Today’s news is the shaky outlook for the bank’s securities division, but don’t be distracted — the bigger story is that Macquarie is back.
Back from a near-death experience at the height of the GFC, when its shares were in a tailspin — diving from a May 2007 peak of $98 to as low as $15 by March 2009 — rumourtrage was rife, and on a bad day every second BlackBerry (they were still cool then) at Martin place HQ would go off as bankers faced margin calls on their plunging Macquarie shares.
After the collapse of Lehman Brothers in September 2008 this was Australia’s “too big to fail” moment, and we know from this sterling investigation by Michael Evans and Ian Verrender that the bank sent a “Code Red” to Canberra, with assistance coming within weeks in the form of an Australian Securities and Investments Commission ban on short-selling, a guarantee on bank deposits and a scheme allowing banks to pay to use the government’s AAA credit rating in the wholesale market.
In the boom years Macquarie had been the poster child of lax governance and pay excess, culminating in a 21% protest vote at the 2008 annual general meeting — particularly against the egregious $28 million payment to outgoing CEO Allan Moss, paid overwhelmingly in cash. That protest was the catalyst for a complete restructure of Macquarie’s pay structures, shifting the vast bulk of bonus payments to shares bought on the market, locked into a pool and only issued to bankers over three to seven years — a longer deferral period than any investment bank anywhere in the world.
Fast forward six years. Macquarie shares have tripled to breach the $60 mark, and largesse is once again being spread around: it has just overtaken Westfield to become the biggest payer of its senior executives on the ASX200, with the top 11 bankers sharing in some $76 million last year.
Total compensation for its almost 14,000 employees was $3.5 billion — a quarter of a million dollars each, on average — which represents 43% of its operating income of $8.2 billion. That’s what you get when you buy shares in an investment bank, say governance experts: as a rough rule, if the bank makes a profit, the managers get half, shareholders the rest.
Most surprising, the one-time poster child of pay excess, dubbed the “millionaire factory” in 1997 by Crikey founder Stephen Mayne, now gets a glowing thumbs up for its remuneration report from institutional shareholders, their proxy advisers and governance monitors like the Australian Shareholders’ Association. Everyone’s voting yes, and it’s nothing new; according to ASA last year’s 97.9% in favour of the remuneration report was the second highest on record, behind the 98.43% vote in 2012.
Macquarie chief executive Nicholas Moore got a 48% pay increase to $13.1 million in 2013-14. Up to 70% of that will be deferred. As of today, Moore now has built up a personal stake of 2.1 million shares, worth almost $130 million at today’s prices. Someone has gone back over the announcements for the last 10 years and can’t find a single instance where Moore has sold a share. “He’s a true believer,” the source told me.
“The absence of protest at today’s Macquarie AGM proves shareholder activists and proxy advisers are not closet communists: nobody begrudges healthy pay — even over-the-top pay — when executives are delivering.”
Even the taxpayer is getting a share with Macquarie paying what’s said to be its highest-ever effective tax rate of 39.5% in 2013-14, courtesy of an almost $300 million increase in the tax bill to $827 million this year, against operating income of $2.1 billion (which is getting close to the peak profit level of $2.2 billion in 2008).
Macquarie’s pay still is excessive, but only in the Piketty sense that pay equity is out of kilter everywhere. Is the work of Macqaurie bankers worth so much vastly more than that of most tradespeople, teachers, nurses and police? I don’t think so, but who cares? The absence of protest at today’s Macquarie AGM proves shareholder activists and proxy advisers are not closet communists: nobody begrudges healthy pay — even over-the-top pay — when executives are delivering. It’s only ever been largesse for failure that sticks in the craw. On that score at least, Macquarie is no longer the company to pick on.
Macquarie has plenty of other challenges, particularly in its Macquarie Private Wealth division, subject to an enforceable undertaking given to ASIC in January 2013, which has cost the bank almost $50 million so far in overhauling its financial advice business, and may cost yet more in “client remediation” (no figures were given).
Chairman Kevin McCann admitted tax authorities round the world were toughening up and Macquarie was getting a higher proportion of its income from high-tax jurisdictions like the United States, which last year made up 35% of group earnings — the first time in the company’s history an offshore division represented a higher share of total income than Australia, which only made up 32%.
But the mood was forgiving at today’s annual meeting, with plenty of groans at veteran activist Jack Tilburn and the toughest questioning reserved for the question of political donations: Macquarie gave $317,000 in 2012-13, making it the biggest donor after Woodside, whose chairman Michael Chaney was out giving his trademark free political advice yesterday as was duly celebrated in this morning’s national papers.
McCann — who was beaten to Liberal Party preselection for the Sydney seat of Warringah by Prime Minister Tony Abbott — gave the standard line that the company supported vibrant democracy by giving to mainstream political parties and disclosed everything, even donations below the threshold. “We couldn’t be more transparent,” he said. ASA called on Macquarie to follow BHP and CBA and declare itself against donations, and flagged it could move an amendment to the bank’s constitution next year. McCann took it in his stride, promising to discuss it with the ASA.
The meeting was still going at deadline but compared with the rowdy meetings of yesteryear, it was an easy day’s work for McCann. When one shareholder thanked the board for “generally surviving”, there was a round of applause.
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