The Macquarie Group Ltd (ASX: MQG) share price is surging higher on Tuesday following the release of its third quarter update.
At the time of writing, the investment bank’s shares are up 7% to $143.45.
How did Macquarie perform in the third quarter?
For the three months ended 31 December, Macquarie experienced an improvement in trading conditions across the company.
According to the release, Macquarie’s annuity-style businesses’ combined third quarter net profit contribution was up on the prior corresponding period.
However, year to date, this side of the business is broadly in line with the same period last year. This is due to base and performance fees being partially offset by margin pressures, increased credit impairment charges, and higher costs to support clients as a result of COVID-19.
Macquarie’s markets-facing businesses’ combined third quarter net profit contribution was significantly higher than the prior corresponding period. This was thanks to the partial sale of its interest in Nuix Ltd (ASX: NXL).
Once again, though, year to date its net profit contribution was broadly in line with the same period in FY 2020. This was due to stronger activity across the majority of its commodity and global markets businesses being partially offset by lower fee revenue and principal income in Macquarie Capital.
At the end of the period, Macquarie’s financial position comfortably exceeded APRA’s Basel III regulatory requirements. As of 31 December, it had a group capital surplus of $8.1 billion and a CET1 ratio of 12.1%. The latter was down from 13.5% at the end of September.
Macquarie acknowledges that market conditions are likely to remain challenging, especially given the significant and unprecedented COVID-19 uncertainty.
As a result, it makes short-term forecasting extremely difficult. However, at this point, management advised that it anticipates the FY 2021 result to be slightly down on FY 2020.
Macquarie’s CEO, Ms Shemara Wikramanayake, commented: “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 our portfolio mix to changing market conditions; an ongoing program to identify cost saving initiatives and efficiency; our strong and conservative balance sheet; and a proven risk management framework and culture.”