Chapter 13
Selling the message amid controversy
1 https://www.macquarie.com/assets/macq/investor/results-and-presentations/2012/MGL-2012-Half-year-Result-presentation.pdf (pages 7 and 48–9).
2 ‘The strength of the annuity-style businesses offset the significantly lower results from the market-facing businesses,’ the 2012 interim results said. Macquarie had posted a 24 per cent drop in first-half profit to A$305 million, compared to the same period a year earlier.
3 The 2012 annual report also said: ‘The approach, called “freedom within boundaries”, encourages both innovation and accountability.’
4 The first reference to these terms is in the 2015 annual report. See the Code of Conduct for more on this: https://www.macquarie.com/assets/macq/impact/esg/policies/Code%20of%20conduct.pdf
6 https://markbouris.com.au/. Mark Bouris’s Wizard was among the first non-bank players to scale up the use of securitisation in Australia.
7 Sprawling conglomerate General Electric snapped up Wizard in a deal reportedly worth more than A$500 million.
8 James Packer was at one stage also among the largest individual shareholders in Macquarie. Pamela Williams’s book Killing Fairfax also recounts that Nicholas Moore was pitching the plan—and pushing hard—for Packer to buy Fairfax Media alongside Macquarie. ‘I luckily dodged that bullet,’ Packer says in the text.
9 ‘Mark Bouris fights on for Yellow Brick Road, detractors circle’, https://www.afr.com/companies/financial-services/mark-bouris-fights-on-for-yellow-brick-road-detractors-circle-20180906-h15109
10 ‘Media release: Lendi and Aussie today join forces’, https://www.lendi.com.au/about-us/media/lendi-and-aussie-today-join-forces/#:~:text=In%202021%2C%20Lendi%20and%20Aussie%20merged%20to%20create,technology%20to%20drive%20better%20customer%20outcomes%20and%20experiences.
12 This deal priced in July 2010, breaking all IPO records worldwide at the time. Macquarie lined up with CICC, Deutsche Bank, Goldman Sachs, JPMorgan and Morgan Stanley on the Hong Kong offering. https://www.reuters.com/article/us-agbank-idUSTRE6651C120100706
13 Other key IPOs on which Macquarie worked were China Railway Construction Corporation, China Minsheng Bank and China Zhongwang Holdings. It also formed a memorandum of understanding with China Universal Asset Management to develop fund products for Chinese and global investors, invested in a Sino-Australian trust company in Shanghai and in a number of infrastructure and other assets in China in partnership with local funds.
14 See annual reports 2011 and 2012.
15 See management discussion and analysis. For the six months to March 2022, Asia earned A$568 million, the Americas A$5.25 billion, and EMEA A$1.55 billion. The full-year figures were A$1.14 billion Asia, A$8.25 billion Americas and A$3.5 billion EMEA.
16 In the 2022 results briefing, 3943 in Asia compared to 3190 in the Americas and 2502 in EMEA, as well as 7951 in Australia.
17 See 2012 annual report page 6, and 2022 management discussion and analysis. It should be pointed out that Asian full-year income for 2022 declined 20 per cent year on year partly because of the higher impairment of an underperforming equity investment. But it was also lower brokerage income.
18 2022 management discussion and analysis page 80. However, much more Asian money appears in unlisted funds where the income earned from their management will be allocated to the regions where those funds are based. https://www.macquarie.com/assets/macq/investor/results-and-presentations/2022/macquarie-group-fy22-mda.pdf
19 In the 2022 full year, CGM generated A$771 million of income in Asia, compared to A$2.37 billion in the Americas, A$2.15 billion in EMEA and A$886 million in Australia. In fact, CGM accounted for the vast majority of Asia income by group in 2022: 68 per cent, compared to 21 per cent from Macquarie Asset Management and 9 per cent Macquarie Capital (percentages rounded).
20 ‘Fee compression’ basically means fees being squeezed: banks being able to charge less for similar deals than they used to.
21 This is partly a question of valuation—Ben Bruck says the multiples required for investment in assets in China and Japan were the highest he ever encountered, making it hard to make acquisition—and also of structure. ‘Each country, and one in particular, came with extraordinary regulatory and legal risks, and you really didn’t know at the end of the day what you were buying.’
