Macquarie half-year profit slips

Macquarie Group detailed over 500 job cuts as costs and market volatility contributed to a 2pc fall in earnings.

Macquarie CEO Nicholas Moore. Pic: Hollie Adams

Macquarie Group has detailed over 500 job cuts as it booked a 2 per cent fall in earnings for the first half with market volatility weighing on its trading activities.

The investment bank (MQG) reaffirmed its guidance for the full year, with expectations it will broadly match the record $2.06 billion profit recorded in fiscal 2016.

For the six months to September 30, Macquarie recorded earnings of $1.05bn, down 1.9 per cent on the corresponding period last year, but outstripping market forecasts for a reading of $994.5 million.

The group’s shares jumped around 2 per cent in morning trade given the result beat analysts’ expectations.

“The first half highlighted the strength of Macquarie’s global platform, the benefit of recent acquisitions and its ability to adapt to changing conditions,” Macquarie chief executive Nicholas Moore said.

“The group remains well positioned, with a strong and diverse global platform and deep expertise across a range of products and asset classes. This is built on the foundation of a strong balance sheet, surplus capital, a robust liquidity and funding position and a conservative approach to risk management which is embedded across all operating groups.”

The group’s annualised return on equity trended lower compared to last year, sliding to 14.6 per cent from 15.8 per cent in the first half last year, while earnings per share dipped 4 per cent to $3.12.

Net operating income was off around 2 per cent to $5.22bn, while expenses grew 1 per cent to $3.73bn.

The overall performance was labelled “solid” by UBS analysts, although the lift in costs was viewed as a let-down.

“This was disappointing, with the staff compensation ratio up 1 per cent, bucking industry trends,” UBS analyst Jonathan Mott said.

“More pleasingly, headcount fell 4 per cent in the half which we believe is a better reflection of underlying cost improvements.”

Staff numbers were trimmed by 556 to 13,816 in the six months to September 30.

However, the compensation ratio pushed back up to 41 per cent, from 39.8 per cent, doing nothing to rid Macquarie of its reputation as a millionaires’ factory.

UBS, a rival investment bank, last year made the case the ratio should fall in between 35 and 38 per cent to meet global industry benchmarks.

Macquarie’s tier one capital ratio was seen at 10.4 per cent, as against 10.7 per cent when it last detailed the number in May, while assets under management climbed 3 per cent to $493.1bn.

The investment bank’s modest decline in earnings was driven by an 18 per cent slump in net interest and trading income to $1.86bn and a 21 per cent drop in fee and commission income to $2.2bn, with M & A activity down and brokerage fees falling on weak client trading activity amid Brexit-driven uncertainty.

“Macquarie Securities Group was impacted by limited trading opportunities due to market uncertainty,” the company added.

This weakness was partially offset by a 20 per cent jump in operating lease income to $476m and a major swing in “other operating income” from a loss of $83m to a profit of $684m.

Macquarie also announced an interim dividend of $1.90 per share, up from $1.60 in the corresponding period last year and above market estimates for a $1.73 a share payout.

At 11am (AEDT), Macquarie shares advanced 2.1 per cent to $82.12, against a modest 0.1 per cent rise in the broader market.