Macquarie Bank can thank Asia for its record results

Andrew Low, head of Asia corporate finance for Macquarie, says that there's still room to grow in the region.
Australia's Macquarie Bank announced on Tuesday (May 15) that its profits increased 60% thanks in large part to its activities in Asia.

"The bank has transitioned from being an Australian institution growing internationally, to being a global institution headquartered in Australia. International income was more than 50% of income across most of our businesses, international specialist fund equity raisings are more than triple Australian raisings and international institutions now hold more than 35% of the groupÆs issued capital," says Macquarie Bank managing director and chief executive officer, Allan Moss.

The bank earned A$1.463 billion ($1.219 billion) in net profit for the fiscal year ending March. Key to its growth is Asia with the bank's Asia-Pacific income increasing by 26% to $A1.1 billion. And Macquarie bankers say this contribution from the region is only set to rise further.

"The corporate finance business has experienced strong growth in Asia, but weÆre barely scratching the surface in terms of what we could be doing," says Andrew Low, head of Asia corporate finance for Macquarie Group of Companies, adding that the bank is targeting growth specifically in India, China and Japan.

When asked if Macquarie is a late to these parties, Low says he sees plenty more opportunity for business in these countries. Ironically, journalists typically harangue Macquarie for growing too fast, so it must be a bit odd to be questioned if the bank hasnÆt grown fast enough.

Macquarie expanded its existing operation in the region about three years ago when it purchased ING's stock broking operations after that business collapsed under the weight of Nick Leeson's dodgy derivative deals in Singapore. Since then, growth in Asia, as in the rest of the company, has been exponential each year û making it a target of critics who want to see the bank fall on its face.

Indeed, one of the most frequently mentioned deals right now is the Qantas Airways bid in which Macquarie participated. The deal failed earlier this month, but Low notes that such high profile deals (whether or not they go through) have helped build brand recognition for the bank in Asia.

"We very rarely go to a meeting where people don't know what Macquarie is and aren't talking about one of our transactions," notes Low.

The bank is perhaps best known for having mastered a business of buying infrastructure (from toll roads and airports to water utilities) and then packaging them in listed and unlisted funds which it then charges a fee to manage. Its Asia business has grown in part thanks to strong contributions from the specialist funds business, which encompasses both real estate and infrastructure funds such as: Macquarie Goodman Hong Kong Wholesale Fund (an unlisted real estate fund established by Macquarie Goodman Asia) with HK$4.8 billion to invest in property; the Korea/London listed Macquarie Korea Infrastructure Fund (MKIF); and the Singapore-listed Macquarie International Infrastructure Fund (MIIF).

The Sydney-based bankers are giving a typically well-hedged outlook for the bank with lines like ôsubject to prevailing market conditionsö etc the bank expects to ômaintain or strengthenö its market position.

Low is a bit more concrete. He notes that the bank has hired 98 people in corporate finance alone, in Asia, over the last six months. That's part of an effort to build a core group of people who really know the region and can build relationships that last throughout any economic cycle. The bank often touts the importance of having dedicated people assigned to deals.

The market seems to approve - shares in Macquarie Bank have risen 13.9% so far in 2007 ù as compared to a 6.8% gain in the 54-member S&P/ASX200 benchmark index.
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