First encounter with Macquarie Bank in 2001

By Stephen Mayne
January 29, 2008

This was sent to Crikey subscribers, shortly after the Macquarie Bank AGM on July 26, 2001.

One of the Crikey subscribers who came to the Green Park drinks last night is putting his profession on hold and is going to give journalism a shot for a while with Crikey. He came along to the McBank AGM at The Westin hotel in Martin Place and despite not being a shareholder or a proxy, had no problems getting up and asking a few questions because there was no attendant at the microphones checking for voting cards.

We sat apart and were seemingly unassociated as I got up 5 times and he got up 3 times to stretch the meeting out to 80 minutes - the longest of the four AGMs Macquarie has had since listing in 1997.

After the meeting we unveiled Australia's newest shareholder activist to a few directors such as Helen Nugent, Barry Martin and John Allpass, chairman David Clarke and my old mate Laurie Cox, who seems to have forgotten that I dumped on him on Four Corners back in 1997 for giving Jeff Kennett $20,000 worth of Arthur Yates shares on the quiet back in 1993.

The two-pronged approach worked well because it is hard to get up and ask successive questions uninterrupted. The Lowys, Packers and Murdochs of the world will be experiencing this same tactic when the AGM season kicks in come October and November.


Chairman David Clarke mentioned that the first quarter profit will be up thanks to the $69 million performance fee that Macquarie Bank has just ripped out of the world's biggest tollroad company, the Macquarie Infrastructure Group, which has 10 per cent of Transurban and controls every Sydney tollroad.

I asked him to clarify the fees from MIG and what protection the bank had if someone came along - Crikey is toying about trying this one - and put up a resolution at a MIG meeting to reduce the fees or remove the manager.

Clarkey said the base fee was $25 million last year and will be $35 million this year. Performance fees of $69 million will be paid for the next three years and he said the only thing protecting the management contract was the ongoing good performance.

Crikey reckons that operating tollroads are dead easy to manage and even Stan Howard hasn't managed to stuff up the Hills Motorway trust. Macquarie have proved exceptionally adept at out-smarting governments and construction companies in their various tollroad investments and this is why the MIG shares were originally floated at $1 and are now $3.09. This is good performance, but if Macquarie Bank wasn't ripping out these amazing fees the share price would be closer to $4.

Clarkey admitted that 50.1 per cent of voting shares could give them the boot and with Macquarie only owning $60 million worth of shares in a $3 billion fund, the big institutions on the register could quite easily do this.


Our new shareholder activist, whose name will be withheld until he finishes up in his job, sounded very croaky after the Green Park drinks but his first offering quizzed the board about the ongoing tax audit that is noted in the accounts. Clarkey said this has been going for about 10 years and the number of items on the list is down to only four. Interestingly, the Tax Office can only pursue companies for stuff over four years old when fraud or evasion is involved but Clarkey was playing down the significant of the audit. I asked a supplementary to this a bit later quizzing why Macquarie's pre-tax profit was up 7.9 per cent to a record $325.3 million for the year to March 31, but the annual tax provision had plummetted 32.5 per cent from $79 million to just $53.3 million - a rate of just 16.4 per cent.

Clarkey said this reflected the increasing percentage of profits coming from offshore and Macquarie's entirely legitimate use of the new Offshore Banking Unit legislation.

Crikey has long been of the view that if there is a tax lurk to be had then the sharp boys at Macquarie will be all over it. The annual report notes that a bunch of R&D synidcates are being closed since Costello shut this lurk down that some litigation could flow over the 7 that Macquarie were involved with.

The use of Infastructure Bonds was also shut down by Treasury after Macquarie issued more than $1 billion of them to get the Transurban deal up. These bonds were so tax effective that both dividends and capital gains for the original investors in Transurban were tax free for the first few years.

Macquarie also led the way on dividend streaming which was also knocked back by Treasury. You can't hold it against Macquarie because they are smart and punch holes in the Tax Act whenever a chance presents itself.


