Barrenjoey makes $5.3m profit in first full year of trading

Chief executive Brian Benari says Barrenjoey is ‘well-placed’ to manage the slowdown in takeovers and IPOs because of its expansion into fixed income.

Investment banking newcomer Barrenjoey Capital Partners has made a $5.3m after-tax profit in its first full year of trading and says it is well-placed to cope with difficult market conditions this year.

Barrenjoey started trading in September 2020 after securing high-profile UBS bankers Matthew Grounds and Guy Fowler.

The bank’s “established businesses” of corporate finance and cash equities raked in revenue of $226.7m. It had operating expenses including cost allocations and performance-based remuneration of $166.6m, giving it an operating profit of $57.3m.

Its businesses “being established”, including fixed income and private capital, drew in $4.2m with operating expenses of $55.6m, contributing to an operating loss of $55.6m. The bank also had additional “establishment costs” of $44.4m.

Barrenjoey chief executive Brian Benari said conditions were “quiet” at the moment, but added that the fledgling investment bank was well-placed. “It’s very navigable … and we are starting from a good base for the financial year,” Mr Benari said. “We’ve made sure we set the business up, recognising the ebbs and flows that always exist in the markets.”

The global initial public offering market has dropped off due to volatile market conditions, record high inflation, rising interest rates, and geopolitical issues such as Russia’s invasion of Ukraine.

This is also having a negative impact on the takeovers market, where a number of big deals have fallen over, such as KKR’s $20bn bid for Ramsay Health Care.

Perhaps because of Barrenjoey’s high-profile team, the investment bank has been the subject of several rumours about its profitability and financial situation since starting, but its result for the full year shows the strength of relationships with blue chip clients.

While pulling in a profit in its first full year of trade is impressive, there are questions about the strategy of expanding into its “being established” businesses, which effectively cost $100m in the year ended, rather than just producing the $55.6m profit from its highly regarded corporate finance and equities team.

Mr Benari said these businesses were important to the future growth of the company.

“Fixed income has historically been a good revenue generator,” said Mr Benari. “The changing market conditions validate our build-out of a diversified financial institution … having a strong global fixed income capability provides us with a good buffer.”

Its second set of accounts lodged with the corporate regulator showed that staff costs were by far the biggest expense, more than doubling to jump by almost $100m to $189.5m in the year to June 2022. Technology expenses close to doubled during this period to $41.3m.

Of the businesses sitting in the “being established” bracket, fixed income, such as bond trading, is now live, fixed income derivatives is about to go live, and prime ­finance will be live by the end of November. “I will wake up on New Year’s Day knowing that Barrenjoey now has every business up and running after three years of build,” said Mr Benari.

Barrenjoey employs about 350 people, with about 65 per cent of these in the established business, which Mr Benari said “is sustainable for the future growth of the organisation”.

The bank – which is yet to pay a dividend – is part-owned by employees, with Magellan Financial and Barclays owning the rest.