Macquarie Group (ASX:MQG) has reduced its interim dividend by 15% to $2.55 per share, down from the $3 per share paid in the first half of 2022-23 due to a significant 38% decline in interim earnings.
Given the magnitude of this earnings downturn, it's no surprise that Macquarie has resorted to a buyback strategy to support its shaky share price over the next year, a common move for companies facing board and management pressure.
This earnings slump is also behind the recent reports of cost-cutting measures and layoffs at the so-called 'Millionaires Factory' in late October. Macquarie reported a profit attributable to shareholders of $A1.42 billion for the half-year ending on September 30, compared to $A2.31 billion the previous year, falling far short of the market consensus of $A1.77 billion.
Macquarie attributed this decline to weaker operational performance in its asset management division. Despite the challenges, the company has approved a share buyback of up to $2 billion, raising questions about why this decision wasn't made a year ago when the results were stronger.
The rationale behind the buyback, according to Macquarie, is to provide additional flexibility in managing the Group's robust capital position, subject to various factors such as surplus capital, market conditions, and opportunities for capital deployment.
Macquarie's annualized return on equity for the half-year plummeted to just 8.7%, nearly half of the 16.9% recorded in 2022-23. CEO Shemara Wikramanayake noted that the company's underlying client franchises remained resilient despite uncertain market conditions.
While Macquarie's annuity-style businesses showed growth in loan books, deposits, and assets under management, the first-half results were substantially lower compared to the previous corresponding period, with expectations of stronger green energy realizations in the second half.
Despite lower market activity and volatility levels, the markets-facing businesses delivered solid performances, with growth in the CGM client base and Macquarie Capital's private credit book partially offsetting lower equity realizations.
Macquarie reported that net operating income for the half-year totaled $A7.91 billion, an 8% decrease from the first half of 2022-23 and a 25% decrease from the March 2023 half-year. Operating expenses increased by 6% to $A5.919 billion compared to the September 2022 period but fell by 9% from the March 2023 half-year.
International income accounted for 65% of Macquarie's total income, and the bank's outlook remains guarded with no positive indicators or figures, suggesting that shareholders can anticipate similar results for the March 2024 half-year.
Certainly, Macquarie is unlikely to approach the $5.182 billion net profit reported for the year ending last March, as achieving such a figure would require substantial asset sales, a challenging prospect given the mixed outlook for bond yields and markets.