Our fellow Crikey activist got the ball rolling on political donations and connections with his second question. He mentioned Alan Stockdale employment at the bank and the joint venture originating mortgages with Paul Keating in China. The complete roll call also includes former federal Sports Minister Warwick Smith who heads up corporate affairs and one of Australia's esteemed millionaire Parliamentary pensioners. Macquarie have also fed hundreds of thousands of dollars to Hawker Britten over the past 5 years and these door-openers were once Bob Carr's chief of staff and media director. Then you have the Macquarie PM sibling strategy which has Paul's sister Anne Keating on the Macquarie Leisure Trust board whose trophy asset in Sydney is the Cruising Yacht Club facilities where the Sydney to Hobart starts. Just to be even-handed good old Stan Howard is chairman of Macquarie's Hills Motorway Trust and always mentions its outstanding performance when Crikey calls him the worst performed Australian director (Yates, National Textiles, GIO) at various AGMs.

Macquarie have directly pumped more than $1 million into the Labor and Liberal coffers over the past 10 years and specialise in the political boardroom lunch. Steve Bracks has been a regular in the Macquarie boardroom. Macquarie's top Melbourne dealmaker Alistair Lucas, the man who did the PBL takeover of Crown for Packer, got to sit with Bracks and James Packer at the famous $1000 a head dinner in December 1999 when we nicked the 800-strong guest list. They also do things like sponsor the Mick Young Foundation which gets all the Labor heavyweights along to Randwick for a day of punting in honor of the late Labor larricken each year.

Clarkey's answers to the question was pretty good and frank. He trotted out the usual line that Macquarie likes to "support the political process" but went on to admit that these political connections can be "helpful from time to time". However, he also pointed out that political connections become dated over time and that all these political heavies are employed primarily to create revenue for the bank rather than just to open doors. But some times it is important to open a door to create that revenue and we all remember that SMH photo a few weeks back of Macquarie CEO Allan Moss and Warwick Smith leaving Kirribilli house after meeting the PM.

Clarkey himself was Ron Walker's predecessor as Treasurer of the Liberal Party and we all remember that John Hewson came out of Macquarie. This is what makes the Labor connections interesting because Australia's biggest and most successful investment bank would ordinarily to alligned with the party supporting free enterprise and business. But we all know that many of the Labor bruvvas are available to help for a pretty penny and blokes like former NSW Labor Council boss Michael Easson (an MIG director), the Keating family and the Hawker Britten boys lads are happy to take the Macquarie cash to give them a hand.


Time is getting tight but we can't finish this update without some reference to executive pay at Macquarie. The back of my envelope would suggest that Macquarie has created at least 500 millionaires among its staff over the past 35 years. I invented the "millionaire factory" label for them in 1997 and it is now widely used in the press.

It takes a lot to get Stephen Bartholomeusz openly sledging a company but he recently penned a column headed "Guarding the trough" which pointed out that Macquarie's top 8 executives pocketed $26 million last year and they should better disclose the new profit-sharing formula that has been introduced without reference to shareholders for a vote.

Clarkey anticipated this one was coming and dealt with it in his chairman's address saying the new formula would only have increased staff costs by 3 per cent last year. That sounds like a small slice of the pie but let's just run the numbers on this.

Macquarie's total staff costs were $774 million last year and on an average head count of 4200 that comes to $184,000 each. I told the meeting this and was offered no resistance when suggesting Macquarie is already the highest paying major employer in Australia. Three per cent of $774 million is a lazy $21 million which is almost 10 per cent of last year's net profit of $242 million.

Clarkey responded by saying that Macquarie was at the lower end of the scale of staff costs as a proportion of total revenue when compared with its global peers on Wall Street and it needed the big incentives to hang on to key staff.

With the share price continuing to go through the roof it is hard to argue with this although the fact that half the current eight member board are participants in the bonus pool would suggest we need another couple of independent non-executive directors keeping an eye on the management trough.

Crikey was silly enough to sell his Macquarie shares at about $24 last year but we still made a profit of about $3000. And I don't feel as silly as AMP which sold a 10 per cent stake just as Macquarie was floating at about $7 a share. Yesterday the stock finished at $37.88 making it Australia's 20th biggest company.


You might think that Crikey doesn't like Macquarie Bank based on all this. It is fair to say that some of their practices are questionable but at the end of the day Australia needs more Macquarie Banks. They are competing successfully on a global stage and creating billions of dollars of wealth of its staff and shareholders. That shouldn't stop us putting them under the microscope and keeping them on their toes but please don't think that it is anything personal.

Afterall, Macquarie's spin doctor is the lovely Lisa Jamieson who is a friend of Crikey's and former workmate at the Herald Sun. Hi Jamo, hope you don't mind this stream of consciousness too much and there'll be plenty more of this to come after the Brambles meeting.

Gotta fly for now.

Do ya best, SM