That old affluent sparkle seems rapidly to be wearing off Australia’s once seemingly teflon-coated Macquarie Bank – especially after the unthinkable happened and MacBank, once dubbed the “millionaires’ factory” for its exorbitantly high pay scale, was criticised in a UBS analyst note in late July for its “low compensation capability”.
The UBS note, as Bloomberg reported at the time, concluded that Macquarie should cut jobs to boost pay levels and retain talented staff.
That came after a series of high level departures at Macquarie, as FT Alphaville noted in June – an exodus that we hear is still trickling on.
As ironic as that may be, following all the jeering and sniping about Macquarie’s supposedly excessive pay packages, it all seems to have gone downhill from there.
Shares in Macquarie Group slid nearly 5 per cent to a 15-month low of A$35.25 ($32.28) in Sydney trading on Monday, after the bank warned that first-half profit was likely to fall 25 per cent, on a faltering flow of deals.
As Reuters reports (emphasis ours):
Australia’s top investment bank Macquarie Group [on Monday] warned investors it would miss profit forecasts after weak markets took a toll on its trading and advisory business, sending its shares to a 15-month low.
Macquarie, dubbed the “millionaires’ factory” for its senior bankers’ hefty pay packages, said its first half net profit would fall by a quarter and its fiscal year 2011 profit would be in line with last year’s.
The forecasts follow two earlier warnings on market conditions and come as analysts and investors call on the bank to cut jobs or pay to protect earnings.
It is probably small comfort for MacBank’s management to read in the Reuters report the following:
Macquarie is not alone in suffering. Global rivals such as Goldman Sachs, Morgan Stanley, investment bank units of JPMorgan and Credit Suisse have all shared grim outlooks.
In fact, on the executive compensation front, Macquarie is now significantly trailing its bigger global rivals. UBS calculated in its earlier note that compensation at Macquarie’s investment banking division in the six months to March 31 2010 was $231,000 per employee, less than half the figure at Goldman and Deutsche Bank.
Indeed, BusinessSpectator’s Stephen Bartholomeusz picked up on a global trend that has compounded Macquarie’s executive recruitment problems, noting on Monday a “peculiar, counter-cyclical hiring binge by its global competitors in this market, seen as one of the more stable and attractive markets for investment banks wanting an indirect exposure to Australia”.
But, he notes, there is a contrarian view that this is no bad thing:
… that some losses of senior talent within a group that has increased its staff numbers dramatically in recent years isn’t necessarily a negative because it does free up positions and opportunity and creates energy and urgency.
Ultimately, however, Macquarie – which sees itself as a global, albeit niche, player – must produce if it is to remain competitive. Adds Bartholomeusz:
Investment banks need transactions. Macquarie said today [Monday] that the global investment fee pool was down 32 per cent in the June quarter to its lowest levels since 2004 and appeared likely to fall a further 8 per cent in the September quarter. There is little merger and acquisition activity occurring and, after the extraordinary levels of 2008 and 2009, equity issues and debt raising have fallen to negligible levels. Macquarie also said that the value of retail broking in Australia has almost halved since its 2007 peak….Macquarie itself is predicting that full-year earnings will be similar to last year’s if there is some recovery in market conditions.
Some investors have an even more positive though slightly longer-term view. As Christopher Hall of Argo Investments, which owns Macquarie shares, told Reuters:
“The level of deal activity suggests there will be an earnings shortfall in the near-term… But on a two to three year time frame, their focus on unlisted funds, deployment of surplus capital and a general lift in market sentiment should pay off”.
Impatient executives and agitated investors aside, Macquarie – having shifted its business model away from fee-generating infrastructure and other investment funds to a more classic investment banking, deal-driven model – seems “well placed” to catch a rebound in business, the FT noted in June.
Knowing the group’s highly developed survival instincts, ability to adapt and talent for exploiting deal opportunities, the millionaires undoubtedly will be swaggering just as confidently as they used to around the elegant corridors of the bank’s swank factory HQ in Sydney’s Martin Place before too long.
Related links:
Macquarie shares slump as profit to fall 25% – Bloomberg
Another day, another Mac Bank deal – FT Alphaville
Teflon MacBank: Ever onwards and outwards - FT Alphaville
‘Teflon’ MacBank sails on – FT Alphaville