Macquarie
Bank’s bumper profit and even more bumper pay packets made front page news
yesterday. While MacBank has established itself as
Australia’s premier
investment and merchant bank, it is worth comparing how
Macquarie stacks up
to its real rivals, American investment banks and Swiss-owned UBS.

While it
has come a long way in a mere 30 years (by contrast, JP Morgan has been around
since the turn of last century), it is still a relative minnow in global terms.
Consider the figures from the recently published Fortune 500:

Institution Revenue

(last
fiscal year)
Profits
(last
fiscal year)
Market
Capitalisation
Citigroup US$131
billion
US$25
billion
US$360
billion
UBS US$49
billion
US$12
billion
US$117
billion
JP
Morgan
US$80
billion
US$8
billion
US$144
billion
Morgan
Stanley
US$52
billion
US$5
billion
US$65
billion
Merrill
Lynch
US$48
billion
US$5
billion
US$73
billion
Macquarie Bank US$3.7 billion US$696 million* US$12 billion

*Converted
at US/AUD equal to 0.76

As
indicated Citigroup’s profits are almost 40 times those of
Macquarie while
even the smallest of the big five, Merrill Lynch, still earned more than seven times
as much as Macquarie.

The
interesting point is that while Macquarie is a
small player compared to the massive overseas banks, its executive pay is more
than competitive. The Age
reported that executive Chairman of Macquarie, David Clarke, yesterday claimed
that Macquarie CEO, Allan Moss, was paid less than his counterparts on Wall
Street and “that’s the way the investment bank business is”.

Clarke is
correct in a sense. Investment bankers generally do get paid a lot, and if
Macquarie paid like
Australian retail banks, staff would most likely exit in droves. However,
relative to its size, Macquarie bosses
seem to be punching a little above their weight in the salary stakes. Consider
Morgan Stanley CEO, John Mack, whose company is valued at more than 10 times
Macquarie. Mack
earned US$13.0 million in 2005, less than Macquarie’s Moss,
who took home the equivalent of US$16.1 million. And despite managing a company
which is 30 times more valuable than Macquarie,
Citigroup CEO, Charles Prince, earned around US$23 million, not that much more
than Moss.

There
is no doubt that Allan Moss has been one of Australia’s best CEOs over the past decade and the executive management team
at Macquarie has done a magnificent job building Australia’s leading investment
bank. And no one would besmirch Macquarie
bosses for making a great deal of money from investing in Macquarie Bank. However, given Macquarie’s
relatively small size on a global scale, and the fact that earnings increased
only 13% last year (while the ASX200 increased by 30%), perhaps the salaries and bonuses earned by Macquarie’s
executive have exceeded their recent performance.