Low return Macquarie stands by its model

Glimmers of improvement in the financial performance of Macquarie Group's more intractable businesses in the last half of its financial year are being viewed by management as grounds to stick with a long-standing strategy and wait for the return of a more promising period in the market.

Macquarie Securities and Macquarie Capital both earned next to no return in the year to March 2013, compared with a return of around 20 per cent for the Fixed Income group and the same return for what the group terms its three annuity-style businesses, Macquarie Funds, Corporate and Asset Finance and Banking and Financial Service.

The "return" used in this calculation is pre-profit share, pre-tax and before corporate expenses.

On the other hand, Macquarie puts its group ROE, calculated in a conventional way, at only 7.8 per cent.

Net profit for Macquarie increased 17 per cent over the year to A$851 million. In the second half the profit was up 36 per cent to $490 million.

Cost savings remain a feature of the bank's improvement, with costs down 10 per cent over a year. Staff costs fell eight per cent.

Nicholas Moore, chief executive, is sticking to the position that the group is "well positioned to deliver superior performance in the medium term," from a settled portfolio of businesses, while the short-term efforts to control costs will lift returns in 2014, provided "conditions for the financial year are not worse than those experienced over the past 12 months."

Moore said Macquarie had "more then enough capital for organic growth".

"In terms of the capital market facing businesses, we have to make sure we are well capitalised and well funded at the centre and make sure we have the capacity to be able to support them."

Plans for the return of this surplus (which it now estimates at $3.4 billion) to shareholders are more muted this year, with the group to buy approximately $A250 million of shares on-market for staff share plans and the dividend reinvestment plan.

Of the core "banking" businesses, Corporate and Asset Finance recorded a tiny dip in profit to $694 million despite portfolio growth, mainly in motor vehicles in Australia and electricity meters in the UK.

Moore said the group will continue to grow its leasing business "organically" after a period dominated by acquisition.

The profit from Banking and Financial Services increased 22 per cent to $335 million, with volumes up and costs down.