Fitch Ratings has put Australian banking giant, Macquarie Group Ltd., and its Australian subsidiaries, on rating watch negative, citing the challenges facing banks generally.
The rating agency says that the move stems from its broad review of the largest banking institutions in the world, and follows the announcement of a similar review of Australia’s four major banks. “The review of [Macquarie] has been prompted in part by challenges facing financial institutions globally, in particular those that are more exposed to market-oriented income,” Fitch says, adding that its action is not tied to any specific earnings or capital information about the firm.
Indeed, it notes that Macquarie maintains a liquid balance sheet, and its asset quality, capital and exposure to market risk continue to compare favourably with other large global trading and universal banks. Also, Macquarie’s focus is on facilitating client transactions rather than transacting on its own account, which reduces the group’s exposure to market risk.
However, Fitch also points out that three of the firm’s six divisions (Macquarie Capital, Macquarie Securities, and fixed income, commodities and currencies) are market-oriented, which adds volatility to the group’s earnings not normally seen in more traditional commercial banks.
Macquarie’s three other divisions (Macquarie Funds Group, corporate and asset finance, and banking and financial services) exhibit less earnings volatility and have grown in recent years, it adds.
In addition to reviewing potential earnings volatility, Fitch will examine what, if any, impact the subdued environment for market-oriented businesses globally may have on investor sentiment towards Macquarie. The firm’s use of wholesale funding will also be taken into consideration.
Fitch says it expects to resolve the rating watch within a short time, and that any downgrades are most likely to be limited to one notch.