• Net Profit: $1.612 billion, up 14% year-over-year, down 23% from the second half of the previous year.
• Return on Equity (ROE): 9.9%, compared to 8.7% in the prior comparable period.
• Operating Income: $8.2 billion, up 4% year-over-year.
• Assets Under Management (AUM): $916.8 billion, a 2% decrease from the beginning of the fiscal year.
• Macquarie Asset Management Earnings: $684 million, up 68% year-over-year.
• Banking and Financial Services Contribution: $650 million, up 2% year-over-year.
• Commodities and Global Markets Earnings: $1.316 billion, down 5% year-over-year.
• Macquarie Capital Earnings: $371 million, down 14% year-over-year.
• Dividend: $2.60 per share, 35% franked, with a 61% payout ratio.
• Capital Surplus: $9.8 billion, down from $10.7 billion at the start of the fiscal year.
• Deposits: Record $158.3 billion, up 7%.
• Loan and Lease Portfolio: $192 billion, up 5%.
• Private Credit Portfolio Growth: $5 billion in origination during the first half.
• Regulatory Capital Ratio (CET1): 12.8%.

• Warning! GuruFocus has detected 13 Warning Signs with MCQEF.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Macquarie Group Ltd (MCQEF) reported a net profit of $1.612 billion for the first half of FY25, up 14% from the prior comparable period.
• The company's return on equity (ROE) increased to 9.9% from 8.7% in the previous comparable period.
• Macquarie Asset Management saw a significant increase in performance fees, contributing to a 68% rise in earnings compared to the prior period.
• The Banking and Financial Services division achieved operational efficiencies through digitization, supporting earnings growth despite margin pressures.
• Macquarie Group Ltd (MCQEF) maintained a strong capital position with a $9.8 billion surplus, supporting ongoing business growth and investments.

Negative Points

• Assets under management decreased by 2% due to unfavorable foreign exchange movements and outflows in equity strategies.
• The Commodities and Global Markets division experienced a 5% decline in earnings, primarily due to lower client activity and subdued market conditions.
• Macquarie Capital's earnings were down 14% from the previous year, impacted by increased funding costs and a lack of impairment reversals.
• The company continues to face margin pressures in its Banking and Financial Services division due to competitive market dynamics.
• Macquarie Group Ltd (MCQEF) reported a decrease in net interest and trading income, affected by lower volatility in the Commodities and Global Markets business.

Q & A Highlights

Q: Can you elaborate on the supply side issues in Commodities and Global Markets (CGM) and the expectations for the second half? A: Shemara Wikramanayake, CEO, explained that there is strong supply, particularly in energy markets, with high storage levels and reduced demand. Simon Wright, Head of CGM, added that while client numbers are growing, the current market conditions are less volatile, affecting margins. They are budgeting on a normal run rate for the second half, assuming current conditions hold with some seasonality.

Q: What is the impact of potentially selling large green assets in Macquarie Asset Management (MAM)? A: Shemara Wikramanayake noted that the expenditure related to these assets is several hundred million dollars annually. The first asset, a solar portfolio, is expected to be realized this financial year or early next year, with an offshore wind portfolio likely next financial year or early the one after.

Q: Can you discuss the data center realizations and the timeline for other assets? A: Shemara Wikramanayake confirmed that Airtrunk was realized, contributing to performance fees. Other data centers, like Aligned, are not currently being exited, and the timeline for realization will depend on the fund's life and market conditions.

Q: How is the private credit portfolio performing, and what are the expected loss rates? A: Alexander Harvey, CFO, stated that the private credit portfolio has a life of about three years with a long-run loss rate of approximately 30 basis points. The Expected Credit Loss (ECL) balance is about 2.4% for stage one and two, and 3% including stage three.

Q: What is the outlook for Macquarie's Return on Equity (ROE), and how does surplus capital affect it? A: Shemara Wikramanayake explained that the current ROE of 9.9% is a first-half figure, impacted by the lumpiness of earnings in certain businesses. Over the medium term, they expect to deliver low to mid-teens ROEs, considering the large surplus capital positions and the seasoning of investments in Macquarie Asset Management and Macquarie Capital.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.