December 28, 2018 / 3:56 AM / 5 months ago

Breakingviews - Expect a Macquarie 50th anniversary deal

A pedestrian walks past the logo of Australia's biggest investment bank Macquarie Group Ltd which adorns a wall on the outside of their Sydney office headquarters in central Sydney, Australia, July 18, 2017. Picture taken July 18, 2017. REUTERS/David Gray

SINGAPORE (Reuters Breakingviews) - Nothing says turning 50 like splashing out on a big purchase. Australia’s Macquarie will make one in local retail banking to celebrate its half century of existence.

    The $26 billion financial conglomerate has a unique structure. It trades at a premium valuation to Wall Street titans – despite areas of opacity and leverage – partly because of its diverse makeup and a plasticity born of facing less stringent rules on which deals it can undertake. Asset management profit is cooling, however, and a once powerful specialist financing arm, which bet profitably on junk debt, is winding down.

    Sydney-based Macquarie, whose origins trace back to when three-person Hill Samuel Australia opened its doors in December 1969, prides itself on entrepreneurial spirit and opportunistic acquisitions. Those traits have served the company well, including in the aftermath of the 2008 financial crisis. Constellation Energy’s gas trading operations and Delaware Investments provided lifts.

    Expect Shemara Wikramanayake, a company veteran who took over as chief executive after Nicholas Moore stepped down in late November, to press on with a similar approach. The question is where to turn. Infrastructure and commodities investment will always be on the agenda and Macquarie could double down on eco-savvy finance after buying Britain’s Green Investment Bank in 2017. There may be opportunities in European money management, too.

    A repeat of the countercyclical approach from a decade ago would make the most sense, though. Australian retail banks are reeling from regulatory crackdowns that include a brutal Royal Commission. Popular discontent also has battered an industry dominated by four major competitors.  

    It is an area where Macquarie has been dabbling, even if its banking and financial services division accounts for just 2 percent of the Australian mortgage market. The operation is getting bigger, and lending could soon outpace deposit growth, limiting expansion.

    None of the Big Four, led by Commonwealth Bank of Australia, are likely targets: too large and too messy. Instead, Macquarie could pursue a strained regional bank, such as $4 billion Bendigo and Adelaide Bank, or Bank of Queensland, which had lost a fifth of its value through the first 11 months of 2018. Neither is especially well-placed to handle the regulatory and technological challenges ahead, but would suit a quinquagenarian in search of a new adventure.

- This is a Breakingviews prediction for 2019. To see more of our predictions, click reut.rs/2R6H5pG

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