Great debate, but Macquarie emerges triumphant
February 2, 2010
Dear Mayne Reporters,
Macquarie Group came to Melbourne today and we threw plenty at them over a 3 hour AGM and 13 visits to the microphone. But you've got to admire the way they weathered today's storm and the global credit crisis so new CEO Nicholas Moore's should be well pleased tonight.
First, let's start with the audio breakdowns.
Edited audio highlights of 13 exchanges
Why is it taking so long to get Peter Costello on the board?
Is part of the Macquarie empire being audited over tax havens?
How much are our investments in all the listed funds under water?
C'mon, don't be evasive, give us some answers and let's hear from the auditor on mark to market approach?
Go ahead out make our day by selling Sydney Airport for more than $12 billion
Why don't we internalise the management of MIG and MAP?
Why is a banker owning a bank magazine?
Why does PwC audit the head stock and most of our satellites and can we finally hear from him on mark to market accounting?
Give us an update on the defamation battle against The Australian and the coronial inquiry into the Beaconsfield mine collapse?
Big bouquets for reforming executive pay, defence of Moss and board pay but queries over chairman's $35m loan
Why has Nicholas Moore exempted himself from election and does Macquarie have tenure limits for directors?
Stop delaying the proxies until the end
Will Nicholas Moore be getting options over $10 million worth of shares every year?
A great day for the Millionaires Factory
It's hard to argue with a share price that surges 11.6% to $51.45, lifting a $13 billion market capitalisation to $14.13 billion as the market heaved a hugh sigh of relief that there were no shocks revealed at today's AGM. Babcock would love to be able to do that.
That said, there were still plenty of fascinating exchanges although chairman David Clarke was very protective of Nicholas Moore, other directors and auditor Ian Hammond and several vital questions went unanswered.
For instance, I twice asked them to back up Max Moore-Wilton's claim that Sydney Airport is worth signifantly more than $12 billion and they let it go through to the keeper, although Nicholas Moore thanked me for the suggestion that they should sell it for that price, return the capital to shareholders and book a huge profit on the bank's $1 billion stake in Macquarie Airports.
There was also no answer to the twice asked question about any pre-emptive rights with joint venture partners in airport and tollroad assets that would complicate potential privatisation proposals for Macquarie Infrastructure Group and Macquarie Airports.
A few lighthearted moments
Despite Jack Tilburn raving more maniacally than usual (shame the move to Melbourne didn't deter him), a couple of other shareholders getting very cranky about some evasive answering and some chap from the Wilderness Society attempting to persuade Macquarie not to help Gunns raise equity for its pulp mill, we had a few laughs over the three hour meeting.
As promised, the opening offering bluntly asked why Peter Costello wasn't yet on the team. Chairman David Clarke simply replied by saying that he wasn't on the team and when asked "why not" declined to comment further.
My favourite moment was congratulating Macquarie for being awarded "Investment bank of the year" by Australian Banking & Finance magazine and then asking how it was that Nicholas Moore owned it.
Moore confirmed that he's been involved for "a year or two" but his stake is now down to 25% and he has no involvement in editorial.
When it came to the question of Moore taking the exemption offered to CEOs and not putting himself up for election as a director, I suggested he would have more legitimacy to be at least elected once and his magazine could then run the headline: "Nicholas Moore re-elected with 99% in favour".
I completely agreed with David Clarke's attack on The SMH for its ridiculous front page story claiming Allan Moss was departing with an $80 million payout and suggested the headline should instead have been that Moss suffered "Australia's biggest ever pay cut" after he was trimmed from $33 million to $25 million, although there was obviously no need for him to drop by the soup kitchen.
Serious matters: is the Macquarie Model broken?
The best action at the meeting surrounded some heavy debate over whether the Macquarie Model is broken. Both Fairfax's Michael West and Business Spectator's Stephen Bartholomeusz have both covered this quite well already and it was a fascinating exercise.
At first Nicholas Moore was dismissive and claimed the AGM was not the relevent venue to discuss books values versus market values. I then got up and had a second crack, pointing out that Babcock had given a straight answer to this question and it was time for answers from audit committee chief Catherine Livingstone or auditor Ian Hammond if Moore, the creator if the Macquarie Model, wasn't going to enter into debate.
