Macquarie Bank schemes capital plan

Ian Rogers Financial institutions / Big five & fintech
Macquarie diverts transport finance away from its banking subsidiary, and repurposes $2bn in capital.
Macquarie diverts transport finance away from its banking subsidiary, and repurposes $2bn in capital.

Macquarie Bank will be slimmed down and A$2 billion in capital upstreamed to Macquarie Group, under a restructure outlined on Friday.

The Principal Finance and Transportation Finance businesses of the Corporate and Asset Finance division of Macquarie “will transfer from the Bank Group to the Non-Bank Group, effective 10 December 2018,” the group announced in its full year results.

APRA has given its endorsement to this scheme, though the bank will hold a general meeting of MBL shareholders (which includes holders of Macquarie Income Securities, as the only outside interests) to approve the plan.

Over the half year to September 2018, Macquarie Group reported a rise in net profit of five per cent to A$1.31 billion.

Its annualised return on equity for the half of 16.3 per cent exceeds returns produced by Australia’s major banks recently, but is down by 60 basis points compared with the March 2018 half year and is down by 40 bps on the ROE for the 2017 first half.

Very high growth in payroll and overall costs explains some of the decline in ROE.

Employment expenses climbed by around ten per cent (over both six and 12 months) at the group level, while total operating expenses increased by 10 per cent and 12 per cent respectively.

In its “core” Banking and Financial Services division there is no loss of the tempo that’s produced well above system growth rates for Macquarie Bank. The net profit of BFS was $296 million for the half.

Australian mortgage volumes for the bank of$36.1 billion at September 2018 were 10 per cent up on March 2018, and a multiple of four times system growth. Business lending volumes were up seven per cent.

The bank’s deposits increased by eight per cent to $49.4 billion over the six months.

The domestic leasing activities once allocated to CAF will shift under the wing of BFS, with the reorganisation of the bank

Macquarie alerted shareholders that “there is currently no prospect of buying any shares under the share buyback program announced at the March 2018 result announcement, and so the program has ended.”

The group did not purchase any shares under that buyback program, but continues to assert it has “surplus capital” in the order of $3.5 billion.

Shemara Wikramanayake, the CEO designate, provided the outlook: “The group currently expects the FY19 result to be up approximately 10 per cent on FY18.”

Macquarie also confirmed it is “progressing additional licence applications in Ireland and Luxembourg, where we have existing business operations” to manage Brexit risks in the UK.
Macquarie will pay a first half dividend of $2.15, up 10 cents on the interim dividend last year.