Macquarie chief downplays lower rating

Moody’s Investors Service has downgraded the Macquarie Group today, but Macquarie’s chief financial officer has downplayed the impact of the re-rating.

Moody’s downgraded the senior unsecured debt rating of Macquarie Group (ASX: MQG) from A2 to A3, and its short-term rating from Prime-1 to Prime-2. The senior unsecured debt rating of Macquarie Bank (ASX: MBL) was downgraded from A1 to A2.

The stand-alone bank financial strength rating of Macquarie Bank was downgraded from C+ to C-, which equates to Baa1 on the long-term scale – down from A2.

The long- and short-term issuer ratings of Macquarie Financial Holdings Limited (ASX:MFHL) were downgraded from A2/Prime-1 to A3/Prime-2.

In a statement, Moody’s says economic weakness, the high cost of wholesale funding, fragility of confidence, deleveraging and increased regulatory burdens will continue to dampen the profitability of many financial services.

“Today’s rating actions reflect ongoing earnings challenges for Macquarie and the evolution of its business model against the backdrop of protracted weakness in financial markets,” says Patrick Winsbury, a Moody’s senior vice-president. “The actions come as part of a global sector review of banks and securities firms with capital markets operations.”

On the upside, Moody’s believes Macquarie has low exposure to euro-area risks and says regulatory and political framework in Australia will to continue to be favourable for bank creditors, but even if operating conditions improve markedly, the prospect of an upgrade is remote if Macquarie retains its current business mix.

Responding with his own statement, Macquarie’s chief financial officer, Patrick Upfold, says: “Moody’s A2 rating of Macquarie Bank Limited is in line with the ‘A’ rating assigned by Fitch Ratings earlier this week and Standard & Poor’s longstanding ‘A’ rating. MBL is the entity that funds the vast majority of the group’s activities.”

“Following the conclusion of these extensive industry reviews by the three major credit ratings agencies, Macquarie Bank Limited’s strong capital, funding and liquidity positions, together with its risk management track record, has been recognised by it being rated ‘A’ across the board,” says Upfold.

Macquarie picked up and republished two of Moody’s positive statements: “Macquarie has also been quick to seize opportunities afforded by the crisis, and increased investment in businesses, such as funds management, that have the potential to generate smoother revenue streams.

“It had very low exposure to stressed asset classes during the financial crisis in 2008/09. Additionally, its earnings are more stable since proprietary trading is not a core activity. Macquarie’s liquidity and capital metrics are also at the upper end of its peer group.”