Reputational damage for Macquarie from Nuix fallout will linger

Macquarie Group is entangled in the disastrous Nuix saga, as a large investor and manager of the IPO. Picture: Bloomberg

Macquarie Group should wear a portion of the blame for the disastrous trading of Nuix as the former majority shareholder and 2020 float manager.

While Macquarie booked bumper profits from selling down its holding to 30 per cent, from 70 per cent, as part of the Nuix ASX listing, several of its executives would have had some knowledge of underlying governance and earnings issues.

Macquarie’s model rewards entrepreneurialism, and the big payday from the listing of the analytics and software player would have been welcomed, but what about the reputational fallout?

Investors are reeling, initial public offering sentiment has been dented and Macquarie is in the thick of it.

It was a joint lead manager on the initial public offering alongside Morgan Stanley, and pocketed fees from the listing. However, Macquarie was also a major Nuix shareholder.

Macquarie’s Daniel Phillips still sits on the Nuix board and was chairman between 2018 and ­November last year. He and David Standen were involved in Nuix for years and backed the existing management team to take the company public.

Macquarie has said it didn’t control Nuix, but the heavy involvement of its executives suggests they were often in the tent. It’s an opaque area, although there should be consequences for those at Macquarie who ignored red flags and put the firm’s reputation in the firing line.

Regulators are examining the chain of events that led to the Nuix fallout, and Macquarie’s internal compliance teams should also conduct an audit.

The tumultuous situation at Nuix culminated this week in the company terminating its finance boss Stephen Doyle, and announcing chief executive Rod Vawdrey would be gone by the end of the year.

The entrenched governance ­issues and multiple earnings downgrades highlight this was a company that was far from ready to be foisted onto public markets.

There is an element of buyer beware for the investors who piled into the Nuix story, but the stench of this IPO will sit with Macquarie for a while.

Eventually it will pass, given Macquarie was also one of several banks managing the Dick Smith float, with that retailer placed in voluntary administrator not long after, in 2016.

Macquarie also worked on the highly criticised IPO of department store Myer 12 years ago by private equity group TPG.

Macquarie CEO Shemara Wikramanayake in May – in light of Nuix indicating it would miss prospectus forecasts – told this columnist: “Nuix is a separately listed company so we can’t really comment on Nuix … As an investor in Nuix, I can comment on our approach to our investments more generally, which is that we take a medium-term view and we try to optimise the value of every investment and there’s no desperate rush to get a return within a specific time frame.

“We are a patient and committed investor to Nuix.”

But her comments came ahead of the broader and bigger controversy about Nuix’s executives and consultants, and an Australian Federal Police investigation into former chairman Tony Castagna over potential breaches of the Corporations Act.

While Macquarie was involved in pre-float Nuix marketing research, due to a potential conflict of interest given its large residual stake the firm is no longer covering the stock and publishing research on it.

–

Exit stage left

Citigroup’s sale of its Australian retail banking operations is getting interesting, as the field narrows and it seeks to agree a transaction within three months.

Bendigo and Adelaide Bank and National Australia Bank are said to be separately working through the auction process, while ING’s local operations took a look although the transaction is not thought to be a top priority.

ANZ and Macquarie are said to have separately fallen away from the process, in which Citigroup has a preference to sell the businesses in a single line rather than in parts.

The process is well under way after a separation of various shared functions was largely completed.

Citigroup’s sale of its Australian retail banking operations is getting interesting, as the field narrows. Picture: AFP

Citigroup in April said it was pursuing an exit from consumer banking businesses in 13 markets, including Australia, following a strategic review.

As potential acquirers run the numbers on the home loan, credit card and deposit book of Citigroup domestically, they will also have to decide what to do with the small wealth unit.

Potential buyers will need to assess any synergies and overlaps, while also giving thought to growth prospects against the backdrop of the macroeconomic environment.

Interestingly, the Reserve Bank’s latest bulletin found available evidence across global markets indicated lower interest rates typically had “a negligible to modest negative effect on bank profitability” in the short run.

“International experience since the GFC has not borne out a clear relationship between interest rates and bank profits across jurisdictions,” the bulletin said.

The analysis noted low rates bolstered growth within an economy and was positive for banks’ asset quality, which offset the impact on net interest margins.

But the RBA highlighted evidence that extended periods of low interest rates spurred declines in bank profitability.

–

Barrenjoey jumps

New investment bank Barrenjoey is making a concerted effort to lift its market share across the ASX and Chi-X Australia this week.

Bloomberg data shows Barrenjoey’s daily equities trading share is sitting at almost 0.8 per cent, just behind Morgans at 0.87 per cent and ahead of CLSA and Jefferies.

But while Barrenjoey’s share has increased markedly in the past few weeks, it will take some time for it to crack the top 10.