Macquarie Group scrip rallied strongly on Tuesday after the investment bank issued a better-than-expected trading update for the December 2020 quarter.
The company reported increased activity in most of its core business units including its asset management and markets-facing operations, but the declining rate environment and the pandemic appear to be eroding returns from the retail banking arm.
A highlight of the quarter was the performance of the commodities and global markets division (CGM).
Heightened volatility across energy and precious metals markets stoked heavy trading activity and demand for hedging products.
Growth in the CGM division was also driven by client activity in foreign exchange and credit markets.
“Trading conditions across the group improved in the quarter ended 31 December 2020,” said managing director Shemara Wikramanayake in a briefing for analysts in Sydney.
Her comments triggered a surge in the share price.
Macquarie scrip outperformed all other ASX-listed financial services stocks, closing up A$8.89 or 6.6 per cent to $143.14.
The Macquarie boss indicated that returns from the retail banking arm declined during the quarter despite continued loan growth.
The bank is continuing to experience downward pressure on interest margins along with higher credit impairment charges.
Macquarie also is still bearing additional costs to support borrowers affected by the pandemic.
Around 1.3 per cent of Macquarie borrowers continue to access repayment relief and other support measures. This was down from 2.6 per cent reported at the end of October.
While Wikramanayake conceded that market conditions remained challenging she indicated that Macquarie expected its full year profit to be only “slightly down” on 2020.
The group reported a net profit of $2.731 billion for the 12 months to the end of March last year.
Goldman Sachs banking analyst Andrew Lyons told clients in a report that the term “slightly down” indicated that Macquarie’s full year profit was not likely to decline by more than five per cent.
“We take this to mean flat to down five per cent,” Lyons said in the report.
“The better than anticipated 2021 financial year performance appears to be largely, albeit not entirely, driven by better than expected trading conditions within the commodity and global markets division.”
Wikramanayake also announced several changes to board and management.
Macquarie Group director Gordon Cairns will leave the board in May.
At the end of June, Mary Reemst, the current managing director of Macquarie Bank Limited will hand over the reins to Stuart Green.
Green is a 20 year veteran of the company and has been group treasurer since August 2013.