Investors feared more brokerages may review their forecasts on the stock, which hasn't seen any revisions for the past one month, following Citigroup's downgrade. Citigroup analyst Wes Nason also cut his share-price target on Australia's top investment bank to A$30.50 from A$38 and said weak revenue growth will hurt its compensation competitiveness. In a note to clients titled 'Wrestling with the giants-expansion comes at a cost', Citigroup said commodities market volatility and falling market share in M&A, along with rising expansion costs, forced it to cut its rating. Macquarie shares fell as low as A$31.72.
The stock is now testing the 61.8 percent Fibonacci retracement level -- a key technical analysis measure of stock support and resistance levels -- from its March 2009 low to its October 2009 peak. In afternoon trade, they were down 2.8 percent at A$31.79 in a broader market that was down 0.5 percent. The shares have lost 14 percent so far this year. "It is going to be hard for Macquarie to achieve what the market is gunning for now," said Simon Burge, chief investment officer at ATI Funds Management.
"There are two parts to it, activity needs to pick up and Macquarie needs to raise its market share to meet market expectations and that looks unlikely." While the consensus is for a 30.7 percent growth in 2012 profit, Citigroup now expects a growth of just 16.7 percent. Out of 14 analysts covering Macquarie, six have either a buy or strong buy, five have a hold and two others have an under-perform rating, according to Thomson Reuters data. In April, Macquarie, which is moving to a traditional investment bank from a listed-funds model that it pioneered, unveiled its second annual profit fall in three years. But it had then said markets were showing signs of improvement and deal pipeline was better. Macquarie had said its equity-trading driven securities business that saw a 70 percent fall in annual profits, and marquee investment bank will perform better this year as markets revive.
"In calendar year 2011, globally announced M&A volumes at the industry level are running 29 percent over previous corresponding period. By contrast Macquarie's announced deals are running 56 percent below," Citigroup said. It said it has cut the full-year M&A fee revenue growth estimate to 7 percent from 25 percent and predicted that recent volatility in commodities markets and credit spreads would hurt trading revenue growth. Citigroup said so far in 2011, Macquarie was 38th in announced global M&A ranking list advising on deals worth $10.1 billion, compared with the 20th position in 2010 on more than double the volume.
Macquarie's investment bank, which has for years topped the Australian investment bank league tables, is slipping as top dealmakers retire or quit in an indication that lower-than-expected bonuses are irking bankers. Citigroup also joined the rising debate among analysts and investors over Macquarie's below-peer revenue per employee and its ability to maintain competitive pay over the coming years.
Macquarie, which used to be called the "Millionaire's Factory" for its generous banker pay, has refuted calls to cut staff and has instead raised it to 15,566 employees at the end of March up from 12,716 two years ago as it expands in the United States and Asia. Citigroup said employees at Macquarie's trading and investment banking unit generated revenue of $822,000 per employee, below the revenue of $1 million per employee at its peers in the United States.
Copyright Reuters, 2011