Macquarie Reviewing Business Location in Face of Australian Tax

By Robb M. Stewart Features Dow Jones Newswires

MELBOURNE, Australia--Macquarie Group Ltd. (MQG.AU), Australia's largest investment bank, continues to hold out the threat of shifting to another country in response to a fresh tax imposed by Canberra to help close the federal budget deficit.

Continue Reading Below

Each of the country's five largest banks have hit out at Prime Minister Malcolm Turnbull's right-leaning government over what they describe as a cash-grab that threatens competitiveness and harms international investor sentiment.

Macquarie's chairman Peter Warne told shareholders on Thursday the tax would have a disproportionately higher impact on the bank than on major commercial lenders, given its operations are more heavily weighted to wholesale and international business.

"Given the relatively small size of our Australian banking business we were surprised by our inclusion in the group to pay this levy," Mr. Warne said at the bank's annual general meeting in Melbourne.

Macquarie executives have on several occasions said the company reviewed the domicile for its various business units on an ongoing basis, and Mr. Warne was pointed in his comments.

"We would like to reassure you that we will continue to review our business mix and location to ensure all our businesses remain profitable and internationally competitive, noting that our international competitors are not subject to this tax," he said.

Continue Reading Below

The government introduced the tax in its budget in May, forecasting it would raise up to 1.6 billion Australian dollars (US$1.28 billion) a year. It imposes a 0.015% quarterly tax on banks with assessed liabilities of A$100 billion or more, targeting corporate bonds, certificates of deposits and Tier 2 capital.

Mr. Turnbull and his ministers have defended the levy as needed to bring the budget back into balance and termed it as a cost of an implicit guarantee against failure provided by Canberra to what are some of the world's biggest and most profitable banks.

In addition to Macquarie, the levy will hit Australia & New Zealand Banking Group Ltd. (ANZ.AU), Commonwealth Bank of Australia Ltd. (CBA.AU), National Australia Bank Ltd. (NAB.AU) and Westpac Banking Corp. (WBC.AU).

Macquarie estimated the annualized cost of the levy at A$66 million before tax, based on its earnings in the year through March, which it said had the same effect as increasing the effective tax rate in the country for its Macquarie Bank division to 41% from 34%. The impact would be even greater if the bank's profitability declines, Mr. Warne said.

Nicholas Moore, Macquarie's managing director and chief executive, said more than 60% of the company's overall income was derived outside Australia. Macquarie Bank's market share across most retail products, including residential home loans, is about 2%.

Mr. Moore said that Macquarie, which began as a subsidiary of London merchant bank Hill Samuel & Co. and opened its first office in Sydney in 1970, continued to expect a full-year net profit broadly in line with fiscal 2017 after operations performed in line with expectations over the first quarter to June 30.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

July 26, 2017 22:04 ET (02:04 GMT)