Macquarie Group Ltd (ASX: MQG) is one of the largest ASX bank stocks and may be one of the best to consider, in my opinion.
ASX investors have numerous banks and lenders to choose from including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), Bank of Queensland Ltd (ASX: BOQ), Pepper Money Ltd (ASX: PPM), Bendigo and Adelaide Bank Ltd (ASX: BEN), Mystate Ltd (ASX: MYS) and AMP Ltd (ASX: AMP).
With all of that choice, there are a couple of crucial reasons why I'd buy Macquarie shares over the others.
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Geographic diversification
One of my major misgivings about the above ASX bank shares I mentioned is that almost all of their earnings come from Australia and New Zealand.
Banks are seeing an uptick in their arrears amid the inflation and high cost-of-living environment. For example, in the CBA FY24 third-quarter update, it said its arrears of home loans that were overdue for more than 90 days had increased to 0.61% at 31 March 20, up from 0.44% at March 2023.
With ASX bank stock loans heavily concentrated on the Australian loan system, most of their eggs are in one local economic basket. I don't think that provides enough diversification.
Macquarie, on the other hand, generates around two-thirds of its earnings internationally. The global investment bank can invest in whichever region it sees the best chance of making long-term returns.
Earnings diversification
As I've mentioned, the domestic ASX bank stocks are predominately focused on providing loans to households and businesses in Australia and New Zealand.
Macquarie has very diversified operations, with an asset management division, a banking and financial services (BFS) segment, an investment banking division (Macquarie Capital) and the commodities and global markets (CGM) division.
Macquarie has deliberately grown its Australian banking division, capturing market share from the other ASX bank stocks. However, pleasingly, the company's other segments can provide significantly differentiated earnings compared to banks like CBA and Westpac.
The Macquarie Asset Management (MAM) division delivers broadly consistent base management fees, providing the parent company with annuity-style revenue and earnings.
Macquarie is able to capitalise on market or energy volatility with CGM when prices move significantly.
The investment banking side of the business is adept at making good returns during most normal (or buoyant) economic conditions.
Macquarie has utilised this multi-divisional approach to great use over the past decade. It has grown significantly in the Americas, Europe and Asia, unlocking earnings growth. Despite FY24 being a tough year, it made $6.7 billion in net profit across the four main divisions.
The Macquarie annual dividend has been hiked by approximately 150% in the past decade, demonstrating its ability to grow and deliver for shareholders. Meanwhile, the Westpac annual dividend is currently smaller than it was a decade ago.
Is the Macquarie share price a buy?
I wouldn't call Macquarie shares cheap after gaining more than 10% in the past six months. But, I believe its earnings can compound at a stronger rate than the domestic ASX bank stocks thanks to its global operations. I'd much rather own Macquarie than any of the other banks for a long-term investment.
It's valued at 17x FY27's projected earnings, according to estimates by broker UBS.
