Review of Joyce Moullakis’ and Chris Wright’s The Millionaires’ Factory: The Inside Story of How Macquarie Became a Global Giant, Allen & Unwin, Australian Book Review, No. 453, May 2023, pp. 18-20.
Respected, not always loved, Macquarie is an exceptional “Australian and global financial success story”. So says Steve Harker, a rival investment banker from Morgan Stanley, quoted at the back of this book. The authors tackle an intriguing question: how a bonsai operation grew tall, dominating parts of the world of financial engineering. In 400 pages, with a useful index, plus 25,000 words of notes accessible via a QR code, Moullakis and Wright, two senior financial journalists, reveal insight into Macquarie, Australia’s only significant global financial institution, which today directly employs more than 17,000 people in thirty-three countries.
The authors explain how and why Macquarie became what it is today. As the authors say of so many of the investment operations the bank has spawned and owns: ‘Macquarie is on the ground, in the weeds, in the game.’ This is a well-researched, gossipy, perceptive account of Macquarie. It is fascinating to read how in just a few decades the business moved from specialist, domestic corporate adviser, money market, and bullion operator to the world’s leading non-governmental operator of infrastructure assets.
The idea of an ‘inside story’, as suggested by the subtitle, points to cooperation from within the bank, with the four former CEOs and many other veterans and current players giving their views through interviews. Sometimes the book’s interpretations read like Macquarie speaking notes, but the authors try commendably to offer a fuller picture, frankly admitting at times how the reader might be confused by the complexities of some Macquarie products and strategies.
To date, only Lewis D. Solomon’s The Promise and Perils of Infrastructure Privatization (2009) has covered in book form Macquarie’s history. But Solomon, the Van Vleck Research Professor of Law at the George Washington University, mostly concentrated on the infrastructure funds side of Macquarie. He was persona non grata within Macquarie when doing his research. Solomon questioned the efficacy of the Macquarie model, just as the unfolding Global Financial Crisis (GFC) implicitly did.
Perhaps the most notorious, modern book on Western investment banking is Michael Lewis’s Liar’s Poker, 1989, about his experiences on the trading desks of Salomon Brothers in London and New York. The anecdotes in that part-memoir, part-analysis suggest that investment bankers are masters at taking advantage of each other and of an undiscerning public. Psychopathic, misogynistic, sexist, bullying, and testosterone-charged are some of the words that spring to mind while reading Lewis – as they sometimes do when confronted with parts of Macquarie’s operations here, notwithstanding Macquarie’s purported high governance and behavioural standards.
Considering Lewis’s work, and those of many copycats, it might be reasonable for Macquarie executives to wonder what good will come from nosey journalists intent on explaining a complicated history, especially when there are bound to be skeletons, errors, ethical dilemmas, ‘cutting corners’ stories, and scandals to be revealed.
From all appearances, a dance of co-operation, autonomy, detailed research, and independence occurred in the writing. Thankfully, despite hagiographic touches, the dreariness of complete co-option is mostly avoided. The chapters are jointly written, apart from one by Wright focused on an American road trip, surveying the variety of Macquarie’s operations, and another by Moullakis, on Macquarie’s Australian businesses.
Interestingly, the authors suggest that Macquarie is ‘unique in a completely different way every decade or so, usually in order to get ahead of a trend that hasn’t even happened yet’. So, what is the Macquarie story? There is the pre-Macquarie (1969–85) and post-Macquarie phases (from 1985).
First, Hill Samuel, a relatively small, but innovative, UK investment bank set up shop in Australia in 1969 and continued under majority London ownership until the mid-1980s. In 1971, two Australian Harvard MBA graduates, David Clarke and Mark Johnston, were recruited to jointly run Hill Samuel Australia. They were joined by Australian Harvard MBA graduates Tony Berg (1972) and Allan Moss (1977), who became the first and second Macquarie CEOs respectively.
