Structural change is affecting investment banks as well, writes Clancy Yeates.
When politicians talk about the pain of structural change, they typically refer to manufacturers or other businesses battling the sky-high dollar.
Treasurer Wayne Swan, for instance, said this week car makers were being placed under "enormous pressure" by the currency, which has squeezed profits and sparked nasty job cuts.
Investment banking rarely, if ever, gets a mention. Famed for its high pay and financial wizardry, it does not attract much public sympathy. Yet the industry is also grappling with the weakest deal-making market in close to a decade, thanks to deep-seated shifts in the financial world.
And these conditions are creating significant challenges for the country's only investment bank of a global scale: Macquarie Group.
As Macquarie prepares to announce its full-year profit next month, recent analyst reports say its flagship investment banking arm is under growing stress because of a sector-wide slump in mergers and acquisitions.
Bank of America analyst Frank Podrug says in a recent note that Macquarie is not keeping up with global merger activity. Its announced advisory roles are down 28 per cent in the latest half, compared with a global rise of 31 per cent.
Citi cut its rating on the stock to "sell" last week, citing estimates that Macquarie's involvement in completed deals was down 10 per cent in the six months to March.
"[Macquarie's] M&A deal pipeline in the March quarter has fallen sharply, and while some of this is seasonal, the December quarter was also weak," Citi analysts say.
In the first three months of this year, the value of Australian M&A transactions slumped 40 per cent to just $10.8 billion, the weakest start to a year since 2004, Dealogic says.
Macquarie is still on top of this dwindling market in M&A advice. It was ahead of rivals Goldman Sachs and Citi last year, after playing a hand in $17 billion worth of deals, a market share of 16 per cent. And its global rivals are all struggling against the same challenges of weak revenue conditions.
Nonetheless, analysts' concerns about a deal drought come as Macquarie's flagship investment banking and securities divisions are also grappling with structural, or deep-seated, challenge.
Investment banks everywhere are being forced to hold more capital, which makes trading much less profitable. At the same time, the growth of online brokers such as Commonwealth Securities has undercut the margins of traditional stockbrokers.
Macquarie Group chief executive Nicholas Moore acknowledged these challenges in the latest results, saying there was "plainly a degree of structural change" affecting the industry.
In the latest half, its broking arm Macquarie Securities made a $46 million loss, while the investment banking division Macquarie Capital made a slim contribution of $10 million to profits. The biggest source of profit was the more conservative Macquarie Funds, which added $356 million.
Amid this weakness in the market-facing businesses, UBS analyst Jonathan Mott grabbed headlines in January by arguing that Macquarie should consider selling out of its struggling investment banking and stockbroking units.
Those with a more optimistic view of Macquarie's proven ability to reinvent itself, however, dismiss such calls.
Nomura analyst Victor German says deal-making and stockbroking are "at the heart of what Macquarie does".
"I don't think Macquarie has been doing materially worse than its peers or better; their recent performance reflects challenges that investment banks are facing given market conditions," German says.
Argo Investments, a shareholder in Macquarie since it was an unlisted company called Hill Samuel Australia in the 1980s, also believes the business can recover.
Its CEO, Jason Beddow, says Macquarie may need to focus on the Australian and Asian markets instead of maintaining an expensive network of offices in the US and Europe.
He also concedes the bank is not as leveraged to any rebound in the cycle as it was in the giddy days of 2007 - when its share price surged towards $100 as it "clipped the ticket" on a series of complex infrastructure deals.
Ultimately, though, he is confident investment banking will eventually recover because companies will always look for acquisitions, giving advisers the chance to pocket lucrative fees.
"Unless you think financial markets are broken forever, the way deals are done they are still done through investment banks," he says. "It will still make reasonably chunky fees."