How the big Texas freeze delivered financial windfall for Macquarie

The frozen Texas power grid has delivered a massive windfall for Macquarie Group, with its giant US gas trading unit cashing in on the polar vortex.

Macquarie Group CEO Shemara Wikramanayake

The frozen Texas power grid has delivered a massive windfall for Macquarie Group, with its giant US gas trading unit cashing in on the polar vortex and putting the bank on track for a record 2021 profit.

The nation’s biggest energy producing state was paralysed and without power for days on end as gas and power generators froze and tripped offline, leading to a grid meltdown.

With the Texas grid isolated from the rest of the country, Macquarie was able to profit by tapping its huge US gas and oil storage position as it clients clamoured to grab emergency volumes of both the fossil fuel and supplies of electricity.

Macquarie may reap up to $270m in profits after gas briefly soared 300-fold to $US1,250 per million British thermal units while electricity in Texas hit a $US9,000 per megawatt hour price cap.

“It’s super profits, supplying energy into that part of the world during winter,” said Karl Siegling, managing director of Cadence Capital, which owns Macquarie shares. “It just shows you how powerful their trading desk is.”

Macquarie upgraded its annual profit guidance, to be 5 per cent to 10 per cent higher than 2020’s $2.73bn.

It is set for a bumper $3bn annual result at the top end of the asset management and investment banking giant’s profit range, which would beat a prior high of $2.98bn full-year result reported in 2019.

Investors cheered the revised earnings outlook, with Macquarie’s stock rallying as high as $148.39 on Monday, before closing the session 3.4 per cent up at $147.15.

Macquarie also faces a further Texas twist. It holds a stake in the state’s power supplier Griddy, which left scores of customers with $US5000 electricity bills for five days of power last week after customers were exposed to massive swings in wholesale prices.

Griddy ties customers to the spot price of power on the grid, saving money when plenty of supply is available but creating mayhem and sky-high prices when conditions are tight.

Texas senator Ted Cruz — himself under fire for fleeing the crisis for a Mexican holiday — weighed in with frustration over Griddy’s emerging PR disaster.

“This is WRONG. No power company should get a windfall because of a natural disaster, and Texans shouldn’t get hammered by ridiculous rate increases for last week’s energy debacle. State and local regulators should act swiftly to prevent this injustice,” Mr Cruz tweeted on Monday.

Macquarie is among the largest traders of gas in the US after its deal in 2017 to buy Cargill’s North American power and gas business, with its profit surge a reminder of a polar vortex that hit New York and spiked power prices.

The bank’s prior guidance — handed down as recently as February 9 — was for this year’s profit to be “slightly down” on 2020, as it navigated challenges relating to COVID-19 across its business units.

The group typically upgrades its guidance throughout the year, with analysts saying Macquarie often under promises and over delivers on its profit results.

On Monday, Macquarie cited extreme weather in the US as having “significantly increased” demand for its services in maintaining critical power supplies.

Macquarie is involved in maintaining supply across commodities including gas and power, and physically ships gas on the majority of major pipelines through the US.

A cold snap has gripped the US. Picture: AFP

Earlier this month, Macquarie chief executive Shemara Wikramanayake highlighted the favourable activity levels in the quarter across trading in commodities including gold, oil, gas and power.

“We did see increased volatility over this third quarter, and quite a bit of market dislocation as well,” she said. “We did have a particularly positive environment for us (commodities and global markets unit) in the third quarter.”

She had cautioned, though, the uncertain speed of the global economic recovery continued to make short-term forecasting “extremely difficult”.

Mr Siegling said the CEO transition from Nicholas Moore to Ms Wikramanayake had been “very smooth”, with strong momentum in earnings continuing, even against the backdrop of COVID-19.

While he is upbeat on Macquarie, Mr Siegling is treading cautiously on its valuation and watching the earnings profile closely given the bumper 2021 the company has flagged.

“The valuation has expanded to reflect the earnings.”

Separately, Macquarie and its investment funds have embarked on an acquisition spree in recent weeks, with the infrastructure arm outed by telecommunications group Vocus as having lobbed a $3.42bn bid for the company. Macquarie’s infrastructure funds are also part of a $2.3bn private equity led tilt for Bingo Industries.