Macquarie Tightens Mortgage Underwriting Standards

From Australian Broker.

Macquarie Bank is about to bring in strict new credit rules forcing borrowers to disclose their household and discretionary spending in 12 different categories.

Fairfax Media reports that from today, borrowers will have to provide a detailed list of household expenditure including clothing, personal care, groceries, transport, utilities and other household rates.

Information about other expenses such as childcare, education, insurance, medical costs, investment property outlays, recreation and entertainment, telephone, internet and media streaming subscriptions will also be collected.

Applicants for interest-only loans will also have to supply a reason for the application and explain why they have opted for an interest-only loan as opposed to a principal and interest loan.

In processing these applications, brokers will also have to explain to borrowers how interest-only repayments work and what their impact is on principal and repayments once the interest-only term is finished.

Macquarie Update Says In Line With FY16

Macquarie Group provided an update on business activity in the third quarter of the financial year ending 31 March 2017 (December 2016 quarter).

Macquarie currently expects the year ending 31 March 2017 (FY17) combined net profit contribution from operating groups to be broadly in line with the year ended 31 March 2016 (FY16).

Essentially, Macquarie’s annuity-style businesses’ (Macquarie Asset Management, Corporate and Asset Finance and Banking and Financial Services) combined December 2016 quarter net profit contribution was up on the December 2015 quarter.

For the nine months ended December 2016, net profit contribution1 was slightly down on the prior corresponding period which benefited from strong performance fees in Macquarie Asset Management.

However Macquarie’s capital markets facing businesses’ (Commodities and Global Markets and Macquarie Capital) combined December 2016 quarter net profit contribution was down on the prior corresponding period largely due to subdued Equity Capital Markets (ECM) activity and the timing of transactions in Macquarie Capital.

For the nine months ended December 2016, net profit contribution was slightly down on the nine months ended December 2015 notwithstanding stronger activity across most of the businesses in Commodities and Global Markets except Securities, which benefited from strong Chinese equity market conditions in the prior corresponding period.

Macquarie Group’s financial position comfortably exceeds APRA’s Basel III regulatory requirements, with Group capital surplus of $A3.7 billion at 31 December 2016, in line with 30 September 2016. The Bank Group’s APRA Basel III Common Equity Tier 1 capital ratio was 10.5 per cent (Harmonised: 12.6 per cent) at 31 December 2016, up from 10.4 per cent at 30 September 2016. The Bank Group’s APRA leverage ratio was 5.3 per cent (Harmonised: 6.2 per cent) and average LCR was 174 per cent.

Here is a brief overview:

  • Macquarie Asset Management (MAM) had assets under management (AUM) of $A501.7 billion at 31 December 2016, up two per cent on 30 September 2016 predominately driven by positive foreign exchange and market movements. During the quarter, Macquarie Infrastructure and Real Assets raised $A1.4 billion in new equity, largely in Australian, Global and European Infrastructure funds; invested equity of $A1.9 billion including infrastructure in the US, Australia, UK and Mexico; and divested $A0.6 billion of assets in Germany and Mexico. Macquarie Investment Management was awarded $A1.6 billion in new, funded institutional mandates across ten strategies. Macquarie Specialised Investment Solutions continued to grow the Macquarie Infrastructure Debt Investment Solutions (MIDIS) business with total third party investor commitments of over $A6.1 billion and total AUM of $A3.5 billion.
  • Corporate and Asset Finance’s (CAF) asset and loan portfolio of $A37.9 billion at 31 December 2016 was broadly in line with 30 September 2016. Certain portfolios were impacted by unfavourable foreign exchange movements largely due to weakening GBP. AWAS and Esanda continue to perform in line with expectations. During the quarter, $A2.2 billion of motor vehicle and equipment leases and loans were securitised. The Lending portfolio had additions of $A0.6 billion across both primary and secondary markets equally. Notable realisations during the quarter included the exit of a toll road investment in Virginia in the United States.
  • Banking and Financial Services (BFS) had total BFS deposits5 of $A44.2 billion at 31 December 2016, up five per cent on 30 September 2016. The Australian mortgage portfolio of $A28.6 billion remained in line with 30 September 2016, while funds on platform of $A70.5 billion increased 14 per cent on 30 September 2016 largely due to the successful migration of the ANZ Oasis wrap super and investment assets onto Macquarie’s platform. The business banking loan portfolio of $A6.5 billion increased two per cent on 30 September 2016.
  • Commodities and Global Markets (CGM) was formed from the merger of Macquarie Securities Group and Commodities and Financial Markets to create an integrated, end-to-end offering across global markets including equities, fixed income, foreign exchange and commodities. The integration is progressing well. Strong results continued across the energy platform, particularly from Global Oil and North American Gas; and increased volatility in agriculture and base metals markets resulted in increased client hedging activity. Strong trading results were also experienced across financial markets businesses due to volatility associated with macro-economic events. Market conditions continued to impact client volumes in equity markets.
  • Macquarie Capital experienced solid levels of activity, particularly in infrastructure in Australia and the US, with 88 transactions valued at $A44 billion completed globally. Notable transactions included: exclusive financial advisor on the acquisition of a 50.4 per cent interest in the 99 year lease of Ausgrid for ~$A16.2 billion, the largest M&A transaction in ANZ in 2016 and largest infrastructure and utilities M&A transaction in ANZ6; advised Capital Stage on the €2 billion merger with CHORUS Clean Energy, creating one of Europe’s largest independent operators of solar and wind parks; financial advisor, lead left bookrunner and joint lead arranger on the acquisition financing for a portfolio of contracted thermal power plants in North America; and sole financial advisor and underwriter on MMG Limited’s $US512 million rights issue on the HK Stock Exchange.

