Macquarie Group reported both annuity-style businesses’ and capital markets facing businesses’ contributions for the first quarter of the 2016 financial year were significantly up on the first quarter of the 2015 financial year and broadly in line with the prior quarter. Australian mortgage portfolio also increased 10 per cent to $A27.0 billion in the first quarter.
DFA estimates that profit growth in FY16 will be more than 10 per cent higher than the prior year, around A$1.8 billion. This is helped by a weaker Australian dollar, as well as increased performance fees and asset disposals in Macquarie Asset Management. The full year number to 31 March 2015 was $A1.6 billion an increase of 27 per cent on the prior year.
Macquarie remains over capitalised with APRA Basel III Group capital of $A15.8 billion at 30 June 2015, a $A2.4 billion surplus in excess of Macquarie’s minimum regulatory capital requirement from 1 January 2016, which was down from $A2.7 billion at 31 March 2015. The APRA Basel III Common Equity Tier 1 (CET1) ratio for Macquarie Bank was 9.9 per cent at 30 June 2015, which was up from 9.7 per cent at 31 March 2015.
The APRA changes to the level of capital required to be held against residential mortgages will impact Macquarie by $A150m (at 8.5% RWAs), equivalent to a 20 basis point reduction in the Bank Group’s CET1 ratio. This increased capital requirement will be accommodated from the existing capital surplus and retained earnings.
The acquisition of Macquarie shares required for the financial year ended 31 March 2015 (FY15) profit share and promotion awards under the Macquarie Group Employee Retained Equity Plan (MEREP) was completed in July 2015. A total of approximately $A383 million of Macquarie shares were purchased on-market at an average purchase price of $A80.68 per share.
First quarter business highlights
Macquarie Asset Management (MAM) had $A477.4 billion in assets under management at 30 June 2015, broadly in line with 31 March 2015, as positive net flows within Macquarie Investment Management (MIM) were offset by foreign exchange and market movements as well as net divestments within Macquarie Infrastructure and Real Assets (MIRA) managed funds. 1Q16 included performance fees of $A208 million, predominantly from Macquarie Infrastructure Company and Macquarie Atlas Roads. During the quarter, MIRA completed six acquisitions and three follow-on investments in five countries, totalling $A1.4 billion of equity under management. MIM was awarded over $A2 billion in new institutional mandates across ten strategies in six countries and Macquarie Specialised Investment Solutions raised over $A900 million for Australian principal protected investments and specialist funds.
Corporate and Asset Finance’s (CAF) asset and loan portfolio increased to $A29.2 billion at 30 June 2015 from $A28.7 billion at 31 March 2015. During the quarter there were portfolio additions of $A1.2 billion in corporate and real estate lending. Strong securitisation activity continued with a further $A0.9 billion of motor vehicle leases and loans securitised during the quarter. In July, CAF settled on 37 of the 90 aircraft committed from AWAS Aviation Capital in FY15.
Banking and Financial Services’ (BFS) retail deposits increased to $A38.0 billion at 30 June 2015. Business lending increased 10 per cent on FY15 to $A5.7 billion and the Australian mortgage portfolio also increased 10 per cent to $A27.0 billion. BFS’ Wrap platform funds under administration remained broadly in line with 31 March 2015 at $A47.4 billion.
Macquarie Securities Group (MSG) benefited from increased volumes and volatility in the market, particularly in Asia where the liberalisation of China’s capital markets and credit easing resulted in significant increases in client activity in the region. Australian ECM activity remained strong and MSG was ranked No.1 for completed ECM deals in Australia and New Zealand (ANZ) during the quarter. The derivatives and trading business also benefited significantly from favourable market conditions.
Macquarie Capital benefited from the continued strength of global mergers and acquisitions (M&A) and ECM activity during the quarter. 119 deals totalling $A82 billion were completed in 1Q16, up significantly (by value) on both 1Q15 and 4Q15, mainly due to the timing of large advisory transactions. Macquarie Capital maintained its ranking of No.1 for both announced and completed M&A deals6 and No.1 for completed ECM deals in ANZ, and was awarded Best Domestic Equity House Australia 2015 .
Commodities and Financial Markets (CFM) experienced continued volatility in energy markets over the quarter, which led to increased customer business, primarily in Global Oil and North American Gas. Metals activity remained steady while agriculture experienced increased volatility and client volumes. Client volumes were stable in foreign exchange and interest rate markets, while US credit markets remained mixed due to global geopolitical uncertainty. Macquarie Energy maintained its Platts ranking of No.3 US physical gas marketer in North America.
