Press Release
Sydney, 26 October 2017
Key points
Macquarie Group (ASX: MQG; ADR: MQBKY) today announced a net profit after tax attributable to ordinary shareholders of $A1,248 million for the half-year ended 30 September 2017 (1H18), up 19 per cent on the half-year ended 30 September 2016 (1H17) and up seven per cent on the half-year ended 31 March 2017 (2H17).
Macquarie Group Managing Director and Chief Executive Officer (CEO) Nicholas Moore said: “1H18 highlighted the strength of Macquarie’s global platform, the diversity of its business mix and its ongoing ability to adapt to changing conditions.
“Macquarie’s annuity-style businesses (Macquarie Asset Management (MAM), Corporate and Asset Finance (CAF) and Banking and Financial Services (BFS)), which represented approximately 80 per cent of the Group’s 1H18 performance4, generated a combined net profit contribution of $A2,094 million, up 28 per cent on 1H17 and up 30 per cent on 2H17.”
“Macquarie’s capital markets facing businesses (Commodities and Global Markets (CGM) and Macquarie Capital) delivered a combined net profit contribution of $A568 million, down 18 per cent on 1H17 and down 25 per cent on 2H17.”
Net operating income of $A5,397 million in 1H18 was up three per cent on 1H17 and up five per cent on 2H17, while operating expenses of $A3,693 million were down one per cent on 1H17 and up five per cent on 2H17.
Mr Moore noted: “During the half-year we continued to build on the strength of our Australian franchise, while international income accounted for 62 per cent of the Group’s total income.”
Macquarie’s assets under management (AUM) at 30 September 2017 was $A473.6 billion, down two per cent from $A481.7 billion at 31 March 2017, largely due to net asset realisations in Macquarie Infrastructure and Real Assets (MIRA)5 and unfavourable currency movements in Macquarie Investment Management (MIM), partially offset by positive market movements.
Mr Moore said: “The Group remains well positioned, with a strong and diverse global platform and deep expertise across a range of products and asset classes. This is built on the foundation of a strong balance sheet, surplus capital, a robust liquidity and funding position and a conservative approach to risk management which is embedded across all operating groups.”
Macquarie also announced today a 1H18 interim ordinary dividend of $A2.05 per share (45 per cent franked), up on the 1H17 interim ordinary dividend of $A1.90 per share (45 per cent franked) and down from the 2H17 final ordinary dividend of $A2.80 per share (45 per cent franked). This represents a payout ratio of 56 per cent. The record date for the final ordinary dividend is 8 November 2017 and the payment date is 13 December 2017.
Board and management changes
Macquarie advised today that Glenn Stevens will be appointed to the Macquarie Group Limited and Macquarie Bank Limited Boards as an independent director, effective 1 November 2017. Mr Stevens worked at the highest levels of the Reserve Bank of Australia for 20 years, most recently as Governor between 2006 and 2016. He led policy decisions through the global financial crisis, Australia’s mining boom, and an extended period of low interest rates and developed Australia’s successful inflation targeting framework for monetary policy.
After 25 years of service, Stephen Allen, Macquarie’s Chief Risk Officer and Head of Risk Management Group (RMG), has announced his intention to retire and will step down from Macquarie’s Executive Committee on 31 December 2017.
Mr Moore said: “I would like to thank Steve for his enormous contribution to Macquarie over many years and wish him all the very best for his retirement. In addition to a successful career establishing and growing some of our operating businesses, Steve has built a powerful legacy, overseeing Macquarie’s risk management activities at a time of significant change in the financial services industry and rapid expansion in regulation.”
Effective 1 January 2018, Macquarie’s Chief Financial Officer and Head of Financial Management Group (FMG), Patrick Upfold, will succeed Mr Allen as Chief Risk Officer and Head of RMG.
Effective the same date, Alex Harvey, Global Head of Principal Transactions in Macquarie Capital, will succeed Mr Upfold as Chief Financial Officer and Head of FMG and will join the Executive Committee. Mr Harvey joined Macquarie in 1999.
Outlook
Macquarie currently expects the combined net profit contribution from operating groups for the year ending 31 March 2018 (FY18) to be slightly up on the year ended 31 March 2017 (FY17).