 

Federal Court imposes multi-million dollar penalties on ANZ and Macquarie Bank

The ACCC says the Federal Court has imposed multi-million dollar penalties on Australia and New Zealand Banking Group Limited (ANZ) and Macquarie Bank Ltd (Macquarie) for attempted cartel conduct after action by the Australian Competition and Consumer Commission.

Following the filing of joint statements of facts and submissions by the parties, Justice Wigney imposed penalties of:

  • $9 million against ANZ in respect of its admission that it engaged in ten instances of attempted cartel conduct in contravention of the Competition and Consumer Act 2010 (CCA); and
  • $6 million against Macquarie in respect of its admission that it engaged in eight instances of attempted cartel conduct in contravention of the CCA.

The banks were also ordered to contribute to the ACCC’s costs.

“These penalties underline the seriousness of the conduct involved in these proceedings. Two significant Australian banks have admitted that on several occasions their traders communicated with other banks in an attempt to influence the ABS MYR Fixing Rate. This conduct had the potential to undermine the integrity of foreign exchange markets and undermine healthy economic growth,” ACCC Chairman Rod Sims said.

“Australia’s strong cartel laws apply equally across the economy, including in the banking sector.” Mr Sims said.

In his judgment, Justice Wigney stated:

“There could be little doubt that the attempted contraventions … were very serious… The conduct of the traders in question was deliberate and systematic.”

“Attempts by banks and other market participants to fix prices or financial benchmarks in the financial system should be regarded as particularly serious contravening conduct. It is essential that market participants and the public generally have confidence in the integrity and efficacy of the financial system.”

Justice Wigney also noted:  “The Australian public is entitled to expect that Australia’s major corporations act as exemplary corporate citizens wherever in the world they may operate.”

Background

Traders employed by a number of banks in Singapore communicated via online chatrooms about daily submissions to be made to the Association of Banks in Singapore (ABS) in relation to the benchmark rate for the Malaysian ringgit (ABS MYR Fixing Rate).

ABS benchmark rates are used as reference rates for settling NDFs. Non-deliverable currencies are not freely tradeable outside the domestic economy, so a benchmark rate must be set by banks submitting their views on the appropriate rate. That benchmark is used to enable trade in forward contracts.

During the relevant period, the ABS MYR Fixing Rate was derived from submissions made each day by a panel of banks.

Every trading day, each bank on the panel was required to submit a buy and sell rate for USD against the MYR. The ABS rules required that the submissions were made independently and based on the banks’ objective assessment of the market.

During 2011, ANZ and Macquarie traders attempted to make arrangements with other banks to make high or low submissions to the ABS MYR Fixing Rate. The rate would ultimately affect settlement payments for MYR denominated non-deliverable forward contracts (NDFs).

ANZ was a submitting bank for the MYR. Macquarie was not a submitting bank however often initiated discussions between traders and acted as a hub or coordinator between submitting banks. ANZ and Macquarie’s customers included Australian companies.

The ACCC estimates that the annual MYR NDF turnover in Australia was approximately $9 to 10 billion.

Similar conduct has been investigated and sanctioned in other markets.  The Australian Securities and Investments Commission is also engaged in litigation against several Australian banks regarding the setting of interest rate benchmarks.

