Brexit Hits Macquarie U.K. Earnings, Not Market Appeal, CEO Says

  • Underlying outlook for U.K. business remains unchanged
  • Expects 2017 earnings to be line with last year’s record high

The pound’s plunge following Britain’s decision to leave the European Union has hurt Macquarie Group Ltd.’s U.K. earnings, though it hasn’t dented the country’s wider appeal for the world’s largest manager of infrastructure funds, Chief Executive Officer Nicholas Moore said.

“Our underlying positive outlook for the U.K. and our businesses in the U.K. remains unchanged,’’ Moore said in an interview, while cautioning that it was too early to know the full implications of Brexit. "We have income in sterling, so their contributions measured in Australian dollars will go down. So the simple impact of sterling is a negative one,” he added, speaking after the Sydney-based bank reported six-month earnings on Friday.

Macquarie is a big investor in U.K. infrastructure, with stakes in assets ranging from power stations to transportation projects. Moore declined to comment on reports that Macquarie is one of the final bidders for the U.K.’s Green Investment Bank, though he said: “The green investment area of the U.K. continues to be a very big focus, as well as general infrastructure advice.”

Earnings Outlook

Macquarie’s net income in the six months ended Sept. 30 declined 2 percent to A$1.05 billion ($797 million), according to a regulatory filing. That still topped the A$994.5 million mean estimate of four analysts surveyed by Bloomberg. The firm predicted full-year earnings will be broadly in line with last year’s record result.

“While the absence of an upgrade to full-year guidance is disappointing, we continue to believe Macquarie’s guidance is conservative,” CLSA analyst Ed Henning wrote in a note to clients. “Macquarie have a history of beating the top end of guidance.”

Macquarie said it would pay an interim dividend of A$1.90 per share, up from the A$1.60 paid in the first half of 2016. The shares climbed 1.4 percent in Sydney trading to A$81.76.

Moore has focused in recent years on expanding the bank’s more stable businesses such as lending and leasing to shield earnings from the cyclical nature of investment-banking fees. Macquarie is also benefiting as global interest rates linger at record lows, prompting investors to hunt for higher-yielding assets.

Global Platform

The results show the “strength of Macquarie’s global platform, the benefit of recent acquisitions and its ability to adapt to changing conditions,” Moore said in the statement. International income accounted for approximately 60 percent of the group’s income in the first half.

Earnings were boosted by A$684 million of income tied to asset sales, including Macquarie Life’s risk insurance business, and reduced exposure to under-performing commodity loans. Combined net interest and trading income fell 18 percent, and fee and commission income dropped 21 percent.

Acquisitions of the AWAS aircraft leasing business and Esanda dealer finance contributed to earnings in the period, Macquarie said.

The report comes after global rivals Goldman Sachs Group Inc. and JPMorgan Chase & Co. both posted better-than-expected results this month on the back of higher revenue from fixed-income trading.

Result highlights

  • Operating income fell 2 percent to A$5.22 billion
  • Assets under management rose 3 percent in the half to A$493.1 billion
  • Earnings per share fell 4 percent to A$3.12
  • Annualized return on equity 14.6 percent v 15.8 percent
  • Costs rose 1 percent to A$3.73 billion
  • Staff numbers fell 556 to 13,816 at Sept. 30 vs 14,372 at March 31
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