MENU

Is Macquarie Group Ltd facing a Commonwealth Bank of Australia de-rating?

Is Macquarie Group Ltd (ASX: MQG) facing a Commonwealth Bank of Australia (ASX: CBA) moment?

It’s an almost unthinkable question for the market darling as Macquarie’s share price soared 19% over the past year when the Big Four banks tumbled around 10% as investors brace for a bruising time from the Banking Royal Commission and slowing credit growth environment.

Commonwealth Bank, our nation’s largest mortgage lender, is seen to be particularly vulnerable to potential class action lawsuits for its bad behaviour and has been de-rated by the market. The stock used to command a big premium over the other three big banks that include Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) – but not anymore.

The Royal Commission was supposed to focus on the Big Four retail banks but the investment bank (Macquarie) could be forced to share the spotlight on allegations that its wealth management business cheated clients and manipulated the share prices of microcap stocks.

Macquarie’s senior managers had to front a consumer protection hearing committee (a separate process to the Royal Commission) to defend the investment bank’s culture and rebut accusations that Macquarie had misappropriated client funds and engaged in “pump and dump” stock tactics.

According to press reports, the accusations centred around Cleveland Mining between 2011 and 2013 where Macquarie’s advisors ramped up the share price of the speculative junior explorer by pumping clients’ money into the stock, sometimes without their knowledge.

The stock has subsequently collapsed and is now worth next to nothing.

It is alleged during the committee hearing that Cleveland Mining wasn’t an isolated incident and the Australia Financial Review reports that law firm Macpherson Kelley is considering a class action against Macquarie, which is more affectionately known as the Millionaires Factory.

Around 80 investors are also believed to be pursuing litigation and some will make submissions to the Banking Royal Commission.

An adverse finding by the Royal Commission could pave the way for more lawsuits against Macquarie or any other banks and this is one of the reasons why UBS has downgraded its valuation on the Big Four retail banks to reflect this risk.

It seems that a discount may also need to apply to Macquarie until there is greater clarity on the extent of the damage on its reputation.

On the upside, at least trading conditions are favourable for the investment bank due to its leverage to rising investment markets and the global infrastructure boom.

If you are looking for a blue-chip opportunity that isn’t under a cloud of uncertainty, the experts at the Motley Fool have good news for you.

They have nominated their best blue-chip buy ideas for 2018 and you can find out what these stocks are for free by following the link below.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Macquarie Group Limited, National Australia Bank Limited, and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.