14 questions asked at 2022 Macquarie AGM

Four written questions lodged through Link platform 3 days before the AGM which were read out in full. The two audit questions were lodged as one but Macquarie chose to break them up.

1. Chair succession

Stephen Mayne: Please outline the selection process for the recent chair succession. Were any external candidates considered, was any outside firm involved in the selection process and were there multiple candidates? If so, what was the voting process?

GLENN STEVENS: Thanks, Stephen, for the question. As you will appreciate, it is a little awkward for me to answer that so I think I might ask the Company Secretary, who was the secretary to all that process, to go through that. Thanks, Dennis.

DENNIS LEONG: Thank you, Chair. The Board undertook a comprehensive and rigorous process led by Peter Warne, the retiring Chair. The process included discussions with each of the Board members and some members of senior management. The discussions were followed by a meeting of the Board Nominating Committee and then by a meeting of the Board, at which there was clear consensus that Glenn Stevens was the best placed person to chair the Board going forward. That was due, firstly, to his extensive financial markets and senior leadership background and experience, including his time as Governor of the Reserve Bank of Australia; secondly, the Board's positive experience and respect for him gained from his period as chair of the Board Risk Committee from late 2019 to early 2020, when all the Board members attended each of the committee meetings.

2. Any bigger audit clients for PwC?

Stephen Mayne: PwC has been paid more than $1 billion by various Macquarie owned or managed entities since the business floated in 1996, including the $71.7m in 2021-22 disclosed on page 265 of the latest annual report. Can the signing audit partner Kristin Stubbins name a bigger or more important client than Macquarie for PWC anywhere in the world?

KRISTIN STUBBINS: Thank you, Stephen, for the question. Good morning, shareholders. Macquarie is a very large and important client for PwC. Macquarie is an international group, complex, as I said. It's a complex international company. We've got audit teams in over 40 countries working on the audit. But PwC is also a very large global professional services company or firm. We do have a number of large clients, and some of which are actually larger than Macquarie. So, for example, we're the auditors of Goldman Sachs internationally, JP Morgan and HSBC. What I wanted to say to shareholders is that you can be reassured that I take this role very seriously and my role as independent auditor is very dear to me. I engage with my global colleagues regularly to make sure we are bringing the best of that international expertise, looking at global trends in the auditing and accounting profession as well as the macro trends, to make sure we're doing the best for shareholders. Thank you.

3. Audit tender history

Stephen Mayne: In what year was PwC first appointed auditor for Macquarie Bank and how many times has the audit job been tendered since. When it is next due to be tendered?

GLENN STEVENS: PwC has been the auditor of Macquarie for quite a long time, but it is worth saying that we do review the performance of the auditor annually. There is a change of signing partner every five years, as is appropriate under the standards and the regulations in Australia, and this year, the Board Audit Committee has decided to implement a more detailed comprehensive review of the external auditor, beginning in 2024. So we think that strengthens the governance framework for the audit process and helps us adequately manage the risks relating to independence and effectiveness. I think that's probably all I can say on that question today.

4. Proxy advisory support for pay changes

Stephen Mayne: Regarding the reduction of the deferred bonus scheme from 7 years to 5 years, has that been supported by all of the proxy advisers and is the reality of this move that Macquarie was struggling to attract and retain talent relative to what other competitors offer in the market.

GLENN STEVENS: Well, broadly, we've had support from proxy advisers and institutional shareholders for the changes that we've made that will come into effect in the next year, the ones that I described earlier. It's true there are shorter vesting periods for execs while they're employed with Macquarie, but offsetting that, the vesting periods for their post-retirement vesting have been lengthened. So, taking all that together, we believe that the vesting periods are actually still quite long by most standards. They certainly more than comply with APRA's new requirements under CPS 511, and we think that the executives are still highly aligned with shareholders. As far as retention and recruiting, it certainly is a challenge, but the changes we have made here were not, in some sense, a knee-jerk response to that. These were very deliberately thought out in light of not only market conditions but also forthcoming regulatory changes.

