Citi report calls on silver donut to slash staff
A new report by Citigroup analyst Wes Nason says if Macquarie made 1,000 redundancies, about 6.4 per cent of its workforce, it would help to boost the firm's share price and annual returns.
"While it has not been Macquarie's historic path, in order to sustain competitive remuneration and help restore returns to industry standards, some selective reduction of staff, say 1000, probably needs to occur," says the report.
It not certain whether Macquarie is even considering layoffs on anything like this scale. However, reducing headcount could in theory leave it with a larger bonus pool for remaining employees, which could help stem the flow of bankers who have recently left the firm in Australia and Asia.
Bonus blues
Macquarie has restructured its bonuses so they increasingly involve deferred compensation and non-cash payments, making it more like a European bank and giving its US rivals a potential advantage in the competitive Asia Pacific talent market. Its employee profit-sharing plan pays more as its earnings rise, but while markets stay subdued, bankers may feel unrewarded.
"It's true that people have left because they aren't happy with how their bonus has been put together. But this is by no means a mass exodus. Many of the staff are staying put - the people who are Macquarie through and through," says a Sydney headhunter, who asked not to be named.
In its notice for its annual general meeting in June, Macquarie admitted to facing remuneration and retention challenges. And in April, chief executive Nicholas Moore said at the bank's full-year profit result that competition to keep staff was intense, confirming that people had been lost after being tempted by lucrative packages from rivals in Asia.
Deals in decline
Macquarie's shares have declined 17 per cent since June 1, on the back of decreased earnings from its investment banking and trading business. In Australia, Macquarie is normally a top-three player in M&A, having clinched a spot for the past six years. This year it doesn't rank in the leading 10. Although it stands at third in Australian equity underwriting, market volumes are currently low.
In Asia excluding Japan and Australia, the firm is rated 49th by core investment-banking revenue for the first half of 2011, according to Dealogic, down 15 places from 2010. "It's not doing as many deals and its bonuses aren't as compelling. Add this all up, and some - but certainly not all - employees might think 'what is making me stay here?'," adds the headhunter.
Another Sydney recruiter says the "intangible quality of its brand", which was Macquarie's siren call to attract aspiring millionaire bankers, is in decline. "This means loyalty is waning too. It's now seen as just another bank, all be it still a good bank."
Macquarie is trying to counter some of its compensation problems by proposing higher base salaries for staff in risk management or key finance roles, as well as bonus claw-backs for those who underperform or leave. Shareholders will consider these changes at the bank's annual meeting on July 28.
A reduced staff bonus pool and share price are among the factors which also make Macquarie a potential target for a friendly takeover bid, according to CLSA analyst Brian Johnson.
