October 30, 2007 | 12:00am
Fitch Ratings has affirmed the ratings of Macquarie Bank Ltd. (Macquarie) and Macquarie International Finance Ltd. (MIFL), a funding subsidiary of Macquarie.
Macquarie was given a long-term foreign currency Issuer Default Rating (IDR) ‘A+’ with a stable outlook, short-term foreign currency IDR ‘F1’, individual ‘A/B’, Support ‘4’, and Support Rating Floor ‘B+’.
On the other hand, MIFL was given a long-term foreign currency IDR ‘A’ with a stable outlook, short-term foreign currency IDR ‘F1’, individual ‘B/C’ and support ‘2’.
The affirmation of Macquarie’s ratings reflects the bank’s diverse business mix (underpinned by its stable earnings capacity), its prudent management of credit, market and operational risks, and adequate capitalization.
However, the ratings also recognize that the bank seeks to take advantage of suitable opportunities and so cannot be considered risk-averse.
Including asset realizations, which are a key component of Macquarie’s specialist funds business, the bank’s operating profit grew by a strong 53 percent in the financial year ended March 2007 (fiscal year 2007).
After-tax profit was up by 56 percent to A$1.551 billion over the same period.
The strong growth follows Macquarie’s rapid expansion into international markets, which constitutes an increasingly important source of earnings for the group. Funding is suitably structured and well-diversified by source.
The group’s Tier 1 capital ratio was a satisfactory 15 percent, while its Fitch eligible capital ratio was 18.5 percent.
Plans to restructure the Macquarie group under a non-operating holding company (NOHC) are well advanced. Assuming remaining approvals are received within the time frame set out by Macquarie, the restructuring is expected to proceed in mid-November 2007.
Under the proposal, the NOHC would become the listed parent entity of the group, with Macquarie forming a banking subsidiary. Macquarie’s investment banking operations would be transferred to a ‘non-banking’ company in the group.
“Based on information provided by Macquarie, Fitch does not expect the restructuring to have a ratings impact on Macquarie,” noted Tim Roche, associate director in Fitch’s financial institutions group. “However, under the current proposal, the long-term IDR for the NOHC and the ‘non-banking’ subsidiary are expected to be one notch lower at ‘A’.”
Recent problems in the US subprime mortgage market and subsequent global liquidity issues appear to have had a minimal impact on Macquarie — the bank has a relatively low level of exposure to the US subprime market as well as a relatively strong liquidity position.
Also, Macquarie is not a large provider of liquidity facilities to asset backed commercial paper conduit programs. However, Fitch notes that higher interest rates could potentially have a negative impact on Macquarie’s specialist funds business in the medium-term — though the model appears to have withstood the issues thus far.
