Why Macquarie shares could be set for a $570m tailwind

The bank is looking to buy back some of its own shares on market.

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Key points

  • The Macquarie share price is trading higher today but it’s still in bear territory
  • News that it may have to purchase around $570m of its own shares on market could be helping sentiment
  • The share purchase is linked to its executive bonus scheme but the tailwind won’t last more than a few days

It’s been an ugly time for ASX financial shares like Macquarie Group Ltd (ASX: MQG). But the investment bank could be about to get more than half a billion dollars of buying interest.

Never mind that the buying support is self-generated. The Australian Financial Review reports that Macquarie just started or is about to buy shares to fulfil executive bonuses.

Beggars can’t be choosers. In this market, any support would be welcomed given the battering the sector is taking.

Macquarie share price recovers some lost ground

I am not saying the news is supporting the Macquarie share price, but it’s worth noting it’s up 1.74% to $166.19 at the time of writing. This, however, won’t save it from bear market territory as the Macquarie share price has shed around 21.4% since the start of this calendar year. A bear market is defined as a peak to trough fall of 20% or more.

Macquarie isn’t alone either. The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price and Westpac Banking Corp (ASX: WBC) share price have also fallen more than 20% from their peaks.

The Commonwealth Bank (ASX: CBA) share price and National Australia Bank Ltd. (ASX: NAB) share price have only just managed to escape the bear market.

Why ASX bank shares are out of favour

The sector has been hit by worries of a recession that could be triggered by big interest rate hikes. The faltering residential market is also dragging on sentiment.

Against this gloomy backdrop, speculation that Macquarie could be about to cough up around $570 million to buy its own shares on market will be welcome news to shareholders.

Bonus support for Macquarie’s share price

This annual event is linked to the Macquarie Group Employee Retained Equity Plan (MEREP). Thanks to the bank’s record full-year results for the period ended 31 March, it requires $870 million of its shares to pay for MEREP, according to the AFR.

To meet this target, it can buy shares from employees looking to cash in and buy the balance on-market.

It’s believed the deadline for staff to sell shares to Macquarie passed last week. It’s reported the bank only managed to secure less than $300 million worth of its shares.

How long can the buying support last?

This reportedly leaves more than two-thirds of the MEREP share requirement unfilled. This is prompting Macquarie to purchase its own shares on the ASX. At least management is getting its shares at a reasonably low price.

But don’t get too excited as $570 million doesn’t go very far when it comes to the Macquarie share price. The average daily volume for the shares is just over one million. Depending on the share price, the extra demand for MEREP won’t last more than four days.

Motley Fool contributor Brendon Lau has positions in Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, National Australia Bank Limited, and Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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