Macquarie Group announces $A1,415 million half-year profit

Key Points

• 1H24 net profit of $A1,415 million, down 39% on 1H23 and down 51% on 2H23
• International income represented 65% of total income¹ in 1H24
• Assets under management of $A892.0 billion² at 30 September 2023, up 2% from 31 March 2023 and up 7% from 30 September 2022
• Financial position comfortably exceeds regulatory minimum requirements
  • Group capital surplus of $A10.5 billion³
  • Bank CET1 Level 2 ratio 13.2% (Harmonised: 18.0%⁴); Leverage ratio 5.0% (Harmonised: 5.6%⁴); LCR 199%⁵; NSFR 114%⁵
• Annualised return on equity 8.7%, compared with 16.9% in FY23
• Interim ordinary dividend of $A2.55 per share (40% franked), representing a payout ratio of 70%
• To provide additional flexibility to manage the Group’s strong capital position, the MGL Board has approved an on-market share buyback of up to $A2 billion, subject to a number of factors including the Group’s surplus capital position, market conditions and opportunities to deploy capital by the businesses

Macquarie Group (ASX: MQG; ADR: MQBKY) today announced a net profit after tax attributable to ordinary shareholders of $A1,415 million for the half year ended 30 September 2023 (1H24), down 39 per cent on the half year ended 30 September 2022 (1H23) and down 51 per cent on the half year ended 31 March 2023 (2H23).

Macquarie Group Managing Director and Chief Executive Officer, Shemara Wikramanayake, said, “Macquarie’s underlying client franchises were resilient in less certain market conditions. Our annuity-style businesses saw growth in loan books, deposits and assets under management, but the first-half result was substantially down compared to a strong period of realisations in the prior corresponding period, with an expectation that green energy realisations will be predominately in the second half. Our markets-facing businesses delivered solid performances despite lower market activity and volatility levels, with growth in the CGM client base and Macquarie Capital’s private credit book partially offsetting lower equity realisations.”

Annuity-style activities, which are undertaken by Macquarie Asset Management (MAM), Banking and Financial Services (BFS) and certain businesses in Commodities and Global Markets (CGM), generated a combined net profit contribution⁶ of $A1,296 million, down 43 per cent on 1H23 and down 30 per cent on 2H23. A positive result in BFS was more than offset by the timing of asset realisations in green investments in MAM during the period.

Markets-facing activities, undertaken by Macquarie Capital and most businesses in CGM, delivered a combined net profit contribution of $A1,562 million, down 32 per cent on 1H23 and down 60 per cent on 2H23. The prior corresponding period featured a strong performance from commodities in CGM together with material asset realisations in Macquarie Capital.

Net operating income of $A7,910 million was down eight per cent on 1H23 and down 25 per cent on 2H23, while operating expenses of $A5,919 million increased six per cent on 1H23 and decreased nine per cent on 2H23. International income accounted for 65 per cent of Macquarie’s total income.

The income tax expense of $A587 million was down from $A735 million in 1H23 and down from $A1,089 million in 2H23. The effective tax rate was 29.3 per cent⁷, up from 24.2 per cent in 1H23 and up from 27.5 per cent in 2H23. The higher effective tax rate was mainly driven by the geographic composition and nature of earnings.

At 30 September 2023, the Group employed 21,270 people⁸, which was up four per cent on 31 March 2023. In addition, approximately 237,000 people were employed across managed fund assets and investments⁹.

Assets under management at 30 September 2023 were $A892.0 billion², up two per cent from $A878.6 billion at 31 March 2023. The increase was largely due to investments made by MAM Private Markets-managed funds and favourable foreign exchange movements, partially offset by a reduction of co-investment management rights in MAM Private Markets.

Operating Group performance

MAM delivered a net profit contribution of $A407 million, down 71 per cent from $A1,402 million in 1H23. The decrease reflected the previously foreshadowed timing of asset realisations in green investments, and an increase in operating expenses. Base and performance fees were broadly in line with the prior corresponding period.

BFS delivered a net profit contribution of $A638 million, up 10 per cent from $A580 million in 1H23. The result was driven by growth in the loan portfolio and BFS deposits¹⁰ and improved average margins. This was partially offset by higher credit impairment charges and higher costs due to increased headcount and technology investment to support business growth and regulatory requirements, as well as inflationary pressure.

