re: sunday programe transcript For those of you who missed the...

re: sunday programe transcript For those of you who missed the recent Sunday Program...and wonder why Macquarie finds itself cast in such a dark shadow, read on:

Who's afraid of Macquarie Bank?

TRANSCRIPT – PART ONE


JOHN LYONS, REPORTER: The dry, dusty plains of outback NSW are a world away from that most sophisticated of money-making machines, Macquarie Bank. Out here, where water, rather than fine wine, is the currency of doing business, the 'Millionaires Factory' in Sydney seems far away.

BRIAN LOCKE, FARMER: This is real bully-boy tactics that they've gone on with here.

REPORTER: This man is angry. Red-hot angry. A tough, gritty farmer, Brian Locke is about to become a nightmare for Macquarie Bank. He signalled his anger at the bank's recent annual general meeting.

BRIAN LOCKE AT AGM: At least put on your sign, this is a shark pool ... whoever enters here beware. And that's what should be on the front door.

REPORTER: If Macquarie Bank are the sharks, as Brian Locke claims, then he's about to jump into the shark pool with them and fight it out. Much of his anger is directed at this man - Macquarie Bank chief, Allan Moss.

BRIAN LOCKE: Allan Moss would like to have a view of Macquarie Bank as the big gleaming millionaires' factory, churning out money for the nation. You know, my view of it is that it's … you know out the back there's a morgue with a lot of bodies in it.

REPORTER: Some aspects of the way Macquarie Bank is doing business raise serious questions. While Brian Locke may be a David to Macquarie Bank's Goliath, the bank has a much more powerful enemy in Chris Corrigan.

CHRIS CORRIGAN, MD PATRICK CORPORATION: I found in life that if you can't shake hands with someone and know that you've got a deal, you're better off not dealing with them.
REPORTER: Today, Sunday will give you a look at Macquarie Bank you don't normally see. We will go beneath the well-polished, well-funded public relations image. Serious issues include an allegation that Macquarie Bank ran off-the-book accounts.

DR PHILLIP GRUB, PROFESSOR EMERITUS GEORGE WASHINGTON UNI: He said there would be a salary but that would not be where the bulk of my remuneration would come from, but it was from a private pool or fund or reserve that they kept that was off the books.

REPORTER: The last year has been a disaster for Macquarie Bank. Its share price has halved and it has been engulfed in several public controversies. It faces serious questions about its standards of corporate governance and ethics.

MARK FORD, INVESTMENT SPECIALIST: I think that there's a feeling, a general feeling of disquiet, given there is a dichotomy between what Macquarie manifests they do and what they appear to do. Just a suspicion that there is a cost, corner-cutting mentality there which is inconsistent with the goals and values they maintain.

REPORTER: Macquarie Bank was distinctly Australian in its origins. Named after one of the Australian colony's most famous pioneers, Lachlan Macquarie, its famous symbol derives from the 'Holey Dollar," one of white settlement's first coins. It evolved from merchant bank Hill Samuel, in 1985 becoming Australia's newest trading bank. Through the 1990s, it became the nation's most aggressive bank. Like an octopus, it makes money by owning airports, bridges, toll roads, television towers. And it doesn't just make money out of you when you're alive. It's the majority owner in one of Australia's biggest funeral companies.

JOHN SEVIOR, PERPETUAL INVESTMENTS: I think it's — in its chosen areas, its niche areas — it's extremely powerful. I think it seeks to create dominant positions in certain markets … has done that very successfully over 10 or 15 years.

REPORTER: As someone who manages $11 billion of investors' money, John Sevior, head of Australian equities at Perpetual Investments, sold most of his funds $250 million worth of Macquarie Bank shares.

JOHN SEVIOR: Well the previous strategy that had made Macquarie so successful was quite a low-risk strategy that was about generating fees for advice, for their skills, and they changed that strategy to one where they were prepared to put more of the bank's capital at risk to buy into deals. They were taking ever-larger positions in more obscure transactions and that, to us, was not an attractive cocktail.

REPORTER: John Sevior says Perpetual Investments finds Macquarie Bank's structures too complicated.

JOHN SEVIOR: Certainly the way we analyse those trusts, they are quite complicated. And they've been too complicated for us to invest in. We avoid businesses, structures that are complicated or over-leveraged so we've got a certain way of approaching investing.

