Macquarie says global slowdown creates buy opportunities and its war chest is ready

The banking giant has delivered a record $5.2bn profit and chief executive Shemara Wikramanayake believes global economic woes mean there will be acquisition opportunities ripe for the picking.

Macquarie’s chief executive Shemara Wikramanayake fronted analysts and investors on Friday as the group handed down a record annual result. Picture: Supplied

Macquarie Group chief Shemara Wikramanayake believes a global macroeconomic slowdown and challenges in financial markets will create “even better opportunities” for acquisitions by the firm and the $35bn it has to deploy through its funds.

Her comments came as the asset management and investment banking giant delivered a jump in full-year profit to a record $5.2bn, underpinned by strong momentum in its commodities and markets unit.

But investors and analysts are questioning whether the earnings growth trajectory can continue in a tougher operating climate, where many central banks are still increasing interest rates.

Ms Wikramanayake said its asset management arm was working to identify, assess and execute acquisitions across its investment funds.

“They will have a lot of things they’ve been looking at through each of the sets of funds, the pipeline they’ll be watching and looking to create opportunities,” she told The Australian. “Definitely they’ll be able to deploy whatever the environment, but if there are challenges it will create even better opportunities.”

Globally, Macquarie has been busy on the deal front. It is understood to have partnered with Italian lender Cassa Depositi e Prestiti to lodge a €19.3bn ($31.6bn) offer for Telecom Italia’s fixed network and final bids are due next month.

A Macquarie European infrastructure fund last month agreed to buy a significant minority stake in Vienna-based Best in Parking AG.

As well as capital to deploy within its funds, Macquarie’s balance sheet has surplus capital of $12.6bn as at March 31, up from $10.7bn a year earlier.

Macquarie’s net profit climbed 10 per cent in the 12 months ended March 31, compared with the previous year’s $4.7bn, and bettered analysts’ expectations for a full-year net profit of about $5bn.

But the stock declined 0.2 per cent to $177.35 on Friday, as analysts and investors questioned whether the profit momentum was sustainable.

“Given how strong commodities and markets were this time around, it’s probably going to be hard to repeat that. They are going to need to find something else to fire there,” said Australian Eagle Asset Management portfolio manager Alan Kwan.

Analysts at Goldman Sachs said the commentary around Macquarie’s earnings outlook presented a “small downside risk” to its 2024 profit expectation of $4.4bn, while consensus estimates have the firm delivering a $4.7bn in its current financial year.

Ms Wikramanayake said, however, that Macquarie was taking a medium-term view and saw growth options across its divisions.

“I don’t think this is the end of growth for Macquarie,” she said. “What we’re doing is guiding for each of our operating groups what the outlook is in the short term, but over the medium term we’re very comfortable there’s a long runway for us to respond to … our $870.8bn of assets is about 1 per cent of the global assets under management.

“Macquarie Capital we’re 0.5 per cent of the revenue pool in advisory in North America which is the biggest market … and even in commodities and global markets not only are we small compared to the banking peers involved in those markets, but the energy houses have a very big share, the trading houses do, the hedge funds do.”

While she was optimistic on acquisitions, if rising rates weighed on asset prices Ms Wikramanayake said Macquarie could delay asset sales until the selling environment became more conducive.

Macquarie’s net operating income rose 10 per cent to $19.1bn and operating expenses increased 10 per cent in the 12 months ended March 31, as the company’s employee numbers increased to 20,509.

The commodities and global markets division – Macquarie’s biggest earner – saw its annual net profit contribution surge by 54 per cent, buoyed by inventory management and trading activity. That was linked to linked to trading and other activity around regional supply and demand imbalances, including in North American gas and power markets.

The commodities and global markets unit accounted for about 57 per cent of Macquarie’s earnings result.

About 71 per cent of Macquarie’s income was generated outside Australia, with the largest proportion stemming from the Americas at 38 per cent followed by its home market at 29 per cent.

Macquarie didn’t provide guidance for group earnings in 2024 but did break down its expectations across its four divisions.

It flagged that its 2023 year had been “exceptionally strong” for commodities income and it expected the current financial year would see revenue up on 2022 levels, albeit volatile markets could create opportunities.

In its asset management arm, Macquarie said base fees were expected “to be broadly in line” with 2023, although net other operating income would fall significantly, primarily because lower investment-related income from green energy investments.

The banking and financial services unit is expected to continue to see growth in loans, deposits and platform volumes, despite intense competition, while it will also book higher expenses to support growth, technology investment and regulatory requirements.

Ms Wikramanayake said if the domestic banking market, and net interest margins, was to deteriorate materially Macquarie could pull back on its “discretionary cost spend” and rein-in expenses.

The investment banking and principal investing arm Macquarie Capital is expected to see a recovery in deal activity following a softer period, while investment-related income is tipped by the company to be “significantly up”.

Macquarie’s board declared a final dividend of $4.50 per share, taking the full-year payment to $7.50. That is up on dividends paid last year amounting to $6.22 per share.

The banking and financial services division posted a 20 per cent rise in annual net profit contribution, aided by loan portfolio and deposit growth. It saw higher credit impairment charges, however, as an aggressive Reserve Bank rate hiking cycle started to weigh on borrowers.

But two of Macquarie’s units delivered softer results, including its asset management arm which saw its net profit contribution slump 23 per cent for the full year versus 2022.

The group said the decline was linked to lower gains on asset sales in the green energy sector during the period and to “significant income in the prior year” from the disposal of assets in Macquarie Infrastructure Corporation.

Assets under management rose 10 per cent to $870.8bn at March 31, from last year, and were 5 per cent higher than six months earlier.

Macquarie Capital saw a net profit contribution slide 47 per cent, as mergers and acquisitions fee income was sharply lower given weaker deal activity.

Macquarie’s return on equity was 16.9 per cent for the year, compared with 18.7 per cent in 2022.

Separately, Macquarie’s chairman and former RBA governor Glenn Stevens on Friday said the federal government shouldn‘t rush to overhaul the operations of the central bank without carefully considering the implications.

“It‘s (a landmark review of the RBA) actually very wide ranging and far reaching and it probably is wise to take time in considering the response, I’m sure the government will do that,” Mr Stevens said.

“I noticed that (former RBA governor) Ian Macfarlane had a piece today which I thought made a number of very good points.”

Mr Macfarlane wrote a piece, published on Friday, in which he said he found a lot of the proposals in the review “unhelpful, and not supported by any empirical evidence”.

He also noted the review‘s proposed operating model for the RBA closely resembled that of central banks in England and Canada, and that neither of those had performed as well as the RBA in the past 30 years.

The independent RBA review was made public last month and suggested sweeping changes including fewer board meetings every year and having two boards, one to assess monetary policy and another to support and oversee management.

Macquarie on Friday said former Mirvac CEO Susan Lloyd-Hurwitz would join its board in June, subject to approval from shareholders at its annual general meeting.

Earlier this week, Ms Wikramanayake said population growth and natural resources activity would support the Australian economy this year, helping the nation navigate a milder downturn than that expected in many larger markets offshore.