On Friday, Macquarie’s boards approved moving Macquarie International Finance Limited (MIFL) and its North American power, gas, and emissions trading business out of the bank and into the group’s non-banking arm.
Under the restructure, MIFL becomes a wholly-owned subsidiary of Macquarie, bringing in UK energy supplier Corona Energy, while a new company, Macquarie Global Finance (MGF), will handle funding for the bank’s non-core operations.
In a statement, the firm said while the restructure, including the transfer of Macquarie International Finance Limited and the majority of NAPGE, has been substantially completed, the remaining elements are expected to be finalised by 31 March next year.
S&P Global Ratings responded immediately, downgrading MIFL to “BBB+/A-2” from “A/A-1”, while affirming Macquarie Group’s long-term “BBB+” rating and Macquarie Bank’s “A+” long-term issuer credit rating.
In the rationale behind its decision, the ratings agency said “MGL’s internal restructuring does not alter the creditworthiness of the overall group”.
Further, the ratings agency noted MIFL is “integral to Macquarie’s strategy, capturing core commodity trading activities and contributing about 10 per cent of group net profit”, while MGF will be “almost integral” to the bank group, though regulatory constraints apply as a non-ELE.
All long-term outlooks were kept stable.
The restructure comes as Macquarie navigates mounting regulatory pressure in Australia.
Namely, ASIC is pursuing legal action over alleged misreporting of billions in short sales spanning 14 years and is considering court action over the collapse of two investment schemes worth some $1.2 billion.
Moreover, in May, the regulator imposed extra licence conditions on Macquarie’s banking division after identifying compliance failures in its futures and derivatives trade reporting.
In its ratings assessment, S&P highlighted that while the non-bank group has a low likelihood of extraordinary government support, Macquarie Bank remains well-capitalised and diversified, with strong risk management and moderate systemic importance in Australia.
“We assess the credit quality of the non-bank group to be weaker than that of the bank group,” the ratings agency said.
“The credit profile of the asset manager (and therefore the non-bank group) benefits from its position as the largest global alternative asset manager specialising in infrastructure and real assets. The investment banking business and commodity trading business provide further diversification in support of the credit profile.”
But S&P warned that Macquarie Group could face a ratings downgrade over the next two years if its overall credit profile weakens. The risks include the non-bank arm becoming a larger driver of earnings, failures in risk or liquidity management, or a sharp rise in leverage in its non-bank businesses.
