Property a problem for Macquarie

A return on equity for Macquarie Bank of six per cent in the March 2009 second half is, so far, the worst financial result for a major financial services firm in Australia arising from the two stage credit crunch of 2007 and 2008 and the subsequent global recession.

Thanks to write-downs in the non-bank piece of Macquarie, that arm of the group recorded a loss of $117 million in the March 2009 half year, a piece of maths left out of the bank's otherwise pretty helpful 560 pages of financial information and analysis published by the group on Friday.

The Macquarie Bank subsidiary of Macquarie Group may be in the black in both the first and second half of the financial years, but Macquarie Bank nonetheless may be exhibiting more distress in its loan portfolio than any other bank in Australia.

Net loan losses from the Macquarie Group (to use the group's published approach) were 1.9 per cent of loan assets as at March 2009, up from 0.6 per cent at September 2008 and 0.3 per cent at March 2008.

Taking a narrow look at a couple of divisions, the bank's two core "banking" businesses both recorded operating losses over the full year, with the banking and financial services divisions recording a loss of $104 million. This division did, however, report an operating profit in the second half of $72 million.

The real estate group, essentially a property lender, recorded an operating loss over the full year of $350 million, of which it recognised a loss of $129 million in the first half and $221 million in the second half.

The bank's (as opposed to the group's) impaired loan assets soared to $1.34 billion at March 2009, up from $607 million six months earlier and $244 million 12 months earlier.

The losses in the non-bank slice of the group - established in sunnier times as part of the transition to a non-operating holding company structure - tend to highlight the centrality of the banking business (which remains around 90 per cent of group assets) to the business.