Four written questions lodged through the Lumi platform by 95 year old Macquarie shareholder David Mayne (with the assistance of son, Stephen) 30 minutes before the meeting began

5. Director conflicts of interest

David Mayne: Where is the line drawn in term of other board gigs Macquarie directors can take. For instance, former chair Kevin McCann crossed the line when he retired from Macquarie & then joined an Evans & Partners advisory committee, directly competing with us. This could never have happened whilst he was serving. In terms of current directors, is it okay for Mike Roche to serve on the board of 6 Park Asset Management. Doesn't it compete with us? And is it appropriate for Glenn Stevens to serve on the NSW TCorp board, when it presumably pays Macquarie millions to help manage the NSW State debt. We are a big global player in the oil & gas sector from a trading point of view, so is it appropriate for Nicola Wakefield Evans to serve on the Viva Energy board, or do we only have a limited presence in the Australian market? Nicola is also on the Clean Energy Finance Corp board. Given our push into renewables, is she going to retire from that position when her 5 year term expires next week?

GLENN STEVENS: I think what I would say is that the Macquarie directors - most company directors are on more than one board. That's actually an advantage, often, in fact, usually, because they bring diverse experiences from their other roles and they see how companies address issues which are of common interest. So I think that is actually a strength. The Board has to devote significant time to the Macquarie role. I can assure you, it's a demanding directorship in terms of time and effort. All external commitments that directors have are considered carefully at the time they take them on. They would usually consult with the Chair before taking that on. And I'm quite comfortable with the other roles that other directors have on the other bodies they serve. Where a potential conflict looks like it may emerge, we have strict processes in place to partition information and ensure that directors at Macquarie don't take part in a decision that we might be taking that has some bearing on another role they have, and that has been very well used and exercised over time. Australia is a small market, so it's inevitable that high-quality people are going to be on more than one board. We take these issues of potential conflicts very seriously, and, for my own part, on the New South Wales TCorp board, I am excluded from decisions that Macquarie might take with relevance to TCorp and vice versa, where those things come up. So I think that is quite well managed. Could we have the next question, please?

6. History of capital raising and likelihood of future PAITREO

David Mayne: Macquarie's staff share scheme is the 2nd largest shareholder in the group behind Blackrock with 22.14m shares or 5.77%. At today's opening price of $177 after a 2% rise, these staff shares are collectively worth almost $4b. Unlike the other Big 4 banks, Macquarie has never done a pro-rata capital raising. Indeed, the 7 placement-SPP raisings that Macquarie has done since 2006 is a record for an ASX200 company. This has raised $8.44b comprising $5.39b from institutional placements & $3.05b or 36% from SPPs. To your credit, you have never scaled back an SPP, or even announced a cap or target when launching an offer. However, it would be good if Macquarie joined the PAITREO club as this is the fairest way to raise capital – pro rata with retail rights trading & bookbuilds to compensate all non-participating shareholders. Indeed, you're currently sharing in $43m of fees with UBS under-writing ANZ's $3.5 billion PAITREO. When next raising capital, will you consider doing a PAITREO?

GLENN STEVENS: Thank you, Mr Mayne, for the question and the extensive comment. I think in terms of the best way for the company to raise capital in market circumstances, I'm going to ask Alex to address that, if he would, please.

