Transcript of 2019 Macquarie AGM exchanges


July 29, 2019

Here is an edited transcript of the exchanges from last Thursday's Macquarie Group AGM in Sydney.

Chairman PETER WARNE: Welcome back. I hope you had the opportunity to meet with members of the Board and management. I now reconvene the meeting and continue with the formal business. Please be reminded that the polls remain open.

It is my duty as Chairman to ensure that shareholders as a whole have a reasonable opportunity to ask questions about or make comments on the management of the company, the remuneration report and other items of business before the meeting today.

To achieve this, I have adopted the procedures for this meeting as set out on this slide. I am committed to ensuring that people in the room feel safe and respected at all times, and this includes ensuring the meeting is conducted in an orderly fashion.

Shareholders have attended today's meeting to discuss matters of interest to shareholders as a group. Questions and comments should be concise and limited to two questions at a time.

Following investor feedback after prior AGMs, in order to address as broad a range of topics of interests to shareholders as possible, I will defer to later in the meeting further questions on a particular topic or subject area if there has already been a number of questions asked on that topic.

If you would like to address the meeting, please proceed to one of the three standing microphones in the room and provide your name and voting card to the microphone attendant.

STEPHEN MAYNE: (Non-voting shareholder) I have two questions. The first one is a gambling-related question. I just ceased employment at the Alliance for Gambling Reform, but remain active in the space. I understand the decision (to ban credit card transactions with gambling companies) went to the Board; is that correct - the banning of the credit cards?

PETER WARNE: The Board was informed. I don't think the Board decided.

STEPHEN MAYNE: The broader question is: when you talked about the ESG elements in the slides you put up earlier, you didn't mention gambling. I thought you probably would have. Then you mentioned it in your speech. It is a great decision, which we are already happy with. I am interested in understanding is it further baked into your ESG? Particularly, if you want to take a position on gambling, you wouldn't bank the world's four biggest online gambling companies who do all those ads and do all the stuff on the smartphones. They are Flutter Entertainment, GVC, the Stars Group and bet365. Have we red-lined them as part of our policy here? I am not asking you to go and start banning Crown or The Star or Tabcorp, but in particular with those four global giants, can we have a policy or do we have a policy of not banking them, because they are the principal people that we would be doing credit card cash advances to?

With the response from Gordon, we, at the Alliance for Gambling Reform, have been sent copies of letters that have gone out to Woolworths credit card holders explaining that they can no longer get cash advances because of the Macquarie decision. That is how we know that it does apply to them.

I am just interested in Gordon's view, as the Chairman of Woolworths and Australia's biggest poker-machine company, with 12,000 machines, 290 gaming rooms and $1.5 billion a year in revenue. Is he comfortable with the Macquarie decision to ban credit card transactions and does that apply at pokies' venues or casinos or does the merchant code issue ban only really apply to those four companies I mentioned before as well as Sportsbet, Ladbrokes, BetEasy and Tabcorp - those who do all the ads. I have accounts with all of them, I have to use my credit card and they all hit me with a cash advance. The banks are really ripping off the customers as well as getting them into debt. So is it just those companies or does our ban broaden out into casinos and the Woolworths pokies' dens as well?

PETER WARNE: You have asked for a whole lot of information I don't have the details on. We tend not to comment on who we do work for in terms of individual clients relationships. In terms of the principle, gambling and gaming would come to our ESG ESR policy. If I have left that out I'm sorry. I wasn't trying to make it all-inclusive, but a whole range of industries would come to the ESR team to see whether they are appropriate companies. That is a matter of policy. If I have left it out, I'm sorry, but there is the whole range of industries. Unconventional weapons and a whole range of other things would come up. It would get looked at. In terms of those companies, I have no idea but I am not sure we would be able to comment on those either.

SHEMARA WIKRAMANAYAKE: I am not aware either. As you say, Peter, out of the 273 ESR items that have come to our team to look at, it would have been on that list. It seems unlikely because, in terms of the lending we do, as you know, our business banking basically looks at professional services sectors - so real estate agents, lawyers, accountants, et cetera. It wouldn't be in our typical area of business that we would be doing corporate lending to large global corporates like that. But if it did, we would have looked at it under our ESR policies.

PETER WARNE: I will ask Ben if he can comment on the range of sorts of companies that would be excluded under our credit card.

