Macquarie (ASX:MQG) share price lower after Q1 and dividend update

This investment bank is warning that dividends could be lower in the future…

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The Macquarie Group Ltd (ASX: MQG) share price is under a bit of pressure on Thursday.

In morning trade, the investment bank’s shares are down 0.5% to $155.83.

Why is the Macquarie share price in the red?

The Macquarie share price is trading lower today after the company released a first quarter update at its annual general meeting.

According to the release, trading conditions have significantly improved during the first quarter of FY 2022. This has led to Macquarie’s operating businesses delivering a net profit that was significantly up on the first quarter of the prior corresponding period.

The release explains that Macquarie’s annuity-style businesses, Macquarie Asset Management (MAM) and Banking and Financial Services (BFS), posted a combined first quarter net profit contribution slightly up on the same period last year.

This was primarily due to higher average volumes and lower provisions in BFS. This was partially offset by reduced contribution from MAM, where the absence of the gain on sale of the rail operating lease business was partially offset by the Macquarie Infrastructure Corporation (MIC) disposition fee.

Macquarie’s markets-facing businesses (Commodities and Global Markets (CGM) and Macquarie Capital) delivered a combined first quarter net profit contribution significantly up year on year.

Management advised that this was primarily due to the sale of the UK commercial and industrial smart meter portfolio, which was partially offset by the timing of income recognition on storage and transport contracts in CGM. Macquarie Capital recorded significantly higher investment–related income.

Strong capital position

Macquarie ended the period with a financial position that continues to comfortably exceed the Australian Prudential Regulation Authority’s (APRA) Basel III regulatory requirements.

Its group capital surplus stood at $7.4 billion at the end of June. While this is down from $8.8 billion at the end of March, it equates to a strong CET1 ratio of 12.1%.

Dividends under pressure

The main drag on the Macquarie share price today appears to be comments around its dividend plans.

The release explains that the company intends to reduce its annual dividend payout policy range to 50% to 70%. This is to allow additional flexibility to support business growth and compares to its previous target range of 60% to 80%.

Outlook

No real guidance was given with today’s update. However, management spoke positively about its prospects over the medium term.

It commented: “Macquarie remains well-positioned to deliver superior performance in the medium term. This is 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; an ongoing program to identify cost saving initiatives and efficiency; a strong and conservative balance sheet; and a proven risk management framework and culture.”

In the short term, it warned that its outlook could be influenced by a range of factors including COVID-19, potential tax or regulatory changes, and foreign exchange impacts.

The Macquarie share price is up 11.5% in 2021.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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