Tag: Macquarie

Macquarie launches $1.6bn raise

Macquarie Group has kicked off a $1.6 billion raise, with the bank aiming to spread the capital across three of its subsidiaries, intending to make investments and comply with regulatory change. Via InvestorDaily.

The raise is occurring the form of an institutional placement, expected to raise around $1 billion, in addition to a share purchase plan being offered to shareholders afterwards, which could produce a further $600 million.

Macquarie indicated to shareholders it will be investing across the renewables, technology and infrastructure sectors through both the Macquarie Capital and Asset Management subsidiaries.

In particular, it noted significant investments including wind farms offshore from the UK and in Taiwan.

Macquarie said it is anticipating approximately $1 billion in net capital investment in the current quarter ending 30 September. 

The investments are expected to primarily occur through Macquarie Capital.

Further, due to a new standardised approach being implemented by APRA for measuring counterparty credit risk exposures, Macquarie’s Commodities and Global Markets business will have an estimated $600 million increase in capital requirements. 

Shemara Wikramayake, chief executive, Macquarie said: “We have continued to identify opportunities to invest capital with the potential for attractive risk-adjusted returns for shareholders over the medium term.”

“Raising new capital at this point allows us to maintain strategic flexibility in light of these opportunities.”

Alongside the capital raise, the bank provided an update on its outlook. It confirmed its previous guidance given at its annual meeting in July, continuing to expect the group’s result for the full year to be slightly down in financial year 2019. 

Macquarie anticipates the first half of FY20 is will be up by 10 per cent on the prior corresponding period, but down on its strong second half, which had benefitted from increased contributions from the market-facing businesses. 

The outlook remains subject to shaky market conditions, regulatory changes and tax uncertainties, among other factors.

Macquarie generated a net profit of $2.9 billion in FY19, up 17 per cent from the year before.

The bank paused trading before it opened the capital raise.

The placement price for is being determined through a bookbuild process, with the placement to represent around 2.5 per cent of total existing Macquarie shares on issue.

Macquarie will offer eligible shareholders an opportunity to participate in a non-underwritten share purchase plan with a maximum application size of $15,000 per eligible shareholder.

Macquarie Bank, Rabobank Australia and HSBC Intra-Group Funding Warning From APRA

The Australian Prudential Regulation Authority (APRA) has required several banks to tighten the intra-group funding arrangements for their Australian operations.  

Following a review of funding agreements across the authorised deposit-taking (ADI) industry, APRA has notified Macquarie Bank Limited, Rabobank Australia Limited and HSBC Bank Australia Limited that the reporting of their intra-group funding as stable has been in breach of the prudential liquidity standard. 

APRA’s review found these banks were improperly reporting the stability of the funding they received from other entities within the group. These banks had provisions in their funding agreements that would potentially allow the group funding to be withdrawn in a stress scenario, undermining the stability of the Australian bank.

APRA is requiring these banks to strengthen intra-group agreements to ensure term funding cannot be withdrawn in a financial stress scenario. APRA is also requiring these banks to restate their past funding and liquidity ratios where these had been reported incorrectly, to provide transparency to investors and the broader community. Supervisors are considering a range of further options, including the imposition of higher funding and liquidity requirements on these ADIs.

APRA Deputy Chair John Lonsdale said: “Macquarie Bank, Rabobank Australia and HSBC Australia are financially sound, with strong liquidity and funding positions in the current stable environment. However, to ensure they would be able to withstand a scenario of financial stress, group funding agreements for Australian banks must be watertight, so they can be relied on when they would be most needed.” 

To assist ADIs in complying with the prudential regulations, APRA has published a new frequently asked question (question 17), available on the following page: Liquidity – frequently asked questions

17. How should clauses which accelerate the repayment of funds owing under funding programs or agreements (such as in the event of a material adverse change) affect the treatment of the funding under APS 210 Attachment A paragraph 45 and APS 210 Attachment C paragraph 8?

APRA expects that a clause which allows a lender (or depositor) to accelerate repayment if the ADI is under financial stress but is still solvent and meeting its financial obligations under the program/agreement will be included in the LCR as funding that has its earliest possible contractual maturity date within the LCR horizon of 30 days. A run-off rate according to the requirements of APS 210 Attachment A paragraph 53 must then be applied. Similarly, APRA expects for NSFR purposes that the ADI will assume a residual maturity of less than six months, being the earliest date at which the funds under the funding agreement containing the relevant acceleration clause may be redeemed, and assign an ASF factor in accordance with the requirements of APS 210 Attachment C paragraph 15.    The clauses that were of concern allow the lender (or depositor) to accelerate maturity, making funds owed under the funding agreement immediately due and payable (regardless of the maturity date) upon the borrowing ADI hitting a particular trigger or coming under (or potentially coming under) stress. Such clauses could allow the lender (or depositor) to withdraw funds when they are most needed by the borrowing ADI. Further, the funds might be withdrawn in priority to other creditors, including retail depositors. Examples of such clauses include, but are not limited to: 

  • any material adverse change of the borrowing ADI which could affect the ability of the borrowing ADI to satisfy its obligations; 
  • meeting a specified market-based or similar trigger (for example, hitting a credit default swap spread or equity price), regardless of the likelihood of meeting that trigger;
  • any representation or warranty made at issuance later becomes untrue or misleading either when made or repeated; 
  • a downgrade in excess of 3 notches in the borrowing ADI’s long-term credit rating; and 
  • any litigation or governmental investigation or proceeding pending or threatened against the borrowing ADI.

