Macquarie boss flags lower profits amid deal-making slump

Macquarie chief executive Shemara Wikramanayake says confidence remains weak in the market for mergers and acquisitions despite the recent pause in interest rate rises, with the company flagging a significant fall in net profit.

During Macquarie’s third-quarter update on Tuesday, Wikramanayake said the company’s results were “substantially down” compared with the same period last year when “exceptional” market conditions – including commodity price volatility and a favourable selling environment – helped boost the business.

Macquarie chief executive Shemara Wikramanayake said realisations should pick up, but that it was taking longer than in previous interest rate cycles.

“We haven’t seen that repeat this year,” she said, noting buying and selling of businesses, or mergers and acquisitions activity, had reached a 10-year low in volume and revenue.

“Despite the perceived slowing of interest rate increases and equity markets being up, market activity in mergers and acquisitions still has not picked up, confidence has not returned and activity levels have not returned. We are finding in sales processes where previously we’ve had five buyers, there may be two.”

Last year, Macquarie’s record results were partly driven by a strong deal-making environment that helped it to profit from selling several of its major green assets.

While Wikramanayake said realisations, or asset sales, “should pick up”, she said it was taking longer than in previous periods during which interest rates had started to peak.

“At some point, [realisations] have to come back. There’s huge liquidity and dry powder out there. We’re sitting on $35 billion-plus, which is the largest we’ve ever had.”

Jefferies equity analyst Matthew Wilson said while the timing of asset realisations may disappoint some, Macquarie was playing the long game, showing a disciplined focus on value.

“The 2024 financial year will likely mark a trough in financial markets activity,” he said. “As we look forward, Macquarie is well placed to benefit from increased fund-raising activity, greater asset realisations, M&A reversion and more normal levels of volatility as markets consolidate higher interest rates globally.”

Shares in Macquarie were 1.2 per cent at $185.90 in afternoon trade.

Wikramanayake said Macquarie’s commodities and global markets business – which benefited from a surge in North American gas and power prices last year – would likely perform more in line with its 2022 financial year results because of more stable commodity prices.

While Wikramanayake said the company had made lower fee and commission income and had the worst fundraising year for private markets in 15 years in what has been “a very challenging market,” she said higher investment income, especially in private credit, helped offset some of Macquarie’s profit fall and was expected to remain strong.

“We’re seeing a lot of private credit transactions happen,” she said, with the bulk of growth coming from industrial companies that were typically safer with higher cash flow.

Macquarie’s banking arm, which has grown aggressively in the home loan market over the past few years, experienced some pressure on its profit margins in line with the broader banking industry, but continued to grow robustly in all areas except car loans.

Macquarie head of banking and financial services Greg Ward said he saw an opportunity to “dramatically increase” the bank’s market share in its target segments, including high net-worth clients, while continuing to pursue its strategy. “We haven’t been a price leader, we haven’t cut corners, and we haven’t had to go down the credit curve to drive that growth,” he said.

Looking ahead, Macquarie said it saw a number of immediate-term opportunities centred around the energy transition and biofuels in Asian economies including Thailand, Philippines, Indonesia and India.

On Tuesday, Macquarie also announced the exit of its highest-paid banker, Nicholas O’Kane, from February 27.

“It’s been an incredible journey,” Wikramanayake said. “[O’Kane] has made a massive contribution and impact. How [the commodities and global markets divisions] are positioned gives him comfort to take this step, which he told the team he is doing for a range of personal reasons.”

Macquarie head of commodities and global markets group’s financial markets division, Simon Wright, will step up to the position.

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