ALEX HARVEY: Thank you, Glenn. Thanks, Mr Mayne, for the question, and good morning or good afternoon, ladies and gentlemen. Obviously we did undertake a $2.8 billion capital raising in November this year, and I wanted to start by thanking shareholders for the support we received in that capital raising. We did a $1.5 billion institutional placement followed by a $1.3 billion raise via a share purchase plan. As Glenn said, I think, we are very conscious that when we embark on a capital raising, we want to make sure that we embark on that in a manner that provides for the broadest possible participation by shareholders in that capital raising, recognising also that we're balancing that against the cost, the complexity and the certainty of outcome that is required in order to ensure the ongoing financial strength of the organisation. We were very pleased, I think, with the capital raising that we undertook this year, and just for everyone's interest, in relation to the $1.5 billion institutional component of the capital raising, it was actually the smallest discount to the closing price that has ever been recorded in the Australian market for a raising of that size, so we're very pleased with that, and over 90 per cent of that went to our existing shareholder base. In relation to the SPP, as you said, Mr Mayne, obviously we took all of the subscriptions to that SPP, raised $1.3 billion, and again I was very pleased to see that nearly 50,000 of our shareholders actually participated in that SPP, and, of course, at the time of the issue, the stock was trading at quite a significant premium to the price at which retail shareholders participated in the issue. So it was, we think, a very good transaction and we had very broad participation from the shareholder base. I think as we go forward, and reflecting on the past, obviously, you can be assured that when we talk as the management team and in discussion with the Board, there is very detailed consideration given to alternative options to actually raise that capital, but, again, what we're trying to do is make sure that there is the broadest possible participation, but also make sure that we achieve our outcome with a level of certainty. Thanks very much.

7. Borrowing cheap printed money off the RBA

David Mayne: When the Chairman retired as RBA Governor in 2016, our central bank had never got into money printing in a serious way, not even during the GFC when global first world money printing really took off, led by the ECB and the US Federal Reserve. Can you believe that 6 years later, the RBA has printed almost $300 billion and $11.3 billion of that was given to Macquarie, the first public company to be chaired by a former RBA governor, as a virtually interest free loan that doesn't have to be fully repaid until mid 2024? Our company, which pays the chair around $900,000 a year in fees, is directly benefitting from central bank money printing? Are you okay with that and do you think Modern Monetary Theory is now a credible policy? Also, are we still only paying 0.1% to the RBA or does the interest rate rise with the official cash rate? And have we given any thought to repaying this RBA loan early, given the optics and our remarkably strong capital position with cash liquidity exceeding $50b?

GLENN STEVENS: There's quite a few questions in there. Let me see if I can collect them. I'm going to ask Alex in a moment to talk about funding costs through that source of funding and what we can say about the future. On the broader issue that you raise, let's be clear, it's nearly six years now since I left the Reserve Bank. The TFF was put in place by the Governor and the Board at the appropriate time, in their judgment, to provide low-cost funding for banks in order to support the economy through the pandemic. It's true that Macquarie accessed that funding, but it did so on the same terms as every other bank, and if there is any suggestion that somehow I had some untoward influence over the creation of that facility, well, that's not true. I learned about it by reading about it in the paper like everybody else. Macquarie accessed it on the same terms as every other bank. As for repayment schedules and whether costs will rise, Alex, perhaps you could take that up.

ALEX HARVEY: Thanks, Glenn. I think you have covered it well. Maybe just to reiterate the background, obviously, at the time we're talking about, March 2020, we were obviously just heading into COVID, and the RBA, in their wisdom, extended the credit facility to make sure that interest rates to borrowers in the market came down, and also you were given incentive, or as authorised deposit-taking institutions you were given incentive, to extend credit to the small and medium enterprises across the economy. We have, as Mr Mayne referred to, had $11.3 billion made available to us as part of that facility. I'm pleased to report in terms of its aspirations and its intention, as of now, we've extended about another $37.5 billion worth of mortgage credit over that period of time to our mortgage customers, and we've also increased our lending to small and medium enterprises by about $2.5 billion. So the intention of that facility, obviously, was to enable the provision of credit at what was quite a difficult time for the economy. The loan is extended by the RBA as a term facility, a three-year term facility, on a fixed-rate basis and, as I said, we have obviously utilised that, together with other funding, to provide support and credit to our customers in the marketplace. It obviously is part of a mix for the overall Group, and we continue, as shareholders are aware from the discussions or the comments that Shemara made earlier, to raise deposits in the marketplace and over time will refinance that term funding facility at the appropriate time over the next couple of years. Thanks, Glenn.