CGM delivered a net profit contribution of $A1,383 million, down 31 per cent from $A1,996 million in 1H23. The result mainly reflected a decreased contribution from Commodities risk management. This was primarily from Resources and EMEA Gas, Power and Emissions as volatility and price movements stabilised across commodity markets following record highs in the prior corresponding period. Operating expenses also increased.

Macquarie Capital delivered a net profit contribution of $A430 million, down 28 per cent from $A595 million in 1H23. Fee and commission income was broadly in line with 1H23. Investment-related income was lower due to the non-recurrence of material asset realisations, partially offset by higher net interest income and gains on a small number of investments. Operating expenses were also higher in 1H24.

Capital management and funding position

Macquarie’s financial position exceeds the Australian Prudential Regulation Authority’s (APRA) Basel III regulatory requirements, with a Group capital surplus of $A10.5 billion³ at 30 September 2023, down from $A12.6 billion at 31 March 2023.

The Bank Group APRA Basel III Level 2 Common Equity Tier 1 capital ratio was 13.2 per cent (Harmonised: 18.0 per cent⁴) at 30 September 2023, down from 13.7 per cent (Harmonised: 18.4 per cent⁴) at 31 March 2023. The Bank Group’s APRA Leverage Ratio was 5.0 per cent (Harmonised: 5.6 per cent⁴), the Liquidity Coverage Ratio (LCR) was 199 per cent⁵ and the Net Stable Funding Ratio (NSFR) was 114 per cent⁵ at 30 September 2023.

Total customer deposits¹¹ increased to $A135.8 billion at 30 September 2023, up from $A134.5 billion at 31 March 2023. Term funding¹² of $A8.3 billion was raised during 1H24.

1H24 interim ordinary dividend

The Macquarie Group Limited Board today announced a 1H24 interim ordinary dividend of $A2.55 per share (40 per cent franked), down on the 1H23 interim ordinary dividend of $A3.00 per share (40 per cent franked) and down on the 2H23 final ordinary dividend of $A4.50 per share (40 per cent franked). This represents a payout ratio of 70 per cent. Macquarie’s dividend policy remains a 50 to 70 per cent annual payout ratio.

The record date for the interim ordinary dividend is 14 November 2023 and the payment date is 19 December 2023. Shares are to be acquired on-market to satisfy the Dividend Reinvestment Plan (DRP) for the 1H24 interim ordinary dividend¹³.

On-market share buyback

Macquarie has a strong capital position, with a Group capital surplus of $A10.5 billion at 30 September 2023. To provide additional flexibility to manage the Group’s capital position, the MGL Board has approved an on-market share buyback of up to $A2 billion. The timing and actual number of shares purchased under the buyback will be subject to a number of factors including the Group’s surplus capital position, market conditions and opportunities to deploy capital by the businesses.

Board update

Effective 1 February 2024, subject to completion of necessary approvals, Wayne Byres will be appointed as a non-executive director of Macquarie Bank Limited (MBL). Following the retirement of Michael Coleman, expected by mid-2024, Mr Byres will be one of three bank-only non-executive directors (BONDs) alongside Ian Saines and David Whiteing and will contribute to strengthening the voice of MBL within the Group.

Mr Byres brings significant experience in domestic and international bank regulation and governance as a former Chair of APRA and Secretary General of the Basel Committee on Banking Supervision. He also served as APRA's representative on the Reserve Bank of Australia’s Payments System Board. More recently, Mr Byres has been working in an advisory capacity with the International Monetary Fund.

Outlook

Macquarie continues to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions it well to respond to the current environment.

The range of factors that may influence our short-term outlook include:

• Market conditions including global economic conditions, inflation and interest rates, significant volatility events, and the impact of geopolitical events
• Completion of period-end reviews and the completion of transactions
• The geographic composition of income and the impact of foreign exchange
• Potential tax or regulatory changes and tax uncertainties

Ms Wikramanayake said: “Macquarie remains well-positioned to deliver superior performance in the medium term with its diverse business mix across annuity-style and markets-facing businesses; deep expertise across diverse sectors in major markets with structural growth tailwinds; patient adjacent growth across new products and new markets; ongoing technology and regulatory spend to support the Group; a strong and conservative balance sheet; and a proven risk management framework and culture.”