Macquarie Group, Ltd. · ASX:MQG
Macquarie — H1 2011 Earnings Presentation
77 slides from Macquarie's earnings presentation, Oct 29, 2010
Slide 1: Result Announcement for the half year ended 30 September 2010
Macquarie Group Limited For personal use only Result Announcement for the half year ended 30 September 2010 Presentation to Investors and Analysts 29 October 2010 Nicholas Moore, Managing Director and Chief Executive Officer Greg Ward, Chief Financial Officer
Slide 2: Disclaimer
Disclaimer For personal use only Disclaimer The material in this presentation has been prepared by Macquarie Group Limited ABN 94 122 169 279 (“Macquarie”) and is general background information about Macquarie’s activities current as at the date of this presentation. This information is given in sum
Slide 3: Agenda
Agenda For personal use only 1. Introduction – Richard Sheppard 2. Overview of Result – Nicholas Moore 3. Outlook – Nicholas Moore 4. Result Analysis and Financial Management – Greg Ward 5. Appendices 3
Slide 4: Introduction
For personal use only 1 Introduction Richard Sheppard Deputy Managing Director Macquarie Group Limited Result Announcement for the half year ended 30 September 2010 29 October 2010 – Presentation to Investors and Analysts
Slide 5: Overview of Result
For personal use only 2 Overview of Result Nicholas Moore Managing Director and Chief Executive Officer Macquarie Group Limited Result Announcement for the half year ended 30 September 2010 29 October 2010 – Presentation to Investors and Analysts
Slide 6: About Macquarie
About Macquarie Building for the medium term For personal use only Top-tier, global institutional securities house with strong Asia-Pacific foundations Full-service in Australia and Asia with growing offerings in the US, Canada, Europe and South Africa Macquarie Securities 9th largest research
Slide 7: Result
Result For personal use only Profit of $A403m, down 16% on 1H10 and down 29% on 2H10 As foreshadowed, subdued market conditions have impacted activity levels in FICC, Macquarie Securities and Macquarie Capital Operating income before writedowns, impairments, equity accounted gains/(losses) and
Slide 8: Result
Result For personal use only As foreshadowed: Fewer writedowns, impairments, equity accounted gains/(losses) and one-off items, 1H11 $A56m, 1H10 ($A414m) Profit continues to be adversely impacted by the cost of excess liquidity on the balance sheet EPS $A1.19 down 21% on 1H10, down 30% on 2H
Slide 9: 1H11 Result
1H11 Result For personal use only Sep 10 Mar 10 Sep 09 $Am $Am $Am Net operating income 3,661 3,533 3,105 Total operating expenses (3,165) (2,771) (2,573) Operating profit before income tax 496 762 532 Tax expense (85) (165) (36) Operating profit after income tax 411 597 496 Profit attributable to n
Slide 10: Financial performance
Financial performance For personal use only $Am Operating income of $A3,661m $Am Profit of $A403m 4,000 18% increase on 1H10 800 16% decrease on 1H10 2,000 400 0 0 1H09 2H09 1H10 2H10 1H11 1H09 2H09 1H10 2H10 1H11 $A $A DPS of $A0.86 EPS of $A1.19 3.00 21% decrease on 1H10 2.00 In line with 1H10 2.0
Slide 11: Assets under management of $A317b
Assets under management of $A317b For personal use only Decrease in AUM due to impact of CMT/CMA transfer ($A9.6b in Jul 10) Net fund inflows of $A14b1, largely offset by decrease due to FX of $A12b 350 Banking and Financial Services $A326b $A317b Macquarie Funds (excluding MIRA) 300 Real Estate
Slide 12: Diversified by region
Diversified by region International income1 56% of total Total staff over 15,5002; international staff 52% of total For personal use only EUROPE, MIDDLE EAST ASIA AMERICAS & AFRICA3 Income: $A430m (13% of total) Income: $A529m (16% of total) Income: $A929m (27% of total) Staff: 1,653 Staff: 2,623 St
Slide 13: Diversified income: operating income by region
Diversified income Operating income by region For personal use only 1,800 1,600 1,400 1H09 Operating income $Am1 1,200 2H09 1H10 1,000 2H10 800 1H11 600 400 200 0 Australia Asia Americas Europe, Middle East & Africa 1. Operating income excludes earnings on capital and other corporate items 13
Slide 14: Diversified income: operating income by source
Diversified income Operating income by source For personal use only Operating income before writedowns, impairments, equity accounted gains/(losses) and one-off items 12 months to 31 Mar 10 6 months to 30 Sep 10 $A7.0b $A3.6b Institutional and retail cash equities Equity derivatives 22% 18% 18% 28%
