CHAPTER 2

1 Paul Keating to Parliament, 15 September 1977, http://historichansard.net/hofreps/1977/19770915_reps_30_hor106/ 

2 In a speech called Macquarie Bank: Adapting to Change to the Australian Business Economists, Wednesday 20 June 1984, Menzies Hotel Sydney. 

3 November 1975 to March 1983. 

4 Formally the Australian Financial System Inquiry 1979, announced by John Howard on 18 January 1979. Besides Campbell, its other members were A.W. Coates, general manager of AMP Society; financial adviser K.W. Halkerston; R.G. McCrossin, general manager of Australian Resources Development Bank Limited; and J.S. Mallyon, chief manager of the Reserve Bank of Australia. F. Argy, formerly the First Assistant Secretary of the Department of the Treasury, was appointed Secretary. Keith Halkerston would go on to have a close association with Hill Samuel Australia, selling his design for a cash management trust to the firm. 

5 https://treasury.gov.au/sites/default/files/2019-03/p1981-fsi-Chpt1-12.pdf. Delivered 29 September 1981. 

6 More specifically, it recommended all existing controls on banks—including interest rate controls capping rates on loans and deposits, maturity controls which stopped them from accepting many interest-bearing deposits, lending controls which limited growth of their advances, and reserve asset controls which required them to lodge a proportion of reserves with the Reserve Bank as government securities—be axed. 

It also recommended making it far easier to gain a licence to enter the banking sector, and a rescindment of an embargo on entry by overseas organisations, albeit with a limited number of licences. There were also recommendations related to financing Australia’s vital rural and farming sector. 

7 Troy Bramston, Paul Keating: The Big Picture Leader, Scribe, 2016. 

8 Announced 29 May 1983. 

9 Bramston.

10 Bramston.

11 The question of the driving force in this process, Hawke or Keating, is a long debate that need not detain us but is examined in detail in Bramston’s book. Keating held the press conference at 5 pm on 12 December 1983 to announce it, saying: ‘The decision to float means that the speculators will now be speculating against themselves rather than against the Australian government.’ From now on, he said, banks, corporations and individuals would be able to buy and sell foreign exchange in an open market at whatever price they wanted. ‘No longer would senior officials determine the exchange rate within guidelines set by cabinet.’ (Bramston)

12 Bramston.

13 24 August 1984.

14 In fact, from 1978 the growth was exponential for several years. Consolidated after-tax profit was A$862,000 in 1978, A$1,586,000 in 1979, A$3,283,000 in 1980 and A$6,570,000 in 1981 (or ‘after tax profits before extraordinary profit, A$5,021,000’).

15 31 March 1980.

16 Elsewhere in Australia, by 1980 Macquarie had offices at 367 Collins Street, Melbourne, and 307 Queen Street, Brisbane, as well as representative offices at 202 Margaret Street, Toowoomba, 80 King William Street, South Australia, and 111 St George’s Terrace, Perth.

17 Others included Associated Pulp & Paper Mills, Australian Newsprint Mills, John Lysaght, WR Carpenter and MEPC Australia.

18 In 1982, Hill Samuel Australia worked with Westfield to create a new trust that was then floated on public markets.

19 . . . offering corporate foreign currency risk management services, consulting and advisory, short and long-term hedging of currency risk, parallel loans, commodity-based trade finance, foreign currency arbitrage facilities, bullion dealing and futures trading.

20 Under Phil Cave, who joined as an executive director in 1983.

21 Clive Carroll joined in 1978 and became head of the bullion and commodities unit in 1984.

22 The importance of bullion was reflected in the creation of a Bullion and Commodities Division under Clive Carroll in the 1984 financial year, when the group was beginning to prepare to be a bank with its own licence. At the same time a Corporate Lending Division was formalised under Phil Cave and Bob Illman, and the Financial Management Division was created under Allan Moss.

23 See https://adb.anu.edu.au/biography/halkerston-keith-william-16713 

24 https://www.nytimes.com/1981/05/18/business/merrill-lynch-s-cma-boom.html?smid=url-share. Firms including Dean Witter Reynolds, Shearson Loeb Rhoades and Advest Group were at the time considering following Merrill into the cash management account market.

25 David Adams would go on to lead the Banking and Investment Services division.

26 $634 million in 2022 inflation-adjusted terms, according to the Reserve Bank of Australia inflation calculator.

27 1983 annual report.

28 During the 2004–05 financial year.

29 Owens wrote about it in the 1982 annual report: 

‘If the Committee’s recommendations are implemented there will be far reaching changes to the structure of the Australian financial system; the rules of the game will be radically different. With less regulation of the new financial system, there will be greater competition, leading to the emergence of new winners and losers.’ This would mean competition between trading banks and non-bank financial intermediaries like Hill Samuel Australia, he reasoned, and greater competition overall ‘for the trading banks which, to this point, have enjoyed positions of considerable advantage.’ A good thing, he felt. 

‘We believe that the users of Australia’s financial system will be better served if the banks are deregulated and if, at the same time, banking licences are granted to institutions which have a proven capacity to compete successfully if given equal opportunity to do so.’

30 It continued: ‘We have demonstrated an ability to introduce new products, provide better levels of service and establish competitive market leadership in a wide range of financial products and services. Possession of a banking licence will enable us to make a much wider and more enriching contribution to our clients and towards the further development of Australia’s financial system.’

31 Bank of NSW, Australia’s first bank, was established in 1817 under a charter signed by the then-colony’s governor, one Lachlan Macquarie, whose name Hill Samuel Australia would take.

32 This refers to someone who is chairman of the company but continues to work as an executive member of staff at the same time.

