27 April 2012
Macquarie Group (ASX: MQG; ADR: MQBKY) today announced a net profit after tax attributable to ordinary shareholders of $A730 million for the full year ended 31 March 2012 (FY12), down 24 per cent on the full-year ended 31 March 2011 (FY11). Profit for the second half of the year (2H12) was $A425 million, up 39 per cent on the first half (1H12).
Macquarie Group Managing Director and Chief Executive Officer Nicholas Moore said: "The year to 31 March 2012 saw substantially lower levels of client activity in many of our capital markets facing businesses caused by global economic uncertainty, which was partly offset by the ongoing growth of our annuity style businesses.
"However, as foreshadowed, 2H12 profit increased significantly on 1H12 due to a strong performance by Fixed Income, Currencies and Commodities (FICC) and the strength of the annuity style businesses.
"Macquarie's annuity style businesses, particularly Macquarie Funds Group and Corporate and Asset Finance Group, continued to deliver strong results reflecting the investment that has been made in these businesses over many years, as well as the benefits of recent acquisitions. The result for the Banking and Financial Services Group, though slightly lower, held up well against the volatility in the advice and intermediary businesses.
Mr Moore added: "Difficult market conditions impacted the performance of Macquarie's capital markets facing businesses. Macquarie Securities Group experienced a fall in cash and derivatives revenues and exited a number of underperforming businesses globally, recording a loss for the year. Macquarie Capital reported significantly lower results due to low levels of client activity across mergers and acquisitions (M&A) and equity capital markets (ECM).
"The result for FICC, though marginally down on the prior year, benefited from improved sentiment in many FICC markets during the six months to 31 March 2012, leading to a significant turnaround in the second half."
Macquarie’s assets under management at March 2012 were $A327 billion, up from $A310 billion at March 2011.
"All of Macquarie's operating groups maintained strong franchise positions during the year, notwithstanding challenging global market conditions.
"The Group remains well positioned, with a strong and diverse global platform and specialist skills across a range of products and asset classes. All of this is built on the foundation of a strong balance sheet, significant surplus capital, a robust liquidity and funding position and a conservative approach to risk management."
Macquarie also announced today a final unfranked dividend of $A0.75 per share, up from the 1H12 dividend of $A0.65 per share. The total FY12 unfranked dividend of $A1.40 per share is lower than the FY11 unfranked dividend of $A1.86, with a payout ratio of approximately 66 per cent. The record date is 11 May 2012 and the payment date for the final dividend is 2 July 2012.
Macquarie noted today the Board has resolved to purchase shares on market to satisfy the MEREP (Macquarie Group Employee Retained Equity Plan) requirements of approximately $A275 million. In addition, shares for the 2H12 Dividend Reinvestment Plan (DRP) are to be acquired on market.3
Once the acquisition of the MEREP4 and DRP shares has been completed, the Group will buy back up to $A500 million of Macquarie Group Limited shares, subject to market conditions and the Macquarie Group share price. All of these share acquisitions have received the appropriate regulatory approval. Once the above capital management actions have been completed, and subject to market conditions and the Macquarie share price, it remains Macquarie’s intention, subject to regulatory approval, to continue the buyback for a total of up to 10 per cent5 of MGL ordinary shares.
The FY13 results will vary with market conditions, particularly for capital markets facing businesses which continue to experience volatility.
While market volatility makes forecasting difficult, it is currently expected that the result for the Group for FY13 will be an improvement on FY12 provided market conditions for FY13 are not worse than those experienced over the past 12 months.
The FY13 result also remains subject to a range of other challenges including:
Full-year result overview
Chief Financial Officer Patrick Upfold said: "The Group recorded growth in net interest income and other income, while a decline in fee and commission income and trading income reflected weaker market conditions.
He said that as foreshadowed, the Group achieved approximately $A420 million in cost reductions6 in FY12 through a range of initiatives including centralising support functions and reducing front office costs, including reducing the scope of some businesses. Reduced headcount and lower staff profit share expense due to lower earnings were partially offset by increased costs associated with targeted growth in certain businesses and the costs of scaling back or exiting certain businesses. Staff numbers were 14,202 at 31 March 2012, down from 15,556 at 31 March 2011.
As foreshadowed, tax expense was higher, with an effective rate of 28.2 per cent in FY12, up from 22.8 per cent in FY11.
Strong funding and balance sheet position
Mr Upfold said Macquarie continued to maintain well-diversified funding sources and continued to pursue its strategy of diversifying funding sources by growing its deposit base.
Retail deposits increased by 9 per cent from March 2011 to $A29 billion, while total deposits increased from $A31.6 billion at March 2011 to $A33.9 billion at March 2012. Since March 2011, $A8.2 billion of new term funding has been raised.
Macquarie maintained its strong capital base through the year. Regulatory capital of $A12.8 billion at 31 March 2012 was $A3.5 billion in excess of the Group's minimum regulatory capital requirement on a Harmonised Basel III basis.
On the impact of Basel III and other regulatory changes, Mr Upfold said: "APRA has proposed to adopt all Basel III reforms with some additional 'in-principle' conservatism known as 'super equivalence'.
"As we advised at our February Operational Briefing, Macquarie Group has sufficient capital today to meet the Basel III capital rules as applied by APRA effective 1 January 2013.
"Our Basel III Harmonised core equity Tier 1 ratio of 12.2 per cent compares favourably to the current estimated global average of 7.1 per cent reported by the Bank for International Settlements (BIS) this month in a survey7of 103 of the world’s banks with the highest Tier 1 capital8.”
Operating group performance
1 All references to net profit contribution are pre profit share and tax
2 All references to Group regulatory capital surplus are on a fully Harmonised Basel III basis at 8.5% RWAs
3 DRP plan rules have been amended to allow the pricing period for the DRP to commence by the fourth business day following the record date for the MGL dividend rather than on the second business day
4 The MEREP Buying Period is expected to run from 7 May 2012 to mid June 2012, except during the pricing period for the Macquarie Dividend Reinvestment Plan (17 May 2012 to 23 May 2012), but may be completed sooner or later.
5 Inclusive of the initial buyback
6 Excluding brokerage and commission expenses
7 Basel Committee on Banking Supervision: Results of the Basel III monitoring exercise as of 30 June 2011 (April 2012)
8 Group 1 banks are those with capital in excess of €3 billion and which are internationally active
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