Macquarie Bank executive director Peter Lucas has moved to reassure investors over the bank's exposure to the US subprime mortgage sector.
A fortnight ago Macquarie Bank chief executive Allan Moss said the bank was not exposed to the subprime mortgage market in the United States.
Yesterday almost $2.5 billion of Macquarie's market value was lost with investors concerned the bank will in fact be affected by the subprime crisis.
Although one of its retail investment vehicles, Macquarie Fortress, is being indirectly hurt by the instability, Macquarie remains confident investors' funds are safe.
Mr Lucas does not believe the bank is caught in a worsening global credit crunch, and says Macquarie Bank did see the warning signs in relation to subprime.
"The credit quality has been poor there for a while, and I think lots of people knew that there would be increasing delinquencies and defaults in the subprime mortgage sector," he said.
He has clarified Mr Moss's statement, saying Macquarie Bank's exposure to the subprime mortgage sector is minimal.
"And it's in relation to securities that are rated AAA and AA, so I think Allan's statement was that we had no meaningful exposure in the context of the bank as a whole," he said.
And Mr Lucas stands by the assertion that there is no direct exposure to subprime.
"To say that the flow-on effects that we've seen in financial markets worldwide, like equity markets are down, I don't think anyone could've assumed from Allan's statement that we were saying equity prices may not see flow-on effects from the liquidity issues that are going on in financial markets," he said.
Credit crunch
Mr Lucas says investors will be concerned by Macquarie Fortress's indirect exposure, but denies an assertion that the bank has been caught up in a global credit crunch.
"The bank doesn't have underwriting positions, in relation to credit positions, that are acting as a strain on our balance sheet," he said.
And although the bank has warned of losses as high as 20 per cent on Macquarie Fortress, he says at the moment the losses are substantially unrealised.
"The people we've lent money to, the corporations we've lent money to, are continuing to pay, when due, and we fully expect them to pay out 100 cents on a dollar on the loans we've advanced to that," he said.
"So we are confident that the losses here can be contained, and what are largely unrealised losses will not be materialised to anywhere near that level."
He is also confident Macquarie will not default on any of its loans.
And Mr Lucas says the prospect of a run on Macquarie Fortress does not concern him.
"A run by investors on redemptions would simply mean that we needed to sell some of the loans in the portfolio, and there is liquidity in the loan market, we can sell loans," he said.
"Albeit we're selling them at loans that reflect less than 100 cents in the dollar. So if people wish to redeem at these levels, and actually realise the loss, they're free to."
Mr Lucas says yesterday's sell-off does not mean Macquarie Bank's reputation for reading and minimising risk has been damaged.
"The fall in price that we saw in our share price was within the range of outcomes," he said.
"I don't think we're worried. There's two sides to every coin - some people will be saying this is a buying opportunity," he said.
