Moody's affirms Macquarie's ratings and stable outlook.
Moody's Investors Service has today affirmed the
A3 long-term senior unsecured debt rating of Macquarie Group Limited
(MGL). It has also affirmed the A2 long-term senior unsecured debt rating
of Macquarie Bank Limited (MBL) and the A3 long-term issuer rating of
Macquarie Financial Holdings Limited (MFHL). The outlook on ratings
assigned to MGL, MBL and MFHL (collectively Macquarie) remains stable.
A full list of the affected ratings can be found at the end of this press
"The rating affirmation reflects Macquarie's progress in orienting its
operations towards lines of business that have historically been
relatively more stable. However, the firm remains reliant on capital
markets activities for a meaningful portion of firm-wide profits," says
Ilya Serov, a Moody's Senior Credit Officer.
"While the recent performance of Macquarie's capital markets businesses
has improved, they remain subject to a variety of earnings pressures.
Furthermore, the firm's opportunistic approach to business strategy could
result in a reversal of these trends if management identified new
business opportunities in capital markets that it considered to be more
favourable", Serov adds.
In Moody's view, Macquarie's shock-absorbing capacity has been
strengthening, reflecting the rising contribution of earnings sources
that have historically been more stable for Macquarie -- such as
Macquarie Funds Group, asset finance and its traditional banking
businesses -- which offsets the inherent volatility of its capital
market-facing operations. "In addition, Macquarie's risk appetite in
capital markets appears contained: its trading revenues, while weighted
toward the commodities business, have historically been less volatile
than trading revenues at other capital markets firms", says Serov.
Macquarie's ratings also reflect its resilient balance sheet. The firm
has historically maintained a cautious approach to its liquidity policy,
ensuring it is able to meet all of its obligations for a period of 12
months, assuming no access to new funding sources and substantial
Macquarie has also run significant capital buffers. As at March 2014, MBL
reported a Basel III Common Equity Tier 1 of 9.6%, calculated in
accordance with Australian Prudential Regulation Authority's standards,
and 11.4% on a Basel III internationally harmonised basis. For its
non-bank operations, Macquarie holds additional capital calculated on the
basis of an economic capital adequacy model, reviewed by APRA. On an
overall group basis, MGL maintains a surplus to minimum capital
requirements of AUD 1.75 billion, a decline from AUD 2.1 billion recorded
in September 2013, primarily due to the in-specie distribution of its
stake in Sydney Airport.
"We continue to regard Macquarie's balance sheet position as a central
support to its credit profile and a strength relative to its peers", says
Serov. "However, we note that the rapid growth of longer-dated and
funding-intensive products could, if unchecked, stretch the firm's
"Equally, the trend toward smaller capital and liquidity cushions would
be detrimental to the firm's manoeuvrability. How Macquarie chooses to
deploy its balance sheet as its business model evolves is a key credit
consideration", Serov adds.
In Moody's view while Macquarie's increasingly diverse business profile
and ability to respond swiftly to market opportunities have benefited the
firm in the past, it has come at the expense of growing complexity and
elevated risk management challenges.
Moody's notes Macquarie's well-embedded risk culture, as well as the
discipline displayed by the firm with regard recent acquisition bids
where Macquarie was ultimately an unsuccessful under-bidder. However,
Macquarie also retains vulnerabilities associated with its capital
markets businesses, such as the confidence-sensitivity of its customers,
a high degree of interconnectedness, and opaque and rapidly changing risk
"Although Macquarie's risk challenges are considerable, particularly as
the group grows larger or pursues further opportunities to grow by
acquisition, its track record and its ability to limit earnings
volatility are an important support to its current rating,", says Serov.
Moody's believes the regulatory and political framework in Australia will
continue to be favorable to the interests of bank creditors. Accordingly,
the A2 senior debt rating of MBL incorporates two notches of uplift,
relative to its baseline credit assessment of B1. This reflects the
systemic support the bank is likely to receive, in case of need, as a
consequence of its significant presence in Australia's financial markets
and its deposit base, whose size is on par with Australia's regional
banks. The A3 debt ratings of MGL and MFHL also incorporate uplifts from
this systemic support, in recognition of their close operational
relationship with the bank.
Copyright EMBIN (Emerging Markets Business Information News) Provided by SyndiGate Media Inc. ( Syndigate.info ).
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|Publication:||EMBIN (Emerging Markets Business Information News)|
|Date:||May 28, 2014|
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