Slide 15: Group performance
Group performance For personal use only Subdued market conditions impacting activity levels in: Fixed Income, Currencies and Commodities operating income down 15% on pcp and down 31% on prior period, net profit contribution down 55% on pcp and down 64% on prior period Macquarie Securities operat
Slide 16: Macquarie Securities: Market conditions and activity
Macquarie Securities Market conditions and activity For personal use only Operating income down 21% on pcp and down 11% on prior period Net profit contribution down 71% on pcp and down 64% on prior period Market Conditions Business Activity Cash Cash Australia Australia No.1 overall research and sal
Slide 17: Macquarie Securities: Update on platform growth
Macquarie Securities Update on platform growth For personal use only Cash Derivatives/DeltaOne Continued to improve our client rankings and grow Extend retail structured products footprint into Europe market share across most markets, now the 9th largest via the Sal. Oppenheim derivatives busine
Slide 18: Macquarie Capital: Market conditions and activity
Macquarie Capital Market conditions and activity For personal use only Operating income up 97% on pcp and down 15% on prior period Net profit contribution up 169% on pcp and up 27% on prior period Market Conditions Business Activity Infrastructure 79 deals reached financial close globally, down 43
Slide 19: Macquarie Capital: Update on platform growth
Macquarie Capital Update on platform growth For personal use only Australia Canada Maintained leading position in M&A1 and ECM2 Continued to grow our market share in ECM (ECM market share 3.0%4 at Sep 10 up from 1.9%4 pcp) - Senior hires: 3 director level hires3 Grow market share in oil and ga
Slide 20: Macquarie Funds: Market conditions and activity
Macquarie Funds Market conditions and activity For personal use only Operating income up 3% on pcp and up 16% on prior period Net profit contribution down 32% on pcp and up 6% on prior period Market Conditions Business Activity Australia Australia AUM down 1.3% on pcp1 and down 3.6% on prior perio
Slide 21: Macquarie Funds: Update on platform growth
Macquarie Funds Update on platform growth For personal use only Combined Macquarie Capital Funds with Macquarie Funds Group to create Australia’s largest global asset manager AUM $A308b Australia United States First quartile performance in Australian Shares (Long Only); Successful acquisition of
Slide 22: Fixed Income, Currencies and Commodities: Market conditions and activity
Fixed Income, Currencies and Commodities Market conditions and activity For personal use only Operating income down 15% on pcp and down 31% on prior period Net profit contribution down 55% on pcp and down 64% on prior period Market Conditions Business Activity Foreign Exchange Macquarie has been a
Slide 23: Fixed Income, Currencies and Commodities: Update on platform growth
Fixed Income, Currencies and Commodities Update on platform growth For personal use only Australia United States Transformation from Sydney based, 24 hour currency Constellation now fully integrated with Energy Markets service provider to a global business with hubs in Division, No.4 US physical
Slide 24: Corporate and Asset Finance: Market conditions and activity
Corporate and Asset Finance Market conditions and activity For personal use only Operating income up 57% on pcp and up 60% on prior period Net profit contribution up 81% on pcp and up 85% on prior period Market Conditions Business Activity Australia Australia Margins on primary and secondary marke
Slide 25: Corporate and Asset Finance: Update on platform growth
Corporate and Asset Finance Update on platform growth For personal use only Australia Asia Motor vehicle leasing portfolio now $A5.5b following Extended IT&T leasing capacity into Malaysia, Hong organic growth and acquisitions of GMAC and Ford Kong and Singapore portfolios United States Contin
Slide 26: Banking and Financial Services: Market conditions and activity
Market conditions and activity Banking and Financial Services For personal use only Operating income up 22% on pcp and up 8% on prior period Net profit contribution flat on pcp and up 10% on prior period Market Conditions Business Activity Private Wealth/Direct Private Wealth/Direct Continued mark
