The Macquarie Group Ltd (ASX: MQG) share price could be on the move today after releasing its highly anticipated full year results.
How did Macquarie perform in FY 2020?
A tough second half to the financial year offset the growth the company delivered in the first half and ultimately led to a decline in full year profit.
For the 12 months ended March 31, the investment bank reported an 8% decline in net profit to $2,731 million. Management notes that this reflects a high level of asset realisations in FY 2019 and higher impairments in FY 2020 because of the potential economic impacts of the COVID-19 pandemic. Macquarie's credit and other impairment charges came to $1,040 million in FY 2020, up from $552 million in FY 2019.
This ultimately led to earnings per share of $7.91, down 10% on FY 2019.
Other metrics of note include its annualised return on equity (ROE) of 14.5%, down from 18% in FY 2019, and its bank CET1 ratio of 12.2%.
At the end of the year the company's assets under management stood at $606.9 billion, up 10% from March 31 2019.
Macquarie Group Managing Director and Chief Executive Officer, Shemara Wikramanayake, commented: "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," she added.
Final dividend declared.
The good news for shareholders is that Macquarie hasn't followed the lead of Australia and New Zealand Banking Grp Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) with its dividend and has decided to declare an interim dividend.
A final dividend of $1.80 per share has been declared, which brings its full year dividend to a total of $4.30 per share. While this is a 25% reduction on FY 2019's $5.75 per share dividend, based on its last close price, it still equates to a generous 4.3% yield.
How did its businesses perform?
The Macquarie Asset Management (MAM) business delivered a 16% increase in net profit contribution to $2,177 million. Increased base fees, performance fees and investment-related and other income were partially offset by lower net operating lease income, higher operating expenses and higher credit and other impairment charges.
The Banking and Financial Services (BFS) business delivered a 2% increase in net profit contribution to $770 million. This was driven by growth in average volumes for BFS deposits, the loan portfolio, and funds on platform, along with the impact of realigning the wealth advice business to focus on the high net-worth segment. It was offset by margin compression on deposits and higher credit provisions.
Its Commodities and Global Markets (CGM) business posted a flat net profit contribution of $1,746 million for FY 2020. Management notes that this reflects the benefits of portfolio diversity. Strong global client contributions in CGM's markets-facing activities together with higher revenue generated from the annuity-style activities were offset by a reduction in inventory management and trading revenues and an increase in credit provisions.
The Macquarie Capital business was the biggest drag on its results. It delivered a 57% decline in net profit contribution to $755 million. This result was impacted by lower fee revenue from debt capital markets activities, partially offset by higher mergers and acquisitions fee revenue. In addition to this, investment-related income was also down given strong asset realisations in FY 2019. The business also incurred higher operating expenses, funding costs, and increased credit and other impairment charges.
Outlook.
Due to a wide range of factors impacting its businesses by varying degrees, management notes that short-term forecasting is extremely difficult.
As a result, it is unable to provide meaningful guidance for FY 2021.
Ms Wikramanayake concluded: "We continue to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions us well to respond to the current environment. 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."
