Macquarie Faces Profit Pressure from Commodity Markets Despite Strong Annuity Growth
Macquarie Group’s 3Q25 trading update reveals strong growth in its annuity-style businesses, while markets-facing segments face pressure from subdued commodity markets, resulting in a mixed financial performance for the year to date.
- Annuity-style businesses (MAM and BFS) show substantial net profit growth in 3Q25
- Markets-facing businesses (CGM and MacCap) experience significant profit decline due to commodity market softness
- FY25 year-to-date net profit broadly in line with FY24, with divergent segment performances
- Capital surplus stands at A$8.5 billion with ongoing share buyback program
- Regulatory updates include APRA’s phase-out of hybrid capital instruments and remediation plans
Mixed Financial Performance Reflects Diverse Business Model
Macquarie Group Limited’s 3Q25 trading update, released on 11 February 2025, paints a nuanced picture of the company’s financial health amid evolving market conditions. The group’s annuity-style businesses, comprising Macquarie Asset Management (MAM) and Banking and Financial Services (BFS), delivered a robust performance with net profit contributions substantially up on the prior corresponding period. This growth was primarily driven by volume expansion in BFS and higher performance fees and investment income in MAM.
Conversely, Macquarie’s markets-facing businesses, Commodities and Global Markets (CGM) and Macquarie Capital (MacCap), faced headwinds. The subdued conditions in certain commodity markets, particularly North American Gas and Power, coupled with timing impacts on income recognition, led to a significant decline in net profit contribution for these segments in 3Q25 compared to the prior year.
Annuity Businesses: Growth Anchored in Scale and Diversification
MAM reported assets under management (AUM) of A$942.7 billion as of December 2024, marking a 3% increase from September 2024. The private markets segment remained stable, supported by favorable foreign exchange movements and net asset valuation gains. Notably, MAM raised A$3.8 billion in new equity during the quarter, focusing on energy transition, infrastructure, agriculture, and private credit strategies. Investment activity was strong, with A$7.3 billion deployed across 36 investments.
BFS continued its trajectory of volume growth, with deposits rising 7% to A$163.8 billion and the home loan portfolio expanding 5% to A$136.2 billion. Despite margin compression pressures, BFS benefited from lower operating expenses and sustained platform volumes, underpinning its increased net profit contribution.
Markets-Facing Businesses: Navigating Commodity Market Volatility
CGM’s contribution was notably impacted by softer commodity prices and reduced risk management income, particularly in EMEA Gas, Power, Emissions, and Global Oil markets. However, financial markets activities saw improvement through client risk management and financing, especially in foreign exchange, fixed income, and credit sectors. Asset finance also showed portfolio growth driven by shipping, technology, and resources sectors.
MacCap experienced higher fee and commission income, buoyed by increased M&A activity, but investment-related income was lower due to timing of gains. The equity portfolio grew by approximately 25% year-on-year, and the private credit portfolio exceeded A$25 billion, with A$3.2 billion deployed in 3Q25. Significant advisory roles included transactions for BMS Group, Global Power Generation Australia, and Paladin Energy Ltd.
Capital Management and Regulatory Developments
Macquarie maintains a strong capital position with a group capital surplus of A$8.5 billion as of December 2024, despite a reduction of A$1.3 billion from the previous quarter due to increased business capital requirements and dividend payments. The APRA Basel III CET1 ratio stood at 12.6%, with liquidity metrics well above regulatory minimums.
The group’s on-market share buyback program, extended for another 12 months, has seen over A$1 billion of shares repurchased at an average price of A$189.80. Regulatory updates include APRA’s planned phase-out of hybrid capital instruments by 2027 and ongoing remediation efforts to strengthen Macquarie Bank Limited’s governance and risk culture.
Outlook: Cautious Optimism Amid Market Uncertainties
Looking ahead, Macquarie adopts a cautious stance, mindful of global economic conditions, inflation, interest rates, and geopolitical risks. The annuity-style businesses are expected to continue growing, supported by digital investments and client engagement, while markets-facing businesses anticipate volatility-driven opportunities despite subdued commodity income. The group’s conservative capital and liquidity management positions it well to navigate the current environment and pursue medium-term growth opportunities.
Bottom Line?
Macquarie’s diverse business model cushions it against commodity market volatility, but investors should watch for evolving market and regulatory dynamics.
Questions in the middle?
- How will ongoing commodity market volatility affect CGM’s performance in upcoming quarters?
- What impact will APRA’s phase-out of hybrid capital instruments have on Macquarie’s capital strategy?
- Can Macquarie sustain growth in its annuity-style businesses amid margin pressures and competitive dynamics?
