In the span of just six weeks, Macquarie Group (ASX:MQG), the largest investment bank in the country, has experienced its second downgrade. The bank's shares plummeted more than 3% following the recent update.
Macquarie Group's asset management division revised its short-term outlook, anticipating that returns from potential asset sales would extend into the latter half of its 2023-24 financial year. This downgrade follows the one issued at the bank's annual meeting in late July and precedes the bank's first-half conclusion on September 30.
The July update highlighted "weaker trading conditions, with the first quarter of the 2023-24 Operating Group contribution substantially lower than the corresponding period last year."
Despite managing approximately $864 billion in assets, the asset management division now faces challenges due to the global dip in valuations, making it harder for companies to sell their assets. Macquarie Asset Management reported a substantial decrease in Net Other Operating Income, primarily attributed to reduced investment-related income from green energy investments, with most asset realizations expected in the six months leading up to March 31.
Simultaneously, increased regulatory scrutiny and the growing skepticism of major investors have made it increasingly challenging to predict when, or if, deals will be finalized. Initial Public Offerings (IPOs) require significant cornerstone investors with credibility to appeal to other potential investors.
In the previous financial year, Macquarie Asset Management was the second-largest contributor to the group's earnings, with the commodities and global markets business ranking as the largest.
Macquarie predicts a decrease in earnings for the commodities and global markets business for the current September half, as commodity prices soften. The statement notes, "Commodities income benefited from exceptionally strong trading conditions in FY23. Commodities income is expected to be broadly in line with the prior FY22, albeit volatility may create opportunities. Consistent contribution from client and trading activity across the financial markets platform and continued contribution from Asset Finance across sectors."
The other significant contributor, Macquarie Capital, expects a mixed outlook. The statement states, "Transaction activity is expected to increase compared to the challenging FY23, and investment-related income is expected to be broadly in line with FY23, with increased revenue from growth in the private credit portfolio, offset by lower revenue due to the timing of asset realizations."
Overall, it appears that Macquarie is on track for a weaker performance in the current first half. The group reported a net profit after tax of $2.03 billion for the September 2022 half, marking a 13% increase from the previous year's first-half performance.
