By Eric Johnston
WITH earnings under pressure in its key businesses, speculation is rising that Macquarie Group may soon have to cut staff numbers, which have ballooned to record levels.
Macquarie joined its Wall Street rivals last week in issuing a subdued quarterly update, highlighting that the fees pool for global investment banking has sunk to its lowest in six years.
This prompted a clutch of brokers to cut their forecasts for Macquarie. UBS sliced 9 per cent from this year's earnings forecast for the group, while Goldman Sachs trimmed 4 per cent off its forecast.
For years, Macquarie equated growth in staff with top-line growth. Many investment banks have trimmed staff numbers in the past six months to account for the tough investment environment, but Macquarie has bucked this trend, adding almost 2000 people over the past year, with acquisitions taking numbers to more than 14,600.
For investment banks such as Macquarie, a small number of staff generate the bulk of income. There is a risk they may defect to a rival if they believe they are not getting a key slice of the earnings pool. Any loss of key deal makers can have a compounding effect on Macquarie's profitability.
As well, the group's overseas expansion is forcing it to pay international rates for key staff.
Competing for staff with big Wall Street firms is tough as the latter have larger franchises and a bigger share of investment banking deals.
Brokerage UBS said Macquarie's current ratio of revenue to staff compared poorly with its global peers.
Last year Macquarie generated about $452,000 per staff member. This was up slightly from a year earlier but well down on the $716,000 it notched up in the market boom of 2007.
The current ratio is less than half that of Wall Street rivals.
Goldman Sachs, with a workforce of 32,000, is running at $US1.34 million ($A1.48 million) per staffer, and JPMorgan, with more than 26,000 staff, is returning $US1.12 million per person.
Morgan Stanley has the equivalent of $US938,000 per staffer while Credit Suisse is running at $US816,000.
"We believe Macquarie must now actively address its staffing levels," UBS analyst Jonathan Mott said.
Macquarie chief executive Nicholas Moore has declined to speculate on job losses, saying staffing levels were an issue for the investment bank's operating businesses.
"There's great ownership and autonomy in the individual businesses," Mr Moore said. "They are constantly looking at the opportunities in the market, the threats to the market and how to respond to the market."
In the past year, Macquarie has made a string of acquisitions in North America and Europe and hired traders and bankers in those markets to boost revenue.
It has recently suffered departures from its senior ranks. Among those to go were Andrew Low, Macquarie Capital's chief operating officer; its US equity capital markets boss, Jim Rossman; and head of US financial sponsor coverage David Baron.