Unfortunately, the latest results suggest we are in for a rough...

Unfortunately, the latest results suggest we are in for a rough ride
AFR today

Macquarie’s powerhouse investment banking and financing arm has dragged down earnings across the business amid sluggish deal activity and a continuing struggle to sell assets in the portfolio.

The financial services giant told investors that earnings were flat – broadly in line with expectations – in the three months to June 30, the first quarter of Macquarie’s financial year. But it was weakness in Macquarie Capital that, in particular, affected the result with few big transactions.

Macquarie CEO Shemara Wikramanayake will update investors at Thursday’s AGM. Louie Douvis

In May, Macquarie said it was struggling to make returns by selling businesses exposed to the energy transition, and reported a 32 per cent drop in annual net profit to $3.5 billion. But those issues were focused on its Macquarie Asset Management division, not Macquarie Capital.

“The volatility in global energy markets that had previously increased customer demand for services and presented trading opportunities gave way to much quieter conditions, and hence lower earnings for the commodities and global markets business,” Macquarie chairman Glenn Stevens said.

“For much of the year, less active financial markets also constrained other areas of the group’s business, particularly in Macquarie Asset Management. However, as long-term investments in growth paid off, banking and financial services and Macquarie Capital both generated higher profits than last year.”

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On Thursday, Macquarie chief executive Shemara Wikramanayake pointed to the asset management arm’s $915 billion portfolio, down 2 per cent between the end of March and the end of June.

Macquarie Asset Management accounted for about 18 per cent of the group’s net profits, while the commodities business contributed 47 per cent. Macquarie’s banking and financial services arm made up 19 per cent and Macquarie Capital was the lowest contributor, at roughly 16 per cent.

Macquarie Capital, which provides investment banking services and principal financing like private credit, said it completed 95 transactions in the 12 months to March 30 – worth about $178 billion – up from the same period last year. It advised Link Holdings on its acquisition by Japan’s Mitsubishi UFJ Trust for $2.1 billion earlier this year.

Macquarie’s earnings in the quarter were aided by an increase in activity across commodities trading. Trading performance was up on last year because of improved trading levels in North American gas, power and emissions markets. The bank said it had “strong results” in agriculture and resources sectors, while foreign exchange and interest rate trading remained strong.

In asset management and the banking and financial services arm, performance was broadly in line with last year due to volume growth, lower expense count and fewer credit impairments at the retail banking business. Macquarie’s home loan portfolio, in its banking and financial services arm business, grew 4 per cent to $123.7 billion from March. Its business banking loan portfolio was up 5 per cent to $16.6 billion.