BEN PERHAM: You are right. The ban does apply to all white label cards as well. I should have said that earlier. In relation to how the ban works, it applies to the merchant code at the terminal. It is not just to those companies; it is to any merchant code, according to the Visa and Mastercard schemes, that categorises the terminal as a gambling terminal. We are really reliant on the Visa and Mastercard schemes in terms of how they categorise those points of sale and the identification of the code.

STEPHEN MAYNE: My second question is for Shemara. Congratulations, Shemara, on getting to the top job. I think I have asked questions at maybe 10 Macquarie AGMs over the years. I have always enjoyed Allan Moss and Nicholas Moore, so I am looking forward to many years of back and forth with you.

PETER WARNE: I'm sure Shemara is as well, Stephen.

STEPHEN MAYNE: No doubt. I think Shemara is quite unique. She already has $105 million worth of fully paid ordinary Macquarie shares. I am not aware of any other incoming CEO who started with such a huge shareholding. I was going to ask whether she had thought of just retiring rather than taking on the job, having amassed such a big pile.

But the serious point is: how is the relationship with Nicholas going? You have worked with him very closely and he is a paid consultant to us. Can you talk a little bit about how practically it is working with Nicholas? Does he have an office at headquarters? Are you communicating with him every day? Do you have coffee once a month? Give us a little bit of insight into that.

Also if anything could be de-merged, are there any practical demerger issues which the Group could look at? For instance, after this APRA snafu yesterday, would it be practical to de-merge the Bank from the Group to get rid of that blurred $10 billion loan. We're propping it up. Because we ar a e conglomerate with a bank, has anyone looked inside about just de-merging the bank as a better way to be structured given demergers are so popular in the market at the moment?

SHEMARA WIKRAMANAYAKE: Thank you, Stephen, for letting me join the club of CEOs who have received questions from you. In relation to my shareholding in Macquarie Group, maybe it is because it took me a little bit longer to get to CEO than my predecessors that I have come to it at a point where I have a large shareholding. But, like all of them, I am a very committed shareholder. I have never sold a share in Macquarie Group and remain a very, very happy shareholder.

As far as Nicholas is concerned, I have been actually very fortunate to overlap with all five of my predecessors and have learnt a huge amount from them in terms of what makes this business tick, how we deliver value to our shareholders as well as our clients and communities, not the least of those being Nicholas. I am not a big enough fool to not take advantage of that to the maximum extent I can, whether it be Allan Moss or Tony Berg, if they had insights and advice to share with me.

With Nicholas it has been particularly the case because. As he said at the AGM, he was very committed to a smooth transition, having given 33 years of his life to this organisation. He has been phenomenal in being available obviously until 1 December, where we overlapped in our roles, where he was working around the clock for the Group from 7 in the morning until 9 at night, and in the period since.

Today is actually his official last day at Macquarie. So he doesn't have an office or anything and retires from us officially, but in the period since, he has always been available and it has been invaluable to me to be able to call him when needed. He has been available very quickly in things like how we respond to certain things, understanding the history of the conversations he has been having to make sure we deliver smooth transition whether to our staff or clients or customers. In terms of whether we would de-merge the Group, in our last 50 years we started out as a small subsidiary of Hill Samuel. In 1985 we took a banking licence, with deregulation, and it certainly helped our business grow and flourish, and to this day we get great value out of being a licensed, regulated bank. But in 2007 we put in the non-operating holding company structure on top of the bank and moved to the NOHC structure with the bank as a subsidiary. In the years since, we have had many businesses moving between the bank and the non-bank to try to support those businesses for the best structure for them, and I imagine, as it has been for the last five decades, it will be for the future, where we will continue to respond to the external environment in terms of the structure through which we offer our services.

Today, as I just mentioned in the slide at the end, the structure that suits us the best is to have two of our groups offered through the banking structure, being the Australian retail and business banking and wealth business and the commodities and global markets, so we have a retail banking offering and a wholesale banking offering, and then we have a couple of non-bank offerings, being the asset manager and our investment banking offering in Macquarie Capital.

The structure we have is fit for purpose for today and we are very happy to continue under that structure, but we will constantly be evolving. Those decisions won't be driven by just me, it's the people in the businesses delivering to their clients and communities who will tell us what they think are the best ways to empower them to deliver to the best. I will be listening to all of those, be it Mark Johnson - David Clark, sadly, is no longer with us - Tony Berg, Allan Moss, Nicholas Moore and the 15,700 other Macquarie staff who are with us today and give very valuable insights.