22 The word ‘China’ does not appear once in the 92-page management discussion and analysis document for the 2022 financial year.
23 This was the first cross-border CMBS (commercial mortgage-backed securities) deal ever completed, involving properties located in mainland China, in October 2006. It was conducted by Macquarie Wanda Real Estate Fund, a joint venture between Macquarie and the Chinese property developer Dalian Wanda. Macquarie and Citi joint arranged a US$145 million issue called Dynasty Assets secured over shopping malls in nine different cities in Eastern China. Andrew Low, the then-head of Macquarie Capital Asia, also presided over a golden era for Macquarie’s equity capital market business in Asia which peaked with it ranking as the top underwriter of IPOs in Hong Kong in 2008. He was promoted to COO of Macquarie Capital in 2009, then left the bank in 2010 to start his own advisory firm.
24 Ben Way adds: ‘We’ll have to have a bigger presence in China than we do today. But at the same time, if we had two years ago decided to go hard into China we would have had to pay an enormous premium and do it with a partner. Those marriages rarely end well.’ Way is referring to the fact that, until very recently, entering China either as an asset manager or an investment bank required a joint venture model in which the foreign house did not have operational or legal control, some pilot projects notwithstanding. That has since changed. ‘Now we can enter China by ourselves much more efficiently and economically.’
25 Smith adds: ‘So it was Macquarie’s quiet discipline: where was the advantage we could offer above and beyond what clients could get from other in-country banks? Or banks with much bigger balance sheets like Goldman and JPMorgan? Well, in China, our niche wasn’t clear.’
26 2022 results briefing page 26. The underlying source of these figures is Oxford Economics, ‘Global Infrastructure Hub, Global Infrastructure Outlook’. https://www.greeninvestmentgroup.com/en/news/2022/macquarie-asset-managements-green-investment-group-and-hydro-rein-to-develop-hybrid-wind-and-solar-project-in-brazil.html
The Indian government alone announced US$1.4 trillion of infrastructure spending in August 2021; and in China, the same amount was committed to digital infrastructure alone to 2025 in May 2020. Much of this effort will clearly be in renewables, and Macquarie cites a renewable target of 23 per cent of total ASEAN primary energy supply by 2025, and 24 per cent of installed power capacity, as an example.
27 Asked about State Bank of India and the fund Macquarie developed with it, Kwok says: ‘It’s definitely a fund where we’ve learned lessons.’ In hindsight, going into coal-fired power stations in India was probably a mistake they should have seen coming. One senses a renewed push into India now, which gained attention with the close relationship Wikramanayake and Tata chairman Natarajan Chandrasekaran clearly had when one interviewed the other at the United Nations Climate Change Conference (COP26) presentation in Glasgow in 2021.
28 Macquarie began by setting up country-specific funds in India (launched in 2008), China (MOU signed with China Universal to develop China funds in 2010 financial year) and the Philippines (launched in 2012), then began its MAIF (Macquarie Asia Infrastructure Funds) series of funds in 2014. ‘When it comes to risk, it’s been helpful for MAIF that we’ve had two decades of experience and track record in emerging markets,’ says Verena Lim. Kwok says on MEIF (Macquarie European Infrastructure Funds, the European equivalents of MAIF), versus Asia-focused infrastructure funds: ‘We are relatively less mature to those businesses. We’re probably five to ten years behind in terms of scale.’
29 Macquarie rules off its year on 31 March. https://www.macquarie.com/assets/macq/investor/results-and-presentations/2012/MGL-2012-Full-year-Result-presentation.pdf (page 44 guidance at the time signalled BFS, Macquarie Capital, Macquarie Securities and the FICC division were expected to deliver higher earnings the following year, while CAF and Macquarie Funds were likely to see results in line with 2012).
30 The 1999 annual report noted the private client business, then in the Equities Group, merged with regional broking firms to form Macquarie Nevitts in Brisbane, Macquarie Porter Western in Perth and Macquarie Day Cutten in Adelaide. Macquarie Financial Services was formed within the Equities Group, combining the private client business with the direct distribution business from Investment Services.
32 John Nyland, who was chair of the Macquarie board’s governance committee, was among those to roll up their sleeves on the EU deliverables process.
33 Macquarie Group makes major broker commission change (theAustralian.com.au)
34 Financial System Inquiry Final Report | Treasury.gov.au
37 ‘To me, Eric was part of the solution, not the problem. But it ended up all being conflated,’ Maher says.
