Macquarie warns of US recession as energy hedges drive up profits

Australia’s largest investment bank expects a recession in the US and headwinds in Europe from inflation and the energy crisis, as it profited from volatility in global energy markets.

Macquarie Group said on Friday its energy and commodities business drove revenue in the first six months of its financial year ending next March as its clients sought to hedge their exposure to gas, power, oil and minerals prices, which have been hit by the war in Ukraine.

The financial services company said net operating income rose 11 per cent year on year to A$8.6bn ($5.6bn) during the six months up to September, while pre-tax profit grew 11 per cent to A$3bn. 

However, Macquarie maintained a cautious view after warning in May of a “very uncertain” outlook for the year.

Shemara Wikramanayake, chief executive of the group, told the Financial Times that the US would probably dip into a short recession, which would be preferable to a situation in which prolonged stagflation dragged down the country. Macquarie derived 38 per cent of its revenue from North America in the first half.

She was less phlegmatic on Europe, where “supply side issues are more difficult to manage than the interest rates rises on the demand side”. The energy crisis and rampant inflation, as well as political instability in some markets, have led to a grim outlook for Europe’s economy.

Wikramanayake said Europe had responded well to its energy crisis but “consumers are going through a lot of pain”.

In the UK, Macquarie is leading the £4.2bn acquisition of National Grid’s electricity transmission network which faces a national interest test at a time of political instability.

Wikramanayake said she hoped that politicians “across the spectrum” would recognise the benefits of a large deployment of capital in Britain’s energy market.

“We’ve found it a very good place to do business,” she said of the UK, where Macquarie has been an active buyer of infrastructure assets in the water, energy and telecom markets.

Macquarie has A$30bn worth of “dry powder” available, but Wikramanayake stopped short of saying the bank would increase the rate of its acquisition activity.

“We don’t know how the cycle will play out,” she said when asked about whether its asset management operations would look to acquire infrastructure assets during the downturn.

The strength of its commodities business shielded the wider group from a slowdown in its dealmaking advisory business, with a drop in fees reflecting lower capital-raising by its clients as interest rates have risen. Earnings at Macquarie Capital dropped 12 per cent compared with the same period a year earlier.

Wikramanayake said she expected a “subdued” market until the end of the bank’s financial year in March.

Macquarie shares added 4 per cent in early trading but closed flat on Friday at A$166.50.