Macquarie Group’s quarterly returns have been middling along, and despite strong markets, shares over the past year have lagged some of Australia’s sleepy big four banks.
Not much is going right. It copped the embarrassment of its first shareholder strike, and the corporate regulator has landed a blow, launching a damaging legal action alleging the bank misled the market for more than a decade over short-selling disclosures. Throw into the mix a succession planning twist around who eventually replaces Wikramanayake.
As The Australian foreshadowed, Macquarie uses its annual meetings to outline key executive changes. On Thursday, long time chief financial officer and CEO contender Alex Harvey flagged his retirement. He will be replaced by deputy CFO and Macquarie veteran Frank Kwok.
This move has been quietly underway for a few months, with Kwok increasingly taking the lead during market briefings with Harvey. Two things can be safely inferred from the departure: Harvey had fallen off the list of internal contenders; and his exit sharply narrows the field of internal candidates.
Harvey has been Wikramanayake’s loyal CFO from the start, and she credits him for driving improvement across the bank’s technology and internal systems. This is important given that it is gaps in the bank’s systems that are under focus in the ASIC case.
Harvey’s exit puts Ben Way, the head of the bank’s biggest unit, Macquarie Asset Management, in the CEO frame, as well as investment banking boss Michael Silverton.
Keep an eye on the rapid elevation of Kwok, a Macquarie lifer who has played a finance role across the bank and its funds over the decade. Remember, it would be highly unusual for Macquarie to hire a new boss from the outside.
Macquarie chair Glenn Stevens, the former RBA governor, won’t be drawn on succession planning other than to say the bank has a “very strong bench at multiple levels”. He says the board regularly meets with all executives considered in the succession. Wikramanayake played it straight on her future. She would be available as long as the bank needed her, she says.
Succession aside, it’s a big ask for investors to pay more than 21-times earnings for Macquarie shares. Particularly as the bank this time appears to have been uncharacteristically slow to adapt to shifting sands under its feet. It delivered a soft update with quarterly earnings weighed down as two of its four businesses – retail banking and Macquarie Capital – were the only ones firing.
It’s an even bigger ask to pay the bank’s executives, including Wikramanayake, outsized rewards of tens of millions for undersized returns and a long tail of regulatory actions. The ASIC action stood out to most big investors, and this is why Macquarie was hit with a shareholder strike during a marathon meeting.
After Thursday’s 5 per cent share price drop on an underwhelming outlook, Macquarie shares are down 3 per cent this year. Even before the latest falls, Macquarie has been underperforming the S&P/ASX 200 as well as the financials index that tracks big banks.
Macquarie is no doubt in the midst of one of its trademark transitions. It’s moving away from building green energy as it goes deeper into private credit. This was accelerated by the recent sale of its global public markets business. Directing more capital in private credit should deliver better returns and growth.
However, this time Macquarie hasn’t been leading the trend. It’s following the Wall Street giants like BlackRock, Blackstone, KKR and Apollo that each have hundreds of billions in this space, to Macquarie’s $25bn.
Wikramanayake says private credit is a “broad church” and as an asset class remains a significant opportunity. She maintains the bank has its competitive strengths, given its existing footprint across mid-market financing, infrastructure and sectors like telcos, energy, aircraft and shipping.
She’s looking for adjacencies in each of these areas, as well as expanding in direct lending, which could also lean on the bank’s balance sheet.
As Jarden’s Matthew Wilson points out, Macquarie is “a great business caught in the midst of both its own transition and global realignment of geopolitical alliances and capital flows”.
Macquarie is certainly going through a rare moment of introspection. The worry is, it’s going to take more than a quarter to get into shape again.
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