The Silver Donut has suddenly found itself the object of investor affection.
And for Nick Moore, the man with the best name in global banking, it couldn’t have come sooner. The past six years has been a hard slog for Macquarie Group as it has either sold, restructured, thinned, rebuilt or made redundant many of its divisions, operations and highly remunerated staff.
It now bears no resemblance to the days when every global investment bank was trying to mimic the Macquarie model, and when the group was threatening to break through $100 a share.
Lampooned for expanding into Europe and the US in the early stages of the financial crisis rather than Asia, Moore finally is in position to catch a glimpse of pay day.
As the recovery in the US economy gathers pace, Macquarie’s fee generation prospects are looking brighter with the possibility of heightened corporate activity such as mergers and acquisitions. And this week’s upgrade from Deutsche Bank – with a target price of $56.20 – has lit a fire under the stock price.
After bumping around the mid-30s, Macquarie’s market re-rating began in earnest in late April and early May when it took off like a rocket after its results, surging through to $46. The market correction since, however, saw it pull back to around $40 before investors piled on yesterday pushing the stock 5% higher.
A better indication of its future should be unveiled this week when some of its larger American peers release their results.
Macquarie, however, is still a work in progress. More an annuity and asset management business than a traditional investment bank, uncertainty remains as to which direction the business will take. If Macquarie’s history is any guide, it is likely to opt for which ever earns the most money (see Tony Rumble's Top five failings of financial products).
Moore surprised the market with the full-year result by lifting the dividend payout ratio to 80% – an unprecedented level for an investment bank.
That decision had its peers pondering the Donut’s direction. Could it be in the process of scaling back its unprofitable and high cost investment banking business in favour of asset management with a slimmed down advisory business? Highly likely.