Macquarie Group FY20 Results (ASX: MQG)

Macquarie Group FY20 Results (ASX: MQG)

Macquarie Group (ASX: MQG) has reported its full-year results for FY20. We take a look at the company’s headline figures, key commentary and guidance outlook, plus review the share market’s reaction across the trading day.

 

Headline result

Earlier this morning, Macquarie Group announced FY20 net profit of $2.73bn, which was down 8% on the year prior.

At the end of March, the bank held a Common Equity Tier 1 (CET1) ratio of 12.2%.

Macquarie Group has elected to declare a dividend of $1.80 per share in relation to 2H20, 40% franked. The final dividend is 50% lower than that declared in relation to FY19.

MQG shares found significant buying support through today’s trading, climbing 5.7% to close the week at $105.19.

 

Key commentary

The second half of the year weighed on Macquarie’s results, with 2H20 net profit down 13% against 1H20 to $1.27bn, and 24% down on the prior corresponding period. Full-year earnings per share were $7.91, a drop of 10% compared with FY19, where the business benefitted from “a high level of asset realisations”.

Annuity-style activities represented approximately 63% of Group performance in FY20, with the remainder derived from Market-facing activities. The former performed strongly, with combined net profits rising 13%. However, this was offset by weak performance from MQG’s Market-facing activities that included Macquarie Capital, where lower fee revenue eventuated from debt capital markets activities, and to a lesser extent, most businesses from its Commodities and Global Markets division.

One of the major contributors to the year-on-year decline in business performance was the leap in credit and impairment charges arising from COVID-19. Whereas just $139m was set aside at the end of 1H20, provisions for 2H20 totalled $901m. The total of these two figures was nearly double the comparable result from FY19, which was $552m.

The company reported annualised return on equity (ROE) of 14.5%, down 18% versus FY19.

Nonetheless, Macquarie Group managed to expand its assets under management over the year, finishing March 2020 with $606.9bn on its balance sheet, largely due to investments by managed funds. Furthermore, Group capital surplus was $7.1bn, while the company’s leverage ratio was 5.7%, its Liquidity Coverage Ratio (LCR) was 173% and its Net Stable Funding Ratio (NSFR) finished at 118%.

 

Guidance outlook

Management have noted the company’s “strong capital position and a well-funded balance sheet”. They believe this will underpin the ability of the business to “operate through all market cycles and invest in growth”.

Notwithstanding the above, Macquarie Group expects the Macquarie Asset Management division to see base fees broadly in line with forecast, but Net Other Operating Income to significantly decrease due to timing delays with asset sales.

The company’s Banking and Financial Services segment is likely to see higher deposit and loan portfolio volumes, somewhat offset by competitive margin pressure.

There is anticipated to be subdued customer activity in the short-term for the Commodities and Global Markets division, albeit management believes volatility could create opportunities, while product and client sector diversity are expected to provide support.

The market for Macquarie Capital is expected to remain “challenging”, with successful transactions forecast to decrease and investment-related income also projected to decline from FY20 volume.

In light of all the macroeconomic uncertainty facing the company, Macquarie Group has withheld providing a guidance for FY21.

 

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