Macquarie Group says it expects to make another annual profit of around $2.2 billion despite the impact of the federal government’s new bank levy, and it made sure shareholders at yesterday’s annual meeting heard a lot more about the iniquities of the levy and less about the group’s performance.
Macquarie said in a trading update released before the AGM that its performance in the first quarter of its 2017-18 fiscal year, which ends in March, was in line with expectations – stronger than a year ago but weaker than the final quarter of the year to March 30, 2017.
Macquarie said it benefited from improved trading conditions in its commodities and global markets operations, and growth continued in its banking and financial services operations, particularly in mortgages, deposits and business banking.
Macquarie told the ASX the operating performance across its five divisions was up in the three months ended June 30, compared to same quarter in 2016.
It said the improvement in earnings reflected improved trading activity in its commodities and global markets unit, more lending in its corporate and asset finance division and higher levels of debt capital markets activity.
But at the annual meeting, chairman Peter Warne complained about the 6 cents in the dollar levy imposed by the Federal government in the May budget.
Macquarie said levy will have an estimated pre-tax annual cost of $66 million, effectively raising Macquarie Bank’s tax rate from 34% to 41% (that was the first time the bank has put a figure on the levy cost for it).
The levy applies to non-retail deposit liabilities held by Australia’s big four banks and Macquarie Bank.
"The new tax will have a disproportionately higher impact on Macquarie Bank compared to the major Australian banks given our business mix is more heavily weighted to wholesale and international business," Mr Warne said.
He said that around a third of Macquarie Bank’s earnings in 2016-17 came from its Australian operations, and the bank has a market share of about 2% on most Australian banking products.
"Given the relatively small size of our Australian banking business we were surprised by our inclusion in the group to pay this levy," he said.
"We have also expressed our concern to the government given the benefit we bring to domestic competition and innovation, the role we play in bringing offshore income into the Australian economy, and the potential for unintended consequences resulting from the levy."
Macquarie Group also said it has sufficient surplus capital to be able to accommodate newly announced capital requirements. The Australian Prudential Regulatory Authority has requested the major lenders increase their Tier 1 capital ratios to 10.5% by January 2020.
Macquarie said its group capital surplus of $4 billion was "comfortably" above regulatory requirements. Macquarie shares rose 1.2% to $87.37.