Slide 27: Banking and Financial Services: Update on platform growth
Banking and Financial Services Update on platform growth For personal use only Australia Canada Continued growth of retail deposits: total retail deposits Acquisition of Blackmont Capital (Canada) Financial $A26.5 billion as at 30 Sep 10 Services Business. Client assets up 7.2% to $C8.4b since a
Slide 28: Operating expenses
Operating expenses For personal use only Operating expenses $A3.2b, up 23% on 1H10 Increase driven primarily by the effect of the consolidation of new acquisitions and investment in global platform growth Overall compensation expenses $A1.8b up 25% on 1H10 primarily due to increased headcount
Slide 29: Strong funding and balance sheet position
Strong funding and balance sheet position For personal use only Total deposits increased to $A31.2b at Sep 10 from $A17.0b at Sep 09 Retail deposits increased to $A26.5b at Sep 10 from $A13.9b at Sep 09 On 31 Jul 10 $A9.6b of CMT funds transferred to Macquarie’s CMA An additional $A4.3b of t
Slide 30: Funded balance sheet remains strong
Funded balance sheet remains strong For personal use only Macquarie Group Limited $Ab 30 Sep 09 $Ab 31 Mar 10 $Ab 30 Sep 10 90 90 90 ST wholesale issued paper (3%) 80 80 Other debt1 maturing in 80 the next 12 mths (8%) ST wholesale Cash and liquid ST wholesale issued paper (7%) 70 assets (31%) 70 70
Slide 31: Interim dividends
Interim dividends For personal use only Historical annual payout ratio 50 – 60% 1H11 dividend set at $A0.86 ~ 74% payout ratio ― 1H11 dividend in line with 1H10 dividend of $A0.86 ― Dividend remains unfranked Dividend reinvestment plan ― Discount removed from July 2010 dividend ― Scheme rules
Slide 32: Outlook
For personal use only 3 Outlook Nicholas Moore Managing Director and Chief Executive Officer Macquarie Group Limited Result Announcement for the half year ended 30 September 2010 29 October 2010 – Presentation to Investors and Analysts
Slide 33: Short term outlook
Short term outlook For personal use only As previously foreshadowed: – Uncertain market conditions make short term forecasting very difficult – Weak market conditions have impacted activity levels in Fixed Income, Currencies and Commodities, Macquarie Securities and Macquarie Capital – FY11 result
Slide 34: Medium term outlook
Medium term outlook For personal use only Our businesses are increasingly well positioned to benefit from future growth Deep expertise in major markets We have significant expertise in key products in all major markets Continued investment in our people and our businesses enables us to expand
Slide 35: Result Analysis and Financial Management
For personal use only 4 Result Analysis and Financial Management Greg Ward Chief Financial Officer Macquarie Group Limited Result Announcement for the half year ended 30 September 2010 29 October 2010 – Presentation to Investors and Analysts
Slide 36: Income Statement key drivers
Income Statement key drivers For personal use only Interest income up 42% on pcp to $A605m Sep 10 Mar 10 Sep 09 $Am $Am $Am Growth in lending activities, including acquisition of $A1.0b Ford Credit and $A1.0b GMAC portfolios Net interest income 605 655 425 Fee and commissions income up 6% on p
Slide 37: Gains/(losses) from writedowns, impairments, equity accounting and one-off items
Gains/(losses) from writedowns, impairments, equity accounting and one-off items For personal use only Sep 10 Mar 10 Sep 09 $Am $Am $Am Gains from listed fund initiatives1 95 125 414 Equity investment impairments (53) 1 (471) Equity accounted gains/(losses)1 85 (13) (135) Loan and trading asset impa
Slide 38: Macquarie Securities: Result
Macquarie Securities Result For personal use only Sep 10 Mar 10 Sep 09 Net trading income down 44% on 1H10: $Am $Am $Am — Derivatives revenues down on pcp due to continued weak product demand for retail and structured products Net trading income (including net in Asia, Europe and Australia. Market
Slide 39: Macquarie Capital: Result
Macquarie Capital Result For personal use only Sep 10 Mar 10 Sep 09 Interest expense up 20% on pcp resulting from higher $Am $Am $Am interest rates Net interest income/(expense)1 (65) (59) (54) Advisory and capital markets activity: 219 deals valued at approx. $A79b (182 deals valued at approx.