REPORTER: For Macquarie Bank, the case of Brian Locke, farmer, father-of-five and businessman, is set to become a major public relations problem when his case reaches a hearing. He came up with a business plan involving irrigating vast areas of desert in southern NSW.

BRIAN LOCKE: I took a plan to Macquarie Bank; it was basically an irrigation development scheme that was going to use irrigated water to grow wheat crops.

REPORTER: Drawing on a lifetime of experience as a farmer, Brian Locke worked full-time on the plan for nine months before Macquarie Bank made clear they were interested.

BRIAN LOCKE: Well, there's been a lot of sophistication in irrigation, especially in the last decade, if you can hopefully raise the level of the land, make it perfect to grow the wheat on it. High development costs which were tax deductible immediately and just the sophistication of presently compared to irrigation 20 years ago when it was all done with shovel and gumboots.

REPORTER: Brian Locke was nervous about handing over the details and financial projections of his plan. But his anxieties were calmed after Macquarie Bank signed three confidentiality agreements. They guaranteed they would not discuss the plan with anyone.

BRIAN LOCKE: They came to me and said "Brian, we have named your project 'Project Harvest'. That's a code name for it to keep the confidentiality..."

REPORTER: Everything seemed to be going well

BRIAN LOCKE: Just before Christmas, mid-December, they said, "Go away and have a good holiday, Brian because when we come back after Christmas, we'll be working on your … you will have a lot of work to do on your project."

REPORTER: While Brian Locke was on holidays, Macquarie Bank had different ideas. Five days before Christmas, Nicholas Moore — then seen as the heir apparent of Macquarie Bank — secretly met the board of the neighbouring property to discuss doing an irrigation project there. Three weeks later, another Macquarie Bank executive, Robert Dunlop, admitted what the bank was up to in a confidential internal email … that the bank was turning Brian Locke's idea, 'Project Harvest' into a model to be taken to Brian Locke's neighbouring property and competitor, Ravensworth.

EMAIL EXCERPT: "I did an audit of the Harvest model over the weekend as I tried to turn it into a Ravensworth model."

BRIAN LOCKE: A month after I signed the confidentiality agreement, they're talking to my competitors about Project Harvest. They were hatching a plan to steal my information and take it to the competitor way back in August, so from all that six months they had me working, without any pay or anything, giving them all the information, they were just hatching a plan to take it across the road.

REPORTER: It got worse — Brian Locke discovered documents' showing that not only was Macquarie Bank talking to the neighbour, they were planning to buy the neighbouring property to do 'Project Harvest' there.

BRIAN LOCKE: The next door neighbour's property had large water licences and it was very easy to do the development there. Just steal the idea and take it there. That was part of the reason I got confidentiality, so they wouldn't use my ideas on other properties in the area.

REPORTER: So did they just rip off your project?

BRIAN LOCKE: Ripped it off. They thought this was a good invention but they didn't want the inventor. And this way they could just cut me out. Which successfully they did.

REPORTER: When Brian Locke returned from holidays, he was summoned to a Macquarie Bank meeting. As they drew up plans to take $8 million fees from taking his project to his competitor, they prepared to offer him $25,000 shut-up money. Brian Locke says at the meeting Macquarie Bank said to him…

BRIAN LOCKE: He said the best I think we can do is, he said, "I'm prepared to offer you $25,000 shut-up money." And I said, "John, I'm not going to feed my family on shut-up money. I haven't done anything wrong. What do I need shut-up money for?" And it upset me at the time, so you know. And Robert Dunlop said, "I don't think we should pay him anything." And I said "I'm not taking shut-up money."

REPORTER: Next — Brian Locke would discover, in the hands of his competitor, a document he had given to Macquarie Bank in confidence that contained all the figures and projections he had worked on for a year.

BRIAN LOCKE: Well, these are the two documents that I'll make the claim stealing on. That document was handed to them in - under the confidentiality letter, or faxed to them. And it's got 'Agricultural Equity Confidential'. Figures supplied by Frank Rennick who worked for me. And this sets out total $35 million, and it is a very, very important document. if you are doing irrigation development. Land forming, channels, you know, how it's all set out. Per hectare costs, the total cost over 14,000 hectares. In fact, that appears in all the documents in the project. You couldn't do it without this. You've got to have that bit of paper and that bit of paper took me years to work out and you can't do it without it. But someone's whited out my name and whited out Frank Rennick and that was in the files of the competitors. Only way it could get there was from Macquarie Bank because there was only ever one printed.

