One powerful advantage Macquarie Group Ltd has over the 'big four'

No dilutive capital raisings for Macquarie Group Ltd (ASX:MQG) shareholders, thank you very much!

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shareholders in Macquarie Group Ltd (ASX: MQG) are sitting pretty over the latest declaration by the Australian Prudential Regulatory Authority (APRA) that big banks need to hold more capital.

The big four banks, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) are all considering a variety of options including capital raisings and the issue of hybrid securities to fund their capital shortfalls.

A word of warning for investors: Many ordinary bank shares are actually offering a yield higher than that typically paid out for hybrid securities – and that's before the risks of owning hybrids are taken into account.

Macquarie investors are likely to avoid that situation entirely however, with the bank announcing yesterday that increased capital requirements would be met internally without any need for fundraising.

As a caveat, the bank mentioned that any 'significant, one-off acquisitions' – like the recent purchase of a fleet of aircraft – would have to be met through a capital raising at the time they occur.

This means Macquarie Group investors may expect to avoid earnings dilution from capital increases, a dilution that big four shareholders are yet to face. With investor lending slowing and a weak outlook for consumer credit thanks to weaker wage growth and persistent low sentiment, the big four banks could be looking at an earnings peak sooner rather than later.

Meanwhile, in the same announcement yesterday, Macquarie delivered an earnings upgrade. Instead of expecting profit to be 'slightly up' (thanks to a lower tax rate), it looks as though profit will now simply be 'up' on 2015 – no doubt thanks to actual earnings growth.

These two benefits combined make Macquarie Group my favourite pick in Australia's banking sector right now, but it's far from the top of my 'Buy' list.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »