CMT easy money for Macquarie

Macquarie Bank looks likely to boost its retail liabilities by more than $9 billion, assuming investors in the Macquarie Cash Management Trust agree to convert their savings to a regular bank deposit.

The wind up of the Macquarie CMT is largely a product of the global financial crisis. Confidence in cash trusts, including that of Macquarie, wavered over the most critical weeks of October 2008 though the bank stemmed the outflow from what was, and remains, the largest such trust in Australia.

Structural factors are also at play; for more than a decade banks have progressively followed the lead of pioneers such as ING Direct and made high interest savings accounts a more common option. The financial crisis has only accelerated this trend.

Over recent months Macquarie has done its best to steer customers with savings in the cash management trust into a cash management account with the bank in any event, and through the expedient of price.

As of Wednesday the interest rate on the CMT was 2.66 per cent. The interest rate on the Macquarie CMA was 4.0 per cent (and having been lifted to match the rise in the cash rate announced this week by the RBA).

Macquarie is undertaking to match the RBA cash rate on the CMA until
March 2012.

The narrow legal rationale for making this proposal now is the withdrawal of the Australian government guarantee on wholesale bank liabilities, announced last month.

Since the beginnings of a flight from the CMT in late 2008, Macquarie resolved to limit the trust's investments to guaranteed securities. And while these will remain available to wholesale investors for another few years (given all current debts maintain the guarantee) this is a convenient time for Macquarie to lay its hands on all the CMT deposits.

The financial crisis has forced Macquarie to address its long neglect of retail deposits as a funding option.

When the crisis first warmed up in the third quarter of 2007 the bank held less than $500 million in retail deposits.

By the end of 2008, after the industry carnage in the northern hemisphere and the bank's own wobbles with its CMT, the deposit book was up to $2 billion.

As of January 2010 Macquarie held retail deposits of $3.6 billion.

Unit holders in the CMT will vote in April on the proposal, with the transfer likely to take place by August.