ACCC takes proceedings against ANZ and Macquarie bank for attempted cartel conduct

The Australian Competition and Consumer Commission says it has today taken proceedings on a consent basis against Australia and New Zealand Banking Group Limited (ANZ) and Macquarie Bank Limited (Macquarie) in relation to alleged attempts to engage in cartel conduct.

accc-pic

Following cooperation by ANZ and Macquarie, the parties have agreed on the following facts to be presented to the Federal Court for its consideration:

  • a Macquarie trader, together with traders employed by ANZ and a number of other banks, all located in Singapore, communicated via private online chatrooms about daily submissions to be made to the Association of Banks in Singapore (ABS) in relation to the benchmark rate for the Malaysian ringgit (ABS MYR Fixing Rate);
  • on various dates in 2011, traders employed by ANZ and the Macquarie trader attempted to make arrangements with other banks that particular submitting banks would make high or low submissions to the ABS in relation to the ABS MYR Fixing Rate.

The ACCC alleges that on various dates in 2011, ANZ or Macquarie sought to influence the ABS MYR Fixing Rate published on that day, and thus attempted to contravene the cartel provisions of the Competition and Consumer Act 2010.

“These proceedings are a reminder that Australian cartel laws apply to financial markets, and capture cartel conduct by firms that carry on business in Australia, regardless of where that conduct occurred,” ACCC Chairman Rod Sims said.

“The ACCC recognises the integrity of foreign exchange markets plays a fundamental role in our market economy.”

ANZ has admitted to 10 instances of attempted cartel conduct and Macquarie to eight.Submissions to the Federal Court have been made as follows:

  • ACCC and ANZ have jointly submitted that ANZ pay a pecuniary penalty in the amount of $9 million and make a contribution to the ACCC’s costs; and
  • ACCC and Macquarie have jointly submitted that Macquarie pay a pecuniary penalty in the amount of $6 million and make a contribution to the ACCC’s costs.

Ultimately it is for the Court to decide whether penalties in these amounts are appropriate and the ACCC will not make any further comment regarding penalties until the Court makes final orders.

Background

ABS benchmark rates are used as reference rates for settling non-deliverable forward contracts (NDFs). Non-deliverable currencies are not freely tradeable outside the domestic economy, so a benchmark rate must be set by banks submitting their views on the appropriate rate. That benchmark is used to enable trade in forward contracts. Banks and other institutions primarily use NDFs for hedging and risk management.The ABS MYR Fixing Rate would ultimately affect NDF settlement payments.

During the relevant period, the ABS MYR Fixing Rate was derived from submissions made each day by a panel of banks. The ABS Rules required this be done independently and without reference to other submitting banks.

ANZ was a submitting bank for the MYR. Macquarie was not a submitting bank however it often initiated discussions between traders.

The ACCC estimates that the annual MYR NDF turnover in Australia in 2011 was approximately $9 to 10 billion. ANZ and Macquarie’s customers included Australian companies.

Macquarie 1H17 Result – $A1,050 million Net Profit

Macquarie Group today announced a net profit after tax attributable to ordinary shareholders of $A1,050 million for the half-year ended 30 September 2016 (1H17), down two per cent on the half-year ended 30 September 2015 (1H16) and up six per cent on the half-year ended 31 March 2016 (2H16).

Net operating income of $A5,218 million for 1H17 was down two per cent on 1H16, while total operating expenses of $A3,733 million were up one per cent on 1H16. Around 60% came from international sources.

mbl-1h17-incomeMacquarie’s annuity-style businesses (Macquarie Asset Management, Corporate and Asset Finance and Banking and Financial Services), which represent approx. 70% of the Groups’ performance, continued to perform well with a full period contribution from AWAS/Esanda as well as a gain on the disposal of Macquarie Life compared to a pcp which benefited from significant performance fees in MAM (1H16) and gave a combined net profit contribution of $A1,639 down 15% on 1H16 and up 36% on 2H16.

Macquarie’s capital markets facing businesses (Macquarie Securities Group, Macquarie Capital and Commodities and Financial Markets) benefited from lower impairments and increased principal realisations in MacCap and CFM, offset by lower trading activity gave a combined net profit contribution of $A695m broadly in line with 1H16 and up 15% on 2H16.

Operating expenses were $A3,733m, up 1% on 1H16 and up 9% on 2H16.

Macquarie announced an interim ordinary dividend of $A1.90 per share (45 per cent franked), up from the 1H16 dividend of $A1.60 per share and down from the 2H16 dividend of $A2.40 per share, both 40 per cent franked. This represents a payout ratio of 62 per cent.

