Macquarie Group’s half-year profit fell to a three-year low as costs rose, and it booked fewer asset sales, especially in green energy. The Sydney-based financial conglomerate trimmed its earnings forecast twice in the past six months and said performance would lift in the second half. The company also announced an A$2 billion ($1.29 billion) share buyback, indicating management views the stock as undervalued.
Macquarie’s first-half net income fell 39% to A$1.42 billion from six months to September, missing the mean estimate of three analysts surveyed by Bloomberg. The timing of asset sales and lower investment gains hurt profits at the bank’s core asset management business. Revenue at the commodities and global markets division slumped 31%, reflecting a return to relative normalcy in energy markets following a year of chaos unleashed by Russia’s invasion of Ukraine and turbulent global weather.
The results were a rare miss for the Australian firm, which prides itself on a global breadth stretching from retail banking to offshore wind and commodity trading. The bank competes with Goldman Sachs on investment banking deals, spars with BP in gas trading, and shudders with the Commonwealth Bank of Australia for home loans. It also has a growing presence in liquefied natural gas, with projects in the US and Australia.
But even the best-performing businesses can run into trouble at some point. The first-half result was a reminder of the volatility that can knock even the most stalwart of financial institutions.
During an extraordinary period of expansion, Macquarie had become one of the world’s most successful investment banks. The bank’s profit climbed from A$1 billion in the early 2000s to more than A$40 billion in the late 2010s. Its assets under management grew from A$10 billion to more than A$200 billion during the same period. It was a juggernaut that helped drive its share price, which rose from A$10 to about A$20 in the decade after it was founded in 1970.
As the juggernaut lost speed, shareholders began questioning whether Macquarie was sustainable as an independent player in an increasingly regulated and competitive finance industry. But the bank kept moving, announcing a series of deals to expand its footprint and diversify its revenue sources. It also rejigged its pay structures to align compensation with performance better.
Macquarie’s recent profit slump is a reminder of the fragility of the banking sector. However, the company still looks like a good bet for investors, given its diversification and commitment to returning capital to shareholders. On Friday, its board greenlit an on-market share buyback of up to A$2 billion and declared a half-year interim dividend of A$2.55 per share. That translates to a dividend payout ratio of about 70%. UBS, which rates the stock “buy,” says a buyback is a sign that management thinks the stock is undervalued. The bank is scheduled to report full-year results on January 16. (Reporting by Paul Macmillan, Editing by John Stackhouse.)
