Jeff Whalley Herald Sun January 10, 2013
MACQUARIE Group needs a dramatic restructure and should amputate key businesses if it is to prosper in the new age of thrift.
And the investment bank once known as the millionaires' factory will suffer deep losses in some divisions without an overhaul, leading analysts believe.
Jonathan Mott, widely regarded as one of the nation's best banking analysts, says the investment bank is "overly complex" and burdened by stale investments.
A team of analysts led by Mr Mott, from rival investment bank UBS, says Macquarie should close or sell its securities and underwriting businesses.
"In our opinion, in global equities and investment banking, Macquarie is sub-scale and lacks the products, capability and balance sheet to compete," Mr Mott says.
In a note for investors, he and his team say the investment banking industry is "suffering significant structural headwinds" and Macquarie's business model is outdated.
They predict Macquarie Securities and Macquarie Capital will suffer net losses totalling $306 million in the year to March.
And the businesses will "not return to profitability in the foreseeable future", Mr Mott forecasts.
Macquarie Securities is the group's equities broking and trading business. Macquarie Capital offers a string of advice and support services to companies merging or raising cash. Among them, it underwrites floats and rights issues.
Mr Mott says Macquarie is highly unlikely to generate suitable returns from equity investments "given the Australian and global economies are likely to experience an extended deleveraging cycle".
"Given the structural changes being seen across both the financial industry and the economy at large, we believe that Macquarie needs to reassess its business model," he says.
"We see Macquarie as overly complex, with a plethora of disparate businesses and stale, capital-heavy equity investments."
It should focus on asset management and financial advisory, Mr Mott says.
It follows a tumultuous year for Macquarie, which axed about 1600 jobs - more than 10 per cent of its workforce.
In the year to last March, the group suffered a 24 per cent slide in net profit, which clocked in at $730 million.
It came as the securities business chalked up its first loss, of $184 million, while Macquarie Capital's earnings tumbled 60 per cent to $85 million.
UBS analysts say that "at a minimum", Macquarie should look to exit its North American, European and Middle Eastern equities and investment banking businesses, "where it is sub-scale . . . and has no competitive advantage".
They say that, based on a "sum of the parts" valuation, Macquarie would be worth $40.42 a share each if it closed its equities and underwriting businesses, compared with $30.87 now on the same measurement.
Mr Mott said the market was likely to be pre-empting a restructure, driving Macquarie's share price higher. The group's shares were trading at $24 six months ago but have surged in recent months. Yesterday they climbed 0.3 per cent to $35.80.
Macquarie declined to comment.