Key drivers of the change from the prior corresponding period (1H16) were:

  • An 18 per cent decrease in combined net interest and trading income to $A1,864 million, down from $A2,273 million in 1H16. The reduction was across a number of operating groups. MSG was impacted by limited trading opportunities due to market uncertainty. In CAF, there was an overall decline in net interest and trading income mainly driven by the timing of prepayments and realisations, and lower loan volumes in the Lending portfolio, as well as increased funding costs due to the AWAS portfolio acquisition, partially offset by the contribution from the Esanda dealer finance portfolio. CFM also reported lower net interest and trading income compared to 1H16 due to reduced client flow, particularly in oil. Partially offsetting these declines was increased net interest and trading income in BFS, mainly driven by volume growth in the Australian loan and deposit portfolios
  • A 21 per cent decrease in fee and commission income to $A2,202 million, down from $A2,794 million in 1H16. Performance fees were $A170 million in 1H17, down 73 per cent on 1H16 which benefited from significant performance fees of $A629 million, while mergers and acquisitions, advisory and underwriting fees of $A471 million in 1H17 decreased 12 per cent from $A537 million in 1H16 due to more subdued equity capital markets activity in most key regions. Brokerage and commissions income of $A419 million was also down on 1H16 as market uncertainty impacted the levels of client trading activity, particularly in Asia.
  • A 20 per cent increase in net operating lease income to $A476 million, up from $A397 million in 1H16, mainly driven by the AWAS portfolio acquisition in CAF.
  • Other operating income of $A684 million in 1H17 increased significantly from a charge of $A83 million in 1H16. The primary drivers were increased gains on the sale of investments and businesses; and lower provisions for impairment mainly due to reduced exposures to underperforming commodity-related loans in CFM. Gains on the sale of businesses and investments included a significant gain from BFS’ sale of Macquarie Life’s risk insurance business, as well as increased contributions from Macquarie Capital, CFM and MAM, partially offset by a loss on the sale of BFS’ US mortgages portfolio.
  • Total operating expenses increased one per cent, driven by increased non-salary technology expenses mainly due to elevated project activity as well as a change in approach to the capitalisation of software expenses in relation to the Core Banking platform in BFS, offset by decreased brokerage, commission and trading-related expenses mainly due to decreased trading-related activity, while employment expenses remained broadly in line with 1H16.

Staff numbers were 13,816 at 30 September 2016, down from 14,372 at 31 March 2016.

The income tax expense for 1H17 was $A438 million, down 17 per cent from $A530 million in 1H16 mainly due to a decrease in operating profit before income tax, as well as changes in the geographic composition of earnings, with increased income being generated in Australia and the UK, and lower income in the US. The effective tax rate of 29.4 per cent was down from 33.1 per cent in 1H16.

Total customer deposits increased by 5.7 per cent to $A46.1 billion at 30 September 2016 from $A43.6 billion at 31 March 2016. During 1H17, $A4.0 billion of new term funding was raised covering a range of sources, tenors, currencies and product types.

Macquarie Group’s financial position comfortably exceeds APRA’s Basel III regulatory requirements, with Group capital surplus of $A3.7 billion at 30 September 2016, which was down from $A3.9 billion at 31 March 2016.

The Bank Group APRA Basel III Common Equity Tier 1 capital ratio was 10.4 per cent (Harmonised: 12.6 per cent) at 30 September 2016, down from 10.7 per cent at 31 March 2016. The Bank Group’s APRA leverage ratio was 5.6 per cent (Harmonised: 6.5 per cent) and average LCR was 169 per cent.

mbl-1h17-ratios

Operating group performance

Macquarie Asset Management delivered a net profit contribution of $A857 million for 1H17, down 25 per cent from $A1,139 million in 1H16, and up 70 per cent from $A505 million in 2H16, mostly due to performance fees and investment-related income. Performance fee income in 1H17 decreased 72 per cent from a particularly strong 1H16 of $A609m, and increased 102 per cent from $A84 million in 2H16, and included performance fees from Macquarie Atlas Roads (MQA), Macquarie Korea Infrastructure Fund (MKIF), Australian managed accounts and from co-investors in respect of infrastructure assets. Investment-related income included gains from the partial sale of MIRA’s holding in MQA, gains on sale of unlisted real estate holdings in MIRA and income from the sell down of infrastructure debt in Macquarie Specialised Investment Solutions (MSIS). Base fee income was broadly in line as investments made by MIRA-managed funds, growth in the MSIS Infrastructure Debt business and positive market movements in MIM, were largely offset by small net AUM outflows in the MIM business, asset realisations by MIRA-managed funds and foreign exchange impacts. Assets under management of $A491.3 billion decreased two per cent on 30 September 2015.

Corporate and Asset Finance delivered a net profit contribution of $A521 million for 1H17, down 15 per cent from $A611 million in 1H16. The decrease was mainly driven by lower income due to the timing of prepayments and realisations as well as lower loan volumes, which resulted in a reduced contribution from the Lending portfolio. This was partially offset by profit from the AWAS portfolio acquisition and the acquisition of the Esanda dealer finance portfolio in the prior year. The AWAS and Esanda acquisitions have been successfully integrated and continue to perform in line with expectations. CAF’s asset and loan portfolio of $A38.1 billion increased 17 per cent on 30 September 2015.

