ASIC found significant supervision and compliance failures in the global investment bank’s derivatives trading arm and imposed stringent conditions on its financial services licence.
Macquarie’s annual revenue rose 1.9 per cent to $17.2 billion, boosted by a strong performance by the group’s asset management division on higher performance fees. Growth in loans and deposits, as well as cost-cutting, helped the banking and financial services division also beat expectations, despite higher credit impairment charges and margin compression.
The group declared a final dividend of $3.90 per share, up from $3.85 in the year before. Its shares rose more than 4 per cent on Friday morning.
Barrenjoey analyst Jon Mott said the result was “broadly in line with consensus” and that Macquarie “appears relatively confident in the outlook, despite the environment”. He added that he did not expect changes to next year’s consensus earnings forecasts.
Jarden analysts noted the had stock traded down 11 per cent in the past month on weaker macro conditions and tariff concerns, so a small share price rally was expected.
Macquarie chief executive Shemara Wikramanayake, writing in the annual report, said that the company took a “disciplined approach” to risk management.
“Against a backdrop of ongoing market and economic uncertainty, Macquarie’s client franchises remained resilient over the past year,” she said.
Wikramanayake said Macquarie was well-placed to navigate the volatility in financial markets caused by the potential disruption of the established global trade order.
“Though it will take [time] for the effect on the global economy to become clear, Macquarie’s diverse mix of businesses, regional activity and income streams enables us to deliver in a range of market conditions.”
‘Recurrent failures’
In its report, ASIC highlighted lax supervision at Macquarie, poor change management practices and an “incomplete understanding” of its own processes and controls, including data governance.
ASIC said it had found nine areas of concern in Macquarie’s derivatives division in the past 18 months. These include the misreporting of more than 375,000 over-the-counter derivative transactions, and two futures dealing matters, concerning the prevention and detection of suspicious trading activity.
Glenn Stevens, former Reserve Bank governor, is now the chairman of Macquarie.
“These are failings which go to reporting things like suspicious activity that ultimately allow us to have confidence in the integrity of the market, and to pick up on behaviour that might even involve the manipulating of prices,” ASIC commissioner Simone Constant told The Australian Financial Review.
ASIC imposed additional conditions on Macquarie Bank’s financial services licence, demanding that it prepare a remediation plan to address the failures and their causes and appoint an independent expert to review and report on the adequacy of the remediation plan and how it operates.
Last year, Macquarie was stung with a $117 million fine by the US Securities and Exchange Commission for overvaluing thousands of illiquid investments, overstating their performance and favouring certain clients over others.
It was also hit in the same year with a $25.2 million fine by the UK Financial Conduct Authority after a junior trader on the firm’s London metals desk was able to book 426 fictitious trades to conceal his losses for almost two years.
Constant said the regulator still had a “deep level of concern with what is a significant institution about the recurrent nature of these failures”.
“Recurrent failures are problematic, and especially so when it can be traced back to those common causes such as ineffective supervision and control areas, and those unclear roles and responsibilities.”
Macquarie last month sold its North American and European public asset management unit to Japan’s Nomura in a $2.8 billion deal that covers $285 billion in assets. It marked a retreat from managing publicly traded assets overseas, and part of a strategy to withdraw from businesses with shrinking returns.
