Macquarie's equities project always looked ambitious

Macquarie has become the latest bank to retreat from cash equities. The Australian lender is shutting its equities sales, trading and research businesses in London and New York with the loss of around 100 jobs.

The bank plans to maintain a sales presence in London and New York, and is set to sign a research distribution agreement with Paris-based Kepler Cheuvreux, according to a report from Bloomberg. Macquarie declined to comment.

Macquarie was late to the party in building out its equities business and never reached a critical mass for the business to make sense. The bank’s ambitious build-out began in 2017 when it hired Daniel Kaye as head of cash execution and sales from Credit Suisse. Kaye then embarked on a hiring spree and the recruitment spree and last year the bank looked to boost its presence by making an approach for struggling mid-cap broker Liberum, but nothing materialised.

Instead it continued recruitment this year, when Simon Fickling joined from Barclays in March to work in specialist sales and David Hewitt joined as head of oil and gas research in February, along with senior analyst James Carmichael.

Bigger and more established players than Macquarie have already thrown in the towel. Kepler has struck a number of joint ventures with a number of retreating European banks such as Rabobank, Unicredit and Credit Agricole. Meanwhile in July Deutsche Bank closed its global equities business and this month HSBC began a review of its business that it likely to see the UK lender close large parts of its continental European equities business.

Banks have struggled to make a profit in their equities businesses as the rise of electronic trading has shaved margins to the bone while the arrival of MIFID2 has led institutional clients to cut drastically reduce their research spend and whittle down the number of counterparties they deal with.

As a result, the equities business is dominated by a handful of large global players, pushing out smaller participants. UBS, the leading European bank in equities with a 8% market share, posted a 7% decline in equities revenues in the third quarter, while Barclays, which has 6% saw a 11% fall. Credit Suisse and Deutsche are set to report on October 30. “No-one makes money from vanilla cash equities. The only money to be made is in structured and equity derivatives,” said one head of investment banking.

Following the decision to retreat from Europe and the US, Macquarie plans to re-focus its equities effort in the Asia-Pacific region, where it has an established business. but even there has endured a tough time. In May the bank said equities revenues fell 33% in 2018, and cited challenging conditions, particularly in Asia.

But when it comes to the idea of building a broad global offering, it has now succumbed to the new market reality. Maybe it makes more sense for Macquarie, which will report fiscal half-year results on Friday, to concentrate on being the world’s biggest manager of infrastructure assets.

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