Weak market rocks profits at Macquarie

AUSTRALIAN banking giant Macquarie Group yesterday slapped investors with a shock profit warning, admitting that its earnings will fall around a quarter over the first half of the year due to torrid market conditions.

Macquarie, which has in the past been nicknamed the “millionaires’ factory” due to the sizeable pay packets awarded to its star bankers, warned that its trading and advisory operation had been significantly impacted by the weak markets.

Profit for the six months to end of September is likely to drop by 25 per cent on the same period last year, Macquarie said, obliterating analyst expectations of an 11 per cent rise. The group expects earnings to remain flat over the full year to March compared to last year, but only as long as market activity returns to more normal levels in the near future.

The dismal update comes after Macquarie migrated from its investment management fee model to a more traditional investment banking framework following the trials and tribulations of the financial crisis.

Its famously generous compensation packages have also dwindled recently, leading analysts to question whether or not it is losing too many of its top staff. Last month, analysts at UBS said in a note that Macquarie should cut jobs and earmark the money saved to boost salaries and bonuses.

“This low compensation capability may become a material hurdle for staff retention and the ability to attract high-quality recruits,” the note said.

Macquarie, Australia’s biggest bank, has slipped recently at home, with its M&A advisory market share falling by a third. It did not manage to land a place among the advisers to mining giant BHP Billiton’s $39bn bid for Canada’s PotashCorp.

It has fallen to fifth position in its mainstay equity underwriting business, losing out to Bank of America Merrill Lynch, JPMorgan and RBS, according to Thomson Reuters data.

Macquarie, which has A$3.1bn in surplus capital and A$29bn in liquid assets, had twice earlier warned concerns about the global recovery had dragged down market activity to their lowest level since 2004.