Macquarie Group, Ltd. · ASX:MQG
Macquarie — Investor Presentation (February 2015)
81 slides from Macquarie's investor presentation, Feb 17, 2015
Slide 1: Operational Briefing
For personal use only Operational Briefing Presentation to Investors and Analysts 17 February 2015
Slide 2: Disclaimer
Disclaimer For personal use only 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 summary form and
Slide 3: Agenda
Agenda For personal use only 10.05 – 10.10 Introduction – Karen Khadi 10.10 – 10.30 Update since the interim result – Nicholas Moore 10.30 – 11.00 Commodities and Financial Markets (formerly FICC) – Andrew Downe 11.00 – 11.30 Energy Markets Division – Nicholas O’Kane 11.30 – 12.00 Banking and Financ
Slide 4: Update since the Interim Result Announcement
For personal use only Update since the Interim Result Announcement Nicholas Moore Managing Director and Chief Executive Officer
Slide 5: About Macquarie: Building for the long term
About Macquarie Building for the long term For personal use only Macquarie Asset • Top 50 global asset manager with $A453.3b1 of assets under management Management (formerly • Provides clients with access to a diverse range of capabilities and products, including infrastructure and real asset manage
Slide 6: 3Q15 Overview
3Q15 Overview For personal use only • Since our 1H15 result announcement, trading conditions across the Group have continued to improve and there has been a continued weakening of the Australian dollar • Macquarie’s annuity-style businesses’ (Macquarie Asset Management1, Corporate and Asset Finance
Slide 7: 3Q15 Overview: Annuity-style businesses
3Q15 Overview: Annuity-style businesses For personal use only Operating Group Market positions Developments since 1H15 Macquarie Asset • Top 50 global asset manager, Australia’s largest global asset • AUM $A453.3b at Dec 14 up 7% on Sep 14 predominately driven by FX and new investments Management ma
Slide 8: 3Q15 Overview: Capital market facing businesses
3Q15 Overview: Capital market facing businesses For personal use only Operating Group Market positions Developments since 1H15 Macquarie Securities • Global execution and distribution capabilities, with the leading • ECM activity continues to be strong in Australia, with notable deals including the
Slide 9: 14,046 staff in over countries
14,046 staff in over 28 countries1 For personal use only Europe, Middle East Asia Americas & Africa2 Staff: 1,310 Staff: 3,495 Staff: 2,694 Asia Europe Bangkok Manila Canada Amsterdam Beijing Mumbai Calgary USA Dublin Gurgaon Seoul Montreal Atlanta Miami Frankfurt Hong Kong Shanghai Greater Toronto
Slide 10: Funded balance sheet remains strong
Funded balance sheet remains strong For personal use only 31 March 2014 30 September 2014 31 December 2014 $Ab $Ab $Ab 110 110 110 100 100 100 ST wholesale issued ST wholesale issued paper (12%) ST wholesale issued Cash, liquids and self 90 90 paper (12%) 90 Other debt maturing in the paper (9%) sec
Slide 11: Regulatory update
Regulatory update For personal use only • In Aug 14, APRA issued its final rules for Conglomerates with the implementation timing dependent on the outcomes of the Financial System Inquiry. We continue to work through the application of these rules with APRA, however, our current assessment is that M
Slide 12: Basel III capital position
Basel III capital position For personal use only • APRA Basel III Group capital at Dec 14 of $A14.3b, Group surplus of $A1.4b (1 Jan 16 requirements 1), $A2.6b (existing requirements2) • Bank Group APRA Basel III CET1 ratio: 9.0%; Tier 1 ratio: 10.4% • Bank Group Harmonised Basel III CET1 ratio: 10.
