Macquarie affirms bet on green energy shift after ‘soft start’ to year

Macquarie Group boss Shemara Wikramanayake says any change in climate change policies, including under a Donald Trump presidency, won’t derail the longer-term green energy transition, as the bank’s latest update fell short of market expectations.

At the investment group’s annual meeting on Thursday, Macquarie said performance in its first quarter was broadly in line with the same period last year. The market viewed the update as soft, sending the share price 3.9 per cent lower.

Macquarie is a major investor in the long-term shift towards renewable energy, an area thrown into focus by the potential for a change in government in the US if Trump wins this year’s presidential election. The Project 2025 blueprint for Trump’s tenure in office includes plans to overturn the Inflation Reduction Act, which has turbocharged climate action under the Biden administration by offering massive tax incentives for the development of clean energy and technology.

Alex Harvey, Shemara Wikramanayake and Glenn Stevens.Credit: Louie Douvis

When asked about the prospect of a Trump presidency, Wikramanayake said the next US administration may have “some impact”, but the company would work with governments over the longer-term.

“We think that’s a multi-decade response that has a long way to play,” Wikramanayake said.

Wikramanayake also signalled green hydrogen remains in the firm’s sights despite the investment needing government support to generate a financial return - a week after mining giant Fortescue signalled it was tempering its ambitions to be a major producer of the clean fuel.

Wikramanayake said while the exact technologies to emerge as key players in the transition remained uncertain, green hydrogen was an area the firm was continuing to engage with.

“The world needs a source of energy with low or no emissions to complement wind or solar, and green hydrogen has to be one of those options,” she said.

“Initially, that investment is not going to be financially returning unless governments step up to support those investments,” Wikramanayake said. “The Inflation Reduction Act in the US provides the biggest incentives for green hydrogen, so we have a number of projects we’re participating in that are made feasible because of the support.”

Addressing the company’s shareholders in Sydney on Thursday, Macquarie chair and former Reserve Bank governor Glenn Stevens said the banking group has delivered a return on their investment of 10.8 per cent “a bit below the level Macquarie typically seeks to achieve”, as quieter financial conditions presented fewer opportunities and weighed on demand for its services.

Over the past five years, Macquarie has earned around 15 per cent for shareholders on average.

On interest rates, Stevens said central banks everywhere were faced with “quite a delicate situation”, noting that while inflation had come down, there were still questions about whether it had cooled enough. “Economies have probably been a bit more resilient than most would have expected. [But] there are signs of slowing, certainly in the US and here,” he said.

Jefferies equity analyst Matthew Wilson said it had been a “soft start” to Macquarie’s new financial year compared with market expectations, though it was consistent with Macquarie’s expectations.

Wikramanayake said Macquarie Asset Management, which accounted for 18 per cent of the group’s net profits, held $915 billion in assets under management as of the end of June – down 2 per cent from March.

However, she noted Macquarie’s banking and financial services unit – which has been pushing into the market share of the big four banks – saw deposits grow 2 per cent to $145.3 billion from March to June, with its home loan portfolio up 4 per cent to $123.7 billion. Its business bank loan portfolio grew 5 per cent to $16.6 billion.

Shares in Macquarie were down 3.9 per cent to $200.66 in afternoon trading amid a wider market sell-off.

While Macquarie’s commodities and global markets business fell short of its previous stellar performance amid lower volatility in markets, its performance improved from the same time last year. Wikramanayake said this was largely driven by improved trading in the North American gas, power and emissions markets and strong results in the agriculture and resources sectors.

Macquarie Capital, meanwhile, saw higher fee and commission income compared to the same period a year ago, but reported lower investment-related income due to higher funding costs and the timing of asset sales. “We’re expecting transaction activity to be significantly up on what was a challenging year last year across the market,” Wikramanayake said.

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