APRA appreciates the difficulty of precisely prescribing whether a clause will result in the funding being included within the 30-day horizon of the LCR. APRA expects ADIs to apply a robust process of challenge to such a determination. However, at a high level, a clause that potentially triggers early repayment where the ADI is still meeting its financial obligations under the facility, has not failed and continues to operate as an ADI should warrant careful scrutiny. If the ADI remains in doubt, it should send a query to APRA rather than risk a potential breach of the requirements in APS 210.    In addition to consideration of the appropriate LCR and NSFR requirements in APS 210, if an ADI has a term or condition in a funding agreement with a related entity which is not typically contained in its external funding programs and agreements, the ADI should also consider the requirements of APS 222 paragraph 9.

Macquarie Securities pays $300,000 infringement notice

ASIC says that :

Macquarie Securities (Australia) Limited (‘Macquarie’) has paid a penalty totalling $300,000 to comply with an infringement notice given by the Markets Disciplinary Panel (‘the MDP’).

The MDP had reasonable grounds to believe that Macquarie contravened the market integrity rules that deal with the provision of regulatory data to ASX and Chi-X.

Over a four-year period from July 2014 to July 2018, Macquarie transmitted approximately 42 million orders to ASX and Chi-X that included incorrect regulatory data or omitted required regulatory data. Over the same period, Macquarie also submitted approximately 377,000 trade reports to ASX and Chi-X with the same deficiencies.

The kinds of regulatory data that was incorrect or missing was information about:

  • ‘capacity’: a notation to identify whether Macquarie was acting as principal or agent;
  • ‘origin’: a notation to identify the person on whose instructions Macquarie was acting; and
  • ‘intermediary’: the AFSL number of an intermediary using Macquarie’s automated order processing system.

The MDP emphasised that the provision of accurate regulatory data enhances market transparency and ensures an orderly market. The provision of incorrect or missing regulatory data to market operators impedes informed regulatory decision-making by market operators and by ASIC.

The MDP found that while Macquarie intended to comply with the market integrity rules, there were weaknesses in the configuration and integration of Macquarie’s systems, its processes for on-boarding new clients and its control framework.

The MDP considers Macquarie’s conduct to be negligent, having regard to Macquarie’s poor design and implementation of updates to key systems, the high number of orders and trade reports containing incorrect or missing data, the multiple categories of incorrect or missing data and the length of time the problems persisted without detection by Macquarie.

Given Macquarie’s scale, market share and high market flows, the MDP considers that market participants such as Macquarie have greater potential and capacity to undermine market integrity. A market participant such as this should carry a greater responsibility to properly manage the risks that flow from their conduct. If that risk is poorly managed, the financial consequences to the market participant should be commensurately greater.

The MDP noted that, once Macquarie became aware of the scale of the issues, which it reported to ASIC, it undertook a comprehensive review to identify the causes, and promptly implemented remedial measures.

More Rate Cuts For New Mortgages

From The Adviser.

ANZ and Macquarie Bank have reduced their home loan rates by up to 60bps, with changes across both lenders effective from 10 May.

For its Breakfree discount package, ANZ has announced the following rate changes for owner-occupiers:

  • three-year owner-occupied principal and interest rates have been cut by 30bps to 3.69 per cent (4.94 per cent comparison rate)
  • five-year owner-occupied principal and interest rates have been cut by 20bps to 3.99 per cent (4.89 per cent comparison rate)
  • two-year owner-occupied interest-only rates have been cut by 20bps to 4.29 per cent (5.13 per cent comparison rate)
  • three-year owner-occupied interest-only rates have been cut by 60bps to 3.99 per cent (5.00 per cent comparison rate)
  • five-year owner-occupied interest-only rates have been cut by 59bps to 4.50 per cent (5.07 per cent comparison rate)

ANZ has also made the following changes for Breakfree investment loans:

  • two-year investment principal and interest rates have been cut by 6bps to 3.89 per cent (5.54 per cent comparison rate)
  • three-year investment principal and interest rates have been cut by 20bps to 3.99 per cent (5.44 per cent comparison rate)
  • five-year investment principal and interest rates have been cut by 26bps to 4.19 per cent (5.31 per cent comparison rate)
  • three-year investment interest-only rates have been cut by 30bps to 4.19 per cent (5.48 per cent comparison rate)
  • five-year investment interest-only rates have been cut by 4bps to 4.95 per cent (5.60 per cent comparison rate)

Meanwhile, Macquarie Bank has reduced variable and fixed mortgage rates by up to 51bps across its Basic and Offset packages.

The non-major’s variable rate changes are as follows:

  • cuts of between 7-21bps for variable home loans for owner-occupiers paying principal and interest and interest only, excluding loans with an LVR of less than 95 per cent
  • cuts of between 11-51bps for variable home loans for investors paying principal and interest and interest only, excluding loans with an LVR of less than 90 per cent

Macquarie’s fixed rate changes include:

  • cuts of between 10-20bps for one, two and three-year fixed rates for owner-occupiers paying principal and interest
  • a cut of 10bps for one-year fixed home loans for owner-occupiers paying interest only
  • a cut of 10bps for one-year fixed home loans for investors paying principal and interest
  • cuts of between 10-15bps for one, two and three-year fixed home loans for investors paying interest only

ANZ and Macquarie are among several lenders that have reduced rates across their fixed rate home loans over the past few months.  

Reflecting on the changes, comparison website Canstar’s finance analyst, Steve Mickenbecker, said lenders are preempting an expected cut to the official cash rate from the Reserve Bank of Australia (RBA).  

“Rate changes are running rife this week,” he said. “Macquarie and ANZ are joining the group of lenders reducing home loan rates ahead of the Reserve Bank curve.”