Slide 40: Macquarie Funds: Result
Macquarie Funds Result For personal use only Sep 10 Mar 10 Sep 09 Acquisition of Delaware Investments in Jan 10 $Am $Am $Am AUM at 31 Mar $A151b Base fees 441 382 315 Increased headcount by 521 Performance fees 15 5 17 Base fees up 40% on pcp to $A441m Net interest expense1 (64) (53) (44)
Slide 41: Assets under management of $A317b
Assets under management of $A317b For personal use only $Ab 330 328 326 324 (11.7) 322 13.6 (9.6) 320 318 325.7 1.2 316 (2.2) 314 317.0 312 310 Mar-10 CMT / CMA Asset acquisitions Asset disposals Net inflows and FX (Impact of Sep-10 conversion equity movements 1 strengthening AUD) 1. Includes the im
Slide 42: Fixed Income, Currencies and Commodities: Result
Fixed Income, Currencies and Commodities Result For personal use only Sep 10 Mar 10 Sep 09 Commodities trading income down 43% on pcp: $Am $Am $Am — Challenging trading conditions during the period Commodities1 197 325 346 — Lower client term hedging activity in some commodity markets Foreign exch
Slide 43: Corporate and Asset Finance: Result
Corporate and Asset Finance Result For personal use only Interest income up significantly: Sep 10 Mar 10 Sep 09 $Am $Am $Am — Loan and finance lease portfolios $A15.9b at Sep10, up 30% from $A12.2b at Sep 09 Net interest income1 282 222 160 — Acquisition of $A1.0b Ford Credit portfolio in Oct 09 a
Slide 44: Banking and Financial Services: Result
Banking and Financial Services Result For personal use only Sep 10 Mar 10 Sep 09 Net interest income growth $Am $Am $Am — Retail deposits up 91% from $A13.9b at Sep 09 to $A26.5b at Net interest income1 345 297 254 Sep10 primarily due to conversion of Cash Management Trust to Cash Management Accou
Slide 45: Real Estate Banking: Result
Real Estate Banking Result For personal use only Sep 10 Mar 10 Sep 09 Net interest expense down from $A25m in Sep $Am $Am $Am 09 to $A9m in Sep 10 due to reduction in investment portfolio Net interest income/(expense)1 (9) (18) (25) Base and performance fees down significantly Base fees 1 5 25 o
Slide 46: Expenses
Expenses For personal use only Expenses up 23% on pcp; compensation ratio 47.9% (1H10: 45.2%) Employment expenses up 26% on pcp, headcount up 22% (Sep 10: 15,533; Sep 09: 12,758) Expense to income ratio 86% (1H10: 83%) $Am 3,200 Increased Credit Trading, Futures and Fixed Income & Currencies a
Slide 47: Taxation
Taxation For personal use only 1H11 2H10 1H10 $Am $Am $Am Net profit before tax 496 762 532 Add back: writedowns and impairment charges 45 96 758 Net profit before impairments and tax 541 858 1,290 Prima facie tax @ 30% 162 257 387 Income tax permanent differences (63) (63) (124) Income tax expense
Slide 48: Balance sheet highlights
Balance sheet highlights For personal use only Balance sheet remains solid and conservative Term assets covered by term funding and equity Surplus cash and liquids continue to be deployed Retail deposits continuing to grow, up 91% to $A26.5b at Sep 10 from Sep 09 On 31 July 10, $A9.6b of C
Slide 49: Funded balance sheet
Funded balance sheet For personal use only Sep 10 $Ab Mar 10 $Ab Well diversified funding sources Funding sources Wholesale issued paper: Retail deposit base continues to grow, Negotiable certificates of deposit 1.4 1.9 representing a stable and reliable source Commercial paper 1.0 3.0 Net trade
Slide 50: Continued retail deposit growth
Continued retail deposit growth For personal use only Macquarie has been successful in pursuing its strategy of diversifying its funding sources through growing its deposit base On 31 Jul 10 $A9.6b of CMT funds transferred to Macquarie’s CMA Strong inflows in to the CMA, increasing $A3.3b sinc
Slide 51: Growth of loan and lease asset portfolio
Growth of loan and lease asset portfolio For personal use only $Ab 34 (0.1) 1.0 (0.6) 32 2.3 30 Growth in Mortgages Canada partially offset by reduction in Australian 28 Mortgages portfolio 26 32.1 29.5 Acquisition of GMAC auto 24 lease portfolio and ILFC aircraft operating lease portfolio in Apr 10
Slide 52: Loan and lease asset portfolio quality