STEPHEN MAYNE: Chair, I would like to put the case on behalf of the shareholders for Macquarie to do a share purchase plan over the next 12 months to raise some fresh capital without doing an institutional placement.

What we see from everyone except for the LICs is major corporates need the money in a rush, do a placement, and then they do the little afterthought with the sop to the retail shareholders with the usually ridiculously restricted SPP because it's more capital than they need.

For Macquarie, as a great innovator, worth $43 billion, with $6 billion surplus capital, raising $500 million wouldn't be here nor there in terms of your capital ratios. However, I suspect you may come to market if there are some capital penalties or some APRA changes, and I read the tea leaves and sense you may choose to raise capital.

Rather than doing the conventional, in a rush, "Let's do a billion dollar placement and then we will do the afterthought with the retail" - you have 130,000 cashed-up enthusiastic, supportive retail shareholders - I want to put it to the Board that you come out with an orderly SPP to raise maybe $500 million. Don't do what you have done in the past, which is limit them to $5,000 or $10,000; you do the full $15,000. You do it at a time when your price is high so the cost of capital is relatively low. You go with a fixed price, which is at the market price. Then you throw in the VWAP minus 2, 2.5 per cent - don't do 1 per cent, don't do 5%, which you have done in the past - so that we can all comfortably support the raising, knowing that if the market tanks, we are covered by the secondary pricing of the VWAP model.

I want to briefly take you through the history of the four placement SPPs you have done since 2006 to make this case. So you have raised –

PETER WARNE: Stephen, are you looking for a job in our advisory business?

STEPHEN MAYNE: Just briefly –

PETER WARNE: We would like to keep them to two minutes, so quickly.

STEPHEN MAYNE: All right. The facts are you have raised $3.417 billion from the four raisings since 2006 - $2.49 billion in institutional placement with your mates in the big end of town and $927 million from your long-standing, loyal, retail shareholders. With the last one in 2015, it was $500 million from the big end, only $170 million from 18,000 shareholders, which is not that many out of 130,000. In May 2006, it was $700 million from the big end and only $9 million from your retail. Because you didn't put in the VWAP alternative, the price tanked and retail sensibly avoided it at the time - regretting it now; it was at 66 bucks versus 130.

In May 2007, you raised $750 million at $87 and you followed up with a $79 million SPP. You didn't do the VWAP alternative. You only got 9.5 per cent of that raising out of retail.

May 2009 was your only good one, where you got $540 million from your instos. Then you did an unlimited SPP for retail. 55,000 stumped up $669 million - a rare time when instos got diluted and retail got a good deal. You had the VWAP minus 5 per cent on that, which wasn't needed, because the price re-rated, and we all made 30 per cent, and that was a great deal. That's the history.

PETER WARNE: Thank you for that.

STEPHEN MAYNE: I am just asking you to do an orderly raising; in other words, do not do another placement. When we get to the final item of business today, we are going to have another discussion about why on earth are you increasing your capacity to do institutional placements?

Are you looking at raising $6 billion? The only reason for that item being on the agenda today is if you need to raise $6 billion from a placement.

So I am saying don't raise a dollar from a placement. Come to your retail shareholders, not only if you need money, but just do it anyway, because $500 million is not material here nor there and you have a bit of a make-good to do based on that track record that I have just explained to the Board.

PETER WARNE: Stephen, thank you for your advice, which I will undertake to take on board and consider if we are going to raise any capital. I think the relative interests of shareholders, both institutional and retail, are something that we always take into account if and when we look to raise capital. I take on board your views. But, other than that I don't think I will explore that further. Thank you very much.

PETER WARNE: Has everyone who wishes to do so now voted? Are there any outstanding votes?

The polls will now be closed. Thank you, ladies and gentlemen. The result will be announced on the ASX as soon as practical this afternoon. That concludes the business of this Annual General Meeting.

Stephen has a late question. Special exemption for you, Stephen.

STEPHEN MAYNE: Sorry, Chair, the meeting is still open, I think.

