Australian blue-chip company, Macquarie Group Limited (ASX:MQG) has reported an update on its third quarter of the financial year ending 31 March 2020.
CEO & MD, Shemara Wikramanayake noted that trading conditions were satisfactory across the business in the third quarter ended 31 December 2019 (3Q).
Its annuity-style businesses’ combined 3Q net profit increased over the pcp. In FY20 YTD, the net profit contribution was up over the pcp as a result of higher base and performance fees in Macquarie Asset Management and continued volume growth was partially offset by margin pressure in Banking & Financial Services.
Macquarie’s markets-facing businesses registered a lower net profit contribution over previous corresponding period to the combined 3Q net profit. Also, the net profit contribution was down on the pcp for FY20 YTD period, owing to lower investment related income in Macquarie Capital as against a stronger pcp, which saw large asset realisations. However, the lower income from this business was somewhat offset by stronger activity across Commodity & Global Markets.
Macquarie’s financial position exceeds the APRA Basel III regulatory requirements comfortably, backed by excess capital of $5.8 billion at the end of 3Q, which was $6.7 billion at the end of 2Q.
By end-3Q, its APRA Basel III CET1 capital ratio was 11.4 per cent, unchanged from 2Q, APRA leverage ratio was 5.3 per cent, average LCR was 158 per cent and NSFR was 109 per cent.
Macquarie Asset Management
At the end of 3Q, the business had assets under management of $587.5 billion, indicating an increase of 5 per cent over 2Q. In 3Q, the equity under management with MIRA increased 2 per cent to $137.5 billion. MIRA or Macquarie Infrastructure and Real Assets raised $5.5 billion in new equity, divested assets worth $5.5 billion and invested equity of $7.2 billion.
At 31 December 2019, MIRA had $21.1 billion of equity for deployment. During December 2019, the group entered into a sales agreement with Sunsuper to sell a 25 per cent stake in Macquarie AirFinance.
By 3Q, the assets under management of Macquarie Investment Management were $384.2 billion, up 6 per cent from the previous quarter. This increase was majorly due to the acquisition of the assets related to the mutual fund business of Foresters Investment Management, and market movements partially offset by foreign exchange.
Banking & Financial Services
At 31 December 2019, the business had total deposits of $57.7 billion, excluding wholesale and corporate deposits, up 3 per cent from the previous quarter. Its Australian mortgage chunk of $48.6 billion increased 11 per cent over the previous quarter.
Funds on the platform were flat over the previous quarter at $91.6 billion. Meanwhile, the business banking loan portfolio was $8.9 billion, up 4 per cent. Besides, the Australian vehicle asset finance portfolio decreased by 3 per cent to $14.2 billion.
Commodity & Global Markets
During the period, the division saw resilient contributions from client hedging and trading across the commodities platform. It was particularly driven by gas and power businesses in EMEA and North America, global oil and agriculture businesses.
Forex business was driven by continued customer activity across all regions along with increasing strengths in US futures and ANZ. Consistent performance in asset finance portfolio was recorded, particularly from the Technology Media & Telecommunication leasing business along with a strong business performance from the UK energy meters business.
In 3Q, the business completed 109 transactions globally valued at $76.4 billion, which was higher from the second quarter and lower on a stronger pcp. Its fee revenue was up on the pcp across advisory, debt capital markets and equity capital markets.
Some notable transactions included - sole financial advisor to Alaska National Insurance Company for its acquisition by CopperPoint Insurance Companies, a sole financial advisor and lead equity sponsor for the Europe Transport Deal of the year – £1 Silvertown Tunnel PPP project.
Meanwhile, the investment-related income was down significantly, as a result of a stronger pcp that was benefitted from large asset realisations, including Quadrant, PEXA, and Energetics.
Capital Management Updates
During end-January 2020, it was also announced that Macquarie Bank Limited (MBL) intends to repay the $400 million Macquarie Income Securities (MIS) on 15 April 2020. The bank issued MIS in 1999 that received transitional treatment under APRA’s standard, which seeks reducing capital recognition.
It is expected that the repayment of MIS would reduce Tier 1 capital by $94 million. Also, the bank intends to redeem the $429 million Macquarie Bank Capital Notes (BCN) on 24 March 2020.
After the 3Q update, the group launched the Macquarie Bank Capital Notes 2 offer, directed to raise $400 million with an option to raise more or less. Each BCN2 would be issued by MBL at an issue price of $100, and distribution would be paid quarterly in arrears, dependent on certain payment conditions.
The fresh capital would qualify as Additional Tier 1 capital of MBL for APRA purposes, and the new offer is consistent with the strategy in managing capital mix and maintaining diverse sources of funding.
Macquarie continues to expect results for FY20 to be slightly down from FY19, and the short-term outlook remains dependent on various factors, including:
- Completion rate of transactions and period-end reviews,
- Market conditions and impact of geopolitical events,
- Impact of foreign exchange,
- Potential regulatory changes and tax uncertainties,
- Geographic composition of income.
On 11 February 2020, MQG closed the day’s trading at $145.530, with a market cap of $51.86 billion.