Macquarie Group (MQG) – Strong starter

Macquarie Group provides diversified financial services in Australia, New Zealand the Americas, Europe, the Middle East, Africa, and Asia. It operates through four segments: Macquarie Asset Management (MAM); Banking and Financial Services (BFS); Commodities and Global Markets (CGM); and Macquarie Capital. Macquarie Group is headquartered in Sydney.

Macquarie Group said net profit from three of its four divisions in the December quarter was "substantially up" on a year ago in the December quarter, supported by what CEO Shemara Wikramanayake described as "satisfactory" trading conditions. In the star performers, Macquarie Asset Management (MAM) benefitted from the gain on sale from the divestment of the North American and European public investments business; the commodities and global markets (CGM) business enjoyed higher income from its asset finance operation, partially offset by increased operating expenses; and Macquarie Capital was buoyed by investment-related income from asset realisations and its private credit portfolio that outweighed reduced commission and fee income.

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Meanwhile, Macquarie's banking and financial services (BSF) division lagged its 'siblings', with net profit only "slightly up" on a year ago as lower margins due to competition and changes in portfolio mix partially offset increased loan volumes. The investment bank and asset manager made a slight change to FY26 guidance, noting it rules off its books on 31 March, guiding to CGM income being up circa 10%, boosted by commodities income generated from volatile American gas prices and the impact of the polar vortex, versus its prior call of broadly in line.  The presentations accompanying the trading update highlighted the impressive growth of the personal banking unit within the BFS division. The personal banking arm now has circa 7% of the mortgage market and 6% of household deposits, up 1 percentage point (ppt) and 12ppt over the past year, showing the deep inroads it has made into the traditional lenders’ market share.

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At current growth rates, Macquarie’s mortgage portfolio will reach $300 billion with three years, or circa 10% of outstanding home loans, which raises questions over capital levels. That growth rate would imply an additional $4 billion in regulatory capital at the common equity tier-one (CET1) level will be required. We reiterate our Buy recommendation and target price of $255.00 on Macquarie.

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