Macquarie Bank first quarter earnings meet management’s expectations

About Macquarie Group Limited

Macquarie Group Limited (Macquarie, the Group, ASX: MQG) commenced trading in 1969 as Hill Samuel Australia, obtained its banking licence in 1985, and listed on the ASX in 1996. Today it is a global financial services Group operating in 34 markets in asset management, retail and business banking, wealth management, advisory, risk and capital solutions and commodity trading.

June quarter profit in line with prior year

Macquarie provided an update for the first quarter of the 2025 financial year and stated the Group’s operating profit contribution for the quarter was broadly in line with the prior corresponding period and that it was consistent with management’s expectations. The first quarter operating profit was impacted by margin compression in banking services and timing of performance fees in the asset management division. Macquarie reports on a 31 March financial year basis and so the first quarter of the 2025 financial year covers the 3 months ending on 30 June 2024. The update implies that the first half-year profit result may also be flat.

Prudentially sound capital position

Importantly, Macquarie Group is in a strong capital position with a prudentially sound Common Equity Tier 1 capital ratio of 12.8 percent. This compares to the APRA regulatory capital requirement of 10.5 percent of Risk Weighted Assets and leaves Macquarie with $8.2 billion of surplus regulatory capital as at 30 June 2024. Under the capital adequacy measurement framework applied to Macquarie’s international peers that are prudentially supervised under the Basel Committee on Banking Supervision, Macquarie’s Common Equity Tier 1 capital ratio would be 17.9 percent on a harmonised basis. This difference is reflected in the strong investment grade credit ratings consistently assigned to Australian banks by independent ratings agencies like Standard & Poor’s and Moody’s. Macquarie Bank has been assigned an A+ / Stable credit rating by Standard & Poor’s. The ‘Stable’ outlook reflects the ratings agency’s expectation that it will remain unchanged over the next 2 years and that Macquarie Group has the headroom to absorb a modest downturn in the credit cycle.

Some of this surplus capital is being returned to shareholders through an on-market buy-back of Macquarie Group shares. To date, $908 million of the planned $2 billion buy-back has been acquired on-market.

Annuity-style activities account for 45 percent of profit 

Macquarie’s annuity-style business activities, being Macquarie Asset Management, and Banking and Financial Services generate 45 percent of the Group’s profit. The asset management segment has $938 billion of assets under management and dwarfs the banking segment which has deposits of $143 billion and a loan portfolio of $141 billion.

Assets under management include real assets, real estate, bonds and equities and generate base fees and performance fees. Banking and financial services cover personal banking, business banking, and wealth management products to retail clients, advisors, and brokers. Assets Under Management are a reliable indicator of future annuity income and are a key performance metric in assessing Macquarie’s earnings prospects.

Markets-facing activities contribute 55 percent of profit 

Macquarie Capital and Commodities and Global Markets business units cover the energy, resources, and agriculture sectors, as well as foreign exchange and interest rate risk management. Timing of realisations mean that reported earnings can be lumpy and affected by price volatility, although as a general rule, Macquarie’s market-facing activities perform well during periods of heightened market volatility. This was the case in the 2023 financial year when Macquarie benefited from exceptional energy and commodity markets price volatility brought on by the Russian invasion of Ukraine.

Diverse business mix to deliver superior medium-term performance

Macquarie’s diversified, quality global client franchise, annuity style activities, and prudent risk culture provide for resilient income. International income is 66 percent of total income and so exposure to geopolitical risk and other global events must be diligently managed at the operational level.

The Group avoids products and services that are highly people intensive or where low cost is the main source of competitive advantage. Instead, it continually seeks to differentiate itself from competitors through exemplary service levels and product innovation. Macquarie ensures that the risks to the Group are identifiable and manageable and manages risk by assessing the components of risk inherent in its services or products before restructuring such risks creatively.

Macquarie’s strong balance sheet supports the Board’s policy of paying between 50 and 70 percent of earnings in shareholder dividends which are 40 percent franked.

MQG only provides broad short-term outlook commentary in its presentations, however with 55 years of consecutive profitability since inception, the Group is prudentially managed, and shareholders can reasonably expect ongoing value accretion over the medium-term.