MARKETS SPECTATOR: Mac Bank knifed

UBS says the investment bank’s 80 per cent payout ratio is “unsustainable” and adds the stock is not a “buy”.

Ouch. UBS reckons Macquarie Group’s 80 per cent payout ratio is “unsustainable”.  Analysts at the Swiss bank have downgraded the stock to “neutral” from “buy”. They value the shares at $43.79.

But at 1:30 p.m AEST Macquarie had risen 53 cents, or 1.14 per cent, to $46.9. The stock has gained 78 per cent in 12 months.

UBS analysts Jonathan Mott, Chris Williams and Adam Lee say Macquarie’s 80 per cent payout ratio is not sustainable for an investment bank with “global growth ambitions and single digit ROE”.

The increase in the pay out ratio signals Macquarie “believes it has limited growth opportunities. Macquarie does not believe it can generate an economic return on this capital and is returning it to shareholders or Macquarie is playing to the ‘yield thirsty’ theme in the market,” according to the UBS analysts.

UBS says Macquarie should become Lazard, a view echoed by other investment banks, yet rather ironic because it is just what some UBS shareholders are calling for the Swiss bank to do itself.

“We see earnings and capital upside from Macquarie scaling back its unprofitable equities and capital heavy investment banking divisions and moving to a ‘capital’ light Lazard model as a global asset manager and streamlined advisory manager,” says Mott, Williams and Lee.