The host of “Mad Money” on the CNBC cable television network is advising viewers to dump their stock in Macquarie, the Australian bank that buys up toll roads in the U.S. and around the world.
The analyst, Jim Cramer, 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.
“They’ve done nothing illegal, they’ve done nothing that people would say is unethical, but they’ve done something that makes me uncomfortable,” Cramer said on his program Thursday, Oct. 4.
“Even if it’s not nefarious in its practice, it feels like it to me,” he said. Cramer dedicated an entire six-minute segment to explaining why people should sell their Macquarie stock.
He said the parent company, Macquarie Bank, owns a number of infrastructure funds that, in turn, buy up toll roads such as the Chicago Skyway, the Indiana Toll Road and the Dulles Greenway.
Cramer explained that within those infrastructure funds is a business model to buy everything in sight and run up financing debts to keep feeding the machine. The funds put themselves in debt but the parent company continues to profit from transaction fees and dividends based on the assumed value of the assets.
“It’s hard to tell just how much debt is on Macquarie’s books unless you really know where to look,” Cramer said.
Cramer gave credit to both Bethany McClean, the Fortune editor who wrote about Macquarie on Oct. 8 and who broke the Enron story to the business world in 2001.
Cramer also credited hedge-fund manager Jim Chanos, who held up the red flag in May about Macquarie’s potential to be a “short sell” stock. That’s a fancy way of saying that Macquarie carries a lot of debt but shuffles it around while making profits.
The immediate effects of Cramer’s story may not be seen until next week because the Australian Stock Exchange in Sydney is 14 hours ahead of Eastern Standard Time. When the CNBC segment aired at 10 p.m. EST on Thursday, the time in Sydney was noon on Friday.
Macquarie stock closed Friday at $85.95 in Australian dollars, down 1.4 percent from the previous day. Cramer referenced a segment he did back in March 2006, when he recommended his viewers buy Macquarie stock which was trading at $64 Australian.
The analyst told viewers Thursday that Macquarie was “outta here.”
“I don’t want any association with Macquarie Bank,” he said.
Click here to view Cramer’s segment.
– By David Tanner, staff writer