MACQUARIE GROUP will cut jobs, close unprofitable businesses and aggressively target costs to boost earnings as it forecasts a 25 per cent fall in full-year profit, following a slump in business at its one-time high flying investment banking and equities divisions.
In a worse-than-expected profit warning, the bank revealed that it had cut 1000 jobs over the past year and expects to cut at least 10 per cent of staff from its securities division team in the next year.
The chief executive, Nicholas Moore, revealed that the investment banking division Macquarie Capital and the share trading division of Macquarie Securities have become a shadow of their boom-time glories. Job losses and a cut to bonuses are likely to feature at both.
''Macquarie Group is shrinking,'' said a BBY analyst, Brett Le Mesurier. ''[It] is shrinking in a number of ways: staff, overheads, remuneration, capital, businesses and of course revenue. We should conclude that the company is preparing itself for a consistently lower level of income.''
Mr Moore said that as ''global uncertainty has deepened'' in the December quarter, the two key divisions were ''severely impacted by macroeconomic conditions''. In a series of revelations about the two divisions, Mr Moore said:
The securities business is expected to make a loss this year while Macquarie Capital's profit will be significantly lower than last year;
The Macquarie Capital business's 2012 net profit contribution is expected to be down 80 per cent;
Costs of $300 million have already been taken out of the two businesses;
The return on equity at the divisions is zero compared with a figure of about 23 per cent at its funds management division and the plane and car leasing businesses in the Corporate Asset Finance division.
Savings in the two lagging divisions of 20 to 25 per cent have been demanded by next year, with jobs to go.
Macquarie has targeted cost savings across the company of 15 per cent by next year.
Stevan Vrcelj, the head of Macquarie Securities, said he expected job losses in his division this year.
''It will be more than a 10 per cent headcount reduction in terms of the front end of the business,'' Mr Vrcelj said. ''And that also then feeds through into further headcount reductions in terms of the support structure for securities.''
It has been a tough time in the financial services. It is expected that up to 7000 jobs might go across the country this year, adding to fears of a white collar recession.
Macquarie revealed that over the past year it has shut loss-making derivatives businesses in the US, Britain, Asia and South Africa. It has closed operations in Paris, Munich and Zurich and several US locations. It has got out of derivatives businesses in Germany and cut jobs in Europe and Japan.
In contrast to the boom time briefings about the investment banking divisions, Mr Moore found himself talking up the prospects of the bank's annuity style businesses of asset leasing and funds management.
Underlying the cost focus at the bank, Macquarie revealed how it has stepped up its outsourcing of jobs to the ''low-cost jurisdictions'' of India and the Philippines from about 100 in 2008 to more than 1000.
While profit is forecast to be down 25 per cent from last year's $965 million, it would have been more if not for a significant boost from MAp Airports, now Sydney Airports.
The bank announced a share buyback for next year. About $800 million is expected to be returned to shareholders as Macquarie buys back up to 10 per cent of its issued capital. The buyback confirmation supported the bank's share price after the profit warning, falling 20¢ yesterday to $25.90.
''Since Macquarie is shrinking its business, it's also shrinking its capital because they don't need to hold capital for growth that won't happen,'' Mr Le Mesurier said.
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