At this point Moore came to the party and confessed the listed real estate trusts were another $56 million under water after the recent $300 million write-down, MIG was $110 million under water and a Japanese property joint venture was last night valued by the market at $70 million below book value.
However, the overall picture was healthier than I thought because Macquarie Airports and Macquarie Communications Infrastructure Group are both trading above book value.
Whilst Babcock is facing writedowns of more than $200 million, the net figure for Macquarie appears to be lower than this. This is what makes the future of MAP and MIG so vital because Macquarie has $2 billion invested in them but claims the net tangible asset value is $4 billion. If the bank can somehow unlock this value with a privatisation proposal or through asset disposals and capital returns this financial year, it will easily surpass last year's $1.8 billion net profit.
Clarke and Moore tried to argue that all listed vehicles have been hammered and the debate about internally or externally managed models wasn't relevent. I disagreed and mentioned the recent Risk Metrics report attacking the third party model and pointed to the use of tax havens, poison pills and poor governance in the funds which is contributing to the capital strike that sees the big funds trading at half book value.
When asked to reveal any termination provisions in the management agreements and why these full agreements were not publically available, Clarke and Moore conveniently declined to respond.
Voting results and remuneration report
David Clarke continued his annoying habit of withholding the proxy votes until after all the debate was finished and the polls were closed, although it didn't matter this year because everything passed with more than 98% in favour, including the remuneration report and Nicholas Moore's options.
Pay issues didn't get a huge run because Macquarie commendably made the biggest ever change to its remuneration policy by dramatically increasing the scrip component of bonus payments after last year's 21.5% protest against the rem report.
The major outstanding pay issue is David Clarke's $35 million loan from the bank which is the biggest of any director in the country. That's quite a margin loan although he has taken out put and collar arrangement to eliminate downside risk so the bank won't suffer a write down even if the stock collapses.
We'll have more on Macquarie tomorrow, including a video capturing some of the action from the webcast, but do try to listen to some of the audio because it was very interesting stuff.
That's all for now.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.
Macquarie Group came to Melbourne today and we threw plenty at them over a 3 hour AGM and 13 visits to the microphone. But you've got to admire the way they weathered today's storm and the global credit crisis so new CEO Nicholas Moore's should be well pleased tonight.
First, let's start with the audio breakdowns.
Edited audio highlights of 13 exchanges
Why is it taking so long to get Peter Costello on the board?
Is part of the Macquarie empire being audited over tax havens?
How much are our investments in all the listed funds under water?
C'mon, don't be evasive, give us some answers and let's hear from the auditor on mark to market approach?
Go ahead out make our day by selling Sydney Airport for more than $12 billion
Why don't we internalise the management of MIG and MAP?
Why is a banker owning a bank magazine?
Why does PwC audit the head stock and most of our satellites and can we finally hear from him on mark to market accounting?
Give us an update on the defamation battle against The Australian and the coronial inquiry into the Beaconsfield mine collapse?
Big bouquets for reforming executive pay, defence of Moss and board pay but queries over chairman's $35m loan
Why has Nicholas Moore exempted himself from election and does Macquarie have tenure limits for directors?
Stop delaying the proxies until the end
Will Nicholas Moore be getting options over $10 million worth of shares every year?
A great day for the Millionaires Factory
It's hard to argue with a share price that surges 11.6% to $51.45, lifting a $13 billion market capitalisation to $14.13 billion as the market heaved a hugh sigh of relief that there were no shocks revealed at today's AGM. Babcock would love to be able to do that.
That said, there were still plenty of fascinating exchanges although chairman David Clarke was very protective of Nicholas Moore, other directors and auditor Ian Hammond and several vital questions went unanswered.
For instance, I twice asked them to back up Max Moore-Wilton's claim that Sydney Airport is worth signifantly more than $12 billion and they let it go through to the keeper, although Nicholas Moore thanked me for the suggestion that they should sell it for that price, return the capital to shareholders and book a huge profit on the bank's $1 billion stake in Macquarie Airports.
