Macquarie Bank: Adapting as Always

Euromoney, December 10 2020

This is part of the Euromoney 25 Series

Australian banks in general are coming through the pandemic in good shape, being predominantly domestic operations in a country whose only severe lockdown was in the state of Victoria.

It is not so easy for Macquarie, which earns 68% of its income internationally, 31% of it in the virus-hit Americas and 25% in Europe, Middle East and Africa (principally Europe).

Macquarie’s interim numbers for the first half of financial year 2021 – which, for Macquarie, means the six months to September 30, 2020, a period coinciding entirely with the pandemic – showed A$985 million ($718 million) of net profit, down 32% on the same period a year earlier. The market had expected a worse decline, and Macquarie shares jumped on the news.

Credit and impairment charges were up considerably, from A$139 million to A$447 million, and annualized return on equity fell from 14.5% in financial 2020 to 9.5%. But the impression was of slowdown rather than reversal. The balance sheet is strong following a slew of first-half fundraising. And it still paid a dividend, always a way to make oneself popular in Australia.

These days it is best to think of Macquarie not as a classic investment bank but as a world-class infrastructure asset manager with some other strong businesses attached. Macquarie Asset Management contributed 47% of group net profits in the first half, even as assets under management fell 7% in value over the six months, to A$556.3 billion.

All told, what Macquarie calls “annuity-style activities” – asset management, the banking and financial services business, and some of the commodities business – account for 70% of net profit, while market-facing businesses – the Macquarie Capital investment banking arm and the global markets operations – make up just 30%. That diversification has proven useful in these difficult times, with annuity-related income down 7% year on year and market-facing businesses down 42%.

This is where Macquarie’s time-honoured approach of digging out every niche and angle it can think of proves very handy. So, sure, the aircraft leasing business isn’t looking great right now. But that’s OK because the bank did well out of selling Macquarie European Rail. M&A income took a kicking when nobody could travel anywhere to do deals. But not to worry, Macquarie Capital had a great six months in equity capital markets, helping companies raise the money they needed to stay alive.

Euromoney asks chief executive Shemara Wikramanayake for examples of how the bank has adapted its businesses in light of Covid. The first thing she mentions – and this chimes with most banks – is the movement to an open-banking offering, allowing it to interact with clients remotely.

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