Moody’s Investors Service says Macquarie Group’s record earnings result for the 12 months to 31 March was helped by “strong” cost controls and “resilient” asset quality, despite a more challenging second half of the year.
Macquarie reported net profits of $2.1 billion during the 12-month period – up 29 per cent from the same period a year earlier – while its return on equity (ROE) increased from 14.0 per cent to 14.7 per cent.
However, both categories also showed a relative fall in the second half of the 12 months to 31 March, with reported earnings at $993 million – down 7 per cent from the first half – while the group’s annualised ROE for the second half was 13.7 per cent.
Moody’s said these developments reflected the more difficult operating conditions that prevailed in the global financial markets between September 2015 and March 2016, as well as the timing of the performance fee stream in Macquarie’s asset management division, which was predominantly generated in the first half of the 12-month period.
However, the credit ratings agency said Macquarie’s result was supported by strong cost controls and a reduced tax rate, both of which showed notable declines.
Macquarie’s compensation ratio fell from 39.8 per cent to 38.2 per cent between September 2015 and March 2016, while the tax rate dropped from 33.1 per cent to 28.6 per cent.
Moody’s said further support came from the group’s strengthened balance sheet, with improvements in capital and liquidity metrics, while Macquarie’s asset quality metrics have also shown resilience.
“Overall, Moody’s views the FY2016 result as credit-neutral, but we also expect asset quality profile to come under continued pressure due to multiple headwinds, including potential further stress in its commodities-related exposures, a tightening in global financial market conditions, and a patchy economic environment in Australia,” Moody’s senior vice-president Ilya Serov said.
“Nonetheless, Macquarie retains considerable operational flexibility and balance-sheet strength, positioning it well for a period of increased uncertainty.”
[Related: Macquarie grows mortgage book by 16%]