Macquarie’s Moore Plans Spending, Acquisitions After U.S. Push
“There are a lot of initiatives happening,” Moore, 51, said in an interview at the bank’s Martin Place headquarters in Sydney. “Historically, in good markets and bad, there have always been acquisitions. It’s the scale of them and how meaningful they are that counts.”
Macquarie bought at least five businesses in the U.S. last year and today reported that second-half net income more than doubled to A$571 million ($531 million). While the bank stayed profitable and free of state aid during the financial crisis, Moore’s challenge is to restore returns that more than halved in the slowdown and now trail many of his global peers.
“Into 2011, there’s a lot of anticipation for a pretty good rebound in earnings,” said Chris Hall, who helps manage about $3.6 billion of assets including Macquarie stock at Argo Investments in Adelaide, Australia. “The earnings driver is going to be very dependent on how much surplus capital the group has and how quickly they can deploy that.”
Macquarie, with businesses ranging from asset management and energy trading to infrastructure funds, has A$4 billion of surplus cash that could “eventually” be consumed by existing units and internal projects, Moore said. The company is both encouraging managers to propose plans to expand existing businesses, or to acquire new ones.
Returning to Normal
With markets and global mergers and acquisitions returning to normal levels, results from those Macquarie businesses are set to improve, said Angus Gluskie, who oversees $300 million at White Funds Management Pty in Sydney including Macquarie shares.
“The cyclical upswing will continue to benefit the company for some time to come,” he said.
The group’s return on equity was 10 percent in the 12 months to March 31, little changed from a year ago. Over the past decade, Macquarie’s ROE averaged 21.4 percent, the bank said in its report today, almost double the average of 12 percent for a group of eight rivals that includes Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. and UBS AG.
For the past year, most of those peers have reported a higher ROE.
Macquarie’s stock climbed 4 percent today as the bank forecast higher earnings next fiscal year at all divisions. Earnings surged in the six months to March 31 as the bank joined Goldman Sachs and Deutsche Bank AG in boosting income amid the recovery in stock and bond trading.
The bank, founded in 1969 with three employees, is seeking a bigger slice of the U.S. investment-banking market, with acquisitions in 2009 including the September takeover of Fox-Pitt Kelton Cochran Caronia Waller LLC, an investment bank focusing on financial institutions.
“We are saying to our businesses: We have the funding, we have the capital, if you see good initiatives, whether organic or acquisitions, bring them to the group and we can see,” Moore told analysts earlier at a briefing in Sydney.
As if to confirm that, the company today said it acquired about A$1 billion worth of retail auto leases and loans from GMAC Australia, the local auto finance subsidiary of GMAC Inc.
Moore said on a media call today that the bank doesn’t have a target for return on equity, instead focusing on profitability.
“A lot of the initiatives, whether organic or inorganic, that we’ve been engaged in over the last couple of years, we expect will start paying out dividends in the years to come,” Moore said in the interview. “Whether that’s this year, next year or the year after, I’m not sure.”
On the investment banking front, the pipeline of deals in Australia is improving, Michael Carapiet, head of Macquarie Capital, told analysts today. Prospects for initial public offerings in Asia, Hong Kong and China “looks strong;” the outlook for U.S. transactions is ”good;” while Europe “still looks a little bit difficult,” Carapiet said.
Net trading income at Macquarie’s securities business in the year ended March 31 climbed 17 percent; fee and commission income jumped 69 percent; while profit at Macquarie Capital, which advises on takeovers, debt sales and stock issues, more than doubled. The biggest contributor to Macquarie’s profit was the Fixed Income, Currencies and Commodities division, where income surged 62 percent to A$827 million.
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