The Macquarie Group Ltd (ASX: MQG) share price is sinking today. The negative movement comes after the Australian Prudential Regulatory Authority (APRA) found Macquarie Bank breached certain regulations.
At the time of writing, shares in the financial giant were trading for $151.08 – down 1.15%. By comparison, the S&P/ASX 200 Index (ASX: XJO) is up 0.41%.
Let's take a closer look at APRA's announcement.
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Macquarie share price down after APRA crackdown
The banking regulator found between the years of 2018 and 2020, Macquarie Bank committed multiple breaches of APRA prudential and reporting standards.
The bank was found to have committed multiple breaches on liquidity reporting and funding arrangements within companies in the group "for the purposes of calculating capital and related entity exposure metrics."
APRA did point to the fact the breaches are historical and "do not impact on the current overall soundness of Macquarie Group's capital or liquidity positions." Yet, the regulator says the infringements raise "serious questions" about risk management practice at the bank. Risk is an important factor when investors decide if the Macquarie share price stacks up.
APRA will now increase Macquarie Bank's liquidity and operational risk capital requirements. Specifically, APRA will now require the bank:
- To hold a capital overlay of $500 million.
- Add 15% to its cash flow when calculating its liquidity coverage ratio.
- Make a 1% adjustment to the available stable funding component when calculating its net stable funding ratio.
The regulations take effect from today. Macquarie will also have to resubmit and restate regulatory forms to APRA.
Statement by both parties
APRA Deputy Chair John Lonsdale did not mince his words when commenting on today's action.
APRA's legally-binding prudential and reporting standards play an essential role in enabling APRA to adequately monitor risks to financial safety and stability. For one of the country's largest financial institutions to have committed breaches of this nature is disappointing and unacceptable.
He added:
Alongside the enforcement actions, APRA will subject Macquarie Bank to intensified supervision to address the bank's persistent difficulties in complying with its prudential obligations. We cannot rule out further action as more information comes to light about the root causes of these breaches.
Macquarie Group said in a statement today it has systems in place to avoid a repeat of today's actions:
Macquarie has a number of programs in place to strengthen capital and liquidity reporting and its risk management framework. These ongoing programs will further assist in addressing issues and improvements going forward.
Macquarie Group Managing Director and CEO, Shemara Wikramanayake, said:
We note the actions announced by APRA and share their disappointment. [The Bank] recognises that while specific historical matters leading to these actions have been addressed, we have continued work to strengthen our operating platform and risk governance. We will work with APRA through a period of intensified supervision to advance this work as quickly as possible.
Macquarie Group share price snapshot
Over the past 12 months, the Macquarie share price has increased by 69.11%. The financial group hit its 52-week record only a few days ago.
The company's value shot up 7% on the release of its half-year results for FY21.
At its current level, Macquarie Group has a market capitalisation of $54.6 billion.