Slide 13: Short term outlook
Short term outlook For personal use only • Summarised below are the outlook statements for each Operating Group • FY15 results will vary with market conditions, particularly the capital markets facing businesses Net profit contribution FY07 – FY14 FY07 – FY14 FY15 outlook as Operating Group historic
Slide 14: Short term outlook
Short term outlook For personal use only • While the impact of future market conditions makes forecasting difficult, we expect the FY15 combined net profit contribution1 from operating groups to be up significantly on FY14, more than offsetting the FY14 realised gain relating to the SYD distribution
Slide 15: Medium term
Medium term For personal use only • Macquarie remains well positioned to deliver superior performance in the medium term • Deep expertise in major markets • Build on our strength in diversity and continue to adapt our portfolio mix to changing market conditions – Annuity-style income is provided by
Slide 16: Approximate business Basel III Capital & ROE
Approximate business Basel III Capital & ROE For personal use only 30 September 2014 1 Operating Group APRA Basel III Capital Approx. 1H15 Return @ 8.5% ($Ab) on Ordinary Equity2 Approx. 8-Year Average Annuity-style businesses 6.2 Return on Ordinary Equity2 Macquarie Asset Management 1.9 Corporate a
Slide 17: Medium term
Medium term For personal use only • Annuity-style business that is diversified across regions, products, asset classes and investor types MAM • Diversification of capabilities allows for the business to be well placed to grow assets under management in different market conditions • Well positioned f
Slide 18: Commodities and Financial Markets (CFM)
For personal use only Commodities and Financial Markets (CFM) Formerly Fixed Income, Currencies and Commodities Andrew Downe Group Head
Slide 19: Commodities and Financial Markets (CFM)
Commodities and Financial Markets (CFM) For personal use only CFM provides clients with risk and capital solutions across physical and financial markets PAGE 19
Slide 20: CFM provides clients with risk and capital solutions
CFM provides clients with risk and capital solutions across physical and financial markets For personal use only PAGE 20
Slide 21: We provide products and services to clients exposed to commodities and financial markets
We provide products and services to clients exposed to commodities and financial markets For personal use only Client need Macquarie offering Corporate clients exposed to price changes in commodities, currencies and credit markets Price risk Financial management hedging Producers, consumers and
Slide 22: Example of what CFM does: Commodities
Example of what CFM does Commodities For personal use only Helping Bulk Commodity producers manage working capital and price exposures Producer Consumer Financing A Bulk Commodity Macquarie provides finance by pre-paying producer needs for the future delivery of the physical working capital product
Slide 23: Example of what CFM does: Financial markets
Example of what CFM does Financial markets For personal use only Taking 20+ years experience in Australian securitisation markets to the UK since 2010 UK Buy-To-Let Mortgages Property investors Warehousing approach Paragon, Macquarie provides funding to Paragon a UK specialist lender, via a warehous
Slide 24: Example of what CFM does: Financial markets
Example of what CFM does Financial markets For personal use only Helping clients manage their foreign exchange exposures Foreign exchange Financial hedging A private equity firm participates in an Macquarie provides protection against auction to purchase a fluctuating exchange rates from bid busines
Slide 25: CFM's platform has evolved over more than years
CFM’s platform has evolved over more than 30 years For personal use only PAGE 25
Slide 26: Global reach: 24-hour market coverage
Global reach: 24-hour market coverage For personal use only A London ASIA AMERICAS ~140 staff New York ~425staff A Houston 45% OF TOTAL 15% OF TOTAL EMEA ~200 staff 20% OF TOTAL A Singapore ANZ ~200 staff 20% OF TOTAL Sydney EMEA ASIA ANZ AMERICAS Full complement commodities Building up coverage
Slide 27: CFM's business is diverse
CFM’s business is diverse For personal use only PAGE 27
Slide 28: CFM's commodities income reporting has been enhanced
CFM’s commodities income reporting has been enhanced to provide more insight For personal use only 1H15 2H14 1H14 $Am $Am $Am Commodities: 418 731 393 – Risk management products 271 381 159 – Lending & financing 141 195 188 – Inventory management, transport & storage 6 155 46 Risk management product
Slide 29: Platform diversity drives earnings stability
Platform diversity drives earnings stability For personal use only CFM Net Profit Contribution1 $A827m $A726m $A575m FY09–FY14 $A563m $A509m $A539m average: $A623m Colours reflect the mix of divisions within CFM and their individual net profit contributions FY09 FY10 FY11 FY12 FY13 FY14 1. Net profi
Slide 30: Macquarie CFM revenues are less volatile
Macro-economic environment Macquarie CFM revenues are less volatile For personal use only Relative to industry FICC businesses 1.4 Volatility of FICC revenues over 8 years Coefficient of variation (volatility) Industry FICC revenues 8 year volatility average 1.2 1.0 0.8 Average: 0.58 0.6 0.4 0.18 0.
