Wilson Asset Management

By Tansy Harcourt

Macquarie CEO Shemara Wikramanayake says it has been “challenging” to predict the timing of any interest rate cuts in Australia and the US due to economic data showing inflationary pressures remain strong, but any moves by central banks should be ­moderate.

The OECD has warned that persistent price pressures in Australia’s services sector may mean interest rates stay higher for longer, while financial markets predict an interest rate cut is unlikely until after the next election due in May 2025.

The Reserve Bank will meet on Tuesday as economists pivot to predictions of a single rate rise later this year, having just a few months earlier forecast multiple cuts.

“There is still data coming out that’s challenging the central banks both in timing of cuts, but also there was some fear that there might be another rate hike in the US,” Ms Wikramanayake told The Australian.

“Even if they increase mildly, or decrease mildly, we’re beyond that period where rates went from nothing to being in the 4-5 per cent in no time,” said Ms Wikramanayake. “That is what really impacts confidence.”

Macquarie will still be taking a “cautious stance” in the current year after full-year earnings, return on equity and earnings per share for the year to March 31 all slumped by about a third.

Annual profit fell 32 per cent to $3.522bn, earnings per share dropped by the same percentage to $9.17 and return on equity slumped 36 per cent to 10.8 per cent.

Ms Wikramanayake said she was taking a “cautious stance” to the current period due to global inflation concerns, “significant volatility events” and geopolitical concerns. The bank’s shares fell 2.2 per cent on Friday to $183.83.

Like investment banks around the globe, Macquarie has seen a slump in earnings from mergers and acquisitions and initial public offerings, as well as a drag on revenue from commodities and fixed income, as inflation rates hover higher than central banks like and geopolitical threats remain ­serious.

So-called “market-facing” activities such as global markets, commodities and advisory now account for 55 per cent of Macquarie’s earnings, while “annuity-style” activities such as banking and asset management account for 45 per cent.

Fund manager Hugh Dive from Atlas Funds praised Macquarie’s strategy.

“Atlas likes Macquarie as it offers investors both the “cake” of stable annuity-style profits from asset management to go with the “icing”, that is, the more volatile earnings that are derived from investment banking and trading in commodities and financial markets,” Mr Dive said.

Profits at Macquarie’s asset management unit, global markets and commodities all halved in the last financial year compared to the prior period, and a stronger performance in the lower-yielding banking and financial services units could not offset these ­declines.

Macquarie now accounts for 5.3 per cent of the mortgage market, with the size of its home loan portfolio lifting 10 per cent year on year to $119.3bn. Its share of the business banking market rose 22 per cent to $15.8bn.

Notably, the bank earned less money from energy market hedging as the extreme volatility in global pricing, particularly in North America and Europe, stabilised last year.

Fee and commission income across the group fell 2 per cent as the slowdown in M&A and IPO activity was partially offset by a rise in fees from its private markets unit and favourable exchange rate movements.

Investment and other income almost halved to $1.4bn, mostly due to lower asset realisations in green investments and increased costs associated with its green energy companies.

Macquarie is transitioning its renewables from a green investment bank at MacCap over to Macquarie Asset Management.

Ms Wikramanayake said that despite that resulting in a lack of asset realisations in the past financial year, there would be no stepping back from its green agenda as the companies and countries stepped up their efforts to cut carbon emissions to zero by 2050.

“Not only is that trend going to continue, it has to if the world is going to make the net zero ambition, and the largest fund raisings this year – in a terribly depressed year for fund raisings – were in energy transition, Brookfield, BlackRock, Blackstone, so it’s a space that is going to grow a lot.

Wilson Asset Management fund manager Matt Haupt agrees renewables will be growth path.

Macquarie will pay a final ordinary dividend of $3.85 per share, 40 per cent franked.