Banking and Financial Services delivered a net profit contribution of $A261 million for 1H17, up 54 per cent from $A170 million in 1H16. The improved result reflects increased income from growth in Australian lending, deposit and platform volumes, as well as a gain on sale of Macquarie Life’s risk insurance business.

This was partially offset by a loss on the disposal of the US mortgages portfolio, increased costs mainly due to elevated project activity as well as a change in approach to the capitalisation of software expenses in relation to the Core Banking platform, and increased impairment charges on loans, equity investments and intangible assets ($A78m). BFS deposits of $A42.2 billion increased nine per cent on 30 September 2015 and funds on platform of $A62.1 billion increased 33 per cent on 30 September 2015. The Australian mortgage portfolio of $A28.6 billion increased four per cent on 30 September 2015, representing approximately two per cent of the Australian mortgage market. Business lending grew by 8%.

Macquarie Securities delivered a net profit contribution of $A18 million for 1H17, down from $A240 million in 1H16. 1H16 benefited from strong trading revenues, particularly in Asia, while trading opportunities in 1H17 were limited due to market uncertainty. Macquarie was ranked No.1 in Australia for IPOs and No.2 for equity, equity-linked and rights deals in calendar year 2016.

Macquarie Capital delivered a net profit contribution of $A205 million for 1H17, up 21 per cent from $A170 million in 1H16. The increase was predominately due to increased income from principal realisations, lower M&A, advisory and underwriting fees and increased operating expenses. During 1H17, Macquarie Capital advised on 201 transactions valued at $A65 billion including being adviser to Brookfield Infrastructure, together with its institutional partners, on the acquisition of Asciano Limited; adviser on behalf of Seoul Tunnel Co., Ltd. in connection with Seoul Jemulpo Tunnel Project; adviser to Siris Capital on its acquisition of Polycom and sole bookrunner and sole lead arranger on the debt financing to support the acquisition; and capital raising and acquisition in conjunction with CFM of a 50 per cent principal investment in the 299MW Tees Renewable Energy Plant.

Commodities and Financial Markets delivered a net profit contribution of $A472 million for 1H17, up 67 per cent from $A282 million in 1H16. The result reflects an increase in income generated from the sale of equity investments and a reduction in provisions for impairment compared to prior periods. This was partially offset by reduced commodities-related net interest and trading income compared to 1H16, which benefited from higher levels of volatility across a number of commodities, particularly oil. CFM continued to experience strong results across the energy platform, particularly from Global Oil and North American Gas, and increased customer activity in foreign exchange, interest rates and futures markets due to ongoing market volatility. Macquarie Energy maintained its Platts ranking of No.3 US physical gas marketer in North America.

Outlook

Macquarie currently expects the year ending 31 March 2017 (FY17) combined net profit contribution from operating groups to be broadly in line with the year ended 31 March 2016 (FY16).

The FY17 tax rate is currently expected to be broadly in line with FY16.

Accordingly, the Group’s result for FY17 is currently expected to be broadly in line with FY16.

The Group’s short-term outlook remains subject to a range of challenges including:

  • market conditions
  • the impact of foreign exchange; and
  • potential regulatory changes and tax uncertainties

Mr Moore said: “Macquarie remains well positioned to deliver superior performance in the medium-term due to its deep expertise in major markets, strength in diversity and ability to adapt its portfolio mix to changing market conditions, the ongoing benefits of continued cost initiatives, a strong and conservative balance sheet and a proven risk management framework and culture.”

High-Rise Post Code Lending Throttled Back

Macquarie is the latest lender to tighten lending criteria on post codes where there are a number of new high rise apartments being built. In a note to brokers, they say that effective now, the LVR ceiling will be dialed back to 70%. Latest approval data shows that at least 200,000 units will flow into the market in coming months, at a time when demand may be slowing, thanks to tighter lending criteria and a reduction in foreign investor loans. Often people will be buying off the plan, and committing to a price, months before the property is built.  Macquarie is also tightening a number of other lending criteria.  Below are some of the hot spots which we have mapped for Melbourne, Sydney, Brisbane, Gold Coast and Cains.

MelRisk SydRisk GoldRisk BrisRisksCairnsRisk

 

 

Macquarie buys up mortgages in $1bn deal

From Mortgage Professional Australia.

Macquarie Group agreed to buy the rest of ING Direct’s unbranded mortgages portfolio in a $1 billion deal with the Dutch lender, The Australian reports.

This will take its mortgage book well above the pre-GFC peak of $25 billion.

In 2013, Macquarie bought a $1.5bn book of non-branded mortgages from ING Direct, then acquired a $1.6bn portfolio in 2014 and in 2015 followed with another $1.5bn deal.

