Macquarie employs the “eat what you kill” remuneration model. Base salaries are a tiny fraction of total pay. It is all about performance bonuses and investors, for the most part, don’t have a problem with it.
It’s a meritocracy-based system that rewards profit innovators, and over the past five years O’Kane has built the commodities and global markets division into a powerhouse inside Macquarie.
The downside of employing these rainmakers is that when they leave, questions are raised about how to find a replacement with equal profit-enhancing talent.
Last year this division made super profits after a dislocation in energy markets – in part on the back of the war in Ukraine. The division offers its clients risk management, capital and financing across a range of commodities and financial markets.
For Macquarie, that instability in markets such as gas is a profit-generating opportunity. This chaos is O’Kane’s happy place.
Macquarie put its toe into the US natural gas market in 2005, buying Cook Inlet Energy Supply, and four years later bought Constellation Energy’s downstream natural gas trading platform. O’Kane is credited with building a matrix of leases over gas and energy transmission networks and making Macquarie the most powerful player in the US market, according to a recent book, The Millionaires’ Factory.
And because these markets have been a little calmer this year, Macquarie says that in the first three quarters of 2024, this division’s earnings will be lower than they were in the same period last year. Despite this, O’Kane’s legacy is that the division will still account for almost 50 per cent of group profit.
This may mean that O’Kane would be lining up for a lighter pay packet in Macquarie’s 2024 financial year, which finishes at the end of March.
Macquarie’s Wikramanayake warned the market on Tuesday that the 2023 mega-profit would be too hard an act to follow in 2024.
During a financial update, Macquarie noted that net profit in the year to date (its financial year finishes on March 31) was “substantially down” on the same period in 2023.
In some ways Macquarie can be a victim of its own success.
Last year’s profits were particularly strong in some divisions, which makes them difficult to match this year.
And because most profit periods include different levels of asset sales, it can make the earnings lumpier than other banks.
One of the brighter elements to this year’s profit will be the performance of its banking division, which had grown in both deposits and loans.
This has been a challenger to the big four banks and a thorn in their side, as Macquarie has priced its products more keenly and contributed to increased competition in the sector.
But the profit update left analysts disappointed as they scampered back to their models to reduce their estimates for Macquarie’s full-year 2024 profit.
Most of Tuesday’s initial 4 per cent drop in Macquarie’s share price should be attributed to the earnings update – but O’Kane’s departure won’t have helped.
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