Fitch downgrades Macquarie over earnings fears

fitch ratings downgrade Macquarie Group ratings macquarie bank

26 May 2020
| By Laura Dew |
image
image
expand image

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.  

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

Shareholder

Get rid of the rest of the old guard to clean up the culture, then you might have a chance....

3 days 11 hours ago
Ray Mitchell

The previous directors and managers of both Dixon Advisory and the ultimate holding company Evans and Partners should be...

3 days 23 hours ago
Old Fella

Why would any Licensee invest in educating and training new advisers, when as soon as the handcuffs come off, they will ...

4 days 3 hours ago

Insignia Financial has unveiled a new operating model and executive team, including a new head of advice, while three senior executives are set to depart the licensee....

4 days 13 hours ago

ASIC has obtained interim orders from the Federal Court to freeze the assets of a registered managed fund and prevent its former director from leaving Australia. ...

3 weeks 5 days ago

The $280 billion Australian Retirement Trust is the first superannuation fund off the block to report its performance for the 2023-24 financial year....

2 weeks ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND