Letter to Sydney Morning Herald in response to BusinessDay article on 31 May

Michael Evans’ article of Monday May 31, BusinessDay, P1, "Return of the boys with Brazil" relies on the premise that Macquarie raised money cheaply under the Australian government guarantee and deployed it, to "rebuild the bank and its bonuses".

This premise, and the article itself, are misleading in a number of ways:

• Macquarie did not use the government guarantee to "rebuild" itself and, as detailed in its public financial accounts, was in a sound and conservative financial position throughout 2008 and 2009, and remains so today.
• Macquarie's loan assets in March 2007, before the market disruptions occurred, were $45.8 billion, in March 2008 (before the government guarantee was announced) they were $52.4 billion, in March 2009 they were $44.8 billion and in March 2010 they were $44.3 billion. This clearly demonstrates that there has been no major ramp up in overall lending activity.
• Macquarie held at least $25 billion in cash throughout the market dislocations of 2008 and 2009, significantly in excess of that required, and as of its most recent reporting date of 31 March holds in excess of $20 billion.  
• Not only have cash levels and loan assets remained relatively constant, total assets and total liabilities of the Group have also remained relatively constant. The Macquarie funded balance sheet at September 30, 2008 was $76.4b. At March 31, 2010, the funded balance sheet was relatively unchanged at $74.9b.
• Rather than "fuelling banker bonuses" Macquarie's high levels of cash holdings had, and continue to have, a negative impact on profitability and accordingly on staff profit share.
• The article suggests Australian taxpayers' AAA credit rating was used to make millions. The facts are that Macquarie pays 1% a year for all funding issued under the guarantee; that is approximately $200 million per year. Macquarie has not  issued new debt under guarantee since August 2009.
• The business of the Corporate and Asset Finance (CAF) division of Macquarie is not a “reinvention” – it has been part of the organisation’s operations since the 1970s - the majority of financing by CAF has and continues to be to Australian clients. 
• BusinessDay appears intent on singling out Macquarie on this issue when nearly every financial institution in the OECD (ex Japan), including 200 in Australia alone, could access government guarantees during 2008 and 2009. 
• Inexplicably, BusinessDay has now made these claims more than a dozen times, ignoring all publicly available information that clearly refutes the claim. 

Greg Ward
Chief Financial Officer
Macquarie Group

FURTHER DETAIL

CLAIM: Macquarie says CAF contributed 10 per cent of Macquarie's $1 billion net profit. Its operating revenue contribution appears to be significantly higher.

FACT: CAF contributed 6.8 per cent of Macquarie’s total operating income and a smaller percentage of net profit after tax. This can be easily calculated from the full year accounts which have been publicly disclosed.

CLAIM: At a time when the bank faced the collapse of its "Macquarie model" of fee-generating listed infrastructure trusts, Brazil began spearheading a drive to reinvent the bank's profitability using a turbocharged commercial lending strategy that taxpayers have unwittingly supported.  The origins of CAF's rise lie at the height of the global financial crisis in September 2008.

FACT:  All specialised funds - listed & unlisted infrastructure, real estate and private equity - provided only 12% of group operating income in 2007, 19% in 2008, 14% in 2009 and 10% in 2010.  CAF has provided finance since 1970 and asset management solutions since mid 1990s to retail, corporate and government customers in 36 countries.

CLAIM: As BusinessDay revealed earlier this month, Macquarie undertook a lobbying effort with regulators and government as hedge funds mauled its share price, sparking a crisis of confidence.

FACT: Your article of 17 May 2010 “Revealed: MacBank’s code red to the government” did not reveal a lobbying effort by Macquarie; it only reported the subject line of a small number of email communications.  With regard to the Macquarie Group share price since the start of the GFC, the movement in the  Macquarie Group share price largely mirrored or outperformed the movement of share prices of financial institutions around the world as reflected in the MSCI World Diversified Financials Index. This is illustrated in the following chart: