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Macquarie profit drained by COVID-19, dividend halved

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Macquarie Group has halved its full-year dividend after it saw the coronavirus crisis eat away at its profit, with the company warning of further challenges to come.

The group posted a net profit after tax of $2.7 billion for the full year ended 31 March, down 8 per cent year-on-year. 

Macquarie cited $1 billion in impairment charges, primarily caused by the economic impacts of the coronavirus pandemic. Of the total charges, $901 million had been generated in the second half, surging from the year before, which had then seen an impairment total for the half of $476 million.

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Profit for the second half-year had fallen by 24 per cent year-on-year to $1.2 billion.

In light of APRA’s lightened expectations around bank capital ratios, Macquarie’s board decided to slash its final dividend per share in half from the year before to $1.80, 40 per cent franked – to be funded from the non-bank earnings. Macquarie Bank had scrapped its dividend. 

Macquarie Group managing director and chief executive Shemara Wikramanayake commented: “The final months of the financial year were overshadowed by the profound human impact of the COVID-19 global health crisis and its economic consequences.”

Lower fee revenue from debt capital markets and reduced investment-related income had dragged Macquarie Capital’s net profit by 57 per cent year-on-year to $755 million. The segment had also incurred higher operating expenses, funding costs and increased credit and other impairment charges.

Market-facing activities, undertaken by Macquarie Capital and most businesses in the Commodities and Global Markets (CGS) segment, generated a profit contribution of $2 billion, plunging by 35 per cent from the prior year. They represented around 37 per cent of the group’s performance.

Macquarie expects the shaken market conditions will reduce the number of successful transactions in the Capital business and investment income is anticipated to fall further, driven by lower asset realisations in the shaken market conditions. 

Meanwhile annuity-style activities, undertaken by Macquarie Asset Management (MAM), banking and financial services and certain businesses within the CGS segment represented 63 per cent of the group’s full-year performance, generating a combined net profit contribution of $3.4 billion. 

Assets under management increased by 10 per cent to $609 billion at 31 March, with the asset manager business making an acquisition, managed funds placing investments and foreign exchange movements. But market movements, a reduction in contractual insurance assets and divestments by managed funds partly dampened the momentum.

MAM increased its profit by 16 per cent year-on-year to $2.1 billion for the year. While base fees are expected to continue to be broadly in line with past results, Macquarie said net other operating income is set to be significantly down, due to delays in timing of asset sales.

The banking and financial services business deliver a net profit of $770 million, up by 2 per cent. The group has forecast higher deposit and loan portfolio volumes and market movements to affect platform volumes. 

CGM had delivered a net profit contribution of $1.7 billion, largely in line with the year before. Global client contributions across products and sectors, along with higher annuity revenue had been offset by a reduction in trading revenues, inventory management and higher credit provisions.

Customer activity is expected to be subdued, particularly in the commodities sector in the next half, but the volatility may create some opportunities, Macquarie said. 

Total compliance spend, excluding indirect costs, had risen by 10 per cent to $545 million for the full year. 

Group chief officer Alex Harvey reported Macquarie has maintained a strong capital position and a well-funded balance sheet, being in a good position to operate through the period ahead. Macquarie has generated around $3.7 billion in additional capital since March last year. 

But the group expects market conditions will remain “challenging”, saying it is unable to provide guidance around its future performance in the next full year. 

“We continue to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions us well to respond to the current environment,” Ms Wikramanayake said. 

“The longstanding fundamentals that have resulted in Macquarie being profitable every year since inception are unchanged including deep expertise in major markets; business and geographic diversity and a proven risk management framework and culture.”

 

Macquarie profit drained by COVID-19, dividend halved
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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