Macquarie chair Glenn Stevens warns on inflation as profits take a hit
By Millie Muroi
Macquarie Group chair Glenn Stevens says taming inflation will be slow and difficult, and interest rates could stay higher for longer, but he believes the investment giant is well-positioned to pounce on opportunities despite a soft start to the financial year.
At its annual general meeting in Sydney on Thursday, Stevens, a former governor of the Reserve Bank, said bringing down inflation would “take a while” and that economic conditions would probably remain difficult in the near-term.
Macquarie Group chief executive Shemara Wikramanayake and chair Glenn Stevens at the company’s AGM on Thursday.Credit: Dominic Lorrimer
“Inflation has so far remained troublingly high in most markets, and central banks around the world are in a once-in-a-generation struggle to restore the price stability that was such an important feature of the most recent era of growth,” he said. “For both capital markets and communities, much hinges on success in that struggle.”
Stevens said that process would take time. “My own feeling, for what it’s worth, is inflation is going to come down, but I think that’s going to be a slow and difficult process,” he said. “Hopefully I’m wrong about that.”
Macquarie Group chair Glenn Stevens says inflation will come down, but slowly.Credit: Elke Meitzel
Figures released this week showed Australia’s inflation rate slowed to 6 per cent in the June quarter, which raised hopes interest rates may have reached a peak, though some economists expect more rate hikes from the RBA.
Stevens’ comments came as investors lobbed a 19 per cent protest vote against Macquarie’s remuneration report. The figure is below the 25 per cent level required to register a “first strike” but a notable sign of some shareholders’ opposition to the bank’s big pay packets.
Macquarie, which said profits from its various divisions in the June quarter were “substantially down” compared with the same quarter last year, blamed weaker trading conditions and stronger-than-usual activity in the previous comparable period.
Chief executive Shemara Wikramanayake said the company’s first-quarter figures did not give a good indication of its underlying performance, but that a cautious sentiment among investors and slowing transaction activity weighed on performance, especially in its capital business.
“Markets have been cautious through the last period and interest rates have been rising,” Wikramanayake said. “2023 was a very challenging year and activity levels have been more subdued, so that has impacted Macquarie Capital.”
Shares in Macquarie were down 4.4 per cent to $174.90 a share at the close.
Citi analyst Brendan Sproules said Macquarie’s update came in lower than he had expected and that the bank’s management seemed to be expecting further weakness through the 2024 financial year.
“Investment-related income expectations have been downgraded across both Macquarie Asset Management and Macquarie Capital, reflecting a tougher environment for deal flow,” Sproules said.
Deal activity – buying and selling of assets – has slowed because of a number of factors according to Wikramanayake, including the fact that private market investors have substantial amounts of cash on their hands.
“Private market investors can afford to double down,” Wikramanayake said, including pumping in more equity or refinancing assets, meaning they are not as readily putting them up for sale.
However, Wikramanayake said that would change. “All our peers globally have alluded to the fact that that will change, so at some point you’ll probably see more activity happening in private markets,” she said.
Wikramanayake said Macquarie’s asset management business contributed substantially less to the company’s first quarter profits, mostly because of lower investment-related income from its green energy investments.
She also said there were large one-off gains in the previous year, which meant that the first-quarter profits were being compared to a higher-than-usual benchmark.
Macquarie’s commodities business faced a significant downgrade, with income expected to be in-line with, rather than above, the 2022 financial year.
This comes after a year of strong trading activity and volatility across gas and power, which has eased as storage levels have increased, and economic activity has slowed.
Wikramanayake said fixed income such as bonds had also become more attractive for investors. “People are, I think, rotating more towards fixed income from equities,” she said, noting that yields – or returns on fixed income – were increasing.
Despite mixed results in Macquarie’s banking and financial services business, Wikramanayake said that part of the company remained resilient and that earnings had improved.
Macquarie’s home loan portfolio was up 2 per cent in the June quarter compared to the March quarter, and its business banking loan portfolio was up 8 per cent.
Stevens said while last year’s record result was partly generated by unusual circumstances, the long-term trend in the company’s earnings reflected management’s efforts over the years.
UBS analyst John Storey said the commentary for Macquarie’s various divisions, except for banking and financial services, read poorly, but that based on discussions with the company, the bank expected a stronger second half of 2024 relative to the first half.
“Overall, the outlook remains uncertain and Macquarie are cautious in their views, but they appear confident the second half of 2024 should be stronger than the first half,” he said.
Over the 2023 financial year more broadly, Macquarie made nearly $5.2 billion in profit, up 10 per cent on the previous year, with a final dividend of $7.50 a share, up 20 per cent.
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