Slide 31: CFM revenues increasing whilst industry FICC revenues decline
Macro-economic environment Macquarie’s CFM revenues increasing whilst industry FICC revenues decline For personal use only Macquarie’s CFM revenues increasing while digesting a higher cost base Global FICC revenues have declined over the last 5 years1 Macquarie’s CFM revenue has been increasing 142
Slide 32: Growing market share
Macquarie’s CFM business Growing market share For personal use only CFM customer numbers December 2011 to December 2014 +44% 0 Dec-11 Dec-12 Dec-13 Dec-14 PAGE 32
Slide 33: Experience and technical skills underpin performance and growth
Experience and technical skills underpin performance and growth For personal use only Average tenure of CFM senior leaders is Specialist expertise across CFM 20 10yrs – 27% of CFM staff Years 18 18 Meteorologists, geologists, petroleum 16 and mining engineers 14 12 Well informed viewpoints on 10 com
Slide 34: Managing risk is embedded in CFM's culture
Managing risk is embedded in CFM’s culture For personal use only Rigorous global risk management framework Market Credit Operational Compliance PAGE 34
Slide 35: We constantly monitor market dynamics
We constantly monitor market dynamics For personal use only Market Changing Responding to conditions volatility competitive regulatory client activity landscape change presents strategically trading opportunities and efficiently opportunities PAGE 35
Slide 36: Growth opportunities
Growth opportunities For personal use only Geographic Scale Asia: building China capability Futures Continental Europe Physical Oil & Refined Products Latin America Niche financing solutions Market dynamics Securitisation Low oil prices driving client activity CMBS and distressed opportunities Worki
Slide 37: CFM – well positioned over the medium term
CFM – well positioned over the medium term For personal use only Diversified portfolio Client centric approach of businesses Experienced team Strong, stable and strong risk track record management culture PAGE 37
Slide 38: Energy Markets Division
For personal use only Energy Markets Division Nicholas O’Kane Division Head
Slide 39: Full spectrum energy offering
Full spectrum energy offering For personal use only North American EMEA Gas, Power Global Oil Australian Power Coal Gas & Power & Emissions Risk Management Lending and Financing Physical Execution / Logistics PAGE 39
Slide 40: Global presence
Global presence For personal use only 275+ staff • 10 offices • 10+ years of experience in global energy markets A London New York ANZ/ASIA A Houston EMEA 11% ofstaff 18% ofstaff A Singapore AMERICAS 71% ofstaff EMEA ANZ/ASIA AMERICAS Oil, Gas, Power, Emissions Oil, Power, Coal Oil, Gas, Power Staff
Slide 41: Deep market expertise
Deep market expertise For personal use only Average tenure of Energy Markets In-house technical experts Division senior leaders is with specialist backgrounds 10yrs – 29% of EMD staff Years 14 12 Schedulers Structurers 10 8 Logistics Geologists 6 experts 4 Petroleum 2 Meteorologists engineers 0 ED D
Slide 42: A significant market participant
A significant market participant For personal use only No.3 No.2 $US5b+ largest physical in Brent Crude funded into more than… gas marketer in forecasting2 North America1 Trade and market 100k+ bbls 150 debt & equity transactions of North American since 2002 crude per day 1. Platts Q3 CY14. 2. Bloom
Slide 43: Consistent growth of platform over time
Consistent growth of platform over time For personal use only Expansion into adjacent spaces through acquisitions and organic growth Australian power trading Physical coal trading US physical Integrys portfolio Barclays portfolio power trading acquisition acquisition Acquisition of 3rd largest physi
Slide 44: Diversification provides stability
Diversification provides stability For personal use only Geographic and market diversity provides earnings stability Energy Markets revenue Revenue contribution FY09 – FY14 by business – 1H15 North Australian American Other Power Power EMEA Gas, Average Power and Emissions North American Gas Global
