Macquarie Group’s net income drops 8% as coronavirus bites

Macquarie Group slashed its dividend as the global economic shutdown sent impairments soaring, ending a seven-year run of profit growth at the Australian investment bank and infrastructure manager.

Chief executive Shemara Wikramanayake also refrained from the bank’s usual practice of providing an earnings outlook, saying the uncertainty caused by the virus leaves the bank “unable to provide any meaningful” guidance for this year.

Net income fell 8 per cent to $1.8 billion (Dh6.6bn) in the 12 months ended on March 31, Sydney-based Macquarie said on Friday, its first profit drop in eight years. Impairments rose to $666.7 million, almost doubling from $368m last year.

Australia’s commercial banks have endured a torrid earnings season, with Westpac Banking and Australia & New Zealand Banking Group both deferring dividend payments.

“The result is decent given the tough environment,” Aberdeen Standard Investments investment manager Jason Kururangi said. “They are well positioned - as much as they can be - for a tougher period ahead.”

Ms Wikramanayake also struck a more positive note on a call with analysts, stressing there is still decent client activity. “Deals are still happening,” she said.

“Ideally, we like to do things face-to-face but we are still able to get on with making investments,” Ms Wikramanayake said in an interview. Citing changes such as virtual data rooms, operating remotely for a couple of months “hasn’t been a material disruption,” she said.

“We are comfortable with Macquarie and believe they are well positioned for opportunities in the future,” said Max Cappetta, chief executive of Redpoint Investment Management which manages about $6.7bn.

“Obviously the Covid crisis is challenging on a number of fronts, however management has consistently demonstrated strong governance and long-term thinking. That’s one of the reasons we have favoured our position in Macquarie over other banks in the last few years.”

Macquarie is the latest global bank to report sharply higher impairments as lenders grapple with assessing the impact of the virus.

Its global footprint and range of operating activities, from infrastructure management to aircraft leasing, oil trading and retail banking, offers both more diversification and sources of risk.

Bad-debt provisions rose in all divisions.

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Four reasons global stock markets are falling right now

There are many factors worrying investors right now and triggering a rush out of stock markets. Here are four of the biggest:

1. Rising US interest rates

The US Federal Reserve has increased interest rates three times this year in a bid to prevent its buoyant economy from overheating. They now stand at between 2 and 2.25 per cent and markets are pencilling in three more rises next year.

Kim Catechis, manager of the Legg Mason Martin Currie Global Emerging Markets Fund, says US inflation is rising and the Fed will continue to raise rates in 2019. “With inflationary pressures growing, an increasing number of corporates are guiding profitability expectations downwards for 2018 and 2019, citing the negative impact of rising costs.”

At the same time as rates are rising, central bankers in the US and Europe have been ending quantitative easing, bringing the era of cheap money to an end.

2. Stronger dollar

High US rates have driven up the value of the dollar and bond yields, and this is putting pressure on emerging market countries that took advantage of low interest rates to run up trillions in dollar-denominated debt. They have also suffered capital outflows as international investors have switched to the US, driving markets lower. Omar Negyal, portfolio manager of the JP Morgan Global Emerging Markets Income Trust, says this looks like a buying opportunity. “Despite short-term volatility we remain positive about long-term prospects and profitability for emerging markets.”

3. Global trade war

Ritu Vohora, investment director at fund manager M&G, says markets fear that US President Donald Trump’s spat with China will escalate into a full-blown global trade war, with both sides suffering. “The US economy is robust enough to absorb higher input costs now, but this may not be the case as tariffs escalate. However, with a host of factors hitting investor sentiment, this is becoming a stock picker’s market.”

4. Eurozone uncertainty

Europe faces two challenges right now in the shape of Brexit and the new populist government in eurozone member Italy.

Chris Beauchamp, chief market analyst at IG, which has offices in Dubai, says the stand-off between between Rome and Brussels threatens to become much more serious. "As with Brexit, neither side appears willing to step back from the edge, threatening more trouble down the line.”

The European economy may also be slowing, Mr Beauchamp warns. “A four-year low in eurozone manufacturing confidence highlights the fact that producers see a bumpy road ahead, with US-EU trade talks remaining a major question-mark for exporters.”

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Trans fat is typically found in fried and baked goods, but you may be consuming more than you think.

Powdered coffee creamer, microwave popcorn and virtually anything processed with a crust is likely to contain it, as this guide from Mayo Clinic outlines:

Baked goods - Most cakes, cookies, pie crusts and crackers contain shortening, which is usually made from partially hydrogenated vegetable oil. Ready-made frosting is another source of trans fat.

Snacks - Potato, corn and tortilla chips often contain trans fat. And while popcorn can be a healthy snack, many types of packaged or microwave popcorn use trans fat to help cook or flavour the popcorn.

Fried food - Foods that require deep frying — french fries, doughnuts and fried chicken — can contain trans fat from the oil used in the cooking process.

Refrigerator dough - Products such as canned biscuits and cinnamon rolls often contain trans fat, as do frozen pizza crusts.

Creamer and margarine - Nondairy coffee creamer and stick margarines also may contain partially hydrogenated vegetable oils.