In the late 1970s, ‘entrepreneurial’ and ‘banking’ were antithetical in Australia. According to Moss: ‘The Australian dollar hadn’t floated. Stockbrokers could not be owned by companies. There was strict bank regulation. Almost all business was very domestic.’ Then a revolution unfolded in domestic financial markets. In the early 1980s, Australian conservative governments cautiously explored the potential benefits of liberalising numerous financial regulation restrictions. Action came under the Hawke Labor government with the floating of the Australian dollar on 12 December 1983, abolition of fixed-rate commissions in stock-broking, and a host of other reforms that blasted open the Australian economy.
In seeking an Australian banking license, Hill Samuel Australianised the business, selling down its ownership, prior to obtaining its licence in 1985. By then Berg as Macquarie’s first CEO and Clarke as Executive Chair were in charge. Hill Samuel Australia was rebranded as Macquarie Bank. The name commemorated one of Australia’s greatest reforming colonial governors. The ‘holey dollar’ became Macquarie Bank’s symbol. In 1812, Governor Macquarie, addressing a currency shortage, imported 40,000 Spanish reales, had the centre cut out of each, the coins counter-stamped, the outer ring the holey dollar and the centre named the dump. Creative financial innovation attracted Berg and Clarke to that tale.
The duo put their stamp on recruitment, remuneration, risk-control, and risk-taking. For new recruits, Clarke insisted on psychometric evaluation, testing numeric and verbal ability, as well as examination for behavioural style and logic skills.
With remuneration, a profit-share approach was instigated, with short and long-term incentives aimed at retaining key staff. Effectively, half the bank’s profit went to its employees.
Moullakis and Wright credit Berg’s risk-assessment processes with avoiding relationships with spivs and chancers from Western Australia and Queensland. The market crash of October 1987 and the business collapses of the over-leveraged Bond, Connell, Skase empires, and others of that ilk vindicated Berg’s reluctance to engage with them. Berg had standards.
In early 1987, Macquarie issued a document called What We Stand For, which set out ethical guardrails as well as principles covering credit, finance, operational and regulatory risks. ‘When the bank is acting as an agent the client relationship must come ahead of the house account.’ Berg was driven, creative, personable, his philosophical and wider interests shaped the organisation.
In this period, the idea of spotting ‘adjacency’ – businesses complementary to those already started – was popularised internally. Promoting decentralised entrepreneurship within strict risk boundaries became the Bank’s hallmark. ‘A lot of the growth strategy was an options play,’ one interviewee said.
In 1986–87, the Bank’s future third and fourth CEOs, Nicholas Moore and Shemara Wickramanayake, joined Macquarie.
Some telling observations from the book: ‘Fees would become central to the Macquarie story. Sometimes they would become too central’; ‘… if Macquarie loved one thing, it was a tax angle’; in Australia, ‘there is no other market in the world where the level of individual literacy around tax effectiveness is so high’.
Moss, who took over as CEO from Berg in 1993, presented ‘an avuncular and likeable clumsiness’. He expanded operations exponentially.
International expansion started with cross-border leases and structured finance. Mostly in Victoria, between 1995 and 1998, $29 billion of state assets were sold. Macquarie played a role advising and initiating public-private partnerships. On the subject of the M2, the privately funded toll road in Sydney’s northwest, then deputy managing director’s John Caldon’s lament is quoted: ‘We’ve done all this fantastic stuff. We’ve done half a dozen financial innovations nobody has ever seen before. And we made, like, four or five million bucks.’ This led to Macquarie becoming a developer, a fund manager, an example of adjacency. Another is the Industrial Property Trust of Australia, initially managed by Macquarie, which listed in 1993, ultimately merged with a rival and morphed into Goodman Group, the world’s largest industrial property manager. On 29 July 1996 Macquarie was listed on the ASX and the Infrastructure Trust of Australia, Macquarie’s first managed infrastructure fund vehicle, was added on 16 December 1996.