Mr Mickenbecker added: “The banks are anticipating an official cut to the cash rate in the coming months and are not waiting on the Reserve Bank to move.

“They are instead using this period to sharpen the pricing pencil to attract new business.”

However, the analyst noted that existing borrowers would need to wait for a cash rate adjustment before they too receive lower mortgage rates.

The RBA was expected to drop the official cash rate for the first time since August 2016 when its monetary policy board meeting was held last week.

However, the central bank opted to hold the cash rate at 1.5 per cent, with some analysts, including AMP Capital chief economist Shane Oliver, attributing the RBA’s decision to the current political environment, with the federal election looming.

Mr Oliver added that AMP has “pencilled in” a rate cut in June to offset the continued weakness in the housing market, flat inflation and slow economic growth.

Macquarie Does It Again

Macquarie Group released their 1H19 results today, and continues its strong run, benefiting from its international business portfolio. International income accounted for 67 per cent of the Group’s total income. The Capital Markets business performed strongly.

They announced a net profit after tax attributable to ordinary shareholders of $A1,310 million for the half-year ended 30 September 2018 (1H19), up five per cent on the half-year ended 30 September 2017 (1H18) and in line with the half-year ended 31 March 2018 (2H18).

Macquarie’s annuity-style businesses (Macquarie Asset Management (MAM), Corporate and Asset Finance (CAF) and Banking and Financial Services (BFS)), which represented approximately 60 per cent of the Group’s 1H19 performance, generated a combined net profit contribution of $A1,495 million, down 29 per cent on 1H18 and up 10 per cent on 2H18.

Macquarie’s capital markets facing businesses (Commodities and Global Markets (CGM) and Macquarie Capital) delivered a combined net profit contribution of $A1,106 million, up 95 per cent on 1H18 and up six per cent on 2H18.

Net operating income of $A5,830 million in 1H19 was up eight per cent on 1H18 and up six per cent on 2H18, while operating expenses of $A4,125 million were up 12 per cent on 1H18 and up 10 per cent on 2H18.

Macquarie’s assets under management (AUM) at 30 September 2018 were $A551.0 billion, up 11 per cent from $A496.7 billion at 31 March 2018, primarily due to investments made by Macquarie Infrastructure and Real Assets (MIRA) managed funds, foreign exchange impacts, positive market movements and contributions from businesses acquired during the period, namely GLL Real Estate Partners and ValueInvest Asset Management S.A.

Macquarie also announced today a 1H19 interim ordinary dividend of $A2.15 per share (45 per cent franked), up five per cent on the 1H18 interim ordinary dividend of $A2.05 per share (45 per cent franked) and down 33 per cent on the 2H18 final ordinary dividend of $A3.20 per share (45 per cent franked). This represents a payout ratio of 56 per cent. The record date for the final ordinary dividend is 13 November 2018 and the payment date is 18 December 2018.

Half-year result overview
Net operating income of $A5,830 million for 1H19 was up eight per cent on 1H18, while total operating expenses of $A4,125 million were up 12 per cent on 1H18.

Key drivers of the change from 1H18 were:

  • An 18 per cent increase in combined net interest and trading income to $A2,229 million, up from $A1,892 million in 1H18. The movement was mainly due to increased contribution across the commodities platform and growth in deposit and Australian loan portfolios in BFS. This was partially offset by reduced income from early repayments, realisations and the reduction in the size of  the CAF Principal Finance portfolio.
  • A four per cent increase in fee and commission income to $A2,661 million, up from $A2,568 million in 1H18, due to: an increase in brokerage commission in Futures and Cash equity markets from increased market turnover and client activity in Asia; an increase in CGM equity capital markets fee income in the Asia-Pacific; higher fee income from mergers and acquisitions, debt capital markets and equity capital markets in Macquarie Capital; and a $A141 million increase in income offset in operating expenses following the adoption of AASB 15 Revenue from Contracts with Customers on 1 April 2018. This was partially offset by lower performance fees compared to a strong prior corresponding period in MAM.
  • A two per cent decrease in net operating lease income to $A461 million, down from $A469 million in 1H18, due to a reduction in underlying Aviation income partially offset by improved income from the Energy and Technology portfolios and favourable foreign exchange movements in CAF.
  • Share of net profits of associates and joint ventures of $A7 million in 1H19 decreased from $A103 million in 1H18, primarily due to losses from associates and joint ventures reflecting expenditure on green energy and other projects in the development phase in Macquarie Capital partially offset by an increase in share of net profits from the sale and revaluation of a number of underlying assets within equity accounted investments in MAM.
  • Other operating income and charges of $A472 million in 1H19, up 29 per cent from $A365 million in 1H18. The primary drivers were lower credit and other impairment charges compared to 1H18 which recognised impairments relating to legacy assets in Corporate and underperforming financing facilities in CGM; higher investment income primarily due to gains generated across unlisted investments in the green energy and technology sectors in Macquarie Capital; and an increase in other income predominantly relating to asset sales in CAF. This was partially offset by the non-recurrence of gains on reclassification on certain investments in MAM and a UK toll road investment by CAF as well as expenditure in green energy projects in the development phase in Macquarie Capital.
  • Total operating expenses of $A4,125 million in 1H19 increased 12 per cent from $A3,693 million in 1H18, mainly due to higher average headcount across the Group; unfavourable foreign currency movements, higher project activity in BFS; increased investment in technology platforms in CGM; a $A141 million increase in fee expenses offset in fee and commission income following the adoption of AASB 15 on 1 April 2018; and increased business activity in the majority of operating groups.

Staff numbers were 14,869 at 30 September 2018, up from 14,469 at 31 March 2018.

