Reserve Bank, CBA plotted GFC takeover of Macquarie
At the depths of the GFC the Reserve Bank hatched a secret plan for the CBA to acquire Macquarie in a deal which would have reshaped Australia’s financial sector.
The Reserve Bank was hatching a plan for the Commonwealth Bank to acquire Macquarie Group during the depths of the global financial crisis in a deal that would have radically reshaped the sector.
The Australian can reveal secret talks were held about a deal in case Macquarie found itself close to collapse in 2008-09. The deliberations between the RBA and CBA occurred as the global and domestic financial systems were reeling.
The revelations are drawn from a book about Macquarie, The Millionaires’ Factory, slated for release on February 28.
“There were some discussions with the RBA in that regard,” said a source close to the RBA and CBA talks about a potential takeover of Macquarie. “But never a point where we had substantive discussions.”
The RBA was preparing for a range of eventualities as financial institutions around the world were gripped by crisis. But the RBA’s major focus was first finding a saviour for Bankwest, whose UK-parent HBOS had endured a run on its shares and was acquired by Lloyds Banking Group. Lloyds and HBOS were then joint recipients of a UK government bailout.
In Australia, Bankwest was enveloped by CBA. Insurance and banking group Suncorp was also being touted as a takeover candidate. ANZ was firming as the most likely buyer of Suncorp, even though CBA had expressed an interest.
CBA and the RBA spokespeople declined to comment.
The central bank had contingency plans in place for a range of financial institutions, as banks globally were being bailed out or ushered toward mergers.
During this period the chief executives and chairmen of the big four banks were in regular contact with the government, but Macquarie wasn’t party to the meetings. All banks were, however, in contact with the prudential regulator and the RBA.
This was after US banks Lehman Brothers and Bear Stearns had hit the wall in 2008.
During 2008-09 two of Macquarie’s smaller rivals collapsed with sizeable debts – the Phil Green-led Babcock & Brown and David Coe-helmed Allco Financial Group.
There were, however, two key sets of decisions that helped stabilise the banking market in Australia in 2009, mirroring similar actions offshore. The first centred on a local ban of naked short selling, quickly followed by a prohibition on covered short selling.
Naked shorting involves the seller not borrowing or arranging to borrow the shares to ensure the delivery to the buyer.
At the time, Macquarie was reported to be behind a lot of the lobbying efforts domestically around the short-selling restrictions.
Then treasurer Wayne Swan told the authors of the Macquarie book: “The one-off decisions on short selling, they weren’t driven by Macquarie. The whole world was acting … I went and saw the bloke who ran the New York Stock Exchange and he was against short selling. And he was a Regan Republican. It defies me to understand to this very day why anyone could allow something like naked short selling.”
Former Macquarie chairman Kevin McCann, who was acting in the role at the time as David Clarke was battling cancer, vividly recalls the period.
“They were very, very challenging days,” he said, noting the severe shorting of Macquarie shares to the manipulation of opaque credit default swaps, which created doubt about Macquarie’s creditworthiness. “We also had a situation where some counterparties would not deal with Macquarie. While Macquarie had cash available to post collateral, some leading global banks still declined to deal with us.”
The second set of decisions that saw Suncorp escape the clutches of ANZ, and are often attributed to saving Macquarie, were the government guarantee and the backing of deposits. The late 2008 intervention bestowed Australia’s rating on the debt of any bank that borrowed under the scheme.
Ex-Macquarie chief executive Nicholas Moore insisted the company was positioned to ride out the GFC storm. “We did have term funding in place, we were fine. But if all your counterparties fail, it’s not much of a world you are surviving,” he said in the book.
Macquarie’s shares didn’t reach their crisis-low closing price until March 2009, when they slumped to $15.75. The stock closed at $188.84 on Thursday, as analysts estimate Macquarie will benefit from dislocation in commodity and energy markets to post a record $4.9bn 2023 profit.
Macquarie, now led by Shemara Wikramanayake, started from humble beginnings in Australia in 1969. In those days, the office was a local offshoot of London-based merchant bank Hill Samuel, which had provided initial capital of $1m to get its Australian foray up and running.
Its early deal mandates included advising on a spurned takeover offer for the publicly-traded manufacturer of Chiko Rolls, and tending to Wesfarmers on the acquisition of fertiliser group CSBP & Farmers. At the time, Wesfarmers had a market capitalisation of $20m.
The Millionaires’ Factory by Joyce Moullakis and Chris Wright is out on Tuesday, February 28
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