Ditch twin millstones, competitor advises Macquarie
MACQUARIE GROUP would benefit from selling or closing its investment banking and loss-making securities businesses, according to research by arch-rival UBS.
Closing the units, which were responsible for Macquarie's 2012 profit falling to an eight-year low, or moving to a capital-light advisory model excluding capital markets underwriting would boost profits and returns to shareholders, UBS said.
The report by UBS analysts Jonathan Mott and Chris Williams highlights how investment banks need to adapt to the broader downturn hitting the industry.
In boom times, Macquarie's securities business can generate earnings in excess of $1 billion annually but it is being squeezed as investors pull money out of equities to invest in the relative safe haven of bonds or pay down debt.
Like most investment banks worldwide, Macquarie has been facing a deeply unfriendly environment for mergers and acquisitions.
Revenue has been under pressure as markets have been racked with uncertainty on the back of European debt crisis, tougher regulations and questions over the outlook for Chinese growth.
Macquarie has cut jobs to save on costs as trading and mergers and acquisitions activity dwindle.
Ongoing losses after bonuses "across its equities and investment banking businesses will inevitably force Macquarie's management and board to reassess its strategy", the UBS analysts said. They expect the two units to lose $306 million in the year to end-March and not return to profit in the foreseeable future.
The report argues Macquarie's global equities and investment banking business is "sub-scale" , adding it "lacks the products, capability and balance sheet to compete in an industry suffering significant structural headwinds".