Fitch rates Macquarie Group

Fitch Ratings has confirmed its credit ratings for Macquarie Group Limited (MGL) and its subsidiaries Macquarie Bank Limited (MBL), Macquarie Financial Holdings Pty Limited, and Macquarie International Finance Limited, all of which are expected to remain largely stable.

The ratings agency provided As for three categories of ratings for the group’s main operating subsidiary MBL: issuer default (long term), senior debt (long term) and viability.

Fitch said that the ratings are reflective of a “strong risk management framework, sound liquidity, solid capitalisation and a diverse business mix, both by type of business and geography”.

“These factors help to offset a level of complexity that results from the diverse business mix, specialised operations outside Australia, a greater risk appetite and earnings volatility relative to Australian retail banks, and a high reliance on wholesale funding,” the ratings agency added.

MBL’s daily average Basel III liquidity coverage ratio for the final quarter of the 2018 financial year was 162 per cent, while its net stable funding ratio was 112 per cent at the end of the same financial year (31 March 2018).

At the end of FY2018, Macquarie Bank Limited held $24 billion in cash and liquid assets.

However, Fitch expects that Macquarie Group’s earnings will be “more volatile” than that of Australian retail banks due to the group’s “greater exposure to investment banking and other market-oriented businesses”.

The ratings agency said that these activities accounted for approximately 30 per cent of MGL’s net profit in the 2018 financial year, but it noted that the figure has dropped from 80 per cent a decade ago prior to the global financial crisis due to the group’s increased lending, leasing and asset management activities.

As a result, MGL’s issuer default, senior debt and viability ratings were set below MBL’s ratings at A-.

Fitch explained that the A- ratings take into account “the regulatory focus on protecting depositors in Australia, limited standalone liquidity and regulatory restrictions on dividends and liquidity transfers from MBL”.

However, the ratings agency noted that the group’s risk management framework and controls are “strong”, which it said are important given its higher risk appetite compared to retail banks in Australia.

“New products and businesses are tightly controlled by a centralised risk management group and regular and extensive stress testing is undertaken,” Fitch said.

The agency further suggested that Macquarie Group is likely to remain “an opportunistic acquirer”, but only in areas that align with and build on existing operations, with each transaction to be funded via new facilities.

Fitch said: “The group has a strong reliance on wholesale funding but manages risks associated with this well through relatively conservative liquidity management. MGL’s liquidity risk appetite is set so that it is able to meet all of its obligations over a 12-month period with no access to funding markets and a modest reduction in the group’s core businesses.”

[Related: Macquarie mortgage push sees loan growth hit 17.5%]