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Macquarie Group spent six years trying to find a niche between Canada’s big banks and its boutique brokerages. What the Australian financial firm found instead is that is a good way to get squeezed. After six pricey years of experimenting, Macquarie Group is giving up on fighting the country’s big banks. But it’s not giving up on Canada, instead going back to a boutique approach.DANIEL MUNOZ/Reuters

Macquarie Group Ltd. spent six years trying to find a niche between Canada's big banks and its boutique brokerages. What the Australian financial firm found instead is that is a good way to get squeezed.

After six pricey years of experimenting, Macquarie Group is giving up on fighting the country's big banks. But it's not giving up on Canada, instead going back to a boutique approach.

The quick and not entirely orderly retreat of Macquarie from some of its expensively built positions in Canadian finance has raised questions about whether the bank has decided to pull out altogether. Those include decisions in recent weeks to shrink investment banking, to sell a wealth management network years in the making, and the announcement Friday that the man hired to run Macquarie in Canada would be leaving.

The tendency of foreign firms that appear when Canada is hot only to pull back when it is not is long established. The fact that Macquarie has spent something close to half a billion dollars building in Canada over the past six years does little to dampen talk that the next step is a full in retreat. When firms decide to go, they just go no matter how much they have sunk into Canada. Other strategic priorities prevail is a kind way of putting it. The reality is Canada is a small market that is nice to have in good times and expendable in bad times.

Stifel Nicolaus of the U.S. abruptly closed its underperforming local operation last month.

Given that backdrop, the questions are hardly surprising. It appears that the answer in Macquarie's case is different. The big moves of recent weeks are the end, not the beginning, of a major shift.

Rather than return to Australia, people close to the situation say Macquarie will instead return its Canadian operations to what they were six years ago – a local boutique dealer with a big global bank behind it. That was what Macquarie created in 2007 when it bought Canadian boutique Orion Securities. That $147-million acquisition took Macquarie into capital markets in Canada with a set of strong bankers and traders largely focused on resources. At least, that was the hope from the Orion side. Now, two of the Orion partners are in charge, with oil and gas banker Dan Cristall becoming chief executive and sales and trading head Alex Rothwell becoming president.

Between buying Orion and giving Orion staff the reins, Macquarie took a long and expensive detour. Macquarie quickly ramped up its ambitions. It bought Calgary-based Tristone Capital for $145-million in 2008 and paid $93-million for Blackmont Capital that same year. The speedy build hadn't been the plan, Paul Donnelly, the man imported from Australia to run Canada, said at the time. The opportunities just arose. The belief was Macquarie could cobble together a business that reflected what worked in other markets – "mirroring Macquarie's global specialist capabilities," as the firm put it when it announced Mr. Donnelly's departure in early 2011.

Macquarie also hired aggressively, adding analysts and brokers and bankers. It tried to fight Canada's big banks for bond deals. There was talk of a banking licence. But a lot of the operation struggled to make money.

Mr. Donnelly's replacement, Dave Fleck, had to try to make it all work and, what's more, to do it in a down market. Macquarie learned lesson one of Canada with Mr. Donnelly, that importing a boss is dangerous because the Canadian capital markets may look a lot like any other, but they have their own quirks. There is a reason that big successful foreign firms in Canada are often run by Canadians (top of the list would be Merrill Lynch).

Mr. Fleck brought a local perspective, having had a long career most notably at the investment banking operations of Bank of Montreal.

But what he got to work with was problematic. Spending big to get a top pipeline analyst was not enough to get a big chunk of pipeline share underwriting business. The big banks lend to the pipelines, and unless Macquarie could do the same it would not be able to compete. The retail brokerage business was said to be losing millions a year.

What Macquarie had built wasn't entirely clear, as Mr. Fleck acknowledged.

"The biggest challenge for us is to truly understand what we're good at, and what we're not so good at," he told the Globe not long before his departure was announced.

Now, what remains is largely what came in the Orion purchase, with a few add-ons. From Tristone, there's added energy research capability. From the hiring push, there are analysts covering areas such as telecom, banking and real estate.

Macquarie is never going to be big in investment banking in telecom and financial services. But the analysts generate votes from big money managers that turn into commission dollars.

In real estate, where Macquarie had some success, the firm appears to be betting that its real estate analyst, Michael Smith, is popular enough with companies he covers to generate some underwriting business on his own. So look for Macquarie to remain in syndicates for offerings in real estate So what is left is a mining- and energy-focused boutique with a business trading yield stocks. Seeing Macquarie expand into other areas of coverage would not be a big surprise.

But the days of trying to fly closer to the banks are likely over. It's now the boutique path.

To be sure that comes with its own challenges. Many boutiques focused on resources are struggling.

There is always the possibility if Canada's market stays quiet that the head office in Australia may yet make a call to pull out fully.

For now it seems Macquarie, having learned a lesson, plans to stay and try a new model that looks a lot like the old model.

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