8. Chairman and director pay

David Mayne: When our new chairman retired as RBA governor in 2016, his final salary for 2015-16 was $1.03 million, according to the RBA annual report. That was a full time public service job as both CEO and chairman, carrying the title Governor. Now you are the part-time chairman of Macquarie earning around $900,000 a year and you're got a full time CEO under you whose statutory pay is up to 35 times greater than the chair, depending on the year. Aren't you actually underpaid as chairman, particularly relative to management and what is the current plan in terms of increasing board fees, particularly given inflation is now at a 20 year high of 6.1%. The cost of living is getting worse for Macquarie directors as well. When are you directors next getting a pay rise to reflect this and given that the CEO's base pay is rising from $800,000 to $1.5 million this year, shouldn't the chair be on the same base pay? Could the rem committee chair also deal with this question.

GLENN STEVENS: Mr Mayne, tempted as I am to say what a fine question that is, let me say that, for my own part, I took on the role at what the going rate was. More seriously on pay for directors, we made an increase just not long ago. That was the first one for
three years, and I think the compound annual growth rate through that three years was between 1 and 2 per cent per annum. So we thought that was reasonable. We don't have any active plan to revisit the director fees in the near future. But thanks for your concern and I appreciate it. Next question, please.

Five verbal questions asked at the meeting

9 & 10. AGM process and changes made by new chair

STEPHEN MAYNE: Just a quick comment on AGM process, first. So congratulations to Dennis for his 29 AGMs. It has been a little bit frustrating, from my point of view, in getting some changes to the AGM, so I thought with a new Chair and a new Company Secretary next year you might be able to adopt some of these things.

# The first is to disclose the proxy results to the ASX along with the formal addresses before the meeting starts so we can ask questions if there has been a material protest vote.

# Secondly, like several other companies are now doing, can you disclose the outcome of the voting by shares and shareholders, like with a scheme of arrangement, so that the 220,000 retail shareholders can have a bit of a sense of their sentiment on items and not be overwhelmed by the large shareholders such as BlackRock and Macquarie itself, which is above 5 per cent?

# Thirdly, can we return to following the agenda? I'm sure you don't have a Board meeting where you say, "Does anyone want to talk about anything on the agenda" - you follow the agenda. So this process is just a one-off go at questions with no sequential agenda - rem, director elections, etcetera. So can you go back to following the agenda?

# Can you ditch the media call before the AGM, because the media can get access to you every other day of the year. This is the shareholders' day. I'm not aware of any other company that has a press conference with the media before
the AGM, the effect of which is to feed the chooks, off they go, and it lowers the profile of the shareholder debate, because all the journos have already gone. They have been well fed.

# Next, can you publish a full transcript of proceedings, like many other companies now do and like you do after your half-yearly analyst briefing calls? If you can produce a 37-page transcript on your website for what the analysts say, why can't you show similar respect for what the shareholders say?

# Next, can you drop the pre-AGM lunch because, again, it has the effect of downgrading the debate, because people have come, they have listened, watched videos, eaten and gone home. This has now got a very small smattering in the room relative to before, and you should turn on the food half an hour before the AGM, let everyone have the food as long as they like, but let people who want to have a discussion stay in the room. That's the conventional way to do it.

# Can you do an ASX announcement saying when nominations for the Board close, like most companies do, rather than burying it in the fine print in the Annual Report? And can you stick with the hybrid. This is a good model - online and physical, it's good. You can ditch the telephone. Very few people use the telephone for questions. And as you have done today, can you continue to open the online live questions at least half an hour before the AGM, which you did today, which was terrific for my 95-year-old father, David Mayne, who was able to get in there and lodge a few questions, with me sitting by his side, before we came in.

GLENN STEVENS: One of them was a very good question.

