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Mathew Ingram

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Take it to the bank

Mathew Ingram


TORONTO (GlobeinvestorGOLD) - Investing in banks is a solid strategy in times of uncertainty, but one of the drawbacks of the Canadian market is that there are so few of them to choose from - and many of the Big Six, as they like to call themselves, have significant flaws if you're looking for growth. In a nutshell, they have had difficulty producing any; those that have tried to find growth outside of Canada's borders have had little success to show for it. In part, that's because they are so small in relation to the U.S. market, and getting smaller all the time. They have all tried various strategies aimed at penetrating the American market, including a corporate-finance approach and a retail-banking approach, but growth has been hard to come by - and in some cases, they have been burned badly.

So why not look abroad? One place that is worth a look is Australia, where a bank called Macquarie Bank has produced a stellar track record of growth over the past decade by focusing on infrastructure investments, which it then packages up and sells to investors looking for a dependable stream of income. Macquarie's specialty is large, capital-intensive investments that have long-term payouts, such as airports, toll roads and water facilities. In fact, in less than a decade the company has become one of the world's premier operators of toll roads in dozens of countries, including Canada, where it owns a 30-per-cent stake in Highway 407, north of Toronto. And in the last two months Macquarie has signed two more multibillion-dollar deals in the U.S. and Europe.

The bank is relatively young, as banks go. It got its start as a merchant bank called Hill Samuel Australia in 1969, a subsidiary of Hill Samuel & Co. of England. When it started, the bank had a staff of three and an office in Sydney. In 1981 it applied to become a trading bank after the Australian financial markets were deregulated, and took its name from Governor Lachlan Macquarie, who helped transform Australia from a penal colony into a dynamic modern economy. The bank got approval to operate in 1985, and took as its logo the "holey dollar," the first Australian coin, which was introduced in 1813 and made by punching out the centre of a Spanish silver dollar.

Macquarie went public on the Australian Stock Exchange in July of 1996 with a market capitalization of $1.3-billion. It now has more than 6,800 employees and operations in 23 countries, and a market value of about $15.5-billion, with about $112-billion in assets under management. In the first six months of last year, its profit rose by 88 per cent to a record $482-million. One of the driving forces behind the company's growth is the structure of Australian investment rules: As of 1996, all Australian workers must divert 9 per cent of their salaries into a retirement savings plan, which produces a gigantic source of investment cash for Macquarie and other banks.

Since it started its infrastructure group in 1996, Macquarie has been involved in developing 10 toll roads from scratch, and has bought and sold an interest in another 31 toll road projects around the world. In January, the company joined with Spain's Cintra Concessiones de Infraestructuras de Transporte to sign a $4-billion deal to operate a toll road in Indiana for the next 75 years. Macquarie also signed a deal in February with a French construction firm to buy the government's 70-per-cent stake in a toll road company in France for $8.2-billion. It owns the M6 motorway in Britain, two toll roads in Portugal and a tunnel in Germany, as well as highways in Australia.

Macquarie has also been investing in other long-term projects, including health-care developments. Just after Christmas the bank bought a majority stake in two Canadian health-care projects (a hospital in Abbotsford and a health-care centre in Vancouver) for $500-million. It has also announced plans to buy a Taiwanese cable television and broadband Internet provider for $1.2-billion, it is part of another group that has agreed to pay $634-million to buy the second-largest parking operator in New York City, and in January it paid $270-million to buy Smarte Carte, the world's largest provider of baggage carts for airports. The Australian bank has also said that it plans to buy Acquarion, a Connecticut-based water company, for $860-million.

Macquarie has also invested in a number of airports around the world, and currently owns stakes in airports in Sydney and in Rome. And its stake in that market could grow substantially: a recent report said that Macquarie could become part of a consortium (along with a Spanish company) that would acquire BAA Plc, the world's largest airport operator and owner of London's Heathrow and Gatwick airports. BAA, which inherited a monopoly on airports in Britain after being privatized, is almost certain to be split up and Macquarie could wind up operating many of the airports.

The Australian bank's international revenue more than doubled last year and now accounts for almost half of Macquarie's income. Not everything it touches is successful, however - its recent bid to acquire the London Stock Exchange was rebuffed and it has dropped that attempt. It also had to delay the listing of several Asian real estate investment trusts (REITs), including one in Singapore and one in Hong Kong, and a delay in posting profits from its Korean Infrastructure Fund in January hit the stock, which has slid from its peak earlier this year. But if even a bare majority of the projects it has in the pipeline are successful over the next year, analysts say Macquarie should be able to continue its remarkable growth. And that makes it look like a world-class investment.

Mathew Ingram joined The Globe and Mail's online news team in June of 2000, after spending four years as the Western business columnist, based in Calgary.

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