Overview

Letter to the Sydney Morning Herald in response to article on 21 July 2011

22 July 2011

We refer to the article by Ian Verrender (SMH, 21 July 2011) which criticises Macquarie on a number of fronts.

The reporter has consistently made assertions about Macquarie that ignore publicly available facts in favour of unsubstantiated claims.  It is evident from this most recent article that the reporter has chosen to repeat a number of these erroneous assertions. 

The assertions which are false that have again been repeated include:

  1. The claim that Macquarie came "perilously close to implosion" during the global financial crisis.

This comment is wrong.  As with previous instances in which he has made these claims, notably 23 January 2010, the reporter has disregarded all publicly available information about Macquarie's strong balance sheet, liquidity and cash position.

At 30 September 2008 during the depths of the financial crisis, the strength of Macquarie's balance sheet was demonstrated by the fact that:

    • Macquarie had $A26.3 billion of cash and liquid assets, representing more than 30 per cent of its funded balance sheet, which significantly exceeded wholesale issued paper;
    • The balance sheet was well matched from a term funding perspective; and
    • Macquarie had conservative gearing in comparison with global peers.

Throughout the crisis, Macquarie remained profitable with significant excess liquidity and surplus capital.

  1. The claim that Macquarie relied on its listed infrastructure funds to generate profits.  

Again, this is incorrect.  Macquarie noted in March 2009 that these funds represented only a small part of the overall Group’s operations and earnings.  For example, on 2 March 2009, Macquarie stated to the market that its listed funds would provide an estimated less than five per cent of operating income in the year to 31 March 2009.  One of Macquarie’s core strengths has been, and continues to be, its diversity by business and geography.  

  1. The claim that Macquarie relied on selling assets into its listed infrastructure funds to generate profits. 

This is incorrect.  In December 2008 Macquarie stated that since inception less than 10 per cent of capital invested by both listed and unlisted funds managed by Macquarie Capital had been used to acquire businesses from Macquarie Group.

Recent falls in Macquarie’s share price have provided the reporter with the opportunity to repeat these previously made claims.  However, the reporter fails to note that the movement in Macquarie’s share price over the past three months (down 15 per cent) has mirrored movements in other firms.  For example: Credit Suisse (down 21 per cent); Bank of America (down 17 per cent); UBS (down 13 per cent); Goldman Sachs (down 12 per cent); Citigroup (down 11 per cent); and Morgan Stanley (down 9 per cent). 

It should further be noted that since 1 August 2007 – the onset of the global financial crisis – Macquarie, on a total shareholder return basis, has outperformed the MSCI World Capital Markets index by more than eight per cent.  This is an index of the total shareholder return of global investment banks and other financial institutions.

Rather than being “slimmed down” as the reporter claims, one of Macquarie’s core strengths since inception has been its ability to adapt its business mix in response to changing market conditions. There are a number of recent examples to illustrate this point, including:

  • Macquarie’s funds management business, which includes the highly-successful acquisition of Delaware Investments in the US, has cemented its place as a top 50 global asset manager. In June 2011, Macquarie was named the world’s largest infrastructure fund manager by Towers Watson.
  • Over the past two years, Macquarie has grown its specialist asset finance and leasing book both organically and through acquisitions including $A2 billion in motor vehicle leases and a $US1.6 billion aircraft portfolio from International Lease Finance Corporation in 2010.
  • Macquarie’s energy markets division, which includes the Constellation downstream natural gas business that was acquired in 2009, is now the number four physical gas marketer in North America.
  • Macquarie’s number two ranking for Hong Kong IPOs (by deal value) from 2008 to 2010.  This status is exemplified by Macquarie’s role in the 2010 Agricultural Bank of China transaction, the world’s largest IPO.
  • Operating income from the Americas has grown from eight per cent of the Group’s total operating income in the year ended to 31 March 2009, to 30 per cent in the year ended 31 March 2011.

Further evidence of Macquarie’s growth since its inception in 1969 is compound annual growth rates for net profit after tax and staff numbers since then are 31.4 per cent and 22.6 per cent respectively. 

Finally, the reporter has falsely claimed that Macquarie has lost its leading positions in M&A advisory and securities.  For the record:

  • Thomson Reuters First Half 2011 Global M&A Financial Advisers league tables show that in Australia, Macquarie is ranked number three for deals completed in the six months to 30 June 2011, up one place.
  • In Asia (ex-Japan) Thomson Reuters league tables for the first half of 2011 show that for deals completed, Macquarie has moved up 21 places to rank 18th for the first half of this year.
  • In Australian stockbroking, comprising both institutional and retail activities, IRESS data shows that Macquarie was ranked number three by turnover at the end of 2010 and at 30 June 2011.

Also notable is Macquarie’s performance in US equity capital markets.  For the six months to 30 June 2011, Macquarie was ranked 13 in Thomson Reuters’ US Managing Underwriters league table, up from number 33 for the same period last year.