Inside the most talked about investment bank in the country

Insiders question whether Barrenjoey can maintain a solid payroll and absorb more than $62 million in establishment costs amid smaller trades. Setting up an investment bank is expensive, and rolling out new Barrenjoey divisions requires heavy technology spending.

Although Barrenjoey has surged up the league tables, it posted a net loss of $26 million in the last financial year. Revenue came in at nearly $253 million, while operating profit before interest and set-up costs was $37.3 million.

“We achieved an after-tax loss as a consequence of these establishment costs, which is reflected in Magellan’s accounts today,” Benari said in August when Magellan disclosed its results.

“With all of our businesses operating, the build-out phase of Barrenjoey is largely complete,” he said, referring to new services such as fixed income that complement Barrenjoey’s experienced investment bankers coming online. The construction raises the number of employees to 362 this year, from 348 at the end of the 2022 financial year.

Benari declined to be interviewed for this story.

As Magellan seeks to bolster its own share price, Barclays becomes a critical partner for Barrenjoey.

The British bank – an 18 percent shareholder in the start-up – was Barrenjoey’s global distributor when it was one of five institutions selected to work on the federal government’s $8 billion bond sale this month.

Barrenjoey’s role – its first – in the syndicated bond deal was a testament to its ambitions to be a full-service financial institution.

Barclays also played its part with Barrenjoey to raise debt and equity for ailing casino operator Star Entertainment. The Australian Financial ReviewThe Street Talk column was reported last month.

Success in fixed income requires global connectivity and foreign investors. Barrenjoey hopes this partnership with Barclays will provide that connection, but some bankers are skeptical that Barrenjoey can compete with global banks that have already invested in the technology and people in offices around the world.

“Making fixed income partnerships work is difficult. You have to ask yourself who bears the risk of losses [on trades] and what is the cost of capital with a global partner,” says an investment banker.

This week, Paul Compton, global head of corporate and investment banking at Barclays, will meet Barrenjoey’s management and clients in Sydney before flying to Singapore for Barclays’ annual Asia-Pacific forum, people familiar with the matter said. Compton. His visit comes after Barclays’ profit for the July-September third quarter fell to £1.9 billion ($3.6 billion) from £2 billion a year earlier, the bank said this month.

Compton – who sits on Barrenjoey’s board – will test the temperature of Barclays’ domestic business and, for now, Barrenjoey’s backers remain patient.

Patient enough to bear the cost of turning a corporate consulting shop into a well-rounded bank with research capabilities and premium brokerage.

Shifting gears

The lack of institutional-sized initial public offerings has led to the completion of Barrenjoey block deals and smaller capital raises in the realm of Canaccord and Euroz Hartley, among others.

While this business has elevated Barrenjoey up the capital markets league tables, smaller deals pay less in fees than the big IPOs that Barrenjoey’s ECM co-heads, Jabe Jerram and Dyson Bowditch, are known for.

Bankers believe Barrenjoey’s bankers will take advantage of these mandates when pitching their services to headline-grabbing IPOs. Its detractors point to its steady rise up the league tables and the importance of access to Barclays’ balance sheet to guarantee transactions.

“They will make as much noise as possible to get as many mandates as possible… We hope that creates momentum,” says a senior banker.

Evidence shows it works. Year-to-date, Barrenjoey tops only the Australian ECM tables after finishing 2022 in fourth place and ninth in 2021, Dealogic data shows. IPO hopefuls Virgin Australia and Mason Stevens are also in the works, giving the bank a handy shot when this window opens.

The local bank edged out UBS, Goldman Sachs and Macquarie, but bankers are keen to see how Barrenjoey compares to global banks when big initial public offerings – usually managed by Wall Street banks – return and shake up the league tables.

“The Goldmans of the world are chasing the big deals… they want the big clients. Barrenjoey has spent money in the hope that it will gain share and strengthen its position when the market improves,” says another banker.

Time to bid

But there aren’t many rainstorms that can force an IPO window open or reverse the global decline of MandA.

The deals also can’t do much about the Australian Competition and Consumer Commission’s move to block ANZ Bank’s proposed $4.9 billion acquisition of peer Suncorp Bank or Albemarle’s decision to call off its $6.6 billion takeover of Liontown Resources, which hopes for lithium.

Barrenjoey’s well-connected bankers were able to play roles in both deals, but the transactions stuck in regulatory limbo hurt an already struggling fee pool.

In its infancy, Barrenjoey enjoyed a bull market graced with record trading volumes the likes of which the world had not seen since the financial crisis. Three lines of business were designed to sustain operations during the boom.

Equity and fixed income were projected to generate $100 million in annual revenue each, while heavily reliant on the corporate advisory and finance divisions, which were estimated to bring in $150-200 million a year.

Recurring business from equities and fixed income will cover staff salaries plus costs such as rent and technology costs. The high-fee-generating investment banking division was ready to pay bonuses.

The appeal of starting a business from scratch, freed from the usual red tape of a public company, brought successful people to Barrenjoey who were charged with winning big business.

In June, Barrenjoey hired former Credit Suisse bankers Angelo Scacerra and Rahul Bharara to structure real estate debt deals, replicating what the pair did at the Swiss bank. With Barclays involved, the idea is to use Barrenjoey’s access to the British bank’s balance sheet, the people said.

Bonuses on monthly installments

Infrastructure banker Jarrod Key, who is working on the $32 billion acquisition of Sydney Airport in 2021, is a key cog in corporate finance. Debt capital markets guru Barry Sharkey was behind the recent work for Star Entertainment, and head of equities Chris Williams left UBS to run Barrenjoey’s research business.

Yet no dividends have been paid, while Barrenjoey employees receive their annual bonuses in 12 monthly instalments.

“Some of the reasons people joined Barrenjoey included bonuses paid out over 12 months, not deferred for three to four years, while you can enjoy the long-term growth of being a shareholder,” said a spokesman. when Financial review revealed this month’s bonus payout story.

Under Barrenjoey’s system, those who leave before the 12 payments are attached to their paychecks will forfeit any outstanding variable compensation, the people said.

Banks usually pay out bonuses all at once and may include a combination of cash and equity depending on the recipient’s seniority.

While Barrenjoey’s monthly payments may lock in bankers for the next year, they are also a way to manage cash payments when investment banks around the world cut costs.

And for Barrenjoey, cost management is critical after investing in new divisions, taking on a new lease and reversing a $26 million loss.

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