Credit impairments hit Macquarie’s profits

Macquarie Group has released its full-year results for the 2020 financial year (FY20), posting a net profit of $2.7 billion, down 8 per cent from $2.9 billion in FY19.

Like many of its peers, Macquarie’s earnings were hit by a spike in credit impairment charges in anticipation of a rise in defaults off the back of the COVID-19 crisis.

The group’s credit impairments increased 152 per cent in FY20, from $320 million to $805 million.

Commenting on the group’s performance, Macquarie’s managing director and CEO, Shemara Wikramanayake, said: “The final months of the financial year were overshadowed by the profound human impact of the COVID-19 global health crisis and its economic consequences.

“Macquarie’s full-year result has also been subject to the effects of this crisis, and a strong underlying financial performance in FY20 was impacted by a material increase in credit and other impairment charges, primarily reflecting the deterioration in current and expected macroeconomic conditions as a result of COVID-19.”

This was offset by an improvement in Macquarie’s annuity-style activities, which generated a combined net profit contribution of $3.4 billion, up 13 per cent on FY19.

This includes Macquarie’s Banking and Financial Services (BFS) division, which reported a net profit contribution of $770 million for FY20, up 2 per cent from $756 million in FY19.

Growth in Macquarie’s BFS division was driven by an increase in both deposit and loan volumes.

Deposit volumes increased by 19.6 per cent to $63.4 billion, while its mortgage book grew 35 per cent to $52.1 billion.

Business loan volumes also increased, up 10 per cent from $8.2 billion to $9 billion.

Ms Wikramanayake claimed the group’s operating position and its “conservative approach to capital, funding and liquidity” would help it manage emerging headwinds from the COVID-19 crisis.

“The longstanding fundamentals that have resulted in Macquarie being profitable every year since inception are unchanged, including deep expertise in major markets, business and geographic diversity, and a proven risk management framework and culture,” she concluded.

[Related: Genworth earnings dragged into negative territory]