The Macquarie Group money-making machine seems to be losing momentum, judging by the 2019-20 interim result and weak forecast released on Friday (November 1).
Net profit for the six months to September 30 rose 11% to $1.457 billion from $1.310 billion in the September half of 2018-19 but it was down 13% from the $1,672 billion in the six months to March 30, 2019.
The result came on an 8% rise in operating income of $6.320 million from the first half of 2018-19 but was down 9% from the six months to March this year.
And the group is looking at a small fall in profit as the loss of momentum continues.
“While the impact of future market conditions makes forecasting difficult, the Group currently expects the FY20 result to be slightly down on FY19,” directors said on Friday morning – a forecast that will hit the shares when trading resumes.
Macquarie earned $2.982 billion – a record – in 2018-19. The slightness of the fall wasn’t quantified by the company in Friday’s statement, but it is clear the rapid growth of the past couple of years has evaporated.
Interim ordinary dividend of $A2.50 a share (40% franked), was up 35 cents a share from the September, 2018 figure of $2.15 a share.
Macquarie Group Managing Director and Chief Executive Officer, Shemara Wikramanayake, said in Friday’s statement: “Our first- half result highlights the benefits of the business and geographic diversity of the Group, with increased client activity across many of our business lines and favourable market conditions across the Commodities and Global Markets platform in particular.”
“Annuity-style activities, which are undertaken by Macquarie Asset Management, Banking and Financial Services and certain businesses of Commodities and Global Markets (CGM), generated a combined net profit contribution of $A1,717 million, up 15 percent on 1H19 and up 11 percent on 2H19,” she said.
“Markets-facing activities, which are undertaken by Macquarie Capital and most businesses of CGM delivered a combined net profit contribution of $A1,151 million, up four per cent on 1H19 and down 42 per cent on 2H19.”
There was a 56% slide in earnings from Macquarie Capital in the September half year from the same period of 2018-19 that may be the reason for the weak outlook.
Directors blamed “lower fee and commission income due to lower debt capital markets fee income, lower net interest and trading income due to reduced interest income from the debt portfolio and higher credit and other impairment charges due to a small number of underperforming investments.”
Those factors are not going away and could very well impact the more successful annuity style returns from the bank’s huge investment portfolios where interim earnings rose 15% to just over $1.7 billion.