The Australian bank owns swathes of British infrastructure. In a rare interview, its UK head tells Iain Dey why it's business as usual
Jim Craig tinkers with the blinds that mask the stunning view from his 35th floor reception suite. He chuckles to himself as he grabs the wrong end of the cord, pulling the slides down rather than up. The European head of Australian banking group Macquarie seems much more relaxed than anyone else in the City right now.
While other bank executives are fretting over huge losses from American mortgages and derivatives, Craig seems more concerned about whether the harsh winter light streaming through the window will show up his wrinkles in the picture he's about to have taken.
It's easy to see why the laid-back Australian is not biting his fingernails; Macquarie appears to be riding the credit crunch better than almost any other financial institution. Last week, while Barclays and HSBC revealed details of their nasty exposures, Macquarie racked up record half-year profits across its group. The European arm, which owns things like Thames Water, the M6 toll road, and a fleet of London buses, saw its contribution to the group coffers climb 55 per cent to £332m.
While most investment banks are quietly preparing to cut jobs by the barrowload, Craig is planning to beef up his London-based team of close to 1,000, which includes 250-odd corporate financiers - some of whom are currently advising Rio Tinto as it defends itself from BHP Billiton. He's doubling the graduate intake this year to more than 100.
In the fear-ridden world of finance, this sounds bizarre. It sounds almost too good to be true. "We have traditionally liked periods of uncertainty," says Craig. "Our growth was built from the ashes of the dotcom boom. That's where we started putting together the teams that have brought this business to where it is today. There were very good people around that we could hire. We see this as a similar environment."
Macquarie bills itself as the ultimate long-term investor. It buys things like utility companies, airports, ferries, tunnels and toll roads then milks them for dividends. It does not try to make a fast buck by buying and selling assets. It makes its money by buying, investing and holding these large infrastructure assets. Craig describes banks as "cyclical" with a slightly derisory tone. Macquarie is a different beast.
Most of its funding comes from pension funds that pile into Macquarie investment vehicles on the promise of steady returns from steady cash-flows. The group raised £6bn of new money from investors in the first six months of its financial year globally, including more than £3bn for investment in Europe.
While the markets may be in turmoil, Macquarie has just confirmed that it plans to launch a stockbroking business. The idea seems to be to use the same skills in analytical research that the company uses in bidding for assets to assess listed companies operating in the sectors it knows. It is fast becoming a full-service investment bank.
"It's not like we've got a grand master plan," says Craig. "We don't have a plan with a map and dots marked on places that we cross out as we go along. We don't get secret directives from Sydney telling us things like 'build a team in Poland tomorrow'. It's much more about finding the right guys to employ at the coal face, who come to us and say 'here's an opportunity for us'."
Credit crunch or no credit crunch, Macquarie continues to do deals. It is rumoured to be bidding for Angel Trains, the train-leasing business being sold by Royal Bank of Scotland. It's just done a big deal in Germany.
Both Craig and his right-hand man Andrew Hunter, who heads up the corporate finance end of things, are expecting life to get tougher. They're expecting banks to start lending less money and the cost of financing to start soaring. They also expect a mismatch between what vendors are willing to accept and what bidders are willing to pay.
"Having said that, it's not as though we've seen it yet. Our deal pipeline remains strong. Interestingly, in the pure infrastructure space, we've almost seen that the terms are at least as good - almost better - than what we were getting before the credit crunch. There seems to be some type of flight to quality. Now, it's early days, but that's what the initial signs show."
Hunter adds that where banks are willing to lend, they want to lend against high-quality assets - exactly the type of thing that Macquarie owns. Where borrowing costs have risen, it has only been on the margins.
"We refinanced Thames Water through the middle of the credit crunch," Craig continues. "What was it? August 14? We got that refinancing done - it was at tighter margins than we were expecting, but it is an example of the flight to quality we've been seeing."
It's worth noting that August 14 was the same day that Mervyn King, the governor of the Bank of England, found out that Northern Rock was in trouble. Refinancing a £900m deal on August 14 was no mean feat.
With that deal done, Macquarie insists it is comfortable with the other 106 assets in its European portfolio. Any refinancing risk is "five to seven years out". Nor does the group feel any compunction to start selling assets, even with the looming change in the capital gains tax rules that could cost it dear.
Craig has made just three disposals in the past 12 months. One was the group's holding in Rome airport, where Craig admits that "the relationship with our co-shareholders had degenerated". The second was its holding in Birmingham airport, where there seems to have been a similar dispute. The other was South East Water, which Macquarie had to sell to compete in the auction for Thames.
The Thames deal, which completed less than a year ago, is clearly a source of pride for Macquarie. Craig explains the success of the group's ownership of Thames partly in terms of sewage treatment works: when they bought it there were 17 plants with regulatory issues, now there are none. They've also committed £2bn to new investment. Thames has also allowed the group to shake off the legacy of its failed bid for the London Stock Exchange in 2005, which was laughed out of town, but brought Macquarie to London's attention for the first time.
"Those three letters don't get talked about in the office," says Hunter dryly in reference to the LSE.
Craig's offer for the LSE was priced at one-third of its share price today - and below the share price at the time. While this saw Craig come in for criticism at the time, he doesn't appear to be ashamed by it. Macquarie will always remain disciplined on price, he says. On Thames, they were accused of overpaying.
"We had 50 people working in a big room for six months on Thames," he says. "Their job was really to make sure that we knew exactly what we would do on day one when we acquired the business - that we had a transition and a change plan. And that we had a really good view on the cashflows for the next 25 years. From that, you come to a pretty narrow definition of what price you're going to pay. There's no uncertainties there. You bid - then you win or you don't win. That's how we work."
Craig insists it's unfair for Macquarie to be considered on the same terms as the private equity industry. He clearly thinks that the review by David Walker into private equity, due to be announced this week, would be misguided to bring Macquarie into its sights. "There's been a lot of talk about private equity carried interests, and how personal incentives must drive a lot of individual decisions. None of our people have carried interests. Ours is a long-term business model. We just don't structure ourselves that way. All our interests are aligned, and the enhancement of those interests remunerates us."
And it's likely to remunerate rather well, isn't it? They do call Macquarie the "millionaires factory" in Australia, don't they? "Convert it into pounds and you'd have a very different view," Craig lobs back.