38 https://macquarie.interactiveinvestorreports.com/2013AnnualReview/about-macquarie.html
40 https://www.afr.com/companies/financial-services/macquarie-private-wealth-hit-by-mass-adviser-exodus-20190106-h19rvi. Departures over this period included Trent Savage, Andrew White, Michael Harwood, Matthew Chambers, Bevan Sturgess-Smith and Michael Moursellas, John Fowler, Emma Trengove and Nick Pyne.
42 ASIC said by late 2008 and early 2009 many of Storm’s customers ‘were in negative equity positions, sustaining significant losses’.
44 The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry came about in Australia after a series of scandals came to light about the treatment of bank, life insurance and financial advice customers. It held public hearings in 2018 and a final report was issued—including recommendations—in 2019.
45 https://www.youtube.com/watch?v=-qznBTOXQso
47 https://www.royalcommission.gov.au/banking/final-report
48 Revelations fleshed out at the royal commission also saw the CEO and chairman of AMP exit the beleaguered wealth group, although much of that fallout occurred in 2018.
49 Moore continued: ‘So we would expect our risk management group would detect any failings. We’ve got a third line of defence, of course, as well, being internal audit that hopefully would pick up any failings that weren’t picked up through the second line.’
50 https://www.macquarie.com/assets/macq/investor/results-and-presentations/2019/MGL-2019-Half-year-Result-presentation.pdf (pages 11 and 6).
51 Killing Fairfax, Pamela Williams
52 https://www.ato.gov.au/law/view/document?docid=LIT/ICD/1921of2013/00001
53 https://www.macquarie.com/assets/macq/investor/results-and-presentations/2022/macquarie-group-fy22-presentation.pdf (page 41).
54 ‘As previously noted, in total, the German authorities have designated as suspects approximately 100 current and former Macquarie staff, most of whom are no longer at Macquarie,’ the disclosure said. ‘There are also a number of German civil claims relating to dividend trading. While Macquarie disputes any such claims, it continues to provide for these and other German dividend trading matters.’
Of the 53 aircraft that Macquarie has agreed to acquire from International Lease Finance Corporation (ILFC), the deal was initially structured like this: Macquarie would acquire 47 aircraft for US$1.67 billion, and was funded from existing cash reserves. Macquarie would then transfer to Macquarie AirFinance Limited, an international leasing firm of which it owned 37.5 per cent, the right to purchase six of the 53 aircraft directly from ILFC on similar terms to Macquarie.
57 RBS sells aircraft leasing unit to Sumitomo for $7.3bn—BBC News.
58 Allied buys Macquarie dealer finance book (goauto.com.au).
59 ‘It’s all collateral based, the difference being you are working in the commodities space so you need a background in commodities to know if you might be getting your machine back,’ Coyle says. ‘It’s not a phone, it’s big heavy units. There’s been instances where fraud has happened where companies claim assets go missing. Well, you can’t lose a 10,000 ton truck in the desert.’ Handling deals in Africa, the team had to work out plans in order to get equipment out again, which is not just a question of paperwork. ‘Legally it might be a six or twelve month process to get something back, but the question is physically how you do it and ensure the safety of your staff. You may have the legal right, but someone may say: we don’t want you to take the machine, and we’ve got a gun.’
60 Coyle adds: ‘You can fail, but if it’s because you weren’t paying attention that’s not a failure that we like. If it is a business you thought was going to be amazing that didn’t turn out so great or the margins aren’t there, they will sell the business.’ She recalls Farrell doing so with a car leasing business: profitable, but not the expected margins and too much drag on capital. So it was sold.
61 Telstra 3 Prospectus, page 61.
62 ‘Medibank IPO fee pool not as lucrative for key bankers’, https://www.afr.com/companies/financial-services/medibank-ipo-fee-pool-not-as-lucrative-for-key-bankers-20141125-11t447
63 Lazard Australia had earlier secured a Medibank role by working on a scoping study to determine how the government should best divest of the health insurer, with that role morphing into an independent adviser gig.
64 Macquarie Group distributes Sydney Airport Securities to shareholders | Macquarie Group
Macquarie booked a gain on distribution of approximately A$228 million.