REPORTER: Would you trust them now?

BRIAN LOCKE: No way!

REPORTER: What do you think now when I mention the name Macquarie Bank?

BRIAN LOCKE: Bandits. Cowboys, dishonest people.

REPORTER: Brian Locke has spent the last five years in a legal battle with Macquarie Bank, and still has not been able to put the substance of his case to a court because of more than 30 interlocutory and other procedural motions insisted on by Macquarie Bank. The bank denies liability, claiming the information supplied by Locke was not of a confidential nature.

BRIAN LOCKE: I mean Macquarie portrays itself as the Australian merchant bank, you know. This is un-Australian behaviour. I mean, if someone did the same thing to you on a football field, you would give 'em a smack in the mouth.

REPORTER: Macquarie Bank found itself in the eye of the storm this year at the time of the Sydney airports float. The Federal Government decided to sell Australia's biggest airport and Macquarie Bank was the successful bidder, paying a staggering $5.8 billion, half a billion more than the closest underbidder. Investors in the Macquarie Airports Fund have lost on paper all of the first dollar they invested and some of the second dollar. Financial advisor Ian Huntley has urged his clients to sell Macquarie Bank shares.

IAN HUNTLEY, HUNTLEY'S BUSINESS NETWORK: We felt that the fee structure was excessive. Secondly, we felt the accounts were extremely complicated. And thirdly, we believed in close examination of the accounts that certainly in the first year or two, the businesses themselves appeared to be trading at negative cash flows.

REPORTER: Ian Huntley runs an independent financial publishing and advisory business. So powerful is Macquarie Bank with its networks of influence that most financial analysts we approached would not speak on camera about them.

IAN HUNTLEY: Retail investors have gone on strike as far as Macquarie Bank is concerned. That's a major issue. The general sentiment has turned very, very much against these issues of Macquarie Bank and such that as I have just said to you, it's a general sentiment of, "We do not want to be there." That sentiment can drive share prices down to excess.

REPORTER: Someone who took on Macquarie Bank and is not afraid to tell the tale is Chris Corrigan of Patrick Corporation — better known as the man who took on the Maritime Union and won. Corrigan is now half-owner in Virgin Blue and, after Ansett collapsed, he did a deal with the Sydney Airports Corporation to allow Virgin to move from their makeshift premises into the Ansett terminal.

CHRIS CORRIGAN: We struck a deal with Sydney Airport and the chairman of Sydney Airport on April 18 and that deal was extremely detailed. It followed a whole series of exchanges of documents over the previous two or three months. And we'd got into enormous detail about the number of gates, about the valet parking, about the baggage handling, about the check-in counters, even down to things like, you know, what the bank guarantees were to secure our licence agreement.

REPORTER: David Mortimer from Sydney Airport endorsed the deal. But then Macquarie Bank paid $5.8 billion for Sydney Airport.

CHRIS CORRIGAN: I'm not suggesting in any way that he reneged on the deal. It's following the sale of Sydney Airport Corporation that the transaction was reneged upon.
REPORTER: Were you dudded?

CHRIS CORRIGAN: Oh, there' no question in our view we were dudded, yes.

REPORTER: Chris Corrigan gave this interview before an agreement was finally reached to allow Virgin to use the old Ansett terminal. It's clear Mr Corrigan is deeply upset about the way Macquarie Bank behaved.

CHRIS CORRIGAN: I've found in life that if you can't shake hands with someone and know that you've got a deal, you're better off not dealing with them because you can hire the best lawyers in the country; they're not going to keep you out of trouble if somebody isn't going to honour their word and their undertaking.

REPORTER: And Chris Corrigan should know, he founded and ran a successful merchant bank, BT Australia, and says he has not seen anything like this, even during the corporate excesses of the 1980s. You mix in the big end of town, how would you describe the reputation Macquarie Bank is now gathering for itself?

CHRIS CORRIGAN: Oh, I think that's a question I would rather stay clear of.
REPORTER: Would you trust Macquarie Bank again?

CHRIS CORRIGAN: Um — I'd need a great deal more explanation than I currently have before I would go forward in that way, yes.

REPORTER: Why do you say that?

CHRIS CORRIGAN: Well, because it's … I'm just looking at the behaviour and I'm saying to myself this is not behaviour that I'm used to. This is not behaviour that I would judge to be that that you'd expect from a reputable organisation.

