Last updated: June 7, 2010 6:53 pm

Macquarie faces top-level exodus

Macquarie Group, the Australian investment bank, is in danger of losing dozens of senior bankers from its expanding North American and European operations after a second successive year of weak bonuses.

Analysts and people close to the bank said some top staff were assessing whether to jump ship after being told last month that their bonuses would be six-figure sums rather than the hoped-for seven figures.

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Bonuses have been depressed by falling profits during the worst of the global financial crisis. Such pay-outs are central to an investment bank’s ability to retain the talented individuals that typically drive profits growth.

Remuneration issues at Macquarie, known in Australia as the “millionaires’ factory”, also raise questions about the group’s pay structure and the merits of running a global investment banking operation out of Sydney.

Macquarie’s bonuses are linked to the group’s return on equity, which has fallen to 10 per cent, partly because the group has kept A$4bn of excess capital on its balance sheet beyond its regulatory requirements.

“Macquarie is in a horrible situation,” said Brian Johnson, a banking analyst at CLSA, the Hong Kong-based brokerage, and long-time Macquarie bull. “There is a war for talent and we are in an environment where some bulge bracket firms have doubled their managing directors’ base pay.”

Mr Johnson said that earnings were depressed because of reduced performance fees and a highly liquid balance sheet, which in combination reduce return on equity.

Nicholas Moore, Macquarie chief executive, told the Financial Times in an interview that bankers remained attracted to the group for a variety of reasons, including its strong position in Asia and the opportunity to access the group’s balance sheet to grow their individual businesses.

“What that means obviously is the amount of pay, whether you’re in Australia or Asia or elsewhere around the world, the amount of profit that is derived by the business is what’s actually being shared . . . between shareholders and staff,” he said.

Macquarie last month told analysts that staff turnover had risen but was still low relative to the investment banking industry. It said at director level, staff turnover had risen from 6 per cent in 2008-09 to 10 per cent the following year.

Mr Moore defended the company’s long-standing remuneration model which he said was tied to profits and shared between shareholders and the group, and that Macquarie’s level of compensation compared favourably to industry norms.

However, Mr Johnson believes the group’s pay structure required re-examination. “They may have to change around the bonus pool in favour of staff rather than shareholders,” he said.

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