Australian provider of banking, financial, advisory, investment service Macquarie Group Ltd [ASX:MQG] has seen its share price drop to $128.41 this morning, wiping off $7.79 or 5.72%.
Although weathering the storm that has ravaged Australia’s retail banks relatively well, prevailing market conditions has forced the investment bank to drop its profit guidance for next year.
What’s happened to Macquarie Group?
Macquarie has used a cautious tone in today’s full year results. Despite posting a 2H19 net profit of $1.67 billion, up 28% from 2H18 and a full year net profit of $2.98 billion, up 17% from 2018, the bank expects to be slightly down next year because it won’t benefit from the same level of investment-related gains.
The figure is almost on par with Goldman Sachs expectations of $2.99 billion or an increase of 17.3% on the prior corresponding period.
Managing director and chief executive officer Shemara Wikramanayake said the company’s fiscal year 2020 result would likely be softer as the company awaits further regulatory change and grapples with tax uncertainties.
Macquarie’s annuity-style businesses represented approximately 53% of the group’s FY19 performance and generated a combined net profit contribution of $3.29 billion, down 4% on FY18. While the markets-facing businesses represented approximately 47% of the group’s FY19 performance and generated a combined net profit contribution of $2.86 billion, up 76% on FY18.
MQG will pay a final dividend of $3.60 a share, partially franked, up from $3.20 on 3 July.
Special 2019 report: The next generation of Aussie income super stars revealed. Hint: it’s not the banks. Click here to claim your copy now.
Despite the positive results today, market conditions are still expected to weigh heavily on the finance sector, at least for the short term.
What’s next for Macquarie Group?
Banks margins could be squeezed further when the reserve bank meets next week. Macquarie Group’s chief economist, Ric Deverell, expects the RBA to cut interest rates by 25 basis points.
With an already record low 1.5% cash rate, further cuts could see bank’s profits and lending capacity hit without doing much to boost the economy.
Macquarie expects fees from its assets management business to be broadly in line with this year, with performance fees and investment related income also projected to remain the same.
The company’s corporate and banking services are likely to drag hardest, with MQG citing it expects reduced volumes, competition and timing realisations to drive margin pressures.
For Money Morning
PS: In this just released report, Matt Hibbard shows you his top five dividend picks for 2019. Click here to claim your copy today.