The Macquarie Group Ltd (ASX: MQG) share price will be on watch this morning following the release of its half year results.
How did Macquarie perform in the first half?
For the six months ended September 30, Macquarie delivered a net profit after tax of $1,457 million. This was an 11% increase on the prior corresponding period and a 13% decline on the second half of FY 2019.
A key driver of this solid half was its Annuity-style activities. These activities are undertaken by Macquarie Asset Management, Banking and Financial Services, and certain Commodities and Global Markets businesses.
During the half Macquarie posted a 15% increase in profit from its Annuity-style activities to $1,717 million.
Supporting its growth was its Markets-facing activities. These are activities undertaken by Macquarie Capital and most of its Commodities and Global Markets businesses.
This side of the business delivered a combined profit contribution of $1,151 million. This was 4% higher than the prior corresponding period, but down 42% from the second half of FY 2019.
Macquarie's managing director and CEO, Shemara Wikramanayake, said: "Our first half result highlights the benefits of the business and geographic diversity of the Group, with increased client activity across many of our business lines and favourable market conditions across the Commodities and Global Markets platform in particular."
Also growing during the half was its assets under management (AUM). Macquarie ended the period with AUM of $563.4 billion, up 2% from six months ago. This was largely due to foreign exchange impacts, investments made by funds managed by Macquarie Infrastructure and Real Assets, and market movements.
In light of its positive half, the Macquarie board declared an interim dividend of $2.50 per share (40% franked). This was up 16% on the same period last year and represents a payout ratio of 61%.
Balance sheet.
Macquarie finished the period with a strong balance sheet. Its CET1 ratio currently stands at 11.4%, which is comfortably ahead of regulatory requirements.
The bank has a leverage ratio of 5.5%, a Liquidity Coverage Ratio of 172%, and a Net Stable Funding Ratio of 111%.
In addition to this, the company notes that APRA is currently undertaking regulatory reviews that may impact its business. However, Macquarie is confident that it will have sufficient capital to accommodate any additional regulatory Tier 1 capital requirement.
Outlook.
Management continues to expect its profits in FY 2020 to be slightly down on FY 2019's result. Though, it warned that the impact of future market conditions makes forecasting difficult.
Looking further ahead, Ms Wikramanayake appears confident in its prospects.
She said: "Macquarie remains well-positioned to deliver superior performance in the medium term due to: our deep expertise in major markets; strength in business and geographic diversity and ability to adapt the portfolio mix to changing market conditions; the ongoing program to identify cost saving initiatives and efficiency; a strong and conservative balance sheet; and a proven risk management framework and culture."
