Macquarie must balance leverage, liquidity and capital adequacy requirements as it seeks to boost return on equity, profitability and shareholder returns.
Macquarie Bank’s rising leverage revealed on Thursday shows how it can still drive profits by lending out as much as it possibly can on a risk-adjusted basis.
Under APRA’s guidelines internal ratings based authorised deposit taking institutions like Macquarie may calculate leverage by dividing tier one capital against total credit exposures - including on and off-balance sheet, derivatives, and securities financing transaction exposures. Other assets included in the calculation were risk-adjusted loans to retail SMEs at $2.5 billion, bank loans at $1.7 billion, SME corporates at $4.5 billion, and sovereign credit exposures at $3.5 billion.However, the risk-weightings of loans is not an exact science and can be adjusted under advanced approaches reflecting market, operational, securitisation and counterparty risks, among others, in a complex process.
As at March 31, Macquarie’s total net tier one capital is made up by $9.5 billion in share capital and $7.9 billion in retained earnings, which after adjustments equalled $14.98 billion in retained capital. The different examples show how regulation means if Macquarie wants to grow its corporate or residential loan book it requires potentially billions of dollars in more capital.it increased to a tick under $90 billion in the year to March 31
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