PETER WARNE: It is, even though we have closed questions, but –

STEPHEN MAYNE: I have asked questions at 500 AGMs, and this is what Rupert Murdoch does in America, because it is very easy - that is, the one-in-all-in. I thought the Corporations Law required that you asked for questions on each individual item rather than the group deal and that you put up the proxies sequentially, so we can ask questions on each item. A lot of people might have been holding back remuneration questions. You haven't done a remuneration presentation. You haven't asked for any remuneration questions. I had a few more questions I was going to ask. I didn't realise you had moved to this model and would like you to accept questions on some of the other items of business apart from the financial statements.

PETER WARNE: Stephen, if you would like to ask a question I am very happy for you to ask the question. But, no, this is the process we have used. This is the fourth time we have met using this process, and we have had very positive feedback from our shareholders about this meeting format.

STEPHEN MAYNE: I have two or three I would like to ask, if that's all right.

PETER WARNE: Yes, away you go.

STEPHEN MAYNE: The first one is a broad Board question. I would like you to consider a constitutional change at next year's AGM, which is to remove the cap on the number of directors that you have because it has made it a little bit complex. You have had to explain that Gordon and Gary are leaving because you are temporarily breaching your cap of 11. Companies like Rio Tinto have no cap. Caps are pretty much redundant, so I would like you to clean up the constitution by moving to the Rio Tinto model.

I am happy to promise not to run for the Board next year if you make that change, but I probably will have a run if you won't. I would love you to make that change.

PETER WARNE: We will take that suggestion on board.

STEPHEN MAYNE: You have done 12 years on the Board and you are one year into a three-year term. Is it a fair assumption to say you won't be seeking re-election in 2021? So you won't be seeking to go beyond 14 years on the Board?

PETER WARNE: As you say, I will have had 14 years at that point. That is usually at the outer edges of limits. We have not decided that exactly at this point, but I suspect that that will be the case.

STEPHEN MAYNE: All right. So within the next two years we have a Chairman succession to manage, most likely. I was going to ask Michael, when it got to him, whether he had any interest or whether he feels he has any capability in being an ASX 100 chair. When Gordon goes, I am not sure we will have any existing directors - maybe Diane, I am not sure - who have ASX 100 chairing on their CV. I was going to ask you, on hearing that you are likely to be retiring in two years, whether you and the Board are of the view that your successor is currently on the Board or whether the early retirements of our late 60s duo here is about potentially sourcing a new Chair? Is an external Chair, such as an Allan Moss, an option for the Board for your succession?

PETER WARNE: I can't commit to anything that you are suggesting here, Stephen, but part of the succession process will be appointing directors and appointing directors who can chair committees and ultimately chair the board. It is something that is always in the Nominations Committee's mind. It is part of the obvious process. We are always looking both internally and externally at any stage. That is part of our normal process.

STEPHEN MAYNE: You don't have any former executives on the Board. I would have thought with the magnificent experience within the alumni, from Allan Moss down - Nicholas too early - that you should look at tapping into that as potential directors or a potential chair.

You also have a very uniquely pale and Sydney Board. Everyone lives in Sydney, except for Gary, I think. You have not gone for internationalisation, you have not gone for diversity at a geographic level. I would encourage you to maybe look beyond the Sydney director group. Very much more than any other board I can think of in the top 50, it is the Sydney set. Maybe you would look at diversifying that.

With the new directors coming on - this is my final point - I would encourage you to go for financial services professionals, people who have had decades at the executive level in financial services, such as Michael, Jillian and Phil. This is a very complex beast and this Board needs very experienced financial services experts, preferably with offshore experience as well.

My final request is could you provide a transcript of today's discussion on your website?

We should have probably noted the passing of Jack Tilburn. There has been no abuse today or stuff that you would be embarrassed to put on your website. I think we can move away from the no-transcripts policy post Jack and move to best practice, which is what IAG does and what Michael Hawker's crew used to do - that is, provide a full transcript. All of the 129,700 shareholders who couldn't be here today, and maybe don't want to watch through a three-hour webcast archive, can read the transcript. For instance, the comments you have just made about Chairman succession are relevant to all shareholders. The Chair has just selectively briefed this small group of people that he is likely to retire. All shareholders should have access to that sort of information through a transcript.

PETER WARNE: I will take your comments on board, Stephen. Would anyone else like a second go at a question? If not, that concludes the business of the annual general meeting. Thank you for your attendance and you support during the year. That brings the meeting to a close. Thank you for attending.

END OF TRANSCRIPT