REPORTER: When Sunday returns, you will hear the extraordinary secretly-recorded Macquarie tapes and we directly confront the head of the bank, Allan Moss. By putting out that document the same month as you put out this prospectus, did you breach the Corporations Law?

ALAN MOSS, MD MACQUARIE BANK: No.


TRANSCRIPT - PART TWO


REPORTER: As tourists and business clientele gathered for breakfast at the Grand Hyatt Hotel in Jakarta in June, 1997, it seemed like any other day. But on this morning an extraordinary drama was taking place at one of the tables. Two senior staff from the Macquarie Bank sat down for a business breakfast — but one of them was wearing a wire … a hidden tape recorder.

MIKE BELL, INVESTMENT STRATEGIST: The scene was as you'd expect for someone meeting for a breakfast meeting, with the exception that I was particularly nervous. I had a tape recorder in my pocket and a microphone in my shirt pocket.

REPORTER: The tapes came to light during a battle in the NSW Industrial Relations Commission when Mike Bell and his business partner, Charles Berg, sued Macquarie Bank. They have lost this round of the battle with the judge attacking their credibility due to inconsistencies between their evidence and the transcripts they produced. But the tapes themselves contain some important insights by a senior officer of the bank. Mike Bell had had a distinguished career in the financial world. He had worked in senior positions for Citibank, Bank America and Barclays PCW before taking a plan for an Asian venture to Macquarie Bank.

MIKE BELL: I called Allan Moss and approached him with the idea of a business plan that I thought would work for Macquarie Bank in Asia. The business plan was to provide financial market expertise to five key countries in Asia, providing risk management and product expertise.

REPORTER: Macquarie Bank jumped at Mike Bell's idea.

MIKE BELL: Well, when I called Allan Moss from Singapore, I proposed the business plan or the concept of the business plan. He was very excited. He indicated that he would be very interested in receiving a formal proposal from me, which I did. I sent it to Sydney.

REPORTER: Mike Bell and his business partner, Charles Berg flew to Australia. And five days later, Macquarie Bank signed them up. But not long afterwards, they say Macquarie Bank seemed to be trying to take over.

MIKE BELL: The timing of it was after I had secured the first joint venture partner and it became very clear what the profit potential of the business was.

REPORTER: Mike Bell claims he could not get anyone from the bank to admit they were changing the agreement. So, he decided to try to get such an admission from his superior, Andrew Downe, who was travelling through Asia.

MIKE BELL: I was unable to get written confirmation of what Macquarie believed the deal was.

REPORTER: In Australia, it would have breached listening devices legislation to secretly record. But Indonesia has no such law. These tapes give a rare insight into the politics and personalities inside an investment bank. Part of the tapes is a critique of personalities, such as boss Allan Moss. And the way he can charm his way through business deals. This is the voice of Andrew Downe, the current head of treasury at the bank.

TAPE TRANSLATION OF ANDREW DOWNE: Big Al can give head better than anyone else!
REPORTER: Andrew Downe, also gave colourful opinions of other Macquarie Bank executives.

TAPE TRANSLATION OF ANDREW DOWNE: Yeah, well I realised that basically all the senior managers of the bank are c---s.

REPORTER: Andrew Downe is then asked whether the bank's annual report will reveal how much a certain executive is paid.

TAPE TRANSLATION OF ANDREW DOWNE: Well, the annual report will be out next week anyway so we can have a look but you would find it pretty hard to tell.

TAPE TRANSLATION OF MIKE BELL: But everything has to go in, doesn't it?

TAPE TRANSLATION OF ANDREW DOWNE: No. Macquarie has got some pretty good legal opinions on what they have to publish.

REPORTER: Mike Bell then asks Downe about Macquarie Bank's South African joint venture and refers to Allan Moss.

TAPE TRANSLATION OF MIKE BELL: You made a comment to me that Allan would have a fit if he knew what positions you were running in South Africa.

TAPE TRANSLATION OF ANDREW DOWNE: I have no problems with information flowing through to him being selective. He does the same thing to the board.

REPORTER: Charles Berg, a Chicago-based bond trader, claims Macquarie initially jumped at their plan.

CHARLES BERG, BOND TRADER: Well, we submitted a plan and we submitted to Moss, he turned it over to Ray Hall, who was the head of treasury and commodities whose area it fell into. And he immediately upon seeing the plan, seeing Mike's experience, invited us into the bank to talk about joining them to implement the plan.