The income tax expense for 1H19 was $A374 million, a 17 per cent decrease from $A448 million in 1H18. The decrease was mainly due to a reduction in US tax rates and the geographic composition and nature of earnings. The effective tax rate for 1H19 was 22.2%, down from 26.4% in the prior corresponding period and 24.9% in the prior period.


Operating group performance

  • Macquarie Asset Management delivered a net profit contribution of $A762 million for 1H19, down 36 per cent from $A1,189 million in 1H18. Performance fee income of $A282 million was down from a strong prior corresponding period of $A537 million which included performance fees from MEIF3, Atlas Arteria – ALX (formerly Macquarie Atlas Roads) and other managed funds, Australian managed accounts and co-investors. Base fees of $A884 million were up 11 per cent from $A795 million in 1H18, benefiting from: investments made by MIRA-managed funds; increases in AUM primarily driven by foreign exchange impacts and positive market movements; and contributions from businesses acquired during the period (GLL Real Estate Partners and ValueInvest Asset Management S.A.). This was partially offset by asset realisations by MIRA-managed funds. Investment-related income was lower than the prior corresponding period which included gains on reclassification of certain investments.
  • Corporate and Asset Finance delivered a net profit contribution of $A437 million for 1H19, down 29 per cent from $A619 million in 1H18. The decrease was mainly driven by reduced income from early repayments, realisations and investment-related income and lower portfolio volumes in Principal Finance. The Asset Finance contribution was broadly in line with 1H18 driven by improved income from the Energy and Technology portfolios offset by lower underlying net operating lease income in Aviation. The remaining portfolios continued to perform well. CAF’s asset and loan portfolios of $A33.7 billion decreased two per cent from 31 March 2018.
  • Banking and Financial Services delivered a net profit contribution of $A296 million for 1H19, up three per cent from $A286 million in 1H18. The improved result reflects increased income from growth in deposits, the Australian loan portfolio and funds on platform partly offset by the entire period effect of the Australian Government Major Bank Levy relative to the prior corresponding period and increased costs associated with investment in technology projects and headcount in key areas to support business growth. 1H19 also includes expenses associated with bringing together the private bank and private wealth businesses. Total BFS deposits5 of $A49.4 billion increased eight per cent on 31 March 2018 and funds on platform6 of $A88.1 billion increased seven per cent on 31 March 2018. The Australian mortgage portfolio of $A36.1 billion increased 10 per cent on 31 March 2018, representing approximately two per cent of the Australian mortgage market.
  • Commodities and Global Markets delivered a net profit contribution of $A700 million for 1H19, up 85 per cent from $A378 million in 1H18. The result primarily reflects an increased contribution across the commodities platform driven by: client activity; improved trading opportunities; increased fee and commission income in Asia driven by increased market turnover and client activity; and an increased contribution from equity capital markets fee income in Asia-Pacific. This was partially offset by: reduced opportunities and challenging markets impacting equity trading activities; increased operating expenses reflecting increased client activity; the impact of acquisitions completed in the prior year; and an increase in technology investment.
  • Macquarie Capital delivered a net profit contribution of $A406 million for 1H19, up 114 per cent from $A190 million in 1H18. The result reflects: higher investment income; higher fee income from both debt and equity capital markets; and higher mergers and acquisitions fee income. During 1H19, Macquarie advised on 228 transactions valued at $A267 billion7 including as joint financial adviser to the Sydney Transport Partners consortium on its acquisition of a 51 per cent interest in WestConnex from the NSW Government for $A9.3 billion; and joint lead manager, bookrunner and underwriter to Transurban Group on its $A4.2 billion entitlement offer, the largest M&A fund raising by an ASX-listed company in the last decade8. During 1H19, Macquarie Capital completed a number of balance sheet transactions including the acquisition and development of a 235MW onshore wind farm (under construction) in central Sweden and raised €270 million of related construction financing. In addition, Macquarie Capital successfully exited its investment in TriTech Software Systems and subsequently acted as financial adviser on its merger with Superion and Aptean and joint bookrunner on the $US1.0 billion related financing.

Total customer deposits9 increased nine per cent to $A52.3 billion at 30 September 2018 from $A48.1 billion at 31 March 2018. During 1H19, $A5.9 billion of new term funding10 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 a Group capital surplus of $A3.4 billion at 30 September 2018. This surplus was down from $A4.2 billion at 31 March 2018, following payment of the FY18 final dividend and FY18 Macquarie Group Employee Retained Equity Plan buying requirement, together with strong business growth of $A1.5 billion, partially offset by 1H19 profit and movement in reserves. The Bank Group APRA Basel III Common Equity Tier 1 capital ratio was 10.4 per cent (Harmonised: 13.0 per cent) at 30 September 2018, down from 11.0 per cent (Harmonised: 13.5 per cent) at 31 March 2018. The Bank Group’s APRA leverage ratio was 5.6 per cent (Harmonised: 6.4 per cent), LCR was 159 per cent and NSFR was 110 per cent at 30 September 2018. No discount will apply for the 1H19 Dividend Reinvestment Plan (DRP) and the shares are to be acquired on-market11.

Regulatory update
APRA is yet to release final standards for Australian banks to ensure that their capital levels can be considered ‘unquestionably strong’.

Based on existing guidance, Macquarie’s surplus capital position remains sufficient to accommodate likely additional requirements. In August 2018, APRA released a discussion paper setting out potential options to improve the transparency, international comparability and flexibility of the capital framework. The proposals are not intended to change the amount of capital that ADIs are required to hold13. In addition, APRA released a discussion paper on their implementation of a minimum requirement for the leverage ratio of four per cent from July 201914. MBL’s leverage ratio is 5.6 per cent as at September 2018.

