Macquarie’s Masters of Reinvention

Euromoney, June 2017

There has rarely been a transformation of a bank as dramatic as the one Nicholas Moore has orchestrated as CEO of Macquarie Bank. And yet it is hard to pin down a moment when it happened. Macquarie’s has been a reinvention by stealth.

Moore stepped into the top job in May 2008, at possibly the worst imaginable time, just as the global financial crisis squared up to hit the institution.

The bank he inherited from Allan Moss – who, in counterpoint to Moore’s misfortune, managed possibly the most well-timed bank CEO departure in history – had achieved impressive growth based to a large extent on capital markets businesses. Macquarie was always a diverse and sprawling beast, but the model back then was to build numerous satellite funds, fill them with assets and then enjoy the fees that were remitted back to the mothership. In 2008, 91% of Macquarie’s profit came from market-facing businesses.

The financial crisis hit Macquarie hard in terms of sentiment, if not the bottom line. Moore has always maintained the bank was nowhere near to the edge given its capital position, and it remained profitable throughout. But the widening credit default swaps of the time – from 200 basis points on its subordinated debt to 1,800bp within six months – showed just how clearly the market believed that the bank was in danger, as did a share price fall from A$80 ($59.8) to A$15.50 during Moore’s first year in the job. Those businesses that had tried to impersonate Macquarie, such as Babcock & Brown and Allco, foundered and went bankrupt. Macquarie survived, but had to change.

And change it did, dramatically. In the full year 2017 results to March 31, the contribution to group profit from market-facing businesses has dropped from 91% to 31%. The capital markets-linked money has been replaced by what the bank now calls annuity-type income, anything that pays a reliable and predictable stream, particularly infrastructure. Macquarie Capital, the classic investment banking division, has gone from representing 63% of group profit in 2008 to 10% in 2017.

Macquarie has become dynamically and energetically boring. It has removed the unpredictable from its top and bottom line. It still has its finger in every pie you can think of, but the whole risk structure of the enterprise has been revised. And the result: after-tax profits for 2017 of A$2.217 billion, up 7.5% year on year, beating expectations and achieved with a 15.2% return on equity in a year when clouds are looming over Australian banking.

Euromoney last met Moore in 2009 in the aftermath of the financial crisis. Our first question is: did he have a clear plan back then that the bank should end up looking like this, or was it simply an evolution, following the markets where they took him?

“The word you used, evolution, is exactly the right word for it,” Moore says at Macquarie’s Martin Place offices in Sydney. “Markets are always changing and the needs for our services are always changing. The key point is how does an organization adapt to a changing environment?”

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