REPORTER: In the finding of the Industrial Relations Commission, the judge attacked the credibility of Berg and Bell, finding: "Some parts of the conversations extensively quoted in their affidavits in chief had been altered in a variety of material ways, most often by omission but also by addition."

REPORTER: However, the judge was referring to the transcripts, not the tapes. Berg and Bell are now appealing the judgment on more than 200 points. Macquarie Bank tried hard to prevent parts of the tapes being published in The Australian. First they threatened the journalist, Michael West.

MICHAEL WEST, JOURNALIST: We found ourselves in receipt of a legal letter which had a flavour of intimidation about it. There was - well I suppose it was a threat of defamation … suing us for defamation and of contempt of court because the Bell and Berg matter was before the courts.

REPORTER: When the threats failed, then came the charm. An invitation to Sydney's celebrity restaurant Otto.

MICHAEL WEST: I just reacted with sort of faint amusement because I thought it was funny that first of all we have a threat to be dragged through the courts for defamation and contempt and then asked out to dinner at Otto's.

REPORTER: One of the more serious concerns about Macquarie Bank is the way it allows its Macquarie research operation to make claims to would-be investors effectively talking up schemes in which it is a major investor. In the case of Sydney Airport, it released the prospectus detailing the share float in July, this year. The same month the bank's research arm put out a glowing assessment of the deal. While the bank's research arm was promoting the airport, other analysts sounded clear warnings. JB Were warned: "There is a real risk that Sydney Airport will miss its prospectus traffic forecasts." Deutsche Bank warned: "There is no safety valve if the price paid is too high equity investors in the Trust have no choice but to accept the price."

REPORTER: There are some serious questions to be answered by Macquarie Bank. Macquarie sent out this document claiming that the price paid for the airport reflected the strong fundamentals associated with the deal. But only 12 weeks later, Macquarie Bank executives were privately admitting that the bank had paid up to 10 per cent or $580 million too much for the airport. Allan Moss refused to be interviewed to discuss these issues. We had to turn up to the media conference for the half-yearly results to ask about his research department talking up projects in which the bank has a major stake. John Lyons from the Sunday program. Mr Moss, this report from Macquarie research equities argues that the $5.8 billion paid for Sydney airport reflected the fundamentals. Were investors misled by this document?

ALLAN MOSS, MD, MACQUARIE BANK: Sorry, I can't see that document from here.

REPORTER: Macquarie research equities. Your own document.

ALLAN MOSS: Let me say that we feel very confident of the fundamental value of the assets in Macquarie airports fund.

REPORTER: Do you agree with the market assessment that you've paid between 10 and 20 per cent too much for it?

ALLAN MOSS: No, we feel confident that we've paid a reasonable price for Sydney Airport.
REPORTER: By putting out that document the same month as you put out this prospectus, did you breach the Corporations law?

ALLAN MOSS: No.

REPORTER: It's not just Macquarie Bank. This practice is engaged in by many of Australia's major financial institutions.

JOHN SEVIOR: Yeah, I think the business about providing investment advice and structuring of deals and putting clients into deals is all about trust and credibility and each time you go and you test people's trust, you test your own credibility, that goodwill that or bad will that that generates will affect your ability to do a deal the next time and the time after that.

CHRIS CORRIGAN: I just think for its own reputation, it seems to me bizarre that you're putting out so-called independent research when you've got a huge financial stake in the company on which you are doing the research. I mean it's inconceivable that could be seen as independent. To my mind. I mean it's just inconceivable.

REPORTER: They would say oh, but we've got Chinese walls between this department and that department.

CHRIS CORRIGAN: Um - yes. (Laughs) Well, I just have some difficulty believing that the fellow writing the research has got no idea where his bonus cheque's coming from.

REPORTER: You don't believe in Chinese walls?

CHRIS CORRIGAN: Um, up to a point. But we're not talking about whether or not the analyst has any detailed knowledge that he might have gained across that Chinese wall. We're talking about whether or not he knows where his bonus cheque's coming from and he knows that's coming from the success of Macquarie Bank's various investment arms, amongst other things.

HENRY BOSCH: I never saw a Chinese wall without a grapevine growing over it. You know? I think...

REPORTER: Henry Bosch for five years ran the chief corporate regulator, the National Companies and Securities Commission. He is likewise sceptical of Chinese walls.

