Macquarie Group says the outlook remains highly uncertain, with profits dipping slightly in the first quarter as its businesses face challenges from rising bad debts and a softer market for selling assets.
Ahead of its AGM, CEO Shemara Wikramanayake said in the now usual pre-meeting update that the bank’s businesses had faced mixed conditions in the June quarter, with their contribution to group profits “slightly down” compared with the same period last year.
No figures were given in the update, nor were there any remarks on how the bank saw future earnings except to say that market conditions were challenging thanks to the COVID-129 pandemic.
“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 bank said in the update.
“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.”
The bank said its less volatile or “annuity-style” businesses such as its asset management arm had a better quarter, though this was supported by proceeds from the sale of its rail operating lease business.
Ms. Wikramanayake said the economic slump was playing out broadly as expected, with the Macquarie’s various divisions affected in different ways.
Ms. Wikramanayake said it was not a conducive environment for realising investments in big projects, which could affect both its asset management arm and its investment banking activities.
She said the timing of asset sales had always been lumpy as it was driven by when the bank could get the best return.
“In this environment, it’s not going to be a very conducive environment for realising those investments, whether they be on the balance sheet in Macquarie Capital, in the infrastructure and energy group or advisory capital division, or whether they be in the asset manager,” Ms. Wikramanayake told a business media briefing.
Macquarie said its banking and financial services arm generated lower income as it took provisions for bad and doubtful debts caused by the weak economy (as have all other banks and financial groups, including insurers).
Ms. Wikramanayake argued the bank’s loans were probably of a higher quality than its rivals’ but warned that its customers could face further stress if the coronavirus outbreak in Victoria worsened.
“If the Victorian situation gets worse, we may have people face greater difficulty. I think like all our peers, we’re very committed to bringing as many of our customers through this as possible,” she said.
The bank’s more volatile “markets-facing” businesses including investment banking also made a lower profit contribution to the group, Ms. Wikramanayake said.
Macquarie has not given specific profit guidance during the pandemic due to the high level of uncertainty, and it said it was still unable to provide meaningful forecasts for the year ahead.
“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 impact overall FY21 profitability is uncertain, making short-term forecasting extremely difficult,” Macquarie said in the trading update.
Macquarie cut its full-year dividend in May as it only paid dividends from its non-banking operations to preserve the regulated banking unit’s capital.
Looking at dividends in the wake of the change of approach from APRA this week, chair Peter Warne told the meeting the bank’s primary focus would remain on its capital position when it decided on a half-year dividend later this year.
“We’re in a very strong capital position in the bank, and that may allow us to pay a dividend from the bank up to the group at the half-year, but that’s not something we’ve decided upon at all at this stage,” he told the meeting.
Macquarie shares rose 0.8% to $126.