Why is the Macquarie (MQG) share price sliding today?

Posted: 6 May 2022 12:13 pm
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Shares in the investment banking giant have risen more than 26% in the last 12 months but have fallen on today's results.

Macquarie Group (ASX: MQG) shares are the top traded shares on the ASX on Friday. The stock slipped below the $200 level in early trading and was down 6.5% to $189.40 at the time of writing.

By comparison, the rest of the banking sector dropped more sedately, with Commonwealth Bank (ASX: CBA), ANZ (ASX: ANZ), National Australia Bank (ASX: NAB) and Westpac (ASX: WBC) down between 0.7% and 2%.

What is weighing on the Macquarie stock price?

Part of the slide in Macquarie shares comes amid bearish sentiment in banking stocks after a broad-based selldown in US markets as investors come to terms with the tightening monetary policies by central banks that will see interest rates rise significantly.

The US Federal Reserve (Fed) lifted rates by 50 basis points on Wednesday, the biggest increase in rates since 2000. Economists widely expect similar increases in June and July and to flow through to rates globally.

In fact, the Fed is tipped to raise rates by as many as 7 times over the next 12 meetings to curb inflation.

But the sharper decline in the stock comes after Macquarie Group outlined its full year results which at first glance are quite impressive.

Profit for the 12 months to 31 March jumped by 56% to $4.71 billion, led by the group's market facing businesses, which reported a near doubling of profit from the previous year to $5.33 billion.

But investors preferred to focus on the fact that net profit for the second half of the fiscal year significantly underperformed the first half amid rising volatility in markets globally. Profit for the half year ended 31 March was up 30% to $2.66 billion, compared to a more than doubling of profit for the first 6 months ended 30 September.

Cautious outlook

Investors fear there could be more of the same in an environment of rising interest rates, growing fear of inflation and steady prospects for monetary tightening by central banks around the world.

Macquarie Group MD and CEO Shemara Wikramanayake noted these issues while emphasising that the group would take a sedate approach amid the expected volatility in markets.

"We continue to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions us well to respond to the current environment," she said. Still, she said Macquarie remains well-positioned to deliver superior performance in the medium term.

Investors would be safe to assume one of the key growth engines would be the investment banking division, Macquarie Capital. The unit's net profit in FY22 more than trebled to $2.4 billion from $651 million in the previous year.

Meanwhile, full year net profit from Macquarie's commodities and global markets unit jumped 50% to $3.91 billion. Even the more conservative annuity-style businesses saw their net profit contribution rise 25% to $4.1 billion.

Added to this is the strong shareholder payout, with the final dividend rising to $3.50 a share, taking the full year dividend to a combined $6.22 a share, partially franked.

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