Macquarie Group's bumper dividend and profit performance raises a key question: is the home-grown investment bank on the path back to its former glory?
Despite Friday's share price surge of nearly 10 per cent, analysts are cautioning that the result does not mean the boom times have returned for the nation's biggest investment bank.
Joining Westpac and ANZ Bank in returning capital to shareholders, Macquarie has unveiled a forecast-busting final dividend of $1.25, underpinned by a 17 per cent jump in full-year profits.
Its shares surged above $43, their highest level since mid-2010, as investors welcomed the profit growth and dividend surprise. But the share price is well away from the $90-plus levels it reached during the heady days before the financial crisis.
It's also worth remembering that the high dividend may be an admission that the board sees relatively few growth options in which to invest.
Analysts on Friday quizzed chief executive Nicholas Moore on whether the high payout ratio of nearly 80 per cent of earnings was a sign the company could not find compelling assets to acquire.
UBS analyst Jonathan Mott described the payout ratio of 60 to 80 per cent as "remarkably high" for an investment bank, and asked if this signalled growth opportunities were not as strong as thought.
Moore made it clear Macquarie thought it had surplus capital, and it was becoming "harder and harder" to make transformative acquisitions, such as its purchase of Delaware Funds Management, which it bought for $US428 million in 2009.
"We continue to look, of course, and we always will continue to look, but I think realistically at this stage we're not seeing a Delaware-style acquisition," he said.
Moore also stressed that although Macquarie has benefited from rebounding market confidence, conditions remained soft in its investment banking and stockbroking arms.
After a prolonged slump in deal-making and equity market activity, these parts of Macquarie posted better results in the latest half.
Macquarie Securities, which houses its stockbroking arm, returned to profitability in the second half after bearing the brunt of cost cuts, with $223 million in expenses cut from the division in the past year.
Profits also rose from investment banking and trading in fixed income, commodities and currencies. All up, the earnings from these market-facing businesses jumped 200 per cent on the much weaker previous half.
Against these improvements, trading activity and deal volumes are still low by historical standards, with Moore describing conditions as "subdued".
The managing director of White Funds Management, Angus Gluskie, said the highly cyclical market-facing businesses at Macquarie's core may be on the path to recovery.
But these earnings would no longer be supported by the "Macquarie model", which involved a series of external funds that paid Macquarie a healthy stream of advisory fees. Supported by cheap debt, it was abandoned after the global financial crisis.
"What they were previously able to do was to create and control a certain amount of market activity," Gluskie said. "But they don't have that same ability going forward."