Macquarie schools its institutional broking problem child

Macquarie has merged its underperforming institutional stockbroking arm with the commodities and markets team.

Macquarie Group will fold its broking arm into another division. Picture: AAP

Macquarie Group has merged its underperforming institutional stockbroking arm with the commodities and markets operations, yielding to investor pressure to address its problem child amid subdued trading conditions.

Suggesting that management could not see pressures subsiding soon, Macquarie yesterday revealed plans to combine the securities business with com­modities and financial markets, shrinking the group’s reporting divisions from six to five.

The other “capital markets facing business”, Macquarie Capital, is unaffected by the change.

Singapore-based Andrew Downe, who runs commodities and markets, will steer the newly created “commodities and global markets group”.

Securities boss Stevan Vrcelj will step down from the group’s executive committee, but assist the integration “over the coming months”.

A Macquarie spokeswoman would not comment on Mr Vrcelj’s future or any job cuts that may arise from the merger, which combines research, derivatives, trading, fixed income, foreign exchange and commodities.

In a statement, Macquarie chief executive Nicholas Moore said the decision was prompted by “industry changes, client commitment and the opportunity to provide clients with an integrated, end-to-end service across global markets”. He added Mr Vrcelj had been an “outstanding leader” of securities since 2011 during “challenging market conditions and significant structural change in the securities industry”.

Macquarie shares eased 0.3 per cent to $83.12.

In the six months to September 30, the securities arm’s net profit contribution — before the staff bonus pool and tax — slid 93 per cent to $18m amid weak trading and equity capital markets deal flow in Australia and Asia.

In contrast, the securities division — formed in April 2008 — contributed $705m to group profit in the September 2007 half just before the global financial crisis and Mr Moore taking the reins from Allan Moss in 2008.

The division’s headcount fell 75 jobs to 979 in the past six months, with the average cost per trader to the group at $266,000, according to UBS analysis.

In late October, Mr Moore was questioned by analysts on how he planned to tackle the group’s “one dramatically underperforming” business.

Mr Moore said Mr Vrcelj was looking closely at which services and products clients would “pay for”. He added that the Australian business remained profitable, but weak sentiment in Asia was weighing on customer flows. In the half, brokerage and commissions slipped 12 per cent to $274m, while net interest and trading income fell to $161m.

“It’s a tough business out there,” Mr Moore said at the time.

Macquarie’s restructure continues the broking industry’s ­efforts to fight headwinds, including weaker trading volumes, technological changes and higher compliance costs. As one of the dominant players in Australia, Macquarie’s response suggests pressure is not fading for its investment banking rivals.

For Macquarie, the struggles in broking in recent years have been offset by strong profit growth in asset management, retail banking, and corporate and asset finance, while the commodities and advisory businesses have also posted better results.