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Global ratings agency Fitch Ratings has downgraded Macquarie Group (ASX:MQG).
The Sydney-based merchant banking powerhouse, known as The Millionaires Factory, has been pulled down a peg as part of the agency's review of the world's largest financial institutions.
Macquarie Group Limited had its long-term issuer default rating downgraded from ‘A’ to 'A-’ but was removed from Rating Watch Negative (RWN) to be deemed as having a stable outlook. Its viability rating was also downgraded to 'A-' from 'A' but that indicator was removed from RWN.
Macquarie