Weakened Macquarie eyes Latin America, debt underwriting

Macquarie Group is expanding its investment banking business into new business lines and geographies, despite a weaker earnings outlook that threatens to slash its first-half profit for 2011 by 25 percent.

The Sydney-based financial services firm said in a market update Monday that Macquarie Capital, its investment banking arm, has established a new debt capital markets in the United States.

The business, headed by New York-based Robet Redmond, has taken part in $3 billion of deals as a bookrunner and $3 billion of co-manager deals in the last ten months, according to Macquarie.

One of those deals was a joint bookrunning engagement on a $1.1 billion senior secured credit facility for Wisconsin-based mining equipment maker Bucyrus International.

Macquarie Capital has also opened a new office in Argentina, according to the market update. The Buenos Aires office will become its fourth office in Latin America, alongside its Sao Paulo and Riberao Preto offices in Brazil and Mexico City in Mexico.

Macquarie acquired the office as part of its acquisition of Tristone Capital, a Canada-based investment bank focused on the oil and gas sector. The office will focus on oil and gas investment banking business in Latin America.

The move underscores a growing interest in the region by Macquarie. Last year the firm launched its first country-specific infrastructure fund in the region, the Macquarie Mexico Infrastructure Fund.

Now, Brendan Duval, co-head of Macquarie’s diversified industries group in New York, is splitting his time between the US and Brazil to scope out business opportunities in the region, according to a sources familiar with his activities. These opportunities include launching a Brazil-focused infrastructure fund, according to the source.

The new business initiatives come amid difficult market conditions that are “significantly impacting” its business, Macquarie said. The firm expects the profit for the first six months of its financial year ending 31 March 2011 to be about 25 percent down on the same period last year.

Macquarie booked a half-year profit of A$479 million ($439 million; €341 million) for the six months ending 30 September 2009.

Macquarie blamed the worsened outlook on lower market activity, which is handicapping mergers and acquisitions deal flow. Macquarie Capital’s investment banking fee pool for the first quarter of its 2011 financial year was down 25 percent on a year ago, bringing it to the lowest level since 2004.

At the same time as its fee pool is shrinking, Macquarie has been adding staff to its investment banking operations. The firm said it made more than 40 new director hires during its 2010 financial year ending 31 March 2010 to support its organic growth initiatives, such as the new US debt capital markets business.

Macquarie Group hired 130 director-level staff across all its business during the 2010 financial year, and its total staff now numbers 14,600. That’s up nearly 2,000 since 30 September 2009.

The wave of hiring has fueled reports that the firm may cut back on its staff levels in response to the weaker market environment. The Australian newspaper reported yesterday that Macquarie began cutting staff after it released its half-year profit warning Monday.

A Macquarie spokesperson declined to comment on The Australian story.

Macquarie’s shares sank 2.21 percent in Tuesday trading on the Sydney Stock Exchange after the profit warning, closing on A$34.47.

The close puts Macquarie’s shares near their 52-week low of A$34, according to Google Finance.