Macquarie share price tumbles on FY24 profit crunch

It certainly was a tough year for the investment bank. Let's see what happened.

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The Macquarie Group Ltd (ASX: MQG) share price is on the slide on Friday.

In morning trade, the investment bank's shares are down 2.5% to $183.68.

This follows the release of full-year results which revealed a sharp decline in profits.

Macquarie share price tumbles on FY 2024 results

  • Net operating income down 12% to $16,887 million
  • Total operating expenses down 1% to $12,061 million
  • Net profit down 32% to $3,522 million
  • Final dividend of $3.85 per share

What happened during the year?

For the 12 months ended 31 March, Macquarie's net operating income fell 12% to $16,887 million and its net profit dropped 32% to $3,522 million. The latter was driven by a sharp decline in earnings across two key businesses.

One of those was the Macquarie Asset Management (MAM) business. It delivered a net profit contribution of $1,208 million, which was down 48% on the prior corresponding period. This was primarily driven by lower asset realisations in green investments and increased net expenditure in investments in green energy portfolio companies.

Also having a tough year was the Commodities and Global Markets (CGM) business. It reported a 47% decline in its net profit contribution to $3,213 million. This reflects substantially lower inventory management and trading income from a strong prior year in North American Gas and Power and a decreased contribution from Commodities risk management.

The Banking and Financial Services (BFS) business had a relatively solid year. It posted a 3% increase in its net profit contribution to $1,241 million. This was driven by growth in the loan portfolio and BFS deposits, and credit impairment reversals primarily reflecting an improvement in the macroeconomic outlook.

Finally, the star of the show in FY 2024 was the Macquarie Capital business. It delivered a net profit contribution of $1,051 million, which was up 31% on FY 2023. This reflects higher investment-related income driven by growth in the private credit portfolio, lower credit provisions and net impairment reversals.

Macquarie's managing director and CEO, Shemara Wikramanayake, said:

Despite ongoing economic uncertainty and subdued market conditions in many parts of the world, Macquarie's client franchises remained resilient over the last year, with continued client growth, fundraising and new business origination across the Group as we delivered our 55th consecutive year of profitability since inception.

How does this compare to expectations?

This result was modestly higher than the market's expectations. The consensus estimate was a profit of $3,512 million for the 12 months. This compares to the $3,522 million it reported.

In addition, the market was forecasting a final dividend of $3.50 per share for FY 2024. Macquarie smashed this estimate with its final dividend of $3.85 per share.

However, neither has been enough to stop the Macquarie share price from falling today.

Outlook

Macquarie advised that it continues to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions it well to respond to the current environment.

Commenting on the company's outlook, Ms Wikramanayake said:

Macquarie remains well-positioned to deliver superior performance in the medium term with its diverse business mix across annuity-style and markets-facing businesses; deep expertise across diverse sectors in major markets with structural growth tailwinds; patient adjacent growth across new products and new markets; ongoing investment in our operating platform; a strong and conservative balance sheet; and a proven risk management framework and culture.

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 positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. 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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