Macquarie Bank Ltd (ASX: MQG) is a global provider of banking, financial, advisory, investment and fund management services. Its four business units are Macquarie Asset Management, Banking and Financial Services, Commodities and Global Markets and Macquarie Capital. Macquarie Bank has a market capitalisation of $A45 billion.
What is Macquarie Bank’s FY20 result?
Macquarie Bank announced today (Thursday 30 July 2020) that its earnings have been impacted by mixed trading conditions. In aggregate, the net profit contribution of the four business units in the first quarter of FY21 is slightly down on the first quarter of FY20.
Macquarie’s annuity-style businesses in the first quarter FY21 were up on first quarter FY20, with Macquarie Asset Management up primarily due to the sale of its rail operating lease business, partially offset by lower income in Banking and Financial Services which included higher provisions. Macquarie Bank’s markets-facing businesses in the first quarter FY21 were down on first quarter FY20 primarily due to significantly lower investment-related income in Macquarie Capital, partially offset by stronger contributions from certain divisions in Commodities and Global Markets.
Macquarie Bank’s financial position comfortably exceeds the Australian Prudential Regulation Authority’s (APRA) Basel III regulatory requirements, with a Group capital surplus of $A8.1 billion at 30 June 2020, up from $A7.1 billion at 31 March 2020. The Macquarie Bank’s Tier 1 capital ratio was 13.2% at 30 June 2020, up from 12.2% at 31 March 2020.
Today’s announcement by Macquarie Bank did not address APRA’s announcement yesterday that for the remainder of the calendar year bank boards should seek to retain at least half of their earnings when making decisions on dividend payments. Macquarie Bank’s dividend policy is to pay dividends of between 60% and 80% of earnings. This suggests that the dividend payment for the first half of FY21 is likely to be lower than it would otherwise be. The impact of this announcement on dividend payments by Macquarie Bank is likely to be less pronounced compared with the impact on the four major banks as the four major banks historically have tended to pay out a higher proportion of dividends relative to earnings compared with Macquarie Bank.
What is the outlook for Macquarie Bank?
Macquarie Bank indicated that 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. Consequently, the extent to which these conditions will impact overall FY21 profitability is uncertain, making short-term forecasting extremely difficult. Accordingly, Macquarie is currently unable to provide meaningful earnings guidance on the Group’s result for FY21.
That said, a range of factors that will influence the short-term outlook including the duration and severity of the COVID-19 pandemic, the uncertain speed of the global economic recovery, global levels of government support for economies, the completion rate of transactions and period-end reviews, geographic composition of income, the impact of foreign exchange movements and potential regulatory changes and tax uncertainties.
While the short term outlook is highly uncertain, management considers that Macquarie Bank remains well positioned to deliver superior performance over the medium term. This reflects Macquarie Bank’s deep expertise in major markets, strength in business and geographic diversity and ability to adapt its portfolio mix to changing market conditions, ongoing programs to identify cost saving initiatives and efficiency, a strong and conservative balance sheet and proven risk management framework and culture.
What is the market’s reaction to Macquarie Bank’s results?
Today (Thursday 30 July 2020), Macquarie Bank’s share price is trading at around $A126.60, up 1.3%. This compares with an upward movement of 0.7% in the ASX200. This suggests that the Macquarie Bank’s announcement of its first quarter FY21 earnings was well received by the market. While the short term earnings outlook is uncertain, Macquarie Bank is trading on a forward PE in the mid-teens and a dividend yield around 3-4% (partially franked).
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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