Macquarie (ASX: MQG) share price jumped on Friday even after the Australian financial giant published weak results. The stock rose by over 1.80% to trade at A$163.25. It still remains about 14.5% below the highest point in 2023.
Lowest profits and dividend cutMacquarie, Australia’s biggest investment bank and asset manager, is not doing well as interest rates in the country and abroad remain quite restrictive. This view was confirmed by the company’s lackluster earnings, which showed that its profits were falling rapidly.
A look at its segments shows that most of them underperformed in the first half of the year. Macquarie Asset Management’s operating income dropped to A1.6 billion as its assets under management rose by just 2% to $a892 billion.
Its banking and financial services operating income rose by 13% to $A1.6 billion, helped by rising interest rates. Further, its Commodities and Global Markets operating income fell by 10% to $A2.9 billion while Macquarie Capital’s income dropped by 5%.
Despite the weak performance, the company decided to increase its on-market share buyback program. It has already bought back stock worth over $A10 billion and now intends to repurchase an additional $A2 billion. But most importantly, the management decided to cut its dividend to $A2.55.
Macquarie’s business is going through unique challenges. While high-interest rates help its banking operations, they also have an impact on its investment banking division. For one, the M&A industry has been going through a rough patch.
While high rates are positive for banking, at times, they can have some challenges. For example, higher yields have seen customers move from cash accounts to higher-yielding money market funds.
Higher rates also have a negative impact on the asset management and commodities market. We have seen other asset managements like Blackrock and Brookfield publish weak results recently.
Further, Macquarie is heavily invested in clean energy, an industry that has come under intense pressure in the past few months. In a note, analysts at Citi said:
“The miss on revenue in MAM [Macquarie Asset Management], as well as the softer outlook revenue expectations for MAM … speaks to a softer environment for asset [sales] and deal flow broadly.”
Macquarie share price outlook
The daily chart shows that the MQG stock price has been under pressure in the past few months. It has already dropped from the YTD high of $190 to a low of $155. It recently dropped below the key support level at $162.73, the lowest swing on March 27th.
Macquarie shares remain below the 50-day and 25-day moving averages while the Relative Strength Index (RSI) is pointing upwards. While the stock has formed a bullish engulfing pattern, the outlook is still bearish as its business goes through a challenging period. If this happens, the shares will likely drop and retest the support at $150.
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