The divestments were sparked by higher regulatory costs attached to the business units, including capital requirements, and have been accelerated by the banking royal commission spotlight.
“Certainly some of the big items like [disbanding] vertical integration didn’t come out in the royal commission, but the trend towards banks looking at non-core businesses, which might have a higher regulatory burden or administrative costs, will continue,” Luminis managing director Jamie Garis says.
“I think we will see a focus back to core in the coming years. The key question for the banks is where do they find growth, and in an environment where all financial diversification plays of the past are under pressure and you’re finding that the housing market growth is slowing, how they solve this strategic dilemma will be interesting.”
And it’s not just something for the banks to think about.
Ron Malek, another 30-plus-year investment banker and now Luminis’ co-executive chairman, says boards and management teams across the market face dual pressures of increasing profit for shareholders while also trying to re-build customers’ trust.
“It’s a great challenge of the markets really, for most corporates,” Malek says.
“When you are listed and face the voracious appetite of the markets for growth, there’s a real pressure that comes to bear. And when your organisations are tens of billions of dollars in size [like the banks], you have to find a lot of growth to be achieving 7 to 8 per cent growth, or even 10 per cent growth, per year.
“And the stresses and strains of that are what is going to challenge the banks for the next few years.”
The comments come as Luminis Partners – which was set up by former Greenhill bankers Mordant, Malek and Garis in a Sydney office – celebrated its fourth birthday last month. The firm now also includes another former Greenhill banker, Richard Marques, as a partner, and in its four years has worked for some of the country’s biggest listed companies including Origin Energy, Suncorp, Beach Energy, Caltex Australia and Metcash.
“We have worked for 10 of the top 50 companies in the ASX,” Garis says
In doing so, they have continued the fight for boutique corporate advisers and those firms not aligned to the big integrated American and European investment banks. It’s a fight Mordant and Malek have led locally since they left a big investment bank and set out on their own two decades ago. (Luminis is backed by US-based independent advisory firm Evercore, which has also owned a 19 per cent stake since January 2017.)
Mordant says plenty has changed in that time, including the faces in the market. “A lot of the senior investment bankers have retired,” he says.
“Boards are looking for people who have got experience … and so in the first four years we were very pleased with the level of support from our long-standing clients but we have been very surprised about the level of support from people we have never done business with. And that’s really because the number of seasoned bankers in the market is reducing.”
And while Luminis Partners keeps its eye on the big banks and other top-200 listed companies, recently promoted partner Marques reckons private equity will provide plenty of deal activity. Luminis Partners is advising buyout firm Pemba Capital on its exit options for software business ReadyTech and last year sold Manuka Health for Pacific Equity Partners.
“There’s a lot of cash to be deployed [in private equity] with a number of houses having successfully raised new funds last year and a number looking to raise this year,” Marques says.
“Funds are back to being aggressive with public to private transactions and debt is available and cheap, creating a positive dynamic on the buy side. On the sell side, the IPO market looks to be opening again with the major rebound in global capital markets, creating another avenue for exit on current portfolio assets.”
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