07 February 2012
Sydney, 7 February 2012 – Macquarie Group Limited (Macquarie) (ASX:MQG;ADR: MQBKY) today provided an update on market conditions, business activity and the outlook for the second half of the financial year ending 31 March, 2012.
During a presentation at Macquarie's Operational Briefing in Sydney today, Macquarie Chief Executive Officer Nicholas Moore said: “Global economic uncertainty has deepened, resulting in substantially lower levels of client activity in many markets.
“However, Macquarie’s three annuity-style businesses - Macquarie Funds, Banking and Financial Services and Corporate and Asset Finance - continue to perform in line with expectations with their combined FY12 net profit contribution expected to be up by approximately 20% on FY11.
“The Fixed Income, Currencies and Commodities Group saw improved conditions in a number of markets to deliver a December quarter net profit contribution up on pcp and significantly up on the prior period.
“Our two other capital markets facing businesses, Macquarie Securities Group and Macquarie Capital, were severely impacted by macroeconomic conditions with December quarter net profit contributions from both significantly down on pcp and the prior period,” Mr Moore said.
“For example, cash equities industry-wide by value traded, were down 24% in Asia and 25% in Australia in the December quarter compared to the September quarter, while IPOs by value were down 61% in Australia and 4% in Asia for the same period. IPOs by value were down 48% in Asia and 87% in Australia for calendar year 2011 compared with 2010.”
Macquarie Securities’ second half operating income is expected to be down 55% on pcp, with FY12 operating income expected to be down 35% on FY11.
Macquarie Capital’s second half operating income is expected to be down 35% on pcp with FY12 operating income expected to be down by 30% on FY11.
Mr Moore noted that the December quarter included the receipt of the $A300 million cash amount from MAp which has been recorded as income.
Cost reductions across the businesses continued in the quarter with FY12 operating expenses for the annuity-style businesses expected to be down 5% on pcp and operating expenses for the capital markets facing businesses down 10% on pcp.
Mr Moore said Macquarie was maintaining strong market positions and provided an overview of recent developments undertaken by the businesses:
Capital and share buyback
Reported capital surplus at December 2011 (APRA Basel II) remains unchanged from September 2011 at $A3.5 billion.
Capital surplus, measured on a proforma basis under Harmonised Basel III, is expected to be approximately $A3.7 billion at 31 March 2012, measured at current Tier 1 requirements of 7%. It is expected to be $A2.7 billion measured at 8.5%. The common equity Tier 1 ratio for Macquarie Bank Limited is expected to be 11.2% at 31 March 2012 (excluding capital surplus held in the non-banking group). Basel III capital surplus measured after APRA “super equivalence” expected to be $A0.9 billion as at 31 March 2012 (APRA 2016 requirements).
The capital surplus is expected to allow the commencement of a share buyback of up to 10% of Macquarie Group ordinary shares in the first half of FY13, subject to regulatory approval, and for the buyback to proceed concurrent with further capital actions.
Strong funding and balance sheet position
The funded balance sheet remains strong and well funded with continued growth in deposits.
Since the Group’s update to the market on 28 October 2011, Macquarie Securities and Macquarie Capital have continued to experience difficult trading conditions in many markets.
Accordingly, and as previously indicated, Macquarie’s result for FY12 is expected to be lower than FY11. Based on current market conditions, FY12 is anticipated to be approximately 25% lower than FY11. It is also anticipated that 2H12 net profit after tax will be approximately 35% up on 1H12 and approximately 25% down on pcp. The expected increase between the first and second halves is principally due to a significantly improved contribution from FICC and the MAp cash amount which will offset a weaker contribution from Macquarie Securities.
The FY12 outlook is also subject to the completion rate of transactions and the conduct of period end reviews.
In addition to market conditions, the FY12 result remains subject to a range of other factors including: movements in foreign exchange rates; cost of a continued conservative approach to funding and capital; and regulation including the potential for regulatory changes.
1. Net profit contribution represents operating income less operating expenses, and is reported before profit share and income tax.
2. Operating income represents revenues less those expenses directly attributable to the revenues.
3. Dealogic – Australia and New Zealand M&A completed deals (by deal count) for 1 April 11 - 31 December 11.
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