The FY18 tax rate is currently expected to be broadly in line with 1H18.
Given substantial performance fees were recognised in 1H18, Macquarie expects the 2H18 result to be down on 1H18 and broadly in line with 2H17.
Accordingly, the Group’s result for FY18 is currently expected to be slightly up on FY17.
The Group’s short-term outlook remains subject to:
Mr Moore said: “Macquarie remains well positioned to deliver superior performance in the medium-term due to our deep expertise in major markets, strength in diversity and ability to adapt the portfolio mix to changing market conditions, the ongoing benefits of continued cost initiatives, a strong and conservative balance sheet and a proven risk management framework and culture.”
Half-year result overview
Net operating income of $A5,397 million for 1H18 was up three per cent on 1H17, while total operating expenses of $A3,693 million were down one per cent on 1H17.
Key drivers of the change from 1H17 were:
Staff numbers were 13,966 at 30 September 2017, up from 13,597 at 31 March 2017.
The income tax expense for 1H18 was $A448 million, a two per cent increase from $A438 million in 1H17. The increase was mainly due to higher profit before tax. The effective tax rate of 26.4 per cent was down from 29.4 per cent in 1H17 and broadly in line with the 2H17 rate of 26.9 per cent, reflecting the geographic mix and nature of earnings.
Strong funding and balance sheet position
Chief Financial Officer (CFO) Patrick Upfold said “Macquarie remains well funded with a solid and conservative balance sheet and we continue to pursue our strategy of diversifying funding sources by continuing to grow the deposit base and accessing a variety of funding markets.”
Total customer deposits6 increased three per cent to $A49.4 billion at 30 September 2017 from $A47.8 billion at 31 March 2017. During 1H18, $A8.2 billion of new term funding7 was raised covering a range of tenors, currencies and product types.
Capital management
Macquarie’s financial position comfortably exceeds APRA’s Basel III regulatory requirements, with Group capital surplus of $A4.2 billion at 30 September 2017. This surplus was down from $A5.5 billion at 31 March 2017, following payment of the FY17 final dividend and FY17 Macquarie Group Employee Retained Equity Plan buying requirement, the ECS8 buyback and business growth, partially offset by 1H18 profit and movement in reserves. The Bank Group APRA Basel III Common Equity Tier 1 capital ratio was 11.0 per cent (Harmonised: 13.3 per cent) at 30 September 2017, down from 11.1 per cent (Harmonised: 13.3 per cent) at 31 March 2017. The Bank Group’s APRA leverage ratio was 6.1 per cent (Harmonised: 6.9 per cent), LCR was 153 per cent and NSFR was 109 per cent at 30 September 2017.
Regulatory update9
The Basel Committee has delayed the finalisation of proposals to amend the calculation of certain risk weighted assets under Basel III. Any impact on capital will depend upon the final form of the proposals and local implementation by APRA.
APRA has delayed until at least 1 January 2019 the implementation of a new standardised approach for measuring counterparty credit risk exposures on derivatives (SA-CCR) and capital requirements for bank exposures to central counterparties. APRA has also announced that it does not expect to finalise a new market risk standard10 until at least 2020, with implementation from 2021 at the earliest.
APRA provided guidance around CET1 capital ratios for Australian banks to be considered ‘unquestionably strong’ and intends to release further details on how the new requirements will be implemented later this year. APRA has indicated11 that the implementation of the proposal will incorporate changes to the prudential framework resulting from the finalisation of Basel III. Based on existing guidance, Macquarie’s surplus capital position remains sufficient to accommodate any additional requirements.
Share buyback
To provide additional flexibility to manage the Group’s capital position going forward, the Board has approved an on-market buyback of up to $A1 billion, subject to a number of factors including the Group’s surplus capital position, market conditions and opportunities to deploy capital by the businesses. This buyback has received the necessary regulatory approvals.
Operating group performance
Australia and New Zealand
T: +61 2 8232 2336
Email regional contact
Americas
T: +1 212 231 1310
Email regional contact
Asia
T: +852 3922 4772
Email regional contact
Europe, Middle East and Africa
T: +44 20 3037 4014
Email regional contact