Macquarie chief executive, Nicholas Moore pledged to restore the bank’s pre-GFC grip on the sector back in 2014.

The string of acquisitions from ING means this target has been far exceeded, prompting questions about where the bank’s aspirations in the market now lie.

Macquarie’s Q316 Trading Update

In the latest trading update from Macquarie, despite ructions on the global markets, they said that trading conditions across the Group were satisfactory in the December 2015 quarter. Macquarie continues to expect the FY16 result to be up on FY15. We think they will deliver a profit north of $2.0bn full year.

The annuity-style businesses’ combined December 2015 quarter net profit contribution was up on December 2014 quarter (prior corresponding period) but down on September 2015 quarter (prior period) which benefited from strong performance fees in Macquarie Asset Management. On the other hand, the capital markets facing businesses’ combined December 2015 quarter net profit contribution were down on the prior corresponding period, which benefited from fee income from the Freeport LNG transaction in Commodities and Financial Markets and Macquarie Capital, and up on the prior period.

 

They reported APRA Basel III Group capital of $A17.3 billion and Group surplus of $A2.8 billion at 31 December 2015.

They said that the Banking and Financial Services’ (BFS) Australian mortgage portfolio was $A27.8 billion at 31 December 2015, up one per cent on 30 September 2015, representing approximately 1.9 per cent of the Australian market. Macquarie platform assets under administration increased to $A59.8 billion at 31 December 2015 up 28 per cent on 30 September 2015 , while BFS deposits increased to $A39.5 billion at 31 December 2015, up two per cent on 30 September 2015. During the quarter, BFS launched the first Macquarie savings and transaction accounts, and new Macquarie Black credit card with premium rewards.

The Group’s short term outlook remains subject to a range of challenges including: market conditions; the impact of foreign exchange; the cost of our continued conservative approach to funding and capital; and potential regulatory changes and tax uncertainties.

Mr Moore said: “Macquarie remains well positioned to deliver superior performance in the medium term due to its deep expertise in major markets, strength in diversity and ability to adapt our portfolio mix to changing market conditions, the ongoing benefits of continued cost initiatives, a strong and conservative balance sheet, and a proven risk management framework and culture.”

ANZ extends partnership with Macquarie to provide wrap solutions

ANZ today announced it has entered into an agreement for Macquarie Investment Management Limited to develop a new wrap platform for ANZ’s advice partners that will be available from May 2016.

As part of the agreement, Macquarie will also provide administration services that are currently delivered through ANZ’s wholly owned business, Oasis.

As services are transitioned to Macquarie, staff numbers in the Oasis business will be progressively reduced over the next 18 months. At the end of the transition the majority of services provided by the 146 roles currently supporting the Oasis business will be provided by Macquarie.

ANZ Managing Director Pensions and Investments Peter Mullin said: “Detailed plans are being developed to support staff during the transition, which ensures they have time, support and notice to consider other options. Their entitlements are protected and a full range of career support services will be provided.

“The decision to partner with Macquarie was made following an extensive business and market review and is the right decision for our customers. We are now focussed on making sure the transition to the new business is done in a respectful and well-organised manner,” Mr Mullin said.

Oasis currently has $6.9 billion in funds under management and serves more than 50,000 customers. Transition of the Oasis wrap platform to Macquarie’s technology and administration services is expected to take up to 18 months.

Macquarie First Half 16 Results Strong

Macquarie Group announced a net profit after tax attributable to ordinary shareholders of $A1,070 million for the half-year ended 30 September 2015 (1H16), up 58 percent on the half-year ended 30 September 2014 (1H15) and up 16 percent on the half-year ended 31 March 2015 (2H15). Net operating income of $A5.3 billion for 1H16 increased 24 percent on 1H15, while total operating expenses of $A3.7 billion for 1H16 increased 17 percent on 1H15. Return on equity was 15.8%.

Macquarie’s annuity-style businesses (Macquarie Asset Management (MAM), Corporate and Asset Finance (CAF) and Banking and Financial Services (BFS)) continued to perform well, with 1H16 combined net profit contribution up 38 percent on 1H15. Macquarie’s capital markets facing businesses (Macquarie Securities (MSG), Macquarie Capital and Commodities and Financial Markets (CFM)) continued to improve with combined net profit contribution up 66 percent on 1H15.

Net operating income of $A5.3 billion in 1H16 was up 24 percent on 1H15 and up seven percent on 2H15, while operating expenses of $A3.7 billion were up 17 percent on 1H15 and up three percent on 2H15.

International income accounted for 71 percent of the Group’s total income for 1H16. A 10 percent movement4 in the Australian dollar is estimated to have approximately seven percent impact on full year net profit. Given currency movements, Macquarie estimates approximately a quarter of the increase in 1H16 net profit on 1H15 is attributable to foreign exchange.

