Macquarie to merge trading businesses into new unit

[SYDNEY] Macquarie Group Ltd will combine two of its three capital-markets businesses as Australia's biggest investment bank seeks to bring its trading activities under one roof.

The securities firm cited the desire to streamline operations and provide clients with an integrated service across global markets as the motivation for the merger, along with "industry changes," according to a statement released Tuesday.

The firm led by chief executive officer Nicholas Moore is becoming more cautious about the outlook for its cyclical businesses. In 2015, it cut around half of its investment-banking workforce in Asia and earlier this year eliminated around 30 positions at its equities unit in the region. While there are no plans for imminent job cuts in the new unit, headcount reductions could come from natural attrition, a person familiar with the matter said.

The world's largest infrastructure manager, which has seen its profit almost treble since 2012, is now starting to face headwinds. Net income declined 2 per cent in the six months ended Sept 30, according to its most recent regulatory filing. Profit attributable to its capital market-facing business fell 34 per cent from a year earlier, the bank said in a presentation in October.

Before Tuesday's announcement, some analysts had said the Australian investment bank was preparing for tougher times.

"While Macquarie remains optimistic in management commentary, its actions speak differently," Jonathan Mott, an analyst at UBS Group AG, wrote in a note on Oct 28 following the bank's most recent results. A reduction in equity investments, a drop in loans and leases and declining headcount in almost every division are among signs that Macquarie is "preparing for a more difficult environment," he said.

The merger of the Securities Group and the Commodities and Financial Markets Group will bring together the firm's execution, research, derivatives, trading, fixed-income, foreign-exchange and commodities businesses, Macquarie said.

Andrew Downe, who has headed the Commodities and Financial Markets Group since 1997, will take charge of the new Commodities and Global Markets Group. Stevan Vrcelj, who ran the Securities Group, will step down from both his current role and the executive board.

Macquarie has a separate group that handles businesses including mergers, debt and equity capital markets and principal investments.

Shares of the bank closed 0.3 per cent lower at A$83.12 in Sydney. The benchmark S&P/ASX 200 Index slipped 0.1 per cent.

CEO Moore's strategy has been to focus on relatively stable businesses such as leasing, fund management and lending after struggling to compete with global firms like Goldman Sachs Group Inc and Morgan Stanley in stock underwriting and mergers advice.

Tighter competition for deals in Asia has also forced other firms to focus on priority areas. Barclays Plc, Nomura Holdings Inc and BNP Paribas SA are among banks that have scaled back Asian operations as activity slumps amid concern over slowing Chinese and global growth.

Still, analysts remain confident that Macquarie will be able to ride out the challenges. Of 16 surveyed by Bloomberg, eight rate the firm a buy, six a hold and just one a sell.

"The bank is well positioned, in our view, relative to almost any other peer," Andrew Triggs and Anthony Hoo, analysts at Deutsche Bank AG, wrote in a note last month, adding that "we do see some cause for concern on the medium-term outlook."

BLOOMBERG