Macquarie shareholders are living in the past

MELBOURNE, Nov 7 (Reuters Breakingviews) – Macquarie’s (MQG.AX), opens new tab earnings have been coming back down to earth for more than a year. The firm’s bottom line for the six months to the end of September fell 21% from the previous half-year period to just under A$1.7 billion, opens new tab ($1.1 billion). That equates to an anaemic annualised return on equity of 9.6%, a far cry from the high teens it often cranked out before 2023. But shareholders are treating the $51 billion Australian investment bank as if it were still in those glory days.
Granted, the financial powerhouse run by Shemara Wikramanayake is in a cyclical business. So when clients aren’t as active – as just happened with Macquarie’s commodities and markets unit – an equity return of around 10% is not a bad showing. Trouble is, earnings also came in some 11% below consensus sell-side estimates, per Visible Alpha data. And after 18 months of underperforming results, it’s hard to shrug them off as a blip.
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Moreover, analysts don’t expect annual returns to breach 13% in the next two years or more. Investors have certainly reacted to the bank’s issues of late. Its shares usually track those of Goldman Sachs (GS.N), opens new tab and Morgan Stanley (MS.N), opens new tab. But that started to change in May this year after Macquarie got into a few too many scrapes with regulators Down Under; a month later, more than 25% of shareholders voted against its executive compensation plan – a threshold which, if crossed again next year, gives owners the chance to kick out the entire board. Over the past six months, the Australian firm’s stock has risen just 5%, compared with at least 25% for its U.S. peers. Friday’s results prompted a more than 7% fall by mid-afternoon trading.
Yet, even that leaves Macquarie trading at more than 2 times expected book value over the next 12 months. That would be warranted if returns look set to skyrocket back up towards 20% and stay there. Of course, analysts may well be overly pessimistic about the bank’s future profitability. But the evidence is mounting that its shareholders are living in the past.
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Editing by Robyn Mak; Production by Ujjaini Dutta
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Antony Currie joined Breakingviews when it opened its New York bureau in 2005, working there until moving to Melbourne, Australia in late 2020. He has covered everything from the car industry to investment banking, more recently adding sustainable finance and water security to his beats. He holds a bachelor’s degree in German language and literature and a master’s degree in international relations, both from the University of Bristol.