The effective tax rate of 33.1 percent was down from 38.9 percent in 1H15 and down on the full year ended 31 March 2015 (FY15).

Macquarie’s assets under management (AUM) at 30 September 2015 were $A504 billion, up four percent on 31 March 2015.

Key drivers of the change from the prior corresponding period were:

  • A 38 percent increase in combined net interest and trading income to $A2.3 billion, up from $A1.6 billion in 1H15, with key drivers being improved trading opportunities in MSG driven by increased market volatility, increased client activity across most of the CFM platforms as a result of price volatility, the accretion of interest income on loans acquired at a discount and the favourable impact of the depreciation of the Australian dollar, partially offset by increased funding costs associated with growth of the operating lease portfolio in CAF and strong volume growth in Australian mortgages, business lending and deposits in BFS.
  • A 29 percent increase in fee and commission income to $A2.8 billion, up from $A2.2 billion in 1H15, primarily driven by a significant increase in MAM performance fees; an increase in MAM base fees, largely due to higher AUM that benefited from favourable currency and market movements, fund raisings and investments in Macquarie Infrastructure and Real Assets (MIRA), together with net flows into higher fee margin products in Macquarie Investment Management (MIM); increased mergers and acquisitions, advisory and underwriting fees in Macquarie Capital; as well as increased brokerage and commissions income in MSG.
  • A 31 percent decrease in other operating income and charges to $A0.3 billion, down from $A0.5 billion in 1H15, due to an increase in impairment charges and collective provisions particularly in CFM and Macquarie Capital, partially offset by an increase in net operating lease income in CAF.
  • A 17 percent increase in total operating expenses, driven by higher employment expenses primarily due to higher staff compensation resulting from the improved performance of the Group, increased brokerage, commission and trading-related expenses driven by increased trading-related activity in MSG, higher non-salary technology expenses due to ongoing investment in technology projects to support business growth, and an increase in other operating expenses resulting from increased activity across Macquarie and the amortisation of capitalised technology costs. Overall operating expenses were also impacted by the depreciation of the Australian dollar on offshore expenses.

Staff numbers were 13,582 at 30 September 2015, down from 14,085 at 31 March 2015.

Macquarie also announced today an interim dividend of $A1.60 per share, 40 percent franked, up from the 1H15 dividend of $A1.30 per share and down from the 2H15 dividend of $A2.00 per share, both 40 percent franked. This represents a payout ratio of 51 percent. The record date is 11 November 2015 and the payment date for the interim dividend is 16 December 2015.

While the impact of future market conditions makes forecasting difficult, it is currently expected that the combined net profit contribution from operating groups for the year ending 31 March 2016 (FY16) will be up on FY15.

The income tax expense for 1H16 was $A530 million, up 23 percent from $A432 million in the prior corresponding period. The effective tax rate of 33.1 percent was down on FY15. 

Total customer deposits increased 7.8 percent from 31 March 2015 to $A42.8 billion at 30 September 2015. During 1H16, $A10.3 billion of term funding was raised covering a range of sources, tenors, currencies and product types as well as $A4.0 billion raised as an AWAS Aviation Capital Limited (AWAS) acquisition debt facility. 

During 1H16, Macquarie completed the on-market purchase of shares to satisfy the FY15 Macquarie Group Employee Retained Equity Plan (MEREP) requirements of $A383 million at a weighted average price of $A80.68.

In October 2015, the Group issued $A0.4 billion in equity via an Institutional Placement (Placement) to provide capital for the acquisition of the Esanda dealer finance portfolio from ANZ Banking Group. An associated Share Purchase Plan (SPP) will be offered to eligible shareholders in Australia and New Zealand from 2 November 2015, who can apply for shares with a dollar value of up to $A10,000. If eligible shareholders participated in the March 2015 SPP, the maximum value of shares allocated from both the March 2015 SPP and this offer is limited to $A15,000. The record date for participation in the SPP was 7 October 2015 (the day prior to the launch of the Placement).

SPP Shares will not be eligible for the 1H16 dividend, however the offer price will be adjusted to reflect this. SPP shares will be offered at the lower of:

–      $A78.40 representing the issue price paid under the Placement ($A80.00) less the 1H16 dividend ($A1.60); and

–      a 1.0 percent discount to the volume weighted average price of shares traded during the pricing period7.

Macquarie intends to redeem the Preferred Membership Interests $US400m hybrid in December 2015 and expects to replace these in due course.

