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 A$33.7 billion.
What is Macquarie Bank’s FY20 result?
Macquarie Bank’s net profit for FY20 is $A2,731 million (down 8% on FY19) and net profit for 2H20 is $A1,274 million (down 13% on 1H20 and down 24% on 2H19). 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. A key feature of the profit result is that 2H20 credit and other impairment charges totalled $A901 million, up from $A139 million at 1H20 and $A476 million at 2H19.
For FY20, Macquarie Bank’s net operating income (excluding credit and other impairment charges) in FY20 was $A13,365 million, which was in line with FY19. International income accounts for 67% of Macquarie Bank’s total income. Operating expenses of $A8,871 million were in line with FY19, with staff numbers increasing to 15,849 at 31 March 2020, up from 15,602 at 31 March 2019.
Macquarie Bank’s annuity-style activities (which are undertaken by Macquarie Asset Management, Banking and Financial Services and certain businesses of Commodities and Global Markets), represented approximately 63% of Macquarie Bank’s FY20 performance and generated a combined net profit contribution (profit before unallocated corporate costs, profit share and income tax) of $A3,439 million (up 13% on FY19). Macquarie Bank’s markets-facing activities (which are undertaken by Macquarie Capital and most businesses of Commodities and Global Markets) represented approximately 37% of Macquarie Bank’s FY20 performance and generated a combined net profit contribution (profit before unallocated corporate costs, profit share and income tax) of $A2,009 million (down 35% on FY19).
Macquarie Bank’s capital position continues to exceed APRA’s regulatory requirements. Macquarie Bank’s Tier 1 capital ratio is 12.2% at 31 March 2020. Importantly, Macquarie Bank has a capital surplus of $A7.1 billion at 31 March 2020, up from $A6.1 billion at 31 March 2019. In addition, Macquarie Bank’s liquidity position remains sound. As at 31 March 2020, Macquarie Bank’s Leverage Ratio is 5.7%, Liquidity Coverage Ratio is 173% and Net Stable Funding Ratio is 118%.
Macquarie Bank’s final FY20 dividend per share is $A1.80 (40% franked), 50% lower than the FY19 final dividend per share. In conjunction with the interim FY20 interim dividend per share of $A2.50 (40% franked), this represents a FY20 dividend of $A4.30. The FY20 dividend of A$4.30 represents a payout ratio of 56%.
The lower final dividend for FY20 reflects APRA’s guidance that banks and insurers should lower dividends in the light of the large uncertainties associated with the economic impacts of COVID-19. That said, Macquarie Bank’s capacity to pay dividends is higher than the major banks as the impact of the current environment of Macquarie Bank’s profitability, at this stage of the economic cycle, is lower than the impact on the major banks’ profitability. This can be seen with the profits results for Westpac (ASX: WBC), ANZ (ASX: ANZ) and National Australia Bank (ASX: NAB) falling much more than the comparatively small drop in Macquarie Bank’s profitability.
What is the outlook for Macquarie Bank?
Macquarie Bank’s management notes that market conditions are likely to remain challenging over the year ahead, especially given the significant uncertainty caused by the worldwide economic impact of COVID-19 and the uncertain speed of the global economic recovery. Consequently, the extent to which these conditions impact Macquarie Bank’s overall FY21 profitability is uncertain, making short-term forecasting extremely difficult. Accordingly, Macquarie Bank is currently unable to provide meaningful guidance for FY21.
What is the market’s reaction to Macquarie Bank’s results?
Today, Macquarie Bank’s share price is trading at around A$103.30, up 3.8%. This compares with an upward movement of 1.2% in the ASX200.
This suggests that the Macquarie Bank’s profit announcement was well received by the market. While the earnings outlook is uncertain, Macquarie Bank is trading on a forward PE in the low teens and a dividend yield around 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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