HENRY BOSCH: I would not personally accept the verdict of Macquarie research on an activity that Macquarie was engaging in.

REPORTER: Chris Corrigan says the whole industry needs to change.

CHRIS CORRIGAN: Well, I think we've seen in the US that the activities of investment analysts getting heavily involved in areas where the investment banks have other commercial interests is coming under very close scrutiny and I think one needs to avoid those conflicts as much as possible.

REPORTER: You think it's a dangerous game to be playing?

CHRIS CORRIGAN: I think it will prove to be very dangerous, yes.

REPORTER: Corporations law expert Professor Bob Walker queries whether on the Sydney airport float Macquarie Bank has complied with the spirit of the law.

PROFESSOR BOB WALKER: My immediate reaction is that it appears to not comply with the spirit, if not the letter, of the Corporations Law. Section 7-34 of the Corporations Law incorporates prohibitions on persons who have issued a prospectus from providing publicity material in certain circumstances. And in effect, I think this document goes beyond the content of the prospectus, incorporates information and is undoubtedly intended to induce people to purchase shares.

ALLAN MOSS: They all sent their people out to Sydney, they made their judgments...

REPORTER: Allan Moss is adamant Macquarie Bank has not broken the law. Doesn't the Corporations Law say that you can't be out there talking up a product or inducing people to apply for securities at the same time as you have a prospectus current in the market? Section 734?

ALLAN MOSS: I'm not in a position to discuss particular sections of the corporation law with you.

REPORTER: Did you get legal advice on it?

ALLAN MOSS: I feel very confident that our team got appropriate advice with respect to all matters. With respect to Sydney Airport @#8212; and there has been no questions raised by any of the regulators with respect to our involvement with Sydney Airport @#8212; no question.

REPORTER: But Professor Walker now wants the Australian Securities and Investments Commission to consider the issue.

PROFESSOR BOB WALKER: It is certainly an issue involving such a high profile issue that I think warrants careful scrutiny. And it really involves careful analysis, I think, of the content of that Macquarie equities publication as against the prospectus. And I think that's what the regulators need to do.

REPORTER: Would you welcome ASIC looking at whether you did breach the corporations act on this issue?

ALLAN MOSS: We welcome the advice of regulators in all of our business. Absolutely.

REPORTER: Macquarie Bank has not done any favours for itself on the public relations side. Nicholas Moore, head of the investment banking group, has become something of a lightning rod for criticisms of the bank. He was a key figure in the Sydney Airport deal. But rather than buy into the float, he invested $1 million into an unlisted Macquarie Bank fund, the Macquarie Airports Group. These documents show that as the share price of the listed fund, Macquarie Airports, lost up to 70 per cent of its float value, Nicholas Moore bought almost 1.2 million shares.

CHRIS CORRIGAN: Well that's an interesting point in and of itself, isn't it? I mean it's one price for the retail market and then a different price value for me. So that's a point of some concern that I would have about that behaviour.

REPORTER: If you were running a investment bank, would you have a concern to elaborate on that point, it floats, he buys none, he buys 1.2 million shares in two tranches, would that concern you? Would that send alarm bells ringing?

CHRIS CORRIGAN: I don't think it looks well when you issue shares to the public at $2 and then you decide, well, I'll buy mine at $1.30. I mean why, if you had money to invest in the airports, why wasn't he there at $2 is the question I would be asking if I were a retail investor.

REPORTER: Again, the counter-argument would probably be well; it shows that even though the share price has fallen, I'm showing confidence in it by buying it when it has lost 50 per cent or 60 per cent of the value.

CHRIS CORRIGAN: Or a lack of judgment.

REPORTER: Mr Moss, what do you think of the wisdom of one of your senior executives involved in the airport not buying into the float but buying 1.2 million shares as it fell 60 per cent and 70 per cent in value?

ALLAN MOSS: Well, our staff have the right to buy shares in the market just like anybody else.

REPORTER: You think it's a good look?

ALLAN MOSS: I think that the investment decisions of staff are their concern.

REPORTER: A serious allegation against Macquarie Bank which requires further investigation comes from this man, a leading American academic. In November, 1995, Professor Grub, an expert in Asian economies, entered the executive lounge of the Hilton Hotel in Seoul, South Korea, to meet one of Macquarie Bank's high flyers, Ray Hall. They met to talk about Macquarie's expansion into Asia. Professor Grub says he was stunned by what occurred.

