Friday, October 12, 2007

Has Bethany McLean spotted another naked emperor?

The Australian bank that is buying up U.S. toll roads continues to be the hot topic of conversation after a recent report in Fortune magazine. Bethany McLean, the award-winning journalist who is credited with being the first to write about the fraud at Enron, chose Macquarie Bank for her subject in Fortune’s Oct. 8 issue.

Although there is no suggestion that the Australian giant familiar to truckers for buying up U.S. toll roads has behaved fraudulently, McLean’s article is causing plenty of commotion. The eight-page story was much anticipated in financial circles.

One reason, of course, is her track record. BBC News describes her as a “folk hero of financial journalists as the first person to stand up and say the emperor Enron had no clothes.”

In her report on Macquarie, McLean did not disappoint. At age 31, she’s has already earned a reputation for journalistic big game hunting, no matter what establishment darlings are now in favor.

The Bush administration, for instance, continues to push hard for privatization as a remedy to infrastructure maintenance – a notion that unfortunately is being warmly embraced by many cash poor states. But McLean notes with admirable clarity that “there is widespread resentment and cynicism about the notion of private companies making money off what has long been perceived as public property.”

That resentment may be widespread, but that view doesn’t make the news, thanks to the smothering efforts of a White House that is rolling out the red carpet to giants like Macquarie.

Her article suggests that the “financial structures underpinning Macquarie’s assets” may be “as unstable as the steel that supported the Interstate 35W bridge” in Minnesota. Wonder how all this makes Indiana’s Gov. Mitch Daniels feel? As you probably know, Macquarie partnered with Cintra in 2006 to pay $3.85 billion for the right to collect the tolls on the Indiana Toll Road for 75 years.

Soon after Fortune published McLean’s story, CNBC stock analyst Jim Cramer – who previously liked Macquarie – astounded viewers when he urged them to dump Macquarie stock.

Cramer cited New York hedge fund manager Jim Chanos, who has been asking the hard questions about Macquarie since spring, and then said that after reading the Oct. 8 issue of Fortune magazine, he became convinced that Macquarie has an “unsustainable” business model because it overpays for assets and does not make enough back in return.

There’s a video clip of Cramer’s “Mad Money” episode on the CNBC Web site, but to cut to the chase, he said “sometimes a company will do something so devious – not illegal – that you just need to clear out ... you gotta say ‘bye bye’ to its stock.”

Cramer vowed to his viewers he wanted nothing to do with the bank.