted ”Macquarie model”, must be wondering what is going to bite him next.

A bit over a year ago, Macquarie Capital and Brean Murray underwrote a $US101.5 million share offer for Puda. The problem was that, unbeknown to Puda’s advisors at the time, the chairman had ripped out the company’s key assets. The chairman, Min Zhao, and his chief executive face fraud charges in the US.

If as that wasn’t embarrassing enough, Muddy Waters, the gung-ho US website run by Carson Block which won plaudits for taking down the biggest stock fraud in Chinese history, Sino Forests, is homing in on another client of Macquarie.

The self-described operator of ”China’s largest lifestyle targeted interactive digital media network”, Focus Media had a boat which went up and down a river in the People’s Republic with a big TV screen on it.

Four months ago Muddy Waters accused Focus of overstating its LCD network as a ”network of flat-panel television displays” when, claimed Muddy, 30,500 of the ”verified” displays were not LCD televisions at all, but rather ”cardboard posters”.

Focus was furious, Macquarie highly indignant, even holding an investor briefing with its litigation lawyers from Clifford Chance to discuss Muddy’s modus operandi of shorting a stock then spreading nasty rumours.

In its first report on Focus, Muddy Waters argued the company’s $36.9 million outlay for an advertising boat company was a massive overpayment.

Focus responded by saying its disclosure in the original 20-F was a clerical error and the real amount of the acquisition was $12.7 million. It later updated its disclosure.

”The funny thing, which we just caught,” mused a Muddy Waters spokesman, ”Is that Focus upsized the size of the LCD screen on the boat from 150 square metres to 700 square metres in the recent amendment.”

But he said in an attached picture of the boat, the Captain 6, which was only 40 metres long, ”it’s obvious that there is no way a 700-metre screen could fit on it and the screen is no more than 150 square metres”. Stay tuned.