Sometimes good luck happens. Two instances are highlighted. In 1998 Macquarie’s dynamic rival, Bankers Trust Australia (BT), a subsidiary of its American parent, was in play. In Alan Moss’s words, ‘our most formidable opponent’ was purchased in 1999 by Macquarie for a reputed A$100 million. It was transformational. 450 talented employees transferred across. Moss explained to doubtful transferee John Walker, who went on to build Macquarie’s huge Korean operations: ‘We make a lot of money.’ Suddenly, there were new offices in Chicago, Vancouver, Sao Paolo, Tokyo, and Cape Town.
A second example is Kvaerner, the Anglo-Norwegian engineering and construction conglomerate, temporarily in distress, which sold most of its infrastructure assets in the United Kingdom to Macquarie in 1999 from which a global infrastructure business emerged, including the M6, the London to Birmingham toll road. Impressed by their infrastructure expertise, the Ontario Teachers’ Pension Plan and other large Canadian pension funds backed Macquarie investment deals. To 2022, Macquarie raised C$40 billion from Canadian pension funds.
Leo de Bever at Ontario Teachers was an early champion. Along the way, as he told the authors: ‘they became too greedy’. He was critical of continuous regearing and the refinancing of assets, with Macquarie earning new fees. In sum, he argued short-term maximisation of profits compromised long-term relationships. The authors observe that Macquarie ‘found a way to take fees from every possible angle on every deal, and that it had conflicts’.
In 2002, Virgin airlines criticised Macquarie’s management of Sydney airport, another Macquarie acquisition. At issue was the cost of Virgin’s access to Sydney airport terminals. Virgin then posted billboard advertisements: ‘Macquarie: what a bunch of bankers.’ Ex-Bankers Trust executive Chris Corrigan accused Macquarie of striving to find ‘new and improved ways of gouging money out of the public’. The authors allude to the souring, popular sense that some privatisations resulted in higher costs and poorer services.
One awestruck description of Nicholas Moore summarises his technique at meetings: ‘probe, look for the weaknesses, test the information, test the people’. Some critics are cited. Ex-insider Oliver Yates states: ‘When you’re doing the first deal or the first type of transaction, or the first new asset, it’s a lot more complex than doing the sixteenth airport or the twenty-fifth railroad.’ So why should executive remuneration be sky-high for such repeat transactions?
The impact of the GFC saw the share price drop, accompanied by growing pressures on funds management operations. Businesses were sold off and/or recapitalised. The Australian government’s guarantee to the Australian banking sector helped. Off the back of this, Macquarie raised $25 billion of new loans for clients, effectively all government-guaranteed. In May 2009, a healthy $540 million raised in extra capital was a seminal moment in stabilising confidence in Macquarie.
The book, sometimes probingly, other times lightly, covers controversies, rogue behaviour, and evolving business strategies.
Macquarie’s future in energy and Environment, Social and Governance (ESG) is outlined. Nick O’Kane, who acquired energy businesses across America as the basis of a thriving business, is notably discussed.
Under-explored is how the backgrounds of each of the seemingly calm-in-a-crisis Macquarie CEOs enabled them to become so. Berg and Moss were of secular Jewish background, Moore a practising Catholic, Wikramanayake of Sri Lankan Tamil origin. A chapter is devoted to the latter. The mix of outsider and establishment affinity was part of the dynamic.
Former Australian Treasurer Peter Costello admits to being troubled by the bank’s complex structuring of businesses and products under the Macquarie banner to avoid tax: ‘Along the way, has it pushed the boundaries? Yes. Has it been a model citizen at all times? Well I am not saying that. But I’m pleased it’s still here. I’ll say we, Australia, would have been worse if we didn’t have Macquarie.’ Besides Macquarie’s record, continuing operations, and innovations, its alumni have spread throughout numerous businesses in Australia and worldwide. This is part of its legacy.
In heft, historical perspective, humour, and hubris-telling, Gideon Haigh’s account of Bankers Trust Australia, One of a Kind: The story of Bankers Trust Australia 1969–1999 (1999) is the only other comparable account of an Australian investment bank’s origins, development, and operations. It is to be hoped that this readable book will inspire other researchers to delve into the history of this rich though relatively untapped vein of Australian corporate history.