Gas crash a lesson for Macquarie

Amid the smorgasbord of write-downs and revaluations that coalesces with the everyday revenue flows from interest income (flat), fees (flat) and trading income (up) for the Macquarie Group in its September 2009 half-year report, there is probably one stand-out.

One of the group's last boom-time investments is a clear-cut wipe-out.

The bank (as it then was) agreed to fork out in the order of US$260 million (and close to A$300 million at the time) to buy Express Offshore Transport Pte Ltd, a Singapore-based supplier of offshore support vessels to the natural gas industry in south-east Asia. Management participated in the heavily leveraged buy-out.

Macquarie later merged the firm with Miclyn Offshore, a local rival. A shipbuilding yard in Battam, Indonesia, is another arm of this firm.

While there was talk within months of a stock market listing for the firm, in Singapore, the trajectory of natural gas prices soon made this investment a shocker.

And in its latest half-year report Macquarie has had to write down its investment in Express Offshore to zero. What this used to be is not clear, but was sufficiently prominent for the bank's managing director, Nicholas Moore, and chief financial officer, Greg Ward, to cite this particular investment on several occasions during Friday's investor briefing.

Macquarie reported $596 million in gains on listed funds and opportunistic buy-backs of its debt during the half. But it reported $1.01 billion in equity impairments (including on Express Offshore), equity accounted losses, fair value write-downs on debt, and on top of $152 million in loan impairment.

These swing factors, of $1.5 billion if you add them all up, are equal to 50 per cent of the reported operating income of $3 billion for the group in its first half.