Loan and lease asset portfolio quality For personal use only Net Net carrying Provisions carrying Provisions value coverage value coverage Loan Sep 10 Sep 10 Mar 10 Mar 10 category $Ab %1 $Ab %1 Mortgages Secured by residential mortgages and supported by mortgage insurance - Australia 1.9 0.9% 2.2 0
Slide 53: Equity investments of $A5.6b
Equity investments of $A5.6b For personal use only Carrying value Carrying value Sep 10 Mar 10 Category $Am $Am Description Debt investment entities 167 225 Largely relates to holding in Diversified CMBS Investments Inc. Underlying investments are commercial mortgage-backed securities that are highl
Slide 54: Consistently strong capital base
Consistently strong capital base For personal use only Well capitalised – surplus over Group’s minimum regulatory capital requirement of $A2.9b Core equity represents 90% of the Group’s capital base Capital reduced in 1H11 due to MEREP on-market purchase and FX movements $Ab 12 $A11.8b $A11.6b
Slide 55: Group capital surplus of $A2.9b
Group capital surplus of $A2.9b For personal use only Group capital of $A11.6b at 30 Sep 10, a $A2.9b buffer of capital in excess of the Group’s minimum regulatory capital requirements Strong Banking Group capital ratios - Tier 1: 10.8%; Total Capital: 12.8% $Ab 6.0 5.0 0.2 (0.4) 4.0 4.0 (0.9) 3
Slide 56: Basel III regulatory changes
Basel III regulatory changes For personal use only Main elements of Basel III capital changes: More conservative risk-weighting of assets and stricter capital deduction regime Increased minimum capital ratios – Minimum Common Equity ratio of 4.5% (new requirement) – Minimum Tier 1 ratio 6% (up f
Slide 57: Liquidity regulatory developments
Liquidity regulatory developments For personal use only Liquidity Coverage Ratio (LCR) LCR is subject to observation period prior to being introduced as a minimum requirement in January 2015 Macquarie estimates that it meets the overall quantum of liquid assets required by the LCR However, whi
Slide 58: Appendix A: Additional Information – Funding
For personal use only A Appendix Additional Information – Funding Macquarie Group Limited Result Announcement for the year ended 30 September 2010 29 October 2010 – Presentation to Investors and Analysts
Slide 59: Group funding structure
Group funding structure For personal use only MGL and MBL are the Group’s two primary external funding vehicles which have separate and distinct funding, capital and liquidity management arrangements MBL provides funding to the Bank Group MGL provides funding predominantly to the Non-Bank Grou
Slide 60: Funded balance sheet reconciliation
Funded balance sheet reconciliation For personal use only The Group’s statutory balance sheet is prepared based on generally accepted accounting principles which do not represent actual funding requirements A funded balance sheet reconciliation has been prepared to reconcile the reported assets
Slide 61: Funding for the Bank Group Sep 2010
Funding for the Bank Group 30 Sep 2010 For personal use only Sep 10 Mar 10 Bank balance sheet remains very liquid, $Ab $Ab well capitalised and with a diversity of Funding sources Negotiable certificates of deposit 1.4 1.9 funding sources Commercial paper 1.0 3.0 Term funding beyond one year (ex
Slide 62: Funding for the Non-Bank Group Sep 2010
Funding for the Non-Bank Group 30 Sep 2010 For personal use only Sep 10 Mar 10 Non-Bank Group is predominantly term $Ab $Ab funded Funding sources MBL intra-group loan to MGL 1.2 1.2 Term funding beyond one year (excluding Net trade creditors - 0.5 equity) has a weighted average term to Structur
Slide 63: Explanation of Funded Balance Sheet reconciling items
Explanation of Funded Balance Sheet reconciling items For personal use only Self funded trading assets: There are a number of entries on the balance sheet that arise from the normal course of trading activity we conduct with our clients and counterparties. They typically represent both sides of a
Slide 64: Appendix B: Additional Information – Capital
For personal use only B Appendix Additional Information – Capital Macquarie Group Limited Result Announcement for the half year ended 30 September 2010 29 October 2010 – Presentation to Investors and Analysts
Slide 65: Macquarie Group regulatory capital: surplus calculation
