MARKETS SPECTATOR: More pain for Macquarie?

Macquarie's shareholders look likely to experience more disappointment, and question marks remain around the group's management strategy.

The symbol of Australia’s biggest investment bank, Macquarie Group Ltd., is a 19th century Spanish silver dollar that had a hole punched through it. Long-suffering shareholders could be forgiven for thinking that’s an appropriate symbol for Macquarie’s earnings.

In early 2008 Macquarie’s share price was almost at $100. Yesterday, the stock closed at $36. Since the beginning of 2008 Macquarie’s accumulated share price return, when all cash dividends are re-invested at the ex-dividend date, has slumped 35 percent.

In its last financial year Macquarie’s return on equity was 6.5, barely above the risk free rate and below the company’s cost of capital.

Citigroup has cut its rating on Macquarie to a sell and expects the shares to trade at $34. That’s because Macquarie’s announced merger deals over the last two quarters has fallen back to the depressed levels of early 2011 and 2012. Quarterly equity capital markets revenue is at similar depressed levels for the last two quarters and few expect a pick up in initial public offerings in Australia or overseas.

The picture is similar for Macquarie’s traders. The low volatility in commodity prices and stability in corporate borrowing spreads are likely to depress trading revenue.

Corporate governance expert Dean Paatsch, the cofounder of Ownership Matters, is aghast that “the ironically named Nic Moore,” has been paid $16.095 million in cash and 169,042 in stock while Macquarie’s share price has continued is downward slide. Moore’s cash figure excludes dividends received on deferred bonus shares prior to vesting.

Citigroup says there is “no sign” Moore and his lieutenants wish to cut the company’s compensation ratio that has “climbed since the onset of the GFC, despite falling revenue.”

When Moore became chief executive in May 2008, he pushed out many of firm’s high profile and well-paid dealmakers. He has sought control over the fiefdoms they once ruled. Some believe the culling of these baronets has robbed the firm of much of its entrepreneurial spirit that propelled Macquarie’s growth prior to 2008.

It looks like the analyst community is starting to ask some hard questions about whether Macquarie management is delivering.