Fitch downgrades Macquarie over earnings fears
Fitch Ratings has downgraded its rating for Macquarie from stable to negative, reflecting the uncertainty the economic downturn poses for the group.
The ratings agency was concerned about the firm’s ‘volatile’ growth compared to domestic peers and said risks around non-loan assets were likely to pressure earnings over the next two years.
“The negative outlook reflects the significant uncertainty posed by the coronavirus pandemic-led economic downturn. We expect the uncertainty to pressure asset quality and earnings, which may result in one or both metrics no longer being consistent with the current rating levels,” the ratings agency said.
The economic uncertainty caused by the COVID-19 pandemic was likely to have longer-lasting effects for the group beyond the initial few months of the pandemic.
“The group’s lending exposure to corporate and commercial entities, in addition to the significant shock to employment from economic shutdowns, is likely to increase impaired loans. These may take six to 12 months to emerge and are then likely to take time to resolve. The size of the increase will ultimately depend on the length and severity of the shutdowns, the efficacy of government support measures and the subsequent impact on economic growth.
“Non-loan assets are large - making up over 60% of assets at FYE20 - and could also face pressure. Allowances for losses were increased as part of the FY20 results, but there is risk of further charges. This risk, combined with low rates and slow system loan growth, is likely to pressure earnings over the next two years.”
Macquarie Bank was rated slightly higher than Macquarie Group as Fitch said it believed the bank’s risk profile was better than the group’s overall consolidated risk profile, which was larger than other Australian retail banks, and the bank’s creditors were ringfenced from developments affecting the wider group.
This was because there was ‘strong preference’ of Australian authorities to prioritise bank depositors over investors in other parts of the group.
AUTHOR
Laura Dew
Recommended for you
Lonsec and SQM Research have highlighted manager selection as a crucial risk for financial advisers when it comes to private market investments, particularly due to the clear performance dispersion.
Macquarie Asset Management has indicated its desire to commit the fast-growing wealth business in Australia by divesting part of its public investment business to Japanese investment bank Nomura.
Australia’s “sophisticated” financial services industry is a magnet for offshore fund managers, according to a global firm.
The latest Morningstar asset manager survey believes ETF providers are likely to retain the market share they have gained from active managers.