Macquarie Group regulatory capital Surplus calculation For personal use only $Am Macquarie Group eligible capital: Banking Group Gross Tier 1 capital 8,446 Non-Bank eligible capital 3,148 Eligible capital 11,594 (a) Macquarie Group capital requirement: Banking Group contribution Risk-weighted assets
Slide 66: Macquarie Group regulatory capital: Banking Group contribution
Macquarie Group regulatory capital Banking Group contribution For personal use only Risk-weighted Tier 1 Capital assets Deductions Requirement1 $Am $Am $Am Credit and equity risk On balance sheet 28,626 2,004 Off balance sheet 13,116 918 Credit and equity risk subtotal 41,742 2,922 Market risk 3,073
Slide 67: Macquarie Group regulatory capital: Non-Banking Group framework
Macquarie Group regulatory capital Non-Banking Group framework For personal use only APRA has specified a regulatory capital framework for MGL A dollar capital surplus is produced; no capital ratio calculation is specified APRA has approved Macquarie’s Economic Capital Adequacy Model (ECAM) fo
Slide 68: Macquarie Group regulatory capital: Non-Banking Group contribution
Macquarie Group regulatory capital Non-Banking Group contribution For personal use only Capital Equivalent Assets Requirement Risk Weight $Ab $Am Funded assets Cash and liquid assets 2.4 25 13% Loan assets1 1.1 88 97% Assets held for sale 0.1 42 697% Debt investment securities 0.2 10 51% Co-investme
Slide 69: Appendix C: Additional Information – Outlook Operating Groups
For personal use only C Appendix Additional Information – Outlook Operating Groups Macquarie Group Limited Result Announcement for the year ended 30 September 2010 29 October 2010 – Presentation to Investors and Analysts
Slide 70: Outlook operating groups
Outlook operating groups For personal use only Macquarie Securities Group Currently expect 2H11 to be up on 1H11 subject to improving market conditions Vision to be a global broker with strong Asia-Pacific foundations over the medium term Cash division is well positioned for growth as market c
Slide 71: Outlook operating groups
Outlook operating groups For personal use only Macquarie Funds Group Subject to market conditions and performance of Australian dollar against other major currencies, currently expect underlying FY11 net profit (excluding one-off income) to be significantly up on the prior year and underlying (exc
Slide 72: Outlook operating groups
Outlook operating groups For personal use only Banking and Financial Services Group Subject to market conditions, expect 2H11 to be comparable to1H11 Continued focus on client growth in the advised and non-advised sector while seeking organic growth of high net worth adviser numbers both domesti
Slide 73: Appendix D: Glossary
For personal use only D Appendix Glossary Macquarie Group Limited Result Announcement for the year ended 30 September 2010 29 October 2010 – Presentation to Investors and Analysts
Slide 74: Glossary
Glossary For personal use only $A Australian Dollar CPS Convertible Preference Shares $C Canadian Dollar CY10 Calendar Year 2010 $US United States Dollar DCM Debt Capital Markets £ Pound Sterling DPS Dividend Per Share ¥ Japanese Yen ECAM Economic Capital Adequacy Model € Euro ECM Equity Capital Mar
Slide 75: Glossary
Glossary For personal use only iPay iPay enables staff to view their paycheck online MIPS Macquarie Income Preferred Securities IPO Initial Public Offering MIRA Macquarie Infrastructure and Real Assets IT&T Information Technology & Technology MIS Macquarie Income Securities ITG Information Technolog
Slide 76: Glossary
Glossary For personal use only SBI State Bank of India ST Short Term TMET Telecommunications, Media, Entertainment and Technology TSX Toronto Stock Exchange UHNW Ultra-High-Net-Worth UK United Kingdom US United States of America 76
Slide 77: Result Announcement for the half year ended 30 September 2010
Macquarie Group Limited For personal use only Result Announcement for the half year ended 30 September 2010 Presentation to Investors and Analysts 29 October 2010 Nicholas Moore, Managing Director and Chief Executive Officer Greg Ward, Chief Financial Officer