Slide 45: Serving energy clients
Serving energy clients For personal use only Bringing financial products and services to clients with exposure to energy Client need Macquarie offering Oil & refined products Floating Financial Major oil companies, producers, refiners, marketers/trading prices hedging companies, airlines, power comp
Slide 46: Oil value chain
Example of what Energy Markets does Oil value chain For personal use only Macquarie utilises its capabilities throughout the oil value chain Production Refining Consumption Jet Fuel Gasoline Diesel Oil reserves Crude oil Other products PAGE 46
Slide 47: Oil production
Example of what Energy Markets does Oil production For personal use only Macquarie provides financing and price certainty to producers Production Financing An oil producer needs to invest in land and Macquarie provides financing so the equipment before it producer can continue operations, and can be
Slide 48: Oil refining
Example of what Energy Markets does Oil refining For personal use only Macquarie provides products to allow a refinery customer to manage its risk Refining Oil and product sitting Financing Input Yield in inventory ties up a Macquarie finances the inventory so the refinery’s capital refinery can mak
Slide 49: Oil consumption
Example of what Energy Markets does Oil consumption For personal use only Macquarie facilitates hedging to protect an airline against rising prices Consumption Jet fuel accounts for Risk management products approximately one Macquarie can provide a financial third of an airline’s product which will
Slide 50: Natural gas value chain
Example of what Energy Markets does Natural gas value chain For personal use only Macquarie positions itself in a similar way across all major commodities Production Logistics Consumption Generation Industrial use Gas Residential Gas reserves Storage Transportation production use PAGE 50
Slide 51: Natural gas transportation
Example of what Energy Markets does Natural gas transportation For personal use only Macquarie’s capabilities allow it to provide a valuable service with limited downside Physical execution New York Macquarie “rents” pipeline capacity in Marcellus Shale Producers need to get advance, buys the gas fr
Slide 52: Key risks facing our business
Key risks facing our business For personal use only Rigorous risk management framework and strong risk culture Volatility & Non performance on Exposure to Operational customer activity credit exposures market risk risk Low volatility can limit customer flow, Customer-centric businesses face Trading
Slide 53: Opportunities: Natural gas, impact of shale gas
Opportunities Natural gas For personal use only Impact of shale gas presents opportunities US Dry Natural Gas Production Forecast (Tcf)1 35 30 25 20 15 10 5 0 1990 2000 2010 2020 2030 2040 Non-associated onshore Associated with oil Coalbed methane Non-associated offshore Alaska Tight gas Shale gas 1
Slide 54: Freeport LNG: Cheap US natural gas led to export opportunity
Opportunities Natural gas For personal use only Freeport LNG: Cheap US natural gas led to export opportunity Macquarie’s Energy Markets Division has a longstanding relationship with Freeport LNG Opportunity to export LNG as a result of changing market dynamics was identified early Provided Fre
Slide 55: Opportunities: Oil
Opportunities Oil For personal use only Falling prices are now leading to similar changes in the oil markets Brent Crude ($US/bbl) 140 Declining oil prices 120 100 Changes to supply and 80 demand dynamics 60 Increased financing and 40 hedging needs 20 0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 OPPO
Slide 56: Well positioned over the medium term
Well positioned over the medium term For personal use only Client driven business Deep market expertise Diverse across markets Conservative approach to and geographies taking and managing risk PAGE 56
