The profit surge comes amid a background of Russia’s invasion of Ukraine and subsequent oil sanctions driving the price of crude to near record highs. The intensity of price swings resulted in “super trading days” that delivered a massive $650m in profits in just 10 days.
Commodities trading, including storage and transport of oil and gas, helped underpin a blockbuster profit for Macquarie where net profit jumped 56 per cent to a record $4.7bn. This helped it resume its near unbroken run of profit growth, after it suffered a dip in the first year of the Covid pandemic.
But it was oil and gas trading across North America and Europe that drove a 50 per cent increase in profit for Macquarie’s commodities business to $3.9bn.
Macquarie, which saw overall revenues increased 36 per cent, is benefiting as its mostly power station clients scrambled to secure supply and lock in hedging to prevent volatility. Macquarie ranks as one of the biggest commodities traders in Europe and owns a major gas transmission network in Germany, putting it at the front line of the energy squeeze there.
At the same time a during freeze during the most recent US winter which caused Texas gas production to collapse squeezed prices there. It points out it has been in the sector for decades, buying energy for clients and building out its own network or storage and gas pipelines.
‘Green focus’
Macquarie chief executive Shemara Wikramanayake points out Macquarie is a diversified business and the commodity profits have been a result of responding to clients as Russia’s invasion or weather events “exacerbate” the volatility already sweeping markets. In addition she points out investments in renewable energy delivered $800m in pre-tax earnings over the past year.
The investment banking arm, which also houses the green investment business had a bumper year on a global mergers and acquisition boom including its role advising Sydney Airport with profits surging more than 260 per cent to $2.4bn.
More broadly earnings were up across other parts of Macquarie including its flagship asset management business which is now managing $775bn in assets as well as the fast-growing bank.
The returns see a re-tilting of Macquarie which under chief executive Shemara Wikramanayake has been working to diversify away from highly volatile profit swings generated by its markets facing income such as commodities or investment banking.
Markets facing income this year delivered 56 per cent of Macquarie’s profit during the past year compared to 46 per cent previous. In recent years it has been attempting to generate “smoother” earnings growth by bulking up on annuity style businesses of asset management or banking. As long as growth is outpacing the market this is generally rewarded with a higher premium from investors.
Wikramanayake points out its is simply the Macquarie model at work.
“What we want to do is have base earnings from our annuity style business and underlying resilience. That helps us particularly in downturns, but in markets, like the one we did last year, we want to have businesses that can respond and deliver,” Wikramanayake says in an interview. “It benefits our shareholders to have the diverse offerings,” she adds.
Under Wikramanayake, Macquarie has doubled down on its investments in energy renewables through its Green Investment Group. It has 250 green energy projects underway with co-investors and represented a third of $2.4bn of the investment bank earnings over the past year. It is also planning to invest billions more in the space, including through an energy transition fund which helps high polluting energy assets turn green.
Macquarie is no longer the millionaires factory, rather it has become the multi-millionaires factory with chief executive Wikramanayake’s total remuneration package of $25.8m last financial year, was up some $5m from the previous year.
She was overshadowed by her direct report Nick O’Kane, the head of commodities and global markets whose package topped $36.2m, up from a $26.3m a year earlier. This puts him among the record holders for a pay cheque among Australian company executives.
Chairman Peter Warne stood by the paycheck saying “it is a reflection of the quality” of the business that O’Kane has built.
“We unashamedly pay for performance of the businesses that we that we encourage our people to develop. That is a fundamental platform of our remuneration model which our shareholders have supported,” Warne says.
Shareholders weren’t left behind, with a full year dividend per share of $6.22 up from $4.70 last year. The dividend for the second half was up 29 per cent to $3.50.
Profit caution
However a deeply cautious outlook for Macquarie’s profit as commodities volatility is expected ease in the coming year triggered a share price slide. Even with Russian and Ukraine conflict still causing fallout in European energy markets, the extreme volatility in commodity markets, particularly gas has started to “come off” over the past month, says Wikramanayake.
Inflation rising around the world its asset management business which invests in toll roads and airports are expected to benefit, although this might not be enough to offset the drop in trading income.
Shares in Macquarie dropped 7.7 per cent at $187.10, on a sharply lower market.
From next week former Reserve Bank governor Glenn Stevens steps up as chairman as long-serving Peter Warne steps down. Warne, a former Bankers Trust alumni, moved into the chair role in 2016 oversaw the critical transition of chief executive from Nicholas Moore to Wikramanayake four years ago.
Warne said the fundamentals of Macquarie have remained through the 15 years he has been involved.
“It has been about organising the businesses into simple logical, easily explainable businesses investing time in our people to sector expertise to become experts in our chosen field to enhance that by branching out into adjacencies and continuing to grow,” he said in an interview.
Elsewhere, former Commonwealth Bank top executive and one-time RBA staffer Ian Saines also moves on to the stand-alone board of Macquarie’s banking arm.
johnstone@theaustralian.com.au
Investor leap of faith needed for Indonesian ‘kangaroo’ bonds issue
Australian investors have largely spurned federal government attempts to drive investment in Indonesia. But both governments are hoping an Australian-dollar bonds issue will provide a low-risk entry.
How does Macquarie regain its magic touch?
Shemara Wikramanayake’s investment bank these days is looking more like a reserve grader. But don’t write it off just yet.
Macquarie Group put its determined green focus aside for moment as it rode a profit windfall from its exposure to old-fashioned oil and gas trading while energy markets have been going sky high.