Macquarie Group Acknowledges Enforcement Action by APRA
- Macquarie Bank has breached prudential and reporting standards
- Several new mandates will go into effect on 1 April 2021
- Macquarie Bank now has several programs in place to avoid future breaches
Macquarie Group (ASX:MQG) has officially responded to a media release made by the Australian Prudential Regulation Authority (APRA) regarding breaches made by Macquarie Bank. The report was released on 1 April 2021 and details several new mandates that Macquarie Bank will be obliged to follow due to the breaches.
The nature of the breaches relate to Macquarie Bank's incorrect treatment of certain intra-group funding arrangements for the purposes of calculating capital and related entity exposure metrics. APRA also noted multiple breaches of its reporting standards on liquidity between 2018 and 2020.
As a consequence of the breach, Macquarie Bank will be required to hold an additional capital overlay of $500 million. APRA notes that the measure reflects Macquarie Banks' deficiencies in properly managing the operational risks inherent to the bank's intra-group structure. MQG states that the additional capital will be implemented through an increase in Level 1 Risk-Weighted Assets.
APRA also requires that they now add 15 per cent to the net cash outflow component of its Liquidity Coverage Ratio (LCR) calculation and a 1 per cent adjustment to the available stable funding component of its Net Stable Funding Ratio calculation.
These mandates take effect from 1 April 2021, and Macquarie Bank will also have to resubmit and restate certain regulatory returns. MQG has stated they will work with APRA to determine which regulatory returns will need to be restated.
APRA Deputy Chair John Lonsdale expressed disappointment in MQG and stated that for one of the country's largest financial institutions to have committed breaches in this way is unacceptable. Mr Lonsdale went on to warn that alongside the new enforcement actions, Macquarie will now be subject to more intense scrutiny by APRA citing the company's multiple breaches and difficulty complying with regulations. He refused to rule out further action as more information comes to light concerning the cause of the breaches.
In their acknowledgement, MQG highlighted that the breaches are historical and have no impact on the current overall soundness of their capital or liquidity positions. APRA did go on to say that the breaches do however raise serious questions about the bank's ability to accurately calculate and report key prudential ratios as well as their risk management practices.
MQG Managing Director and CEO Shemara Wikramanayake, in response, acknowledged the actions taken by APRA and stated that she shares their disappointment. She recognised that while the historical matters leading to these mandates have been addressed, further work was needed to avoid breaches moving forward. Despite the negative news and the forceful tone of the APRA announcement, Ord Minnett chose to retain its rating of MQG, retaining its “Accumulate’’ rating with a target price of $158.