Critical Times

More than once Vanguard has commented on the rise of equity investments in recent years. In just 5 years to 2005, the Macquarie Bank’s growth in its international income has recorded a steady upward climb, accounting for 46 percent of the total, or $954 million.

Where has this international income come from? This is a very good question. The answer is it came from a range of partnerships with overseas property and energy corporations. Further information from the Macquarie Bank shows that there has been a shift in terms of business growth from traditional investment banking to what is called Assets and Wealth management. This has gone up 91 percent in the period we are talking about. It is made up of two parts. One is infrastructure, property and other specialist funds. The other is retail and wholesale funds and private client broking.

As we shall see, private equity investment figures hugely in this part of the bank’s activities.

This kind of investment often takes on the form of buying shares in unlisted companies, which in the words of the Macquarie Bank, “offers the opportunity to generate potentially high returns through a transformational, value added and active investment strategy, with investments made in a portfolio of companies that have the potential for high growth.” In every day words this means that a company with a recognised potential is targeted, taken over and changed to make it more profitable, through rationalisation, shedding of labour and other changes.

Another practice applied by the Macquarie Bank is that once private companies have been acquired, they are then listed on the stock exchange to become public companies, where shares can be sold on the stock market. This provides an opportunity for other investors to come in.

This is what the American magazine Business Week (10 October 2005) had to say: “Here’s how it works: Macquarie buys an asset such as a toll road, utility, or shopping mall. Unlike private-equity funds, which typically try to exit a deal within three to five years, Macquarie tries to recoup its investment within a few years by offering shares to the public. So it then often bundles several of these into a trust, which is taken public with a listing in Sydney, Singapore, or New York. These are popular with institutional investors.

For example, investors in Macquarie Airports include French insurer AXA, Capital Group in Los Angeles, and Toronto-based Oppenheimer Holdings, as well as Macquarie Bank itself.”

However a large part of the capital used for equity investing is not the Macquarie Bank’s own capital. It acts as middleman for others.

To do this, a range of trusts and funds have been set up. Unfortunately information on shareholders and directors of these subsidiaries is regarded as confidential and not available to unauthorised persons. In this way the Macquarie Bank is able to hide behind an elaborate structure and avoid disclosure rules. The fact that such a structure exists indicates that there is something to hide.

However, other sources reveal a few facts. Here are some examples. Arrowstreet, a subsidiary of Global Equity Fund (Hedged) based in Massachusetts USA, states that it uses the services of the Macquarie Bank. They are not alone. Other American icons like Citibank and Morgan Stanley and British and European counterparts also like to avail themselves of the service.

Bending over backwards
According to private research company Caslon Analytics, “Australia is an attractive location for investment because of permissive regulation (lighter, quicker and arguably more certain than comparable states such as France and Italy), a culture that is “private equity friendly” (eg few major criticisms of funds as ‘locusts’) and an economy that although expanding more slowly than parts of Asia is stable and outpacing growth in much of Europe.”

What is really meant here is that Australia has a government that is willing to bend over backwards to foreign investors.

Caslan notes that Australia “is also generating substantial capital for investment at home and offshore, particularly because government has shifted pension burdens to individuals and employers, thereby driving growth of superannuation funds. One industry figure quipped that “It’s a lot of money to invest and you can’t forever be buying and selling BHP shares to each other”.

After your Super
Industry superannuation funds for example had around $70 billion invested in 2006, with some $14 billion new contributions and dividends for investment per year. The overall superannuation fund sector deployed assets of $600 billion, with annual reinvestment of around 14 percent.

Common practice now is to dip into the superannuation funds that come out of workers’ pockets to finance takeovers and other activities. How heavily involved the Macquarie Bank is in this is the subject for further investigation.

But the Macquarie Bank has been transparently involved in a succession of takeovers and the privatisation of previously government run concerns.

Origins of Macquarie
Contrary to the common perception, the Macquarie Bank has never been Australian owned.

It traces its origins to merchant bank Hill Samuel Australia (HSA), a subsidiary of London banker Hill Samuel & Co. Limited. HSA began operation in Sydney in 1970 and became Macquarie Bank Limited in 1985, following deregulation of the Australian financial market and takeover of its UK parent by Trustee Savings Bank (TSB), in turn engulfed by Lloyd’s Bank.

In 1996 the Bank was listed on the Australian Stock exchange with an initial capitalisation of $1.3 billion. Controlling ownership did not change substantially. A decade later the same bank is managing $47 billion in investments. In January 2006 its reported capitalisation had increased to $15.5 billion. An impressive figure, but nowhere near the amount that is going through its hands. This shows that the Macquarie Bank acts on behalf of others.

The Macquarie Bank also has a formidable list of prominent personalities on its payroll. Obviously these people are not there for their good looks. Their role is to use their contacts from previous occupations to pursue the bank’s interests.

This involves an important network of contacts amongst politicians, bureaucrats and others. It is who you know that matters. Although the practice is not rare, Macquarie does it more extensively than anyone else.

Surely having Graham Samuel, ex-Chairman of the Australian Competition and Consumer Commission (ACCC) has its use when actions are being questioned in relation to monopoly practices and foreign control.

Another example is a former Secretary of the Department of the Prime Minister and Cabinet. This provides a direct line to John Howard and his gang.

Labor is not left out. Former NSW Premier Bob Carr is on the payroll.

This is all a recipe for corruption.

It is clear that the Macquarie Bank operates in violation of the interests of Australia, and because of this deserves serious attention.

Evidence suggests that it is an important front for the penetration of Australia by foreign owned multinationals and billionaires that do not want to operate in the open. In this capacity it poses a danger to the future of Australia.

Source: Vanguard
May 2007 Issue