PROFESSOR PHILLIP GRUB, PROFESSOR EMERITUS, GEORGE WASHINGTON UNIVERSITY: He said there would be a salary but that would not be where the bulk of my remuneration would come from, but it was from a private pool or fund or reserve, I forget the word that he used, that they kept that was off the books. Or words to that effect.

REPORTER: Professor Grub was horrified by what he claims was a suggestion that he be paid from a special off-the-books fund.

PROFESSOR PHILLIP GRUB: I was led to believe that these were profits that were made on the side that were not reported to the bank in their normal course of formal reporting earnings of Macquarie. When people start trying to offer me something under the table, I do not go for that. And certainly I would not have permitted that when I was a member of the board of directors and chair of the executive committee of the bank in Washington, D.C.

REPORTER: Professor Grub has given an affidavit about the South Korea meeting to the NSW industrial commission in the Berg and Bell case. In the affidavit, he alleges that the bank offered to pay him from a special reserve. Professor Grub's allegation has caused consternation in the business community but remarkably, the chairman of the bank, David Clarke, says he's never heard of Professor Grub.

REPORTER: Mr Clarke on that question of corporate governance, an American academic who we've interviewed and former head of a audit committee of a major American bank says that when he was approached by Macquarie Bank to do consultancy work in Asia, he was told he would make his real money from a special reserve that not many people knew about. In effect, a slush fund.

DAVID CLARKE, EXECUTIVE CHAIR, MACQUARIE BANK: It's so secret, I don't know about it.
REPORTER: He's given affidavits to that effect.

DAVID CLARKE: I'll give you an affidavit to the same effect.

REPORTER: You have never heard of Dr Phillip Grub?

DAVID CLARKE: No, I haven't.

REPORTER: Mr Moss, have you heard of Dr Phillip Grub?

ALLAN MOSS: I have never heard of Dr Phillip Grub from anybody in Macquarie Bank.
REPORTER: Ray Hall, the man alleged to have raised the possibility of a special reserve, has left the bank. He agreed to be interviewed by Sunday to discuss his meeting with Professor Grub, but after a telephone conversation with Warwick Smith, the former Howard Government minister who now runs public relations for the bank, he cancelled. In his evidence, Ray Hall, denied any secret commission was offered. He told Sunday he found the allegation to be bizarre. Have you looked into whether Macquarie Bank has operated slush funds in either South Africa or Asia? Have you investigated it yourself?

ALLAN MOSS: I am totally confident that that suggestion is absolute nonsense, just absolute nonsense.

REPORTER: Allan Moss also says he isn't aware of the tape made in Jakarta on which the bank's current head of treasury, Andrew Downe, makes reference to what the bank chooses to put into its annual report.

TAPE TRANSLATION OF ANDREW DOWNE: Macquarie has got some pretty good legal opinions on what they have to publish.

REPORTER: When you're head of treasury, Andrew Downe, said that when you look at Macquarie Bank's annual reports, it's pretty hard to tell what's in it and that Macquarie Bank has taken legal advice on what they can publish, what was that legal advice that Macquarie Bank took?

ALLAN MOSS: Sorry, I don't know what you're reading from.

REPORTER: Andrew Downe's comments.

ALLAN MOSS: Andrew Downe's comments where?

REPORTER: On the tape.

ALLAN MOSS: On what tape?

REPORTER: The Grand Hyatt Hotel.

ALLAN MOSS: Sorry, I don't know what you're talking about.

REPORTER: All the more remarkable given the tapes appeared prominently in the media. The tapes that where Andrew Downe was recorded saying "Macquarie Bank, it's pretty hard to tell what's in it." The tapes that were part of the same case you were referring to.

ALLAN MOSS: I'm not familiar with that alleged statement that you're referring to. What I can say is that we do not accept the transcripts. And again I think if you read the judgment, if you read the evidence, you'll see that the judge did not accept the veracity of those transcripts.

REPORTER: Over two months, Allan Moss came up with many reasons to avoid being interviewed for this program. This is unfortunate, because the issues surrounding Macquarie Bank today go to the very heart of its reputation.

CHRIS CORRIGAN: As I said, I think reputation is the most fragile asset of an investment bank and you need to guard it with great care.


TRANSCRIPT ENDS

If ASIC needs reasons to investigate Macquarie's actions with regard to HDR, they need look no further than the above transcript, staright out of NINEMSN.

nq