33 From 2003 to 2011, Graeme Samuel headed the Australian Competition & Consumer Commission.

34 An Australian brokerage firm, now Bell Potter Securities.

35 One of the ironies of the vast effort that followed is that it may never have been necessary. On 27 February 1985 Keating advised that he had received 42 applications, and he would end up accepting 16. With that many on offer, Hill Samuel might have got in on a foreign licence 

after all. 

36 Specifically, they did so in the foreign exchange markets in the time before the float of the Australian dollar, when the market worked on a margin basis, which had different settlement obligations to a freely floating currency. When the Australian dollar floated, settlement was at face value like everywhere else in the world, which would make the problem with limits unworkable.

37 Hewson would go on to become leader of the Liberal Party, losing the so-called ‘unlosable’ 1993 federal election to Paul Keating.

38 Clarke’s speech at the Menzies. The Application for Authority to Carry on Business as an Australian Trading Bank would run to 148 pages when complete.

39 The Big Bang refers to the deregulation of the UK’s financial markets, which came into effect on 27 October 1986. Among other things it abolished fixed commission charges and the distinction between brokers who acted as agents for clients and jobbers who made markets. Perhaps most significantly, it ended the exclusion of foreigners from London Stock Exchange membership. In its aftermath, most old British financial services firms were taken over by large banks, many of them foreign.

40 Other problems included the fact that risk gearing levels were notably different between the UK and Australia, which would either mean the parent having to commit additional capital or the Australians having to rein in their activity; and the Bank of England expecting Hill Samuel London to exercise prudential supervision over Hill Samuel Australia, which would become more complex under a trading bank licence.

41 The deal was eventually struck with Hill Samuel & Co holding 9.9 per cent of the voting capital and 30 per cent total interest including non-voting shares, with a commitment for those non-voting shares to be converted to voting shares and sold to Australian investors within seven years. In fact, they ended up going to the Sultan of Brunei first—but that’s another story we’ll get to later.

42 Pooley was Head of the Finance and Investment Division of the Australian Treasury.

43 The final numbers, disclosed in Macquarie’s first annual report under its new name in 1985, showed Hill Samuel & Co held 34.5 per cent of fully paid shares, or 29.8 per cent of total capital including partly paid shares issued to management, but 9.99 per cent of voting shares in terms of beneficial ownership.

44 The deal worked like this. Hill Samuel & Co ensured Hill Samuel Australia had net tangible assets at transfer date of $30 million, while Macquarie Bank Limited’s initial net tangible assets would be $50 million, made up of that $30 million plus $20 million of cash retained from the placement of MBL shares to institutions. Hill Samuel & Co sold the whole of the capital of HSA to MBL for cash and MBL shares. In order to eliminate goodwill in the MBL balance sheet, the MBL shares were issued to Hill Samuel & Co at a lower price than the issue price to institutions. 

All of this involved HSA being valued at $55 million, which added to the $20 million retained cash from the share placement gave MBL an overall value of $75 million.

45 Crawford spearheaded the raising while David Adams also joined the team that was working on the process to transition to a bank.

46 Sheppard’s memory is exceptional. The placement of MBL shares to institutional investors raised $43.7 million by the issue of 23,856,330 voting shares of $1 each but, given the overall deal structure outlined in the footnote above, that worked out at an effective issue price of $1.83 per share. Both footnotes taken from Invitation to Become a Founding Shareholder, 1984.

47 All four of those held 9.99 per cent, as did APA Holdings. The other holders were Colonial Mutual Life Assurance Society, with 6.41 per cent; State Government Insurance Commission (SA), Haematite Limited, Commercial Union Assurance Company of Australia and Chamber of Manufactures [sic] Insurance, each with 5.35 per cent; Argo Investments, with 1.84 per cent; and Permanent Trustee Co Limited, with 0.36 per cent. Then there’s one other crucial entry: Management and staff of Macquarie Bank Limited: 9.99 per cent.

48 Invitation to Become a Founding Shareholder, 1984.

49 ‘In order to take advantage of the opportunities offered by deregulation, Hill Samuel submitted a proposal to the Treasurer for the formation of a new substantially Australian owned and controlled trading bank to be called Macquarie Bank Limited. The bank would continue all the activities for which Hill Samuel has become well known, as well as expanding into traditional and new activities.’

50 The Treasurer indicated that ‘the proposal as it has now developed would appear to be broadly consistent with the existing policy on participation in banking, and as such, I believe it may be capable of being developed to a point where a recommendation could be made by the government for the granting of a banking authority’.

51 https://Australian.museum/about/history/exhibitions/trailblazers/matthew-flinders/

52 Ludwig Leichhardt set out to cross the Australian continent from east to west in 1846 and was never seen again. Robert O’Hara Burke and William John Wills crossed Australia south to north, from Melbourne to the Gulf of Carpentaria, but died on the return journey in June 1861.

53 Wednesday 20 June 1984.  

54 Bank of New South Wales, established in Sydney in 1817, which would eventually become Westpac in 1982.

55 The Holey Dollar was a great symbol of innovation, but it didn’t actually last all that long. According to the National Museum Australia, the first Spanish coins arrived in November 1812 and it took a year to mint them all, with the first batch of new coins delivered on 25 February 1814. The New South Wales colonial administration started recalling them in 1822 in order to replace them with sterling coinage, and by the time the Holey Dollar was formally demonetised in 1829 most of the 40,000 coins in circulation had been exchanged for legal tender and melted down into bullion anyway. https://www.nma.gov.au/explore/collection/highlights/holey-dollar

56 Australian Business Economists speech, Menzies Hotel Sydney, Wednesday 20 June 1984.