Macquarie Group remains very well capitalised with APRA Basel III Group capital of $A16.9 billion at 30 September 2015, a $A3.1 billion surplus to Macquarie’s minimum regulatory capital requirement from 1 January 2016. The Bank Group APRA Basel III Common Equity Tier 1 capital ratio was 9.9 percent at 30 September 2015, which was up from 9.7 percent at 31 March 2015.

Macquarrie-CapitalIn August 2014, APRA issued its final rules for Conglomerates with implementation timing yet to be announced. Macquarie continues to work through the application of the rules with APRA and the current assessment remains that Macquarie has sufficient capital to meet the minimum APRA capital requirements for Conglomerates.

The government released its response to the Financial System Inquiry on 20 October 2015, agreeing with the majority of the recommendations and setting a timetable for their implementation. The government endorsed APRA to implement most of the resilience recommendations and so the final design of any policy changes has yet to be determined.

Based on finalised BCBS leverage ratio requirements9 released in January 2014, the Bank Group is well in excess of the currently proposed Basel III 3.0 percent minimum10, with a 6.0 percent leverage ratio as at 30 September 2015. APRA’s ‘super equivalence’ in relation to the definition of capital carries over to the leverage ratio. On an APRA basis, the Bank Group’s leverage ratio is 5.1 percent as at 30 September 2015.

Liquidity Coverage Ratio (LCR) requirements came into effect from 1 January 2015, with disclosure required from 1 July 2015. For the quarter ended September 2015 the Bank Group’s average LCR was 170 percent11.

Operating Group performance:

  • Macquarie Asset Management (MAM) net profit contribution of $A1,139 million for 1H16 increased 45 percent from $A785 million in 1H15. MAM’s base fee income of $A784 million for 1H16 increased 22 percent from $A641 million in 1H15, largely due to increased AUM that benefited from favourable currency and market movements, fund raisings and investments in MIRA, together with net flows into higher fee margin products in MIM. Performance fees of $A609 million for 1H16 increased significantly from $A373 million in 1H15, including performance fees from Macquarie Infrastructure Corporation (MIC) and Macquarie European Infrastructure Fund 1 (MEIF1), as well as performance fee income from co-investors in respect of a UK asset.
  • Corporate and Asset Finance (CAF) net profit contribution of $A611 million for 1H16 increased 31 percent from $A468 million in 1H15. The improved result was largely driven by the favourable impact of the depreciation of the Australian dollar, the accretion of interest income on loans acquired at a discount in the Lending portfolio and increased net operating lease income mainly due to the contribution of aircraft acquired to date from AWAS. CAF’s asset and loan portfolio increased 13 percent from $A28.7 billion at 31 March 2015 to $A32.3 billion at 30 September 2015 mainly driven by the impact of the depreciation of the Australian dollar, the acquisition of aircraft during the period as well as and the acquisition of Advantage Funding in July 2015.
  • Banking and Financial Services (BFS) net profit contribution of $A170 million for 1H16 increased 21 percent from $A141 million in 1H15. In 1H16, BFS benefited from strong volume growth in Australian mortgages, business lending and deposits partially offset by increased investment in technology projects to support growth in the business, including the development of a new Core Banking system. The Australian mortgage portfolio increased to $A27.6 billion, up 13 percent on 31 March 2015, representing approximately 1.8 percent of the Australian mortgage market. Macquarie platform assets under administration were broadly in line with 31 March 2015 at $A46.7 billion.
  • Macquarie Securities Group (MSG) net profit contribution of $A240 million for 1H16 increased significantly from $A17 million in 1H15. MSG benefited from improved market and trading conditions in Australia and Asia due to increased market volatility, particularly in China, driving strong growth in trading-related income as well as increased brokerage and commissions income. Income growth was partly offset by increased operating expenses relative to 1H15 driven by the depreciation of the Australian dollar.
  • Macquarie Capital net profit contribution of $A170 million for 1H16 increased 13 percent from $A150 million in 1H15 predominately due to increased mergers and acquisitions fee revenue, particularly in Australia and the US, partially offset by increased impairment charges relating to certain underperforming principal investments. During 1H16, Macquarie Capital advised on 208 transactions valued at $A116b including acting as joint lead manager and joint underwriter on National Australia Bank’s $A5.5b accelerated renounceable entitlement offer and financial adviser, debt and equity arranger to Freeport LNG on its $US4.6b project financing of Train 3 of its Liquefaction and Export Project.
  • Commodities and Financial Markets (CFM) net profit contribution for 1H16 was $A282 million, an increase of 13 percent from $A250 million in 1H15. This result reflected improved returns across the commodities trading platform and the favourable impact of the depreciation in the Australian dollar while income from credit, interest rates and foreign exchange markets remained flat compared with 1H15. These were partially offset by higher provisions for impairments taken on certain underperforming commodity related loans.