Slide 57: Banking and Financial Services
For personal use only Banking and Financial Services Greg Ward Group Head
Slide 58: Comprehensive retail banking operations
Comprehensive retail banking operations For personal use only Macquarie’s retail banking and financial services businesses, providing a diverse range of personal banking, wealth management and business banking products and services to retail customers, advisers, brokers and business clients Personal
Slide 59: Our operations at a glance
Our operations at a glance For personal use only PERSONAL BANKING WEALTH MANAGEMENT BUSINESS BANKING $22.3b Mortgages Stockbroking and Private Banking $4.6b2 Business loans book with full range Financial product advice portfolio 25%pcp of offerings 40%pcp and services Cards $43.2b in AUA Transaction
Slide 60: Our recent awards
Our recent awards For personal use only Partner of the Year Five-Star Rating for Adviser Satisfaction iSelect 2014 Partner Awards Beaton Benchmarks, a record seventh year running Homeloans Partner of the Year Non-major Bank Lender of the Year (Tier 2) iSelect 2014 Partner Awards MFAA 2014 Excellence
Slide 61: Our strategy
Our strategy For personal use only Rigorous We have four building blocks risk management to our strategy framework that will deliver our success FOCUS ORGANISE 1 ON OUR OPPORTUNITY 2 AROUND OUR CLIENTS INVEST GROW 3 TO SUPPORT GROWTH 4 FROM OUR STRENGTHS PAGE 61
Slide 62: 1. Focus on our opportunity
1. Focus on our opportunity For personal use only We have exited a number of offshore and Focusing on opportunity in Australian retail non-core businesses financial services 16+ Exits including: MPW Canada Macquarie Premium Funding (Canada) 31 Mortgages (Italy) Macquarie Wrap (UK) staff1 in other lo
Slide 63: 2. Organise around our clients
2. Organise around our clients For personal use only Our new organisation structure is yielding efficiency, alignment and collaboration benefits Efficiency Deposit & Transact All products brought under a single division Move to eliminate duplication Transactional accounts | Savings accounts Term
Slide 64: 3. Invest to support growth: Core banking project
3. Invest to support growth For personal use only Modernising our technology CORE BANKING The Core Banking transformation program will simplify, PROJECT streamline and centralise our product and transactional functions Currently in year two of a five year program to deliver the Core Banking platfo
Slide 65: 3. Invest to support growth: Digital transformation
3. Invest to support growth For personal use only Modernising our technology DIGITAL Our digital transformation will continue to improve prospective TRANSFORMATION client experience and scalability of our operating model Invested to build expertise and leadership capability to drive our digital en
Slide 66: 4. Grow from our strengths: Personal Banking
4. Grow from our strengths Personal Banking For personal use only Ability to develop partnerships delivering benefits to both parties focussed on growing distribution, Individuals particularly through intermediary and Our Clients white label relationships Intermediaries Institutional partners Broker
Slide 67: 4. Grow from our strengths: Wealth Management
4. Grow from our strengths Wealth Management For personal use only Depth and longevity of relationships with intermediaries and clients focussed on optimising existing Individuals operations, growing distribution, and Our Clients building product and platform capabilities Intermediaries Advisers: Fi
Slide 68: Macquarie Private Wealth: Enforceable Undertaking and remediation update
Macquarie Private Wealth Enforceable Undertaking and client remediation update For personal use only Two-year Implementation Plan Commitment to continuous improvement ● Enforceable Undertaking finalised on 29 January 2015 Macquarie program agreed with ASIC to build on work done during the two- year
Slide 69: 4. Grow from our strengths: Business Banking
4. Grow from our strengths Business Banking For personal use only Differentiation through specialist markets expertise and exceptional client service SMEs and small Foundation (core client) segments: Strata Managers, Residential & focussed on increasing financial services corporates Commercial Real
Slide 70: Significant relationships strengthened with leading Australian brands
4. Grow from our strengths For personal use only Significant relationships strengthened with leading Australian brands Mortgages with Qantas Points launched Credit cards with Qantas Points launched ● Acquired Woolworths branded credit card portfolio in May 14 White label mortgages ● Completed
Slide 71: Profit growth and investment
Profit growth and investment For personal use only Strong underlying earnings growth whilst engaging in major investment programs Net profit ($Am) Project expenses ($Am) 129 260 243 106 88 141 15% 11% 9% FY13 FY14 1H15 FY13 FY14 1H15 Project Expenses % of Revenue PAGE 71
Slide 72: Strong volumes growth across major products
Strong volumes growth across major products For personal use only Product FUM – Retail Deposits ($Ab) Product AUA1 – Platforms ($Ab) 43.2 35.7 40.3 33.3 31.0 29.0 26.6 27.5 22.7 23.9 FY11 FY12 FY13 FY14 Dec-14 FY11 FY12 FY13 FY14 Dec-14 Product FUM – Business Lending ($Ab)2 Product FUM – Australian
Slide 73: Australian mortgage portfolio history
Australian mortgage portfolio history For personal use only 9mths to Dec 2014 $10 New loan $8 settlements per Financial Year $6 ($Ab) $4 $2 $0 Balance 31 Dec 2014 $25 outstanding of $20 portfolio as at end of Financial Year $15 ($Ab) $10 $5 $0 Excludes BB, AHL-CBA & CAF Reverse Mortgages PAGE 73
Slide 74: New mortgage composition
New mortgage composition Recently originated mortgages in line with market and peers For personal use only New loan settlements during Borrower Loan Value Ratio the Dec 14 qtr purpose Geography (origination LVR) Other >90 WA 4% 7% 11% 80-90 12% Investment QLD NSW Owner Macquarie 44% Occupied 18% 44%
Slide 75: New mortgage composition: Loan to value ratios
New mortgage composition Loan to value ratios For personal use only Loans with LVR of >90% have reduced significantly since early 2013 Mar 13 Mar 14 Dec 14 14.8% of portfolio >90% LVR 11.5% of portfolio >90% LVR 6.3% of portfolio >90% LVR New loan 100% settlements Loan to 90% Value Ratio (LVR) 80% b
Slide 76: Well positioned for medium term
Well positioned for medium term For personal use only 1 FOCUS Australian focussed business with a comprehensive set of ON OUR OPPORTUNITY sophisticated, award-winning retail products and services 2 ORGANISE New client focussed organisation structure is yielding efficiency, AROUND OUR CLIENTS alignme
Slide 77: Glossary
For personal use only Glossary
Slide 78: Glossary
Glossary For personal use only $A or AUD Australian Dollar AHL-CBA Aussie Home Loans – Commonwealth Bank of Australia $C Canadian Dollar b Billions $US or USD United States Dollar BB Business banking € Euro BAML Bank of America Merrill Lynch £ British Pound bbl Barrel 1H15 Half year ended 30 Septemb
Slide 79: Glossary
Glossary For personal use only DCM Debt Capital Markets LCR Liquidity Coverage Ratio DD Division Director LNG Liquefied Natural Gas DTA Deferred Tax Asset LVR Loan to Value Ratio ECM Equity Capital Markets m Million ED Executive Director M&A Mergers and Acquisitions EMD Energy Markets Division MacCa
Slide 80: Glossary
Glossary For personal use only NGL Natural Gas Liquids TMET Telecommunications, Media, Entertainment and Technology No. Number UCITS Undertakings for Collective Investments in Transferable Securities NPAT Net Profit After Tax UK United Kingdom NSW New South Wales US United States P&L Profit and Loss
Slide 81: Operational Briefing
For personal use only Operational Briefing Presentation to Investors and Analysts 17 February 2015
Macquarie Group — Investor Presentation (February 2015) on 6ix