STEPHEN MAYNE: I hope you buy him some lunch when you get your pay rise. So that's my shopping list of 10 requests. You don't have to answer all of them. I just wanted to get them on the record. Dennis will be gone. You haven't done any changes this year as the new Chair. I was going to ask you what have you changed so far as Chair? That can be my question: have you got any AGM process reflections and what have you changed so far in your first 85 days as Chair?

GLENN STEVENS: There's quite a list there. I'm not going to respond to all of those right now. We have thought a lot about most of these things over the years and we still think that the conduct of the meeting in this fashion gives us the best outcome. I wouldn't describe what we put on outside as a "pre-AGM lunch". It is a cup of coffee mid-morning, which most of us probably need. I certainly do, anyway. Thank you for those suggestions and, as usual, we will reflect on them. I would note on things like transcripts, there is a recording of this meeting that will be there, and we provided you with a transcript on request last year, if I remember rightly. What have I changed in the period since 10 May? Not very much. I don't think much needed to be changed. It's not as though the company was in some sense on the wrong track and needed a serious redirection; not at all. I think we are on the right track, and so my focus has been on ensuring a smooth handover from Peter, taking up some things which are important at the minute, such as the governance changes we're making on the Bank Board, preparing for today and so on. So that's probably all I have to say on the first 10 weeks, and I guess you can mark my report card next year. Could I have the next question, please?

11. Co-operating with a Macquarie book

STEPHEN MAYNE: Chair, I suspect you are quaking in your boots that former senator Schacht is going to vote against the Rem Report. I think he probably had more influence in the Labor Caucus voting for Keating and against Hawke twice than he will have today. We are tall but we are small when it comes to shareholding, Chris. I have two quick questions. The first one: last year I asked whether you were going to investigate a Macquarie book because you had such a great story to tell, and there have been so many books on the likes of Afterpay, Twiggy Forrest, Kerry Stokes, James Hardie. Then I discovered that Joyce Moullakis (plus Chris Wright, ex AFR) from The Australian is actually trying to write an unauthorised book at the moment. So I was just going to encourage you to co-operate with that, because you have such a great story to tell. With many powerful individuals or institutions in this situation - and Twiggy did this, as did Kerry Stokes - when someone does an unauthorised book, they rush out or compete with the authorised version, so you suddenly get two books on the same topic. So how are you approaching a journalist attempting to do 100,000 words on Macquarie? Are you going to cooperate? Because you can be a bit control-freaky and secretive sometimes. Are you co-operating? I suggest, given that this magnificent book (by Gideon Haigh) on Bankers Trust was written, authorised - Jillian (Broadbent) knows all about it, she is in here many times - fantastic read, you (Macquarie) bought Bankers Trust. They were a bit sad when you bought it so they rushed out the book to get their story out there when you took them over and then they disappeared. So can I suggest that you read whatever Joyce serves up, having cooperated, and then you commission Gideon to do the official history and base it on all the great work he did with Bankers Trust earlier. I will come back with a second question after you answer that.

GLENN STEVENS: Interesting question. Thank you. I will consider that possibility. I think we would probably say, not that we are seeking to be unco-operative, we are mainly focused on running the business rather than writing stories. I don't know if you want to add anything on that, Shem?

SHEMARA WIKRAMANAYAKE: Nothing to add. Thank you for the comments.

GLENN STEVENS: Next question.

