Our home-grown ASX investment bank is in the hotseat this morning. The Macquarie Group Ltd (ASX: MQG) share price will be under the spotlight as it handed in its quarterly update.
The stock could come under pressure as its reputation for "under promising and over delivering" comes back to bite it in the posterior.
Management said that trading conditions in the December quarter were "satisfactory" and investors should be relieved that there weren't any hidden nasties. Just look at the profit downgrades from Cochlear Limited (ASX: COH) and Boral Limited (ASX: BLD), just to name a few.
No upgrade could disappoint
But Macquarie has trained investors to always expect more. This may be the Achilles' heel in the update as management held its full year guidance by confirming that the group's results will be slightly down from FY19.
Those predicting a better than expected result (and there are a few out there) would be disappointed.
What's more, there's plenty of room for the stock to retreat given that the Macquarie share price rallied 20% over the past year when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is lagging with a 16% increase.
Growth in recurring revenues
The gain makes Macquarie one of the best large cap performers in the financial sector. Not even Commonwealth Bank of Australia's (ASX: CBA) share price could match as it gained 14% over the period.
The good news is that Macquarie's annuity-style businesses are gaining ground. Earnings from these divisions are highly prized as they will smooth out the lumpiness that's inherent in investment banking and capital markets.
Winning market share
The recurring revenue businesses include Macquarie Asset Management (MAM) and Banking and Financial Services (BFS). MAM's assets under management (AUM) increased 5% in the December quarter over 30 September 2019 to $587.5 million.
Meanwhile, total deposits for BFS improved 3% over the same periods to $57.7 billion. What's more pleasing is that its Australian mortgage portfolio jumped 11% to $48.6 billion – indicating that Macquarie is taking market share (probably from the big four).
Lack of big transactions
However, the Macquarie Capital business lagged significantly. The business completed 109 transactions globally to the tune of $76.4 billion. That may be up from the previous quarter but is behind what it did during the same three months in 2018, which benefited from several large transactions including Quadrant and PEXA.
Macquarie's chief executive Shemara Wikramanayake is reassuring investors that the group continues to be well placed to "deliver superior performance over the medium-term".
Given the bank's track record, few would argue with that.