Share buyback
Given significant business growth in 1H19, Macquarie did not purchase any shares under the share buyback program announced at the 1H18 result announcement. There is currently no prospect of buying any shares under the share buyback program and so the program has ended.

While the impact of future market conditions makes forecasting difficult, the Group currently expects the FY19 result to be up approximately 10 per cent on FY18.

Macquarie Merges Private Wealth Businesses

From Financial Standard.

Macquarie Group is consolidating its private bank and private wealth businesses to concentrate its growth strategy on high net-worth (HNW) clients, a move it expects to affect advisers.

This underscore the transition in wealth management, as players morph their businesses in the light of the “best interest” requirement, and the fact the providing such advice is costly, and cannot be done en masse. So the focus will be on HNW investors.

HNW clients are already the exclusive focus of Macquarie’s private bank. They are also a substantial proportion of its private wealth business.

The announcement was made by Macquarie’s Banking and Financial Services group (BFS), which also looks after retail banking activities. The gearing towards HNW investors in the bank’s private wealth and banking business will have no impact on BFS’s retail banking strategy which includes home lending, deposits and credit card solutions for consumer clients.

Macquarie head of wealth management Bill Marynissen said concentrating on one client segment will enable it to deliver better on a comprehensive and tailored wealth and banking offering that can take clients from wealth accumulation stages through to retirement.

“Focusing on attracting high net-worth clients is a logical evolution of our private client business and we believe it is a space in which we can be a market leader,” Marynissen said.

“We have carefully assessed growth opportunities in the high net-worth segment against the strong fundamentals of our business. These include a deep understanding of the high net-worth segment, our wealth and banking expertise and suite of solutions, and the capacity to build on our existing digital capabilities.”

Australia has more than 1.2 million adults with wealth of $1.3 million or more, ranking it among the top 10 countries globally for HNW individuals. The segment swelled 7.4% or by 80,000 adults since 2011.

Many advisers will be impacted by the decision to concentrate the focus of the combined private bank and private wealth businesses to HNW clients, according to Macquarie’s wealth management division.

“Macquarie is supporting these advisers in a number of ways, including by facilitating discussions with other firms and assisting with their transition,” the bank said.

Macquarie Does It Again

Macquarie presented their full year results to 31 March 2018. The 2H18 result was $1,309m, up 5% on 1H18 and 12% higher on 2H17. This represents a return on equity of 16.9%, up 1% from 1H18. The earnings per share rose 5% to $3.88.

They were helped by some one off items and tax benefits, but they to seem to manage to continue the upswing – especially with assistance from the capital markets division.  They continue to outperform against their guidance.

Looking at 2H18 business mix their annuity-style businesses contributed $1,357m, down 35% on 1H18 and 16% on 2H17. But their capital markets facing businesses contributed $1,042m, up 83% on 1H18, and 37% on 2H17.

Overall there was an increase in 2H18 NPAT, notwithstanding net profit contribution from operating groups being down 10%, due to lower corporate costs as a result of higher earnings on capital, lower profit share, lower provisions and lower tax.

Profits from the FY18 was $5,061m, up 8% on FY17, with annuity-style business up 6% to $3,451m, and capital markets facing businesses up 11% to $1,610m.

Annuity-style businesses represent approximately 70% of the Group’s performance.

Assets under management were $A496.7 billion, up $A15.0b since Mar 17, largely due to positive market movements and favourable currency
movements, partially offset by net asset realisations in MIRA (Includes divestment of Thames Water by MIRA-managed funds and ceasing asset services to consortia investors ($A25b).

International income was 67% of total income, with 33% of total income. A 10% movement1 in AUD is estimated to have approx. 7% impact on NPAT.

They reported a strong capital position, wiht APRA Basel III Group capital at March 18 of $19.1 billion.

Given significant business growth in FY18, Macquarie did not purchase any shares under the share buyback program announced at the 1H18 result announcement; the program remains in place, with any share purchases subject to a number of factors including the Group’s capital surplus position, market conditions and opportunities to deploy capital by the businesses.

They have strong key ratios.

Looking at the Group entities, MacCap provided the largest contribution.

Macquarie Asset Management reported base fees of $A1,608m, broadly in line with FY17, with an increased fees from positive market movements in MIM AUM and investments made by MIRA-managed funds, but partially offset by asset realisations by MIRA-managed funds, net flow impacts in the MIM business and foreign exchange.

Performance fees of $A595m, up on FY17, and included performance fees from MEIF3, MQA and other managed funds, Australian managed accounts and Listed Equities. FY17 included performance fees from a broad range of funds, Australian managed accounts and from co-investors in respect of infrastructure assets. Investment and other income of $A766m, up on FY17, including increased equity accounted income as a result of the sale of a number of underlying assets as well as gains from the sale of infrastructure debt but partially offset by reduced gains from the sale and reclassification of certain infrastructure investments and lower distribution income

Impairments and provisions of $A177m largely reflects the write-down of MIRA’s investment in MIC

Total operating expenses of $A1,107m, up 5% on FY17 largely driven by increased employment expenses as a result of higher average headcount.

Corporate and Asset Finance reported net interest and trading income of $A582m, down 18% on FY17 mainly as a result of the reduction in the Principal Finance portfolio. Net operating lease income of $A929m, up 3% on FY17 due to improved underlying income from the Aviation, Energy and Technology portfolios.