12. Expanding the director cap in the constitution

STEPHEN MAYNE: I will actually read out a question that I asked last year. Macquarie's constitution mentions 10 as being the maximum number of directors, and we currently, I think, have nine or 10. Macquarie is one of the only ASX100 companies with no constitutional room for Board expansion to accommodate non-Board-endorsed external candidates. Will you consider amending the constitution at next year's AGM to either adopt the Rio Tinto model of having no Board size cap or matching AMP's cap of 16, ANZ's 15, BHP's 20, Centa Group's 16, Westpac's 15, or the many listed companies which have a maximum of 12 directors? Because a couple of times in the past when I have run for the Board, you have done the old, "Sorry, sir, there's no room in the inn", and that even if I got 100 per cent in favour, I would still lose, because you would use the Chairman's proxy to get me down to 96 and you'd say, "Sorry, those two got 98, you only got 96, there's no room in the inn, you're out." So for a 50 per cent majority to be satisfied, you need headroom in the constitution. You don't have headroom currently. It is normal to have headroom. Dennis always says no, but Dennis is now leaving. So I'm asking if you could actually do this one for next year. And finally a bouquet. For years you did the placement, refresh, resolution, so you'd do a placement and then you'd seek shareholder approval for a refresh. You've have stopped it. Well done. You didn't need to do it. You can raise $10 billion a year under the 15 per cent threshold so it was a wasted resolution that created the impression you were about to do a super jumbo placement, and you have stopped it. So Dennis, for small mercies, many thanks for giving ground on that one.

GLENN STEVENS: Thank you very much for that. I think the substantive question is the size of the Board. The size of the Board has actually gone up and down since I have been on it. The corporate governance statement notes the Board has resolved for a maximum number to be 12, where needed, so I think we do have headroom. I'm not a person, myself, who is in the camp of "bigger and bigger is always better", but I think we have adequate headroom to appoint new directors where we think that person is going to make a significant contribution to the company. I don't think caps have actually prevented us from making good appointments where we thought there was one to be made. But thank you for your comment and I will reflect on it. Could I have the next question, please?

MODERATOR: Chair, there are no further questions.

STEPHEN MAYNE: I'll ask another one, then.

GLENN STEVENS: Last one, Stephen.

13. Glenn Stevens baggage at RBA note printing subsidiary

STEPHEN MAYNE: I'm very happy that you have been appointed the Chair. The only blot on the copybook, which I do think is reasonable to raise, is the Note Printing Australia scandal, where the RBA was making facilitation payments to various third-world countries and interesting middlemen. The RBA got the full Baker and McKenzie treatment from The Age and The Sydney Morning Herald, and that was before they owned Channel 9 and could have done you over on 60 Minutes as well. Now, when they do the full front page and 60 Minutes - hello, James Packer and Crown - it's not good. So I actually think the RBA got away with one there, because the rest of the media, for some crazy reason, didn't follow up on what was an incredible story. So I would like you to reflect on your side of the story about that scandal, where the RBA, 50 per cent shareholder in Note Printing Australia, was bribing people all over the world over printing contracts.

GLENN STEVENS: On the NPA/Securency things, these are events alleged to have taken place as far back as 2004. The legal process has exhaustively run its full course there and the outcomes are what they are as a matter of public record, and I don't
have anything further to say about those things beyond what I said about them in 2009 and 2010 and 2012, as I recall.

14. Will new chair end political donations?

Stephen Mayne: And my second question is the political donations one. Macquarie continues to give six figures in donations - not cash, but you pay to go to lots of events. Many companies - Aristocrat Leisure, BHP, Rio - have a zero payments policy: "We don't pay for events, no cash for access deals, we are clean." Given that we have borrowed $11.3 billion from the Government at 0.1 per cent when everyone else was copping rising interest rates and we have a nice three-year term, is it time for you, as the new Chair, to rule a line and say, "Macquarie will not give a dollar in political donations ever again", like best practice from many other large ASX 50 companies?

GLENN STEVENS: As I understand it, our engagement with the political process consists of paying to attend events or memberships of forums. I don't think we make substantive contributions at all to political parties. We are transparent about what the expenditure has been and conservative in our disclosure approach. Any contributions are disclosed to the Electoral Commission, and so on. So I think we're in an okay place there, but for what it's worth, my personal view is, no, I'm not interested in making contributions to political parties. There is a case for attending events where that is in the interests of the business and that is, I think, what is happening.

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