Macquarie Group has reported a 3% rise in half-year profits to nearly $1.7 billion, a figure that fell short of analysts’ expectations and led to a 7.3% drop in its share price on Friday. The financial giant’s performance was marred by a $150 million impairment in its green energy investments and weaker earnings from its commodities and markets division. Despite these setbacks, Macquarie is aggressively expanding its presence in the home lending sector, challenging Australia’s big four banks.
The announcement comes as Macquarie’s banking and financial services division, which competes directly with the country’s major banks, posted a 22% surge in profits. The division’s home loan portfolio grew by 13%, capturing a 6.5% share of the domestic market. However, the competitive landscape has led to “margin compression,” as noted by the company.
Macquarie’s Mortgage Market Strategy
Macquarie’s CEO, Shemara Wikramanayake, emphasized that despite the pressure on margins, the company remains committed to its growth plans in the mortgage market. “We’re still getting very good returns, well above our hurdle returns in that business, because we’re getting the benefits of scale there as our platform grows, especially with the digital offering that we have,” she said.
Macquarie’s share of the home loan market has increased significantly from 2% in 2020 to 6.5%, making it the fifth-largest mortgage lender in Australia. Unlike the big four banks, Macquarie relies heavily on mortgage brokers, earning it the label of a “maverick” disruptor in the home loan market by a Federal Court judge last year.
Challenges in Green Energy Investments
While the banking unit posted rapid growth, Macquarie’s green energy investments have been a source of disappointment. The $150 million impairment was primarily due to investments in US wind farms. Chief Financial Officer Alex Harvey, in his last results presentation at Macquarie, explained that rising construction costs, higher interest rates, and increased competition have impacted returns in the green energy sector.
“Just generally, those fundamentals are still intact,” Harvey said. “We need more power. We need to bring that power online sooner rather than later, given the push for electrification and the data consumption of data centres and so on, and what we are seeing is an accumulation of capital interested in investing in renewables.”
Opal Capital’s Chief Investment Officer, Omkar Joshi, noted that Macquarie’s green investments had not met market expectations, with the impairments reflecting a broader trend in the sector. “It’s a sector-wide phenomenon where we are seeing some of these green assets being marked down recently,” he said.
Broader Financial Performance and Future Outlook
Friday’s results follow a year where Macquarie shares have underperformed the ASX due to regulatory challenges and underwhelming earnings reports. However, the company’s diverse business mix has provided some resilience. Increased fee income from funds management, revenue from mergers and acquisitions through Macquarie Capital, and strong profit growth in Australian mortgages have bolstered its bottom line.
Wikramanayake commented on the company’s performance: “The improved underlying performance across our operating groups in the first half reflects the ongoing benefits of our diverse business mix and our continued investment in opportunities that support long-term growth and deliver positive outcomes for our clients and communities.”
Three of Macquarie’s four divisions reported higher earnings, with asset management, banking and financial services, and investment banking all delivering growth. The exception was the commodities and global markets unit, where net profit contribution fell by 15%, primarily due to higher expenses.
Jarden analyst Matthew Wilson highlighted that Macquarie’s profits were 12% lower than consensus estimates from analysts. Despite this, he acknowledged Macquarie’s competitive edge over major banks and anticipated future fee income benefits from recent data centre deals. However, he also pointed out challenges in compliance, regulation, and subdued conditions in the commodities and global markets business.
Looking ahead, Macquarie will pay an interim dividend of $2.80, as it continues to navigate the complexities of a competitive financial landscape while pursuing growth opportunities in both traditional banking and emerging sectors.
