Calls for Macquarie Group to tilt profit pool to shareholders instead of staff bonuses

An analyst has said Macquarie’s increasing use of capital to drive growth should mean the profit pool is tilted more towards shareholders at the expense of staff.

Macquarie Group CEO Shemara Wikramanayake. Picture: Britta Campion

Macquarie Group is in a “purple patch”, but its increasing use of capital to drive growth meant that the profit pool should be tilted more towards shareholders at the expense of staff, according to a leading analyst.

While Macquarie’s bonus pool agreement has been in place for decades and served the group well, Barrenjoey bank analyst Jon Mott said in a report that the staff compensation ratio at rival investment banks such as Goldman Sachs had fallen as capital intensity had increased.

“We believe incremental shareholders’ capital is now the primary driver of Macquarie’s revenue growth, and shareholders should be rewarded with a larger proportion of this pie,” Mr Mott said.

Such a move, he said, would support return-on-equity.

Also, with employees owning 6 per cent of the register and the bonus pool expected to rise, staff would still be “handsomely rewarded”.

Goldman Sachs has increasingly deployed its balance sheet as its business model has evolved, with the equity-to-staff ratio increasing and the staff compensation ratio falling from a high of 40 per cent before the global ­financial crisis to about 30 per cent.

Macquarie’s compensation ratio has fallen but by a much lesser amount, to 43 per cent.

Mr Mott said it was clear the group’s growth was becoming more capital intensive after it cut the dividend payout ratio and raised $2.8bn in equity.

The capital was needed as Macquarie expanded into green energy development and domestic lending under chief executive Shemara Wikramanayake.

More broadly, though, conditions had never been better for the diversified business model.

“Macquarie is in a purple patch,” the report said.

“Across its global businesses, conditions have never been better: record low interest rates and borrowing costs, excess liquidity, steepening curves, rising hard asset prices, moderate volatility, strong levels of client activity and an M&A boom.

“For Macquarie, this is about as good as it gets. Not only should this enable Macquarie to deliver very strong revenue and returns in the 2022 financial year, but we believe it should help underpin solid numbers in coming years, provided conditions do not deteriorate ­materially.

Mr Mott set a price target of $230 a share with an upside scenario of $247.60, compared to the current price of about $204.

One of the key drivers for the Macquarie purple patch was its specialist asset manager business, with $735bn in assets such as fixed income, infrastructure, equities and real estate.

Macquarie had benefited from the rise in asset prices as a result of ultra-low global interest rates.

“High levels of liquidity and unprecedented global stimulus have led to record sharemarket prices and very low bond yields, which have led to mark-to-market gains on fixed income,” Mr Mott said.

“This has attracted significant levels of capital from institutional and retail investors alike, increasing allocation to risky assets as yields for non-risky assets compressed.”

The group had also enjoyed strong growth in its domestic loan and lease portfolio over the past five years by targeting the low-risk owner-occupied segment.

Macquarie’s total Australian housing loan book had grown at a compound rate of 22 per cent over the past five years, with business loans growing at 9 per cent over the same period.

While this had been partly offset by compression in the net interest margin due to competition and low rates, the business had still performed strongly.

The argument for tilting the profit pool towards shareholders was that the business model had changed significantly over the last 20 years.