There was also no answer to the twice asked question about any pre-emptive rights with joint venture partners in airport and tollroad assets that would complicate potential privatisation proposals for Macquarie Infrastructure Group and Macquarie Airports.
A few lighthearted moments
Despite Jack Tilburn raving more maniacally than usual (shame the move to Melbourne didn't deter him), a couple of other shareholders getting very cranky about some evasive answering and some chap from the Wilderness Society attempting to persuade Macquarie not to help Gunns raise equity for its pulp mill, we had a few laughs over the three hour meeting.
As promised, the opening offering bluntly asked why Peter Costello wasn't yet on the team. Chairman David Clarke simply replied by saying that he wasn't on the team and when asked "why not" declined to comment further.
My favourite moment was congratulating Macquarie for being awarded "Investment bank of the year" by Australian Banking & Finance magazine and then asking how it was that Nicholas Moore owned it.
Moore confirmed that he's been involved for "a year or two" but his stake is now down to 25% and he has no involvement in editorial.
When it came to the question of Moore taking the exemption offered to CEOs and not putting himself up for election as a director, I suggested he would have more legitimacy to be at least elected once and his magazine could then run the headline: "Nicholas Moore re-elected with 99% in favour".
I completely agreed with David Clarke's attack on The SMH for its ridiculous front page story claiming Allan Moss was departing with an $80 million payout and suggested the headline should instead have been that Moss suffered "Australia's biggest ever pay cut" after he was trimmed from $33 million to $25 million, although there was obviously no need for him to drop by the soup kitchen.
Serious matters: is the Macquarie Model broken?
The best action at the meeting surrounded some heavy debate over whether the Macquarie Model is broken. Both Fairfax's Michael West and Business Spectator's Stephen Bartholomeusz have both covered this quite well already and it was a fascinating exercise.
At first Nicholas Moore was dismissive and claimed the AGM was not the relevent venue to discuss books values versus market values. I then got up and had a second crack, pointing out that Babcock had given a straight answer to this question and it was time for answers from audit committee chief Catherine Livingstone or auditor Ian Hammond if Moore, the creator if the Macquarie Model, wasn't going to enter into debate.
At this point Moore came to the party and confessed the listed real estate trusts were another $56 million under water after the recent $300 million write-down, MIG was $110 million under water and a Japanese property joint venture was last night valued by the market at $70 million below book value.
However, the overall picture was healthier than I thought because Macquarie Airports and Macquarie Communications Infrastructure Group are both trading above book value.
Whilst Babcock is facing writedowns of more than $200 million, the net figure for Macquarie appears to be lower than this. This is what makes the future of MAP and MIG so vital because Macquarie has $2 billion invested in them but claims the net tangible asset value is $4 billion. If the bank can somehow unlock this value with a privatisation proposal or through asset disposals and capital returns this financial year, it will easily surpass last year's $1.8 billion net profit.
Clarke and Moore tried to argue that all listed vehicles have been hammered and the debate about internally or externally managed models wasn't relevent. I disagreed and mentioned the recent Risk Metrics report attacking the third party model and pointed to the use of tax havens, poison pills and poor governance in the funds which is contributing to the capital strike that sees the big funds trading at half book value.
When asked to reveal any termination provisions in the management agreements and why these full agreements were not publically available, Clarke and Moore conveniently declined to respond.
Voting results and remuneration report
David Clarke continued his annoying habit of withholding the proxy votes until after all the debate was finished and the polls were closed, although it didn't matter this year because everything passed with more than 98% in favour, including the remuneration report and Nicholas Moore's options.
Pay issues didn't get a huge run because Macquarie commendably made the biggest ever change to its remuneration policy by dramatically increasing the scrip component of bonus payments after last year's 21.5% protest against the rem report.
The major outstanding pay issue is David Clarke's $35 million loan from the bank which is the biggest of any director in the country. That's quite a margin loan although he has taken out put and collar arrangement to eliminate downside risk so the bank won't suffer a write down even if the stock collapses.
We'll have more on Macquarie tomorrow, including a video capturing some of the action from the webcast, but do try to listen to some of the audio because it was very interesting stuff.
That's all for now.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.