on way to 10 dollars, page-27

SHARES in Macquarie Group slumped 23 per cent to a five-year low today after ratings agency Standard & Poor's revised the outlook for Australia's biggest investment bank to negative from stable.

Macquarie (mqg.ASX:Quote,News) fell $7.88 or 23.3 per cent to $26.05 by the close of trade today, its lowest level since June, 2003.

Macquarie shares have lost 35 per cent of their value this week as the collapse of US investment bank Lehman Brothers and the US government takeover of insurance giant American International Group (AIG) stoked investor fears about holding stock in companies that carry considerable debt.

"The direction of Macquarie's share price is telling us Macquarie is irrevocably broken," JPMorgan analysts Brian Johnson, Scott Manning and David Disney-Willis wrote in a note to clients.

"In this environment, with the hedge funds driving the agenda, it is hard to identify a catalyst to turn Macquarie's price direction around, but we note that massive binges of short selling in MQG have previously been followed by commensurate bouts of short covering."

The analysts said hedge funds were concerned that Macquarie would have trouble funding itself.

Mr Johnson and his colleagues argue that Macquarie's requirement for funds to be met from external sources in the next year is about $14 billion, compared with Macquarie's total funding requirement of $46 billion.

Much of the requirement will be covered by cash and liquid assets that the bank already holds.

JPMorgan has an "overweight" rating on Macquarie and has a share price target of $71.58 at June 2009.

Responding to a query from the Australian Securities Exchange, Macquarie said today that it was not aware of any information that it had not already announced to the market that might have caused the shares to fall over past days.

"Until there is greater confidence around Macquarie's ability to refinance its term funding, investors are likely to remain cautious on the stock," Goldman Sachs JBWere analysts James Freeman, Ben Koo and Elizabeth Rogers wrote in a note to clients.

They rate the bank a "hold" and have a 12 month share price target of $40.09.

S&P yesterday reaffirmed Macquarie's long and short term credit ratings.

"The financial and business fundamentals of the Macquarie Group are unlikely to be materially affected by the current dislocation in financial markets."