Sydney, 06 November 2020
Macquarie Group (ASX: MQG; ADR: MQBKY) today announced a net profit after tax attributable to ordinary shareholders of $A985 million for the half year ended 30 September 2020 (1H21), down 32 per cent on the half year ended 30 September 2019 (1H20) and down 23 per cent on the half year ended 31 March 2020 (2H20).
Macquarie Group Managing Director and Chief Executive Officer Shemara Wikramanayake said: “Recent months have been overshadowed by the profound human impact of the COVID-19 global health crisis and its economic consequences. Those impacts are reflected in our result, notably in credit and other impairment charges in relation to the ongoing impact of COVID-19 on our clients and customers and in delays to realising assets from our balance sheet and our funds.”
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 contribution of $A1,600 million, down seven per cent on 1H20 and down seven per cent on 2H20.
Markets-facing activities, which are undertaken by Macquarie Capital and most businesses in CGM, delivered a combined net profit contribution of $A672 million, down 42 per cent on 1H20 and down 22 per cent on 2H20.
Net operating income (excluding credit and other impairment charges) of $A5,966 million was down eight per cent on 1H20 and down 14 per cent on 2H20, while operating expenses of $A4,266 million were down five per cent on 1H20 and down three per cent on 2H20.
The income tax expense of $A275 million was down 27 per cent on 1H20 and down 22 per cent on 2H20. The effective tax rate for 1H21 was 21.8 per cent, up from 20.5 per cent in 1H20 and 21.6 per cent in 2H20. The increase was mainly driven by the geographic composition and nature of earnings.
At 30 September 2020, the Group employed 16,356 people, which was up three per cent on 31 March 2020. In addition, approximately 130,000 people were employed at assets managed by Macquarie.
Macquarie’s assets under management (AUM) at 30 September 2020 were $A556.3 billion, down seven per cent from $A598.9 billion at 31 March 2020, largely due to foreign exchange impacts and a reduction in contractual insurance assets in Macquarie Investment Management.
Over the course of 2020, Macquarie has continued to respond to the impacts of COVID-19, with a focus on particular stakeholder groups:
Macquarie’s financial position exceeds the Australian Prudential Regulation Authority’s (APRA’s) Basel III regulatory requirements, with a Group capital surplus of $A9.4 billion at 30 September 2020, up from $A7.1 billion at 31 March 2020.
The Bank Group APRA Basel III Common Equity Tier 1 capital ratio was 13.5 per cent (Harmonised: 16.8 per cent) at 30 September 2020, up from 12.2 per cent (Harmonised: 14.9 per cent) at 31 March 2020. The Bank Group’s APRA Leverage Ratio was 5.9 per cent (Harmonised: 6.5 per cent), the Liquidity Coverage Ratio (LCR) was 176 per cent and the Net Stable Funding Ratio (NSFR) was 121 per cent at 30 September 2020.
Macquarie Group Chief Financial Officer Alex Harvey said: “Macquarie maintains a strong capital position and a well-funded balance sheet with term liabilities exceeding term assets. We continue to pursue our strategy of diversifying funding sources by growing the deposit base and accessing a variety of funding markets. We are well-positioned to operate through all market cycles and invest in growth.”
Total customer deposits4 increased to $A77.1 billion at 30 September 2020 from $A67.1 billion at 31 March 2020. A further $A7.2 billion of new term funding5 was raised, covering a range of tenors, currencies and product types.
The Macquarie Group Limited Board has announced today a 1H21 interim ordinary dividend of $A1.35 per share (40 per cent franked), down on the 1H20 interim ordinary dividend of $A2.50 per share (40 per cent franked) and down on the 2H20 final ordinary dividend of $A1.80 per share (40 per cent franked). This represents a payout ratio of 50 per cent. Macquarie’s dividend policy remains 60 to 80 per cent annual payout ratio.
The record date for the interim ordinary dividend is 17 November 2020 and the payment date is 22 December 2020. Shares will be issued to satisfy the Dividend Reinvestment Plan (DRP)6, with no discount applied, for the 1H21 dividend.
On 30 March 2020, APRA announced the deferral of its scheduled implementation of the Basel III reforms in Australia by one year. On 10 August 2020, APRA announced that it will recommence public consultations on select policy reforms later in 2020, including capital reforms incorporating the unquestionably strong framework.
On 8 July 2020, APRA extended the temporary capital treatment for bank loan repayment deferrals from six months to ten months, or until 31 March 2021, whichever comes first.
On 29 July 2020, APRA updated its guidance provided in April 2020 on capital management. The updated guidance indicated that for the remainder of 2020, banks should seek to retain at least half of their earnings when making decisions on capital distributions (and utilise initiatives to at least partially offset the impact of capital distributions where possible), conduct regular stress testing to inform decision-making and demonstrate ongoing lending capacity; and make use of capital buffers to absorb the impacts of stress, and continue to lend to support households and businesses.
As previously noted, APRA is in discussions with Macquarie on resolution planning and intragroup funding. These discussions are progressing and as part of the discussions, Macquarie Group Services Australia, the main Group shared services entity for both the Bank and Non-Bank groups, is proposed to be transferred to the Bank Group in December 2020, which is estimated to decrease the Bank’s CET1 ratio by 0.5 per cent8.
Based on the current information available, it is Macquarie’s expectation that it will have sufficient capital to accommodate likely additional regulatory Tier 1 capital requirements as a result of the above changes, noting that some of them are at an early stage of review and hence the final impact is uncertain.
As previously announced, Michael Hawker retired from the MGL and MBL Boards at the end of September 2020. In consideration of Mr Hawker’s retirement, Gordon Cairns has agreed to continue in his role on both Boards until at least March 2021. Mr Cairns had previously announced his intention to retire by the end of the year.
Market conditions are likely to remain challenging, especially given the significant and unprecedented 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 adversely impact our overall FY21 profitability is uncertain, making short-term forecasting extremely difficult. Accordingly, Macquarie is currently unable to provide meaningful earnings guidance for FY21.
The range of factors that will influence our short-term outlook include:
Ms Wikramanayake said: “While the economic impacts of the COVID-19 pandemic continue to be felt in the short term, Macquarie remains well-positioned to deliver superior performance in the medium term. This is due to our deep expertise in major markets; strength in business and geographic diversity and ability to adapt the portfolio mix to changing market conditions; an ongoing program to identify cost saving initiatives and efficiency; a strong and conservative balance sheet; and a proven risk management framework and culture.”
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