Impairments and provisions expense of $A15m, down from $A111m in FY17 driven by the partial reversal of collective provisions, driven by net loan repayments, and the improved credit performance of underlying portfolios, but partially offset by the impairment of a legacy Asset Finance business and impairments of certain Aviation assets

Other income of $A352m, up 29% on FY17 including gains generated from Principal Finance investments in Europe and the US, The sale of the US commercial vehicles financing business and prior year primarily related to a gain realised on the sale of an interest in a toll road in the US by the Principal Finance business

Total operating expenses of $A679m, up 7% on FY17 mainly due to increased deal and project related expense.

Banking and Financial Services reported net interest and trading income of $A1,182m, up 13% on FY17 with a 6% growth in average Australian loan volumes and 7% growth in average BFS deposits, though partially offset by $A16m allocation of the Australian Government Major Bank Levy that
came into effect from 1 Jul 17. Fee and commission income of $A466m, in line with FY17, with wealth Management fee income increased 7% driven by platform commissions from higher funds on the Wrap and Vision platforms which increased 14% on FY17 and decrease in life insurance income following the sale of Macquarie Life’s risk insurance business in Sep 16. There was a net gain on disposal of businesses of $A2m down from $A192m in FY17, which benefited from the net overall gain on sale of Macquarie Life’s risk insurance business to Zurich Australia Limited and the US mortgages portfolio.

Impairments and provisions expense of $A26m, down on FY17, which  included higher impairment of equity investments and impairments of intangibles relating to the Core Banking platform and higher business lending provisions taken on a small number of loans.

Total operating expenses of $A1,086m, down 4% on FY17 which was impacted by nonrecurring expenses. Underlying expenses were $A34m higher and included a 4% increase in average headcount to support growth.

Commodities and Global Markets reported commodities income of $A1,093m, down 3% on FY17, with risk management products down 6% on FY17 reflecting mixed results across the commodities platform with continued subdued volatility impacting client hedging activity and trading opportunities in Global Oil, partially offset by strong results in North American Gas and Power, Bulk Commodities and continued growth in Commodity Investor Products. Lending and financing income down 9% on FY17 largely due to wind down in legacy portfolios in the oil and gas sectors and a reduced contribution from metals financing. Inventory management, transport and storage income up 22% on FY17 mainly driven by significant
opportunities for the North American Gas and Power business to benefit from price dislocations across regions. However, the timing of income recognition in relation to tolling agreements and capacity contracts results in a net $A144m of income being recognised in future years.

Credit, interest rate and foreign exchange income of $A508m, down 18% on FY17 driven by reduced client activity in an environment of sustained low volatility and tighter credit spreads, unfavourable market conditions impacting trading opportunities, partially offset by strong client activity in structured foreign exchange products. Equities up 17% on FY17 reflecting more favourable conditions in Asia, a moderate increase in volatility and
strong demand for warrants and structured client capital solutions. Fee and commission income of $A893m, up 4% on FY17 driven by demand for advisory and structured solutions primarily in Asia and North America. • Investment and other income down on a strong FY17 which included gains on the sale of a number of investments in energy and related sectors

Impairments and provisions down on FY17 which was impacted by certain underperforming commodity related loans.

Expenses of $A1,997m were broadly in line with FY17, with impact of the Cargill acquisitions partially offset by cost synergies following the merger of CFM and MSG.

Macquarie Capital reported fee income was broadly in line with FY17, including M&A: lower fee income across most regions except Europe,    ECM: reflected a sustained period of lower deal activity in Australia, DCM: higher fee income reflected increased market share and client activity in the US. There was stronger investment-related income (ex non-controlling interests), including higher revenue from asset realisations across most regions, primarily in the green energy, conventional energy and infrastructure sectors together with gains in the insurance and technology sectors, Increase in equity accounted income primarily due to the improved underlying performance of investments but partially offset by higher funding costs for balance sheet positions due to increased activity, including the acquisition of GIG

Lower provisions for impairment and net operating expenses increased 9% on FY17 reflecting transaction, integration and ongoing costs associated with the acquisition of GIG and higher operating expenses from increased investing activity

Macquarie Group 3Q Update

Macquarie Group provided an update on business activity in the third quarter of the financial year ending 31 March 2018 (December 2017 quarter). It was pretty much in line with expectations.

They said the annuity-style businesses’ combined quarter net profit contribution was slightly up on the prior corresponding period, mainly due to strong performance fees in Macquarie Asset Management, timing of transactions in Corporate and Asset Finance Principal Finance and continued growth in Banking and Financial Services.

Their capital markets facing businesses’ combined quarter net profit contribution was down on the prior corresponding period primarily due to timing of income recognition associated with transportation and storage agreements within the Commodities and Global Markets business.

Macquarie expects the FY18 result for the Group to be up approximately 10% on FY17.

They maintain a strong financial position, with Bank CET1 ratio 10.7% (Harmonised: 13.0%); Leverage ratio 5.8% (Harmonised: 6.6%); LCR 153% NSFR 109%. They have a Group capital surplus of $A4.1 billion, above regulatory minimums.  Although Macquarie’s share buyback program remains in place, no buying occurred during 3Q18.

Based on past performance, Macquarie estimates a reduction of approximately 3-4% in the Group’s historical effective tax rate from the US tax reform, but currently expects that there will be no material impact to FY18 NPAT.

Here are the business unit summaries.

