A good column in the Melbourne Age and The Sydney Morning
Herald by Alan Kohler today – Few will escape tax ruling fallout – explaining the importance of the tax man’s win over
Macquarie Bank, especially highlighting the whacking Justice Hill gave Greg
Ward, the Macquarie Bank Chief Financial Officer, who, from the judgement,
turns out to have been the star turn.
And you can find the Federal Court judgement here.
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It’s no wonder Mr Ward was quoted in the papers yesterday as
saying the decision’s impact would be immaterial because rules governing the
securities concerned from APRA had
changed in July 1.
And there’s a touch of faint hope in Mr Ward’s comment that
the bank was considering appealing. As a reading of the decision and Kohler’s
column make clear, the Federal Court ruling upholds the High Court’s ruling in
the Hart’s case. It would be very hard seeing the same court going back and reversing
itself on this decision in an appeal from Macquarie.
Reading the decision is also instructive to get a feeling of
the intense pressure and constant searching for a financial advantage that goes
on inside Macquarie Bank.
For all his grumpiness on the Hart’s ruling(on which the
High Court overturned him), Justice Hill provides a fascinating chronology of
the way Macquarie Bank works at the highest level.
But what does stand out is the relatively mild touch up
delivered to Mr Ward by Mr Justice Hill.
It is rare for a senior executive in any company to appear
in a court case, and it is even rarer still to read criticism, however mild, of
that executive’s evidence.
Its not career ending, but it will certainly be required
reading inside Macquarie and in the investment banks that compete with the
Mackas in the small Australian financial markets.
It also shows just HOW pivotal Greg Ward is to the success
at Macquarie Bank, for all the concentration on CEO Allan Moss, on Nicholas
Moore and other high fliers.
Here are the important excerpts from Justice Hill’s decision
regarding Mr Ward. The parts concerning Mr Ward’s evidence have been
highlighted by me:
Mr Gregory Ward was at relevant times head of the
Corporate Affairs Group of MBL and a director of MFL and a number of other MBL
subsidiaries. One of his responsibilities as head of Financial Operations of
the group was to manage the capital requirements of the group. He did so in
conjunction with a Mr Paul Robertson, the Group Treasurer of MBL who was responsible
for the debt side of MBL’s capital. Relevant to decisions about capital raising
was the appropriate level and mix of capital required for the short and medium
term operations of the Group. This involved, said Mr Ward balancing the cost of
capital against the returns that may need to be paid upon capital having regard
to the mix of capital and debt raisings. In addition to prevailing market
conditions the cost of capital is dependent upon the form of capital raised
(debt in the form of interest, being the cheapest end of the spectrum and
ordinary equity at the most expensive end). Also relevant were ratings of
various independent rating agencies.
9. Both Mr Ward and Mr Robertson gave evidence. So too
did a Mr Donnelly, who was an executive director of the Equity Capital Markets
Division of MBL. Their credit was not the subject of attack, although it must
be said that there was some difficulty with their evidence so far as it
concerned the steps in the development of a structure for the issue of the
income securities with which the present case is concerned. Unless otherwise
stated, I accept their evidence.
19. On 16 June 1999 Mr Ward also received a memorandum
from other members of the corporate affairs group of MBL (as did Mr Robertson
and Mr Merven) discussing two alternative structures said to be in the course
of examination. One of these proposals was similar to NAB’s perpetual loan
note. The other was a structure where the Bank would issue a “perpetual
loan note out of Australia and an unpaid preference share”. The second
(referred to in the memorandum as the “MIS” structure) appears to be
the CES structure. The memorandum notes that the first proposal had been
approved and that there had been “verbal advice” confirming the
second structure as being Tier 1 capital subject to formal sign-off and
approval of the detailed terms of issue which were to be provided on 18 June
1999. The memorandum is said to relate to the raising of “a tranche of
$150 million of subordinated debt … as part of an overall debt financing
package in relation to a possible acquisition. The two structures discussed
were “an alternative… (designed to ensure that) the subordinated debt
… qualify as tier one capital of the bank.” Mr Ward in his affidavit
filed in the proceedings said he had no idea what the $150 million debt raising
was to be for. He sought to suggest that it did not relate to the BTIB
transaction. This seems to be unlikely and I do not accept Mr Ward’s evidence
on this matter.
Both Mr Ward in his affidavit and Mr Robertson in
cross examination gave evidence that it was APRA which required that the
stapled preference shares be fully paid, rather than issued as unpaid. Mr
Robertson’s evidence was that it was Mr Merven who told him this. As already
noted Mr Merven was clearly involved in the negotiations with APRA but was not
called to give evidence in the proceedings. There is nothing in the
correspondence from APRA which suggests this to be true and at no time did APRA
revoke its approval of the CES structure which involved the issue of preference
shares which were unpaid. I would infer that this did not happen and I am more
confidently able to draw this inference from the absence of Mr Merven to give
evidence: Jones v Dunkel (1959) 101 CLR 298.
As already indicated the final structure required as a
party in addition to MBL another company as issuer of the notes. It was Mr Ward
who recommended that this be MFL. Mr Ward said that he selected MFL as the
proposed vehicle because “it had been operating as a deposit-taking,
intra-group financier since incorporation in about 1984”. At best this
comment taken alone is misleading as a reading of Mr Ward’s own evidence makes
clear. Although MFL had acted as a deposit-taking, intra-group financier since
incorporation it was virtually inactive when the decision that MFL participate
was taken. It had not entered into any transactions since 1992. Indeed, it is
perhaps because it was inactive and had a clean balance sheet that MFL was
inserted. Whether that be the case it is clear, as Mr Ward says in his
affidavit, that by 1999 MFL was “only holding deposits for a small number
of corporate research and development syndicates which it had on-loaned to its
parent company Macquarie Acceptances Limited”.
Not earth-shattering, but certainly rare, and worth reading.
Macquaire Bank CFO, Gregory Ward, hits back at Alan Kohler
Subscriber email – 19 September
Macquarie Bank chief financial officer Greg Ward has hit right back at
Alan Kohler over this column in the Fairfax broadsheets last week. The
following letter appeared in Saturday’s SMH:
I refer to a column by Alan Kohler about a Federal Court
case involving Macquarie Bank (“Tax ruling swings on three words”,
Herald, September 16).
The article contains several paragraphs which refer to comments made by
Justice Graham Hill and which are a misrepresentation of his findings.
Mr Kohler reports that Justice Hill “effectively accused” me and the
Bank’s group treasurer, Paul Robertson “of lying over a crucial point
in the case”. Nowhere in his findings does Justice Hill accuse the
Bank’s executives of lying under oath or at any other time.
Mr Kohler is guilty of selectively quoting excerpts of the findings to
wrongfully malign Macquarie Bank executives. Mr Kohler wrote that
Justice Hill had found my evidence misleading at one point.
What Mr Kohler failed to mention is that Justice Hill took the first
line of my response under cross examination and said that this comment
“taken alone” was misleading, but that a full reading of my affidavit
provided the further supporting detail required.
There is always a danger to individual reputations when journalists
glibly try to “beat up” their copy when dealing with complex judgements
on complex issues.
Chief Financial Officer
Macquarie Bank Limited