Macquarie Group flags $300m profit hit

Macquarie Group has warned its earnings will take a hefty first-half hit because of calm March-September trading after the steepest bear market on record and delayed mergers and acquisitions activity.

First-half financial results would fall about 35 per cent for the six months ending September 30 compared with the year-earlier period, Macquarie said on Monday.

The group is also anticipating earnings to fall 25 per cent compared with the six months ended March 31.

Half-yearly profit would fall to about $955 million from $1.275 billion. Macquarie shares slipped 5 per cent at the start of trading and held those losses into the close on Monday; the stock is about 20 per cent lower than its pre-coronavirus peak.

Delays in the timing of asset sales, increased provisions for souring loans, a reduction in transaction volumes and lower investment income would dampen the company’s results, chief financial officer Alex Harvey, and Sam Dobson, head of investor relations, said in a presentation to investors at the Jefferies Asia Forum.

Macquarie, which generates revenue from helping clients trade and strike deals when the markets are stressed, said the strong client activity earlier in the year “did not continue” into the latter half and was “not expected to continue” in the near future.

“Market conditions are likely to remain challenging, especially given the significant and unprecedented uncertainty caused by the worldwide impact of COVID-19 and the uncertain speed of the global economic recovery,” the investment bank said.

“The extent to which these conditions will adversely impact our overall FY21 profitability is uncertain, making short term forecasting extremely difficult.”

Macquarie has been unable to provide earnings guidance for the first time since the 2008 global financial crisis because of the current pandemic.

Hiring furloughed workers

As the government shutdown has resulted in several Macquarie assets being significantly affected, the company has moved to repurpose some of its airport carparks to be used for COVID-19 testing, while offering free parking for some Spanish health workers, and deploying its Dovel Technologies unit to review antiviral clinical trials.

Macquarie’s banking and financial services arm is hiring furloughed workers from other industries to help meet greater customer service demand.

The company said 13 per cent of Macquarie clients were accessing some form of hardship assistance.

Macquarie said there was a “gradual, voluntary” return to the office where it was safe to do so. More than 98 per cent of staff had been working remotely at the peak of the pandemic.

Macquarie recently posted an 8.4 per cent drop in full-year profit to $2.7 billion and a final dividend reduced by half and warned the economic recovery was unlikely to be a "V-shaped" bounce-back but a more drawn-out affair.

Jeffries analyst Brian Johnson said the rising Australian dollar, which has jumped from US55c to US70c, was a negative for the company, given its offshore earnings.

But he said there was upside for the group given "transactional gains are pushed back as opposed to not happening at all".

Macquarie would be "one of the few companies to emerge from COVID-19 economic disruption with a stronger business model" because of its exposure to in-demand infrastructure assets and green energy assets.

Morgan Stanley analyst Andrei Stadnik said the earnings shortfall was a "good" outcome given the operating environment.

"We think the below consensus outcome is driven by timing of gains on sale," Mr Stadnik said.

JPMorgan analyst Andrew Triggs said the current Macquarie share price was likely factoring in the COVID-19 risks into its price.

"We also believe these risks are less pronounced than they were in the midst of the global financial crisis given changes in business mix," Mr Triggs said.