AAP
After a year in which its shares reached a 10-year low and many questioned whether it would survive, Macquarie Group is preparing itself to take on its rivals overseas in new and expanding investment banking ventures.
Investors and analysts are confident that Australia's biggest investment bank will succeed in the energy sector and the North American market, where recent takeovers have been focused.
However, the global financial crisis did affect the bank, as it moved away from setting up satellite infrastructure funds, which also suffered slumps in equity values because of perceptions they had too much debt.
"They continue to reinvent themselves, expand geographically and in different spaces," Argo Investments managing director Rob Patterson said.
"They've made a round of recent acquisitions which should contribute to growth in due course and they've made some headway into the US in this difficult period."
Macquarie made five takeovers during 2009 including one in February at the height of the turmoil in equity markets, spending more than $800 million to buy a wealth manager, fund manager, investment bank, energy adviser and natural gas trader, all in North America.
White Funds Management managing director Angus Gluskie said it was a good time to buy financial service assets.
"Their (Macquarie's) actions will show they've been able to strategically build their position around the world at a time when other investment banks are hamstrung," he said.
"It's fairly important for them not only to get themselves into those markets for new lines of growth, but get to a sufficient scale to be profitable."
Mr Patterson said the bank's strong risk management culture had been a feature that remained constant and that half of its income now came from overseas.
The bank's risk management culture and lowered emphasis on proprietary trading, while focusing on serving clients, probably saved the bank during the height of the financial crisis, Mr Patterson said.
Even so, Agro Investment's $4 billion fund had considered whether it should keep its stake in Macquarie as the bank's shares plunged to $15 in March 2009, their lowest since December 1998.
That meant the shares had lost 70 per cent of their value from their $98.64 peak of March 2007.
"The market was convinced that they had problems," Mr Patterson said of the plunge.
At the time, investors were convinced Macquarie had exposure to toxic assets - which toppled Lehman Brothers and sent others such as Goldman Sachs scurrying for state aid - or were convinced it had too much debt, which sent local investment firms Allco and Babcock & Brown to the wall.
But the stock rebounded as Macquarie showed it was well-capitalised and profitable.
The shares rose over $48 this week in the final week of 2009, having tripled since the March low.
Macquarie itself has forecast that fiscal 2010 profit will rise 10 per cent to about $958 million, depending on market conditions.
Chief executive Nicholas Moore is more confident of the longer-term outlook, saying a strong balance sheet and personnel made him optimistic about the future.
However, CLSA analyst Brian Johnson says there is likely to be a period where growth is not as fast at the investment bank and its shareholders have come to expect as Macquarie moves away from its listed infrastructure assets.
Macquarie over the past months has sold management rights back to Macquarie Infrastructure Group, MAp Group (formerly known as Macquarie Airports) and sold Macquarie Communications to a Canadian pension fund.
"Macquarie's listed specialist-funds management model no longer works and it is now morphing to an unlisted one," Mr Johnson said in a note to clients.
"Whereas Macquarie previously sold these assets into listed funds where retail investors demanded high running dividend yields, Macquarie appears to have found a new buyer of these products in global wholesale pension funds."
In the meantime there would be an earnings hole as the profit focus swung back to traditional investment banking, Mr Johnson said.
Macquarie has $2.7 billion in surplus capital to spend on investments and a good track record of taking the opportunities that come up, Mr Johnson said.
"It is well positioned to exploit any opportunities that may present themselves," he said.
