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Macquarie Group’s Profit-Growth Run Has Come to an End

Macquarie Group’s Profit-Growth Run Has Come to an End

(Bloomberg) -- Macquarie Group Ltd. slashed its dividend as the global economic shutdown sent impairments soaring, ending a seven-year run of profit growth at the Australian investment bank and infrastructure manager.

Chief Executive Officer Shemara Wikramanayake also refrained from the bank’s usual practice of providing an earnings outlook, saying the uncertainty caused by the virus leaves the bank “unable to provide any meaningful” guidance for this year.

Net income fell 8% to A$2.73 billion ($1.8 billion) in the 12 months ended March 31, Sydney-based Macquarie said Friday, its first profit drop in eight years. Impairments rose to A$1 billion, almost doubling from A$552 million last year. The final dividend was cut 50% to A$1.80 per share.

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Still, Macquarie shares closed up 5.7% in Sydney, amid relief the result wasn’t worse. Australia’s commercial banks have endured a torrid earnings season, with Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. both deferring dividend payments.

“The result is decent given the tough environment,” Aberdeen Standard Investments investment manager Jason Kururangi said. “They’re well positioned -- as much as they can be -- for a tougher period ahead.”

Wikramanayake also struck a more positive note on a call with analysts, stressing there is still decent client activity. “Deals are still happening,” she said.

“Ideally, we like to do things face-to-face but we’re still able to get on with making investments,” Wikramanayake said in an interview. Citing changes such as virtual data rooms, operating remotely for a couple of months “hasn’t been a material disruption,” she said.

‘Favored’ Position

“We are comfortable with Macquarie and believe they are well positioned for opportunities in the future,” said Max Cappetta, chief executive officer of Redpoint Investment Management which manages about A$10 billion. “Obviously the Covid crisis is challenging on a number of fronts, however management has consistently demonstrated strong governance and long-term thinking. That’s one of the reasons we’ve favored our position in Macquarie over other banks in the last few years.”

Macquarie is the latest global bank to report sharply higher impairments as lenders grapple with assessing the impact of the virus. Its global footprint and range of operating activities, from infrastructure management to aircraft leasing, M&A advisory, oil trading and retail banking, offers both more diversification and sources of risk.

Bad-debt provisions rose in all divisions. Wikramanayake told analysts the bank took a mixture of specific charges against particular holdings -- including a small cruise business and a private jet terminal -- as well as accounting for the general economic impact of the virus.

Macquarie Group’s Profit-Growth Run Has Come to an End

Profit contribution from the ‘annuity-style’ operations, which include the less-cyclical asset management unit, rose 13%, while the share from market-facing businesses, including commodities, fell 35%.

“The result likely offers something for everyone,” Brendan Sproules, banking analyst at Citigroup Inc. wrote in a note to clients. “Bears would point to a material fall in performance fees and investment income prompting a lack of guidance. Bulls may be prepared to look through the volatility in earnings and focus on opportunities to deploy record surplus capital of A$7.1 billion in volatile markets.”

©2020 Bloomberg L.P.