Millionaire’s factory punctured by COVID-19

Macquarie Group ASX MQG millionaire’s factory covid-19
Macquarie has flagged a $300m hit to its first-half earnings.

In yet more evidence that nobody is immune from the financial ravages of the COVID-19 pandemic, the so-called millionaire’s factory – Macquarie Group (ASX: MQG) – has warned that its earnings have been slashed by 35% in the current half year and the future is highly uncertain.

The investor update by Macquarie sent its shares down as much as 5% after Australia’s biggest international investment bank said it could not provide meaningful guidance for the year due to the pandemic-driven uncertainty.

In the update, Macquarie said that “market conditions are likely to remain challenging, especially given the significant and unprecedented uncertainty caused by the worldwide impact of COVID-19 and the uncertain speed of the global economic recovery.”

Macquarie said it was unknown what the impact of the continuing uncertain conditions would have on the group’s overall 2021 financial year profitability, so it is “currently unable to provide meaningful earnings guidance for FY21.”

Macquarie unable to produce a profit forecast

It is the first time since the global financial crisis that Macquarie – led by chief executive officer Shemara Wikramanayake – has been unable to provide a profit forecast.

After falling to a low of $119 on Monday after the announcement, Macquarie shares recovered slightly to close down 4.7% at $120.20.

Macquarie Group ASX MQG covid 2020
Macquarie Group share price chart over the past 12 months.

The announcement is confirmation that the recession that has accompanied the COVID-19 pandemic is hitting all sorts of companies hard, with Macquarie’s aircraft leasing activities likely to have been particularly troublesome.

Recession hits across several business units

The challenging conditions are likely to have also hit other operations with the banking division hit by rising provisions for bad loans and the global recession reducing deal flow.

Macquarie has already reported that credit and impairment charges nearly doubled to $1.04 billion for the 2020 financial year and it is now likely to increase provisioning for the current quarter as it continues to support clients through the pandemic.

Earnings contributions from its markets-facing businesses like Macquarie Capital are also suffering from “significantly lower investment-related income” and it is unlikely that the much-touted annuities style investments within Macquarie will be able to prevent continuing volatility in earnings.

However, Macquarie is also highly leveraged to any recovery in market activity and has long been a favourite with investors who like its global exposure and ability to spring back from downturns to produce strong growth.

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