Macquarie's Moore says industry must learn lessons as tech shakes things up
Macquarie Group's chief executive Nicholas Moore says the financial services industry must learn from a string of governance and cultural failings and "take instruction", as regulation and technology change threaten to upend the industry.
His comments come as the banking royal commission edges toward its third round of hearings, after earlier sessions uncovered explosive claims including firms misleading the corporate regulator, dodgy financial advice and charging dead people fees.
Mr Moore told AFR Weekend the asset manager and investment bank was paying close attention to the royal commission and also to the scathing findings of the Australian Prudential Regulation Authority on the workings of the Commonwealth Bank of Australia.
"We're looking at what's been happening and we are trying to determine what lessons there are for Macquarie and certainly with the Commonwealth Bank report, of course. We've had an initial review of that; we'll do a lot of work on that in terms of the governance review," he said.
"Both of them are very, very serious pieces of work, the royal commission and the APRA review of the governance of the Commonwealth Bank and they need a lot of attention from everybody in financial services to learn lessons and then take instruction from them."
Macquarie's banking and finance boss Greg Ward told investors the firm was "well placed" should the commission put further pressure on the banks' vertical integration models.
Mr Moore also noted that while regulatory change would continue in Australia as a result of the royal commission, he expects technology will drive the most dramatic evolution in the landscape.
"We would probably still pick technology to be one of the biggest change points in terms of where we are now to where we will be in five years," he added.
"We've seen quite a lot of regulatory change over the last 10 years and we certainly aren't anticipating that the rate of change will slow."
Those views were expressed after Macquarie delivered a record $2.56 billion annual profit, helped by debt capital markets income and performance fees in asset management.
Net profit climbed 15 per cent in the 12 months ended March 31 and outpaced analyst expectations for an annual result of $2.48 billion.
Macquarie's typically conservative outlook statement said it anticipated the 2019 result would be "broadly in line" with this year's earnings.
Tribeca Investment Partners portfolio manager Sean Fenton is, however, equally as cautious on Macquarie's earnings prospects.
"There have been some very strong tailwinds," he said. "They continue to grow profits but it gets harder for them from here... at the end of the day they are a stock that has benefited from strong asset valuations."
Cadence Capital's managing director Karl Siegling counters that view saying Macquarie is on a long-term growth trajectory.
"The bigger picture thing I liked about the result is earnings coming through from asset management and international businesses," he said. "It's such a long-term path that they are on now."
Mr Siegling thinks the royal commission is a "little bit of a risk" for Macquarie rather than a big issue, given its banking and finance unit accounts for just 11 per cent of earnings.
Macquarie, which has five operating divisions, posted a 5 per cent increase in total net operating income to $10.9 billion. Four of Macquarie's divisions posted increased contributions to profit, led by its asset management division.
Global assets under management printed 3 per cent higher at $496.7 billion, buoyed by positive market and currency movements.
The investment banking division benefited from asset divestments in energy and infrastructure and debt capital markets fees, which was partially offset by softer income from mergers and acquisitions and equity capital markets work.
Corporate and asset finance, which houses leasing and financing operations, edged up its profit contribution while Macquarie's banking and financial services unit also had a stronger result on the back of growth in loans, deposits and funds on its platform.
The commodities and global markets unit was the exception, however, with a lower profit contribution which was impacted by factors including lower income from interest rate and credit products.
The accounts also showed a jump in impairment charges as Macquarie wrote down its investment in US-listed Macquarie Infrastructure Corp.
Mr Moore said Macquarie's share buyback remained in place, despite not kicking off since it was outlined last year, and surplus capital printing at $4.2 billion. Separately, the company's stable of infrastructure funds has just shy of $15 billion to deploy.
"We've seen lots of opportunities to deploy capital over the period," Mr Moore said. Last year locally, Macquarie led groups that acquired South Australia's land titles unit and a long-term lease over Endeavour Energy in NSW.
Macquarie declared a final dividend of $3.20 taking the full-year dividend payment to a better-than-expected $5.25 per share. That compared to a $4.70 per payment in 2017.
The stock edged up 0.2 per cent to close at $108.01 on Friday, not far off its all time highs.
The effective tax rate fell to 25.7 per cent from 28.1 per cent, largely due to the geographic composition and nature of earnings. International income accounted for 67 per cent of Macquarie's total.
The accounts also showed that Macquarie had paid $16 million in the first nine months of the federal government's bank levy.
Macquarie's total operating expenses edged up 3 per cent to $7.5 billion as staff related costs and business activity rose.
Annualised return on equity printed at 16.8 per cent in the 12 months ended March 31, up from 15.2 per cent in the same period in 2017.