  • Macquarie Asset Management (MAM) had assets under management (AUM) of $A483.5 billion at 31 December 2017, up two per cent on 30 September 2017 predominately driven by positive market and foreign exchange movements. During the quarter, Macquarie Infrastructure and Real Assets (MIRA) raised over $A7.1 billion in new equity, including $A3.9 billion in Asia and $A2.0 billion in Europe; invested equity of $A4.1 billion including infrastructure in Europe, Asia, Australia and the United States as well as agriculture in Australia; divested $A3.9 billion of assets in Denmark, France, the United States and Korea; and had $A15.1 billion of equity to deploy at 31 December 2017. Macquarie Investment Management was awarded $A4.6 billion in new, funded institutional mandates and contributions across 35 strategies. Macquarie Infrastructure Debt Investment Solutions (MIDIS) total third party investor commitments increased to over $A8.2 billion and closed a number of investments, bringing total AUM to $A5.8 billion. MIRA reached agreement to acquire GLL Real Estate Partners, a ~$A10b German-based manager of real estate assets in Europe and the Americas.
  • Corporate and Asset Finance’s (CAF) Asset Finance and Principal Finance portfolio of $A34.6 billion at 31 December 2017 was broadly in line with 30 September 2017. Asset Finance originations were in line with expectations. During the quarter, Principal Finance had portfolio additions of $A0.1 billion. Notable realisations included the sale of Principal Finance’s investments in a United Kingdom rooftop solar platform; a United Kingdom care homes and supported living business; and a United States power plant in North Dakota.
  • Banking and Financial Services (BFS) had total BFS deposits of $A46.3 billion at 31 December 2017, broadly in line with 30 September 2017. The Australian mortgage portfolio of $A31.2 billion increased four per cent on 30 September 2017, while funds on platform of $A85.3 billion increased eight per cent on 30 September 2017. The business banking loan portfolio of $A7.2 billion increased one per cent on 30 September 2017.
  • Commodities and Global Markets (CGM) experienced stronger results in North American Gas and Power, while lower volatility impacted client hedging activity and trading results in Global Oil and Metals. Despite volatility being subdued in foreign exchange and interest rates, client activity in derivatives remained solid, particularly in Japan and North America. Increased market turnover led to improved brokerage income in Asian equities.
  • Macquarie Capital experienced strong levels of activity during the quarter, with 107 transactions valued at $A35 billion completed globally, up on pcp (by number), driven primarily by advisory activity in Infrastructure and Energy, and advisory and debt capital markets activity in the Americas and Europe. Notable transactions included: Joint Lead Manager and Underwriter on Transurban Group’s $A1.9 billion fully underwritten pro rata accelerated renounceable entitlement offer, the largest publically-distributed ANZ new equity issue of 2017; raised over $US1.7 billion in equity commitments for Macquarie Capital sponsored real estate logistics platforms globally to be invested in India, China, United Kingdom and Australia; Green Investment Group announced several low carbon infrastructure transactions during the quarter, including acting as financial advisor, 50 per cent equity investor and development partner in the 650MW Markbygden Wind Farm in Sweden, allowing development of the largest single-site wind farm in Europe (circa €800 million total capital raise); and financial advisor to Centerbridge Partners on its acquisition of Davis Vision and joint bookrunner and joint lead arranger on the $US985 million financing.

 

Macquarie Group Announced 1H18 Net Profit of $A1,248 million

Macquarie Group has announced a net profit after tax 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).

Once again the Group has exceeded market forecasts, thanks to strong growth in performance fees from its annuity style businesses, this despite a fall in net interest income. Impairments fell. Their outlook for FY18 is also stronger.  More of their business is offshore than in Australia, so as the economic pace picks up in USA and Europe, they should benefit.

They gave their normal comprehensive briefing:

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.

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 performance, 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.

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.

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.

Key drivers of the change from 1H17 were:

  • A one per cent increase in combined net interest and trading income to $A1,892 million, up from $A1,874 million in 1H17. The movement was mainly due to volume growth in the loan and deposit portfolios and improved margins in BFS, and a reduced cost of holding long-term liquidity in Corporate. This was partially offset by reduced interest income from Macquarie Capital’s debt investment portfolio and higher funding costs associated with an increase in principal investments, including the acquisition of Green Investment Group (GIG), as well as lower trading income in CGM as a result of lower market volatility.
  • A 17 per cent increase in fee and commission income to $A2,568 million, up from $A2,203 million in 1H17, due to increased performance fee income in MAM and higher fee income from the US debt capital markets business in Macquarie Capital due to increased client activity.

  • This was partially offset by reduced Life Insurance income in BFS after Macquarie Life’s risk insurance business was sold to Zurich Australia Limited in September 2016; lower mergers and acquisitions fee income in the US and Asia in Macquarie Capital; and reduced CGM brokerage and commissions income, mainly in equities due to continued low volatility across global equity markets and reduced brokerage commission rates due to the trend towards lower margin platforms.
  • A one per cent decrease in net operating lease income to $A469 million, down from $A476 million in 1H17, due to improved underlying income in CAF from the Aviation, Energy and Technology portfolios offset by foreign exchange movements.
  • Share of net profits of associates and joint ventures accounted for using the equity method of $A103 million in 1H18 increased from a loss of $A8 million in 1H17, primarily due to the improved underlying performance of investments held in Macquarie Capital.
  • Other operating income and charges of $A365 million in 1H18, down from $A673 million in 1H17. The primary drivers were lower principal gains in Macquarie Capital and CGM and the non-recurrence of the gain on sale of Macquarie Life’s risk insurance business to Zurich Australia Limited in 1H17 by BFS, partially offset by lower charges for provisions and impairments across most operating groups.
  • Total operating expenses of $A3,693 million in 1H18 decreased one per cent from $A3,733 million in 1H17, mainly due to reduced project activity in BFS, reduced employment expenses from lower average headcount, partially offset by transaction, integration and ongoing costs associated with the acquisition of GIG in Macquarie Capital.

Impairments fell from $280m (1H17) to $142m 1H18.

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.

Total customer deposits 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.

