Statement regarding the proposed Major Bank Levy
Sydney, 02 Jun 2017
Macquarie notes speculation in today’s Australian Financial Review regarding the implications of the Major Bank Levy on Macquarie Group Limited.
The impact on Macquarie Group is still unclear.
It is expected Macquarie’s Australian banking subsidiary, Macquarie Bank Limited, will be subject to the levy.
It is proposed the levy will be calculated on a standard yet to be determined by the Australian Prudential Regulation Authority.
Macquarie Group’s position is unique because of the mix of banking and non-banking businesses, and the predominance of its international and wholesale businesses relative to its Australian retail banking business. (This business is carried out in the Banking and Financial Services Group which contributes 11% of operating group profits, is the eighth largest mortgage lender in Australia and represents approximately 2% of the Australian market, and has approximately 2% share of the retail deposit market.)
On assessing its impact, it should be noted that:
- Approximately half of Macquarie Group Limited’s earnings is derived from its banking subsidiary Macquarie Bank Limited, which carries on business in Australia and internationally. Macquarie’s market-leading funds management activities, corporate advisory businesses and broking activities are largely carried on outside Macquarie Bank Limited.
- Macquarie Bank Limited’s return on equity for the last financial year was approximately 10%
- Approximately one third of Macquarie Bank Limited’s earnings are generated in Australia.
- On the information available, and based on the most recent financial accounts, the levy is estimated to be approximately 11% of Macquarie Bank Limited’s Australian earnings and approximately 4% of its global earnings. Expressed another way, this represents a potential increase in Macquarie Bank Limited’s Australian tax rate from 34% to 41%.
Thus the scale of Macquarie Bank Limited’s international and wholesale businesses means the levy may have unintended and disproportionate consequences on its local earnings.