The good times have well and truly gone for Macquarie Group with the company warning of a 35% plus slump in first-half earnings for the six months to September 30.
That would put September 30 interim earnings at around $900 million or so after the company reported a half-year net profit of $1.457 billion for the six months to September 30, 2019.
For the second half ending March 31, it reported a 13% drop in net profit to $1.27 billion and the group said on Monday that earnings for the current half-year will be 25% below this figure.
In the update to investors, Macquarie warned that “market conditions are likely to remain challenging, especially given the significant and unprecedented uncertainty caused by the worldwide impact of COVID-19 and the uncertain speed of the global economic recovery.”
The investment bank said the extent to which these conditions will adversely impact Macquarie’s overall 2021 financial year profitability is uncertain, and it is “currently unable to provide meaningful earnings guidance for FY21.”
That’s the first time since the GFC that Macquarie has failed to produce earnings guidance. It’s a sign that all that talk in recent years about how Macquarie had ‘annuity-style’ income stability is just corporate hot air.
The realities of the COVID-19 pandemic’s impact on national and the global economy has not spared Macquarie. The question now is whether the bank will turn to its old standby in tough times and cull employees to reduce costs and improve the bottom line.
In February, Macquarie reaffirmed guidance for its full-year profit to be “slightly” lower than last year’s record earnings of almost $3 billion, but reported an 8% slide in profit for the 2020 financial year to $2.7 billion in May and flagged an uncertain outlook.
That uncertainty continues.
At its most recent update at the bank’s AGM in July, Macquarie said the turmoil unleashed by the coronavirus will make it tougher for the company to reap the benefits of asset sales.
It warned of challenging conditions across all of its businesses, with the banking division hit by rising provisions for bad loans and the global recession hampering deal-making.
At its full-year results, Macquarie reported that credit and impairment charges nearly doubled to $1.04 billion for the year to March.
Macquarie said it will increase provisioning for the current quarter given its focus on supporting clients through the pandemic.
Earnings contributions from its markets-facing businesses like Macquarie Capital are also suffering from “significantly lower investment-related income.”
Macquarie shares dropped as much as 5% to a low of $11.87 after the announcement but they bounced a little to end down 4.7% at $120.09.