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 ECS 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.

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 standard 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.

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

  • Macquarie Asset Management delivered a net profit contribution of $A1,189 million for 1H18, up 39 per cent from $A857 million in 1H17. Performance fee income of $A537 million, from Macquarie European Infrastructure Fund 3 (MEIF3), Macquarie Atlas Roads (MQA) and other MIRA-managed funds and co-investors, was up from $A170 million in 1H17. Base fees of $A795 million were broadly in line with 1H17 as investments made by MIRA-managed funds, growth in the MSIS Infrastructure Debt business and positive market movements in MIM AUM were partially offset by asset realisations by MIRA-managed funds, net flow impacts in the MIM business and foreign exchange impacts. Investment-related income was broadly in line with 1H17 and included gains from sale and reclassification of certain infrastructure investments. Assets under management of $A471.9 billion decreased two per cent on 31 March 2017.
  • Corporate and Asset Finance delivered a net profit contribution of $A619 million for 1H18, up 19 per cent from $A521 million in 1H17. The increase was mainly driven by increased income from prepayments, realisations and investment-related income in the Principal Finance portfolio and lower provisions for impairment, partially offset by lower interest income as a result of the reduction in the Principal Finance portfolio. The Asset Finance portfolio continued to perform well. CAF’s asset and loan portfolio of $A35.5 billion decreased three per cent on 31 March 2017.
  • Banking and Financial Services delivered a net profit contribution of $A286 million for 1H18, up 10 per cent from $A261 million in 1H17. The improved result reflects increased income from volume growth in the loan and deposit portfolios and improved margins. 1H17 included the gain on sale of Macquarie Life’s risk insurance business net of expenses including impairment charges predominately on equity investments and intangible assets, and a change in approach to the capitalisation of software expenses in relation to the Core Banking platform. BFS deposits12 of $A46.4 billion increased four per cent on 31 March 2017 and funds on platform13 of $A78.9 billion increased nine per cent on 31 March 2017. The Australian mortgage portfolio of $A29.9 billion increased four per cent on 31 March 2017, representing approximately two per cent of the Australian mortgage market.
  • Commodities and Global Markets delivered a net profit contribution of $A378 million for 1H18, down 23 per cent from $A490 million in 1H17. The result primarily reflects reduced income from the sale of investments, mainly in energy and related sectors, and lower volatility across the commodities platform resulting in reduced client activity and trading opportunities. This was partially offset by strong client flows and revenues from interest rates and foreign exchange, improved results across the equities platform, and lower operating expenses reflecting reduced commodity-related trading activity, reduced average headcount and associated activity, and realisation of benefits from cost synergies following the merger of Commodities and Financial Markets and Macquarie Securities Group. Macquarie Energy improved its Platts ranking to become the No. 2 US physical gas marketer in North America.
  • Macquarie Capital delivered a net profit contribution of $A190 million for 1H18, down seven per cent from $A205 million in 1H17. The result reflects reduced investment-related income and lower M&A fee income in the US and Asia, partially offset by higher fee income from debt capital markets in the US and lower provisions and impairment charges. During 1H18, Macquarie Capital advised on 152 transactions valued at $A73 billion including being defence adviser to DUET Group in response to the $A13.4 billion acquisition by Cheung Kong Infrastructure; acquisition of 100 per cent ownership interest in RES Japan, a Japanese subsidiary of Renewable Energy Systems Group, rebranded as Acacia Renewables and focused on developing a pipeline of onshore wind energy projects; and financial advisor and equity investor in the restructuring and acquisition of the 907MW Norte III combined cycle gas plant in Juarez, Mexico. During 1H18, Macquarie completed the acquisition of the UK Green Investment Bank plc from HM Government for £2.3 billion. The Green Investment Bank, rebranded as Green Investment Group, is one of Europe’s largest teams of green energy investment specialists, with expertise in project finance and development, construction, investment and asset management of green energy infrastructure.

Macquarie advised today that ex. RBA Chief Glenn Stevens will be appointed to the Macquarie Group Limited and Macquarie Bank Limited Boards as an independent director, effective 1 November 2017.

Macquarie launches ‘open banking’ regime

From InvestorDaily.

Macquarie has agreed to make its application programming interface (API) available to third party developers – a move that has so far been resisted by every other major bank. Open Banking has the potential to drive significant customer benefits, but may also lead to digital disruption.

Macquarie has launched its new ‘open banking platform’, which the bank says will give customers “control over the everyday banking data” as well as “the power to securely manage how they want to share it”.

As part of announcement, Macquarie will now give “approved” third party providers access to its API via the bank’s open developer portal and test sandbox, called devXchange.

“While consumers typically need to reveal their banking login details to use budgeting tools and similar services, Macquarie’s open platform means customers will never need to give their login details to a third party, creating a more secure way to access these services,” said a statement by the bank.

“Macquarie’s open platform also gives customers the power to manage access to their data in real time through the Macquarie banking app. Authorised third party providers will have read only access to that customer’s data through a secure token which then reads the data from Macquarie’s systems,” said the bank.

Macquarie head of personal banking Ben Perham said, “Our customers have been telling us they want to securely connect their information into their favourite accounting software, budgeting app and other innovative services they’re interested in. Macquarie’s open platform will make this possible.

“We’ve built a highly personalised digital banking experience, so empowering our customers to securely manage how they want to use their own data is the logical next step.

“APIs are being used by leading digital companies like Amazon and Google to transform consumer experiences, and we’re excited about the opportunities the technology will bring to financial services.

“We’re looking forward to working with third party providers and developers to drive new and more personalised solutions for our customers that tie in seamlessly with daily life.”