Sydney, 08 May 2020
Macquarie Group (ASX: MQG; ADR: MQBKY) today announced a net profit after tax attributable to ordinary shareholders of $A2,731 million for the full-year ended 31 March 2020 (FY20), down eight per cent on the full-year ended 31 March 2019 (FY19). FY19 benefited from a high level of asset realisations, while FY20 was impacted by higher impairments relating to the potential economic impacts of the COVID-19 pandemic.
Profit for the half-year ended 31 March 2020 (2H20) was $A1,274 million, down 13 per cent on the half-year ended 30 September 2019 (1H20) and down 24 per cent on the half-year ended 31 March 2019 (2H19).
Macquarie Group Managing Director and Chief Executive Officer, Shemara Wikramanayake, said: “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.
“Macquarie’s full-year result has also been subject to the effects of this crisis and a strong underlying financial performance in FY20 was impacted by a material increase in credit and other impairment charges, primarily reflecting the deterioration in current and expected macroeconomic conditions as a result of COVID-19.”
Annuity-style activities, which are undertaken by Macquarie Asset Management (MAM), Banking and Financial Services (BFS) and certain businesses of Commodities and Global Markets (CGM), represented approximately 63 per cent of the Group’s FY20 performance3 and generated a combined net profit contribution of $A3,439 million, up 13 per cent on FY19.
Markets-facing activities, which are undertaken by Macquarie Capital and most businesses of CGM, represented approximately 37 per cent of the Group’s FY20 performance3 and generated a combined net profit contribution of $A2,009 million, down 35 per cent on FY19.
Net operating income (excluding credit and other impairment charges) of $A13,365 million in FY20 was in line with FY19. International income accounted for 67 per cent of Macquarie’s total income4.
Credit and other impairment charges of $A1,040 million in FY20 were up on $A552 million in FY19. The impact of COVID-19 was also reflected in credit and other impairment charges for 2H20 of $A901 million, up from $A139 million at 1H20 and $A476 million at 2H19.
Operating expenses of $A8,871 million were in line with FY19, with staff numbers increasing to 15,8495 at 31 March 2020, up from 15,602 at 31 March 2019.
The income tax expense for FY20 was $A728 million, down 17 per cent on FY19. The effective tax rate for FY20 was 21.0 per cent, down from 22.8 per cent in FY19. The decrease was mainly driven by the geographic composition and nature of earnings.
Macquarie’s assets under management increased 10 per cent to $A606.9 billion at 31 March 2020 from $A551.3 billion at 31 March 2019, due to investments by managed funds, an acquisition by MAM and foreign exchange movements, partially offset by recent market movements, a reduction in contractual insurance assets and divestments by managed funds.
Macquarie’s financial position continues to exceed APRA’s Basel III regulatory minimum requirements, with a record Group capital surplus of $A7.1 billion at 31 March 2020, up from $A6.1 billion at 31 March 2019.
The Bank Group APRA Basel III Common Equity Tier 1 (CET1) capital ratio was a record 12.2 per cent (Harmonised: 14.9 per cent) at 31 March 2020, up from 11.4 per cent (Harmonised: 14.3 per cent) at 31 March 2019. The Bank Group’s APRA leverage ratio was 5.7 per cent (Harmonised: 6.3 per cent), Liquidity Coverage Ratio was 173 per cent and Net Stable Funding Ratio was 118 per cent at 31 March 2020.
The Group undertook a number of funded balance sheet initiatives during FY20, including:
Macquarie Group Chief Financial Officer, Alex Harvey, said: “The Group continues to maintain a strong capital position and a well-funded balance sheet with term liabilities exceeding term assets. These are hallmarks of Macquarie’s approach and ensure that the Group is well-positioned to operate through all market cycles and invest in growth.”
Macquarie acknowledges APRA’s guidance in relation to capital management8. In light of APRA’s guidance, and the continuing uncertainty as to the impacts of COVID-19, together with Macquarie’s strong capital position and earnings generated for FY20, the MGL Board has resolved to:
Macquarie notes that Macquarie Bank Limited (MBL) has not declared any dividends in FY20, nor are any being declared at this time.
Macquarie notes that it has further strengthened its ordinary equity position by generating or raising approximately $A3.7 billion of additional capital since 31 March 201910. These measures, supported by stress testing analysis, provide a significant buffer for further and extended COVID-19 volatility and allow capacity for business growth where opportunities arise, including continuing to provide credit to the Australian economy.
In the light of the COVID-19 pandemic, on 19 March 2020 APRA announced a number of temporary changes to its expectations regarding bank capital ratios, to ensure banks are well positioned to provide credit to the economy in the current challenging environment11.
On 30 March 2020, APRA deferred the majority of its regulatory reviews related to the finalisation of Basel III by one year, to allow ADIs to focus on maintaining operations and providing credit to the Australian economy12.
As previously noted, APRA is in discussions with Macquarie on resolution planning and intragroup funding. These discussions are progressing and Macquarie will continue working on these initiatives in consultation with APRA.
Curtailing the spread of COVID-19 has necessitated a sudden pause in activity in large parts of many economies around the world. This has led to reduced consumer and business confidence and more volatile financial markets, the impacts of which governments have cushioned with exceptional levels of financial support and other stimulus measures.
These challenging conditions bring into focus the imperative for organisations to support their stakeholders and contribute to the communities in which they operate. Examples of actions taken by Macquarie include:
The factors impacting Macquarie’s short-term outlook are:
Market conditions are likely to remain challenging, especially given the significant uncertainty caused by the worldwide impact of COVID-19 and the uncertain speed of the global economic recovery. The extent to which these conditions will impact the Group’s overall FY21 profitability is uncertain, making short-term forecasting extremely difficult. Accordingly, Macquarie is currently unable to provide meaningful guidance for FY21.
Ms Wikramanayake said: “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. 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.”
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This document has been authorised for release by Alex Harvey, Chief Financial Officer.