The Macquarie Group Ltd (ASX: MQG) share price is suffering after the investment bank revealed an update that profit is substantially down.
What’s happening with Macquarie?
After completing the FY24 third quarter period, the business told the market that it’s seeing a significant profit decline.
In the 2024 financial year to date, net profit after tax is “substantially down” on the same period in FY23. Macquarie reminded investors that the FY23 third quarter was “exceptional”, so it was hard to beat. But, clients’ underlying performance is “resilient in ongoing uncertain conditions.”
Macquarie Asset Management (MAM) and banking and financial services (BFS) saw lower profit because of lower asset sales in MAM and profit margin compression in BFS, along with the run-off of the car loan portfolio. But, there has been volume growth in home loans and business lending in BFS, while MAM finished December 2023 with assets under management (AUM) of A$882.5 billion (down 1% compared to September 2023).
The market-facing businesses of commodities and global markets (CGM) and Macquarie Capital saw net profit down “substantially” because of a strong result last year, and lower fee and commission income, offset by investment related-income in Macquarie Capital.
Buyback and management update
Macquarie reminded investors that in November it announced that it intended to buy up to A$2 billion of shares. At 31 December 2023, it had bought back A$235.8 million of Macquarie shares at an average price of A$168.74.
Nicholas O’Kane has decided to step down as head of CGM after five years in the role and 28 years at Macquarie to “pursue opportunities outside Macquarie”. Simon Wright, the current global head of CGM’s financial markets division will become the leader of CGM – he has been with Macquarie for 35 years.
Outlook for the Macquarie share price
Profit is expected to be down a lot in FY24.
MAM is expecting broadly flat base fees, but net other operating income in the second half is expected to be “substantially down” on the FY23 second half.
BFS is expecting growth in loan and deposit volumes, but ‘market dynamics’ will influence the margins. It’s expecting higher expenses to support growth, compliance and regulatory requirements. Macquarie is monitoring provisioning.
Macquarie Capital is expecting FY24 transaction activity to be slightly down on FY23, though investment-related income in the FY24 second half is expected to be significantly up thanks to growth in the private credit portfolio and gains on a small number of investments. It will keep investing in debt and share investments.
CGM’s performance is subject to market conditions, but FY23 saw a very strong result. FY24 commodities income is expected to be in line with FY22. It’s expecting a consistent contribution from client and trading activity, as well as consistency from asset finance.
Macquarie is a great ASX share – but I think the right time to invest is when market fear is heightened. It has rallied recently, so I wouldn’t invest today if I were trying to give myself a good valuation margin of safety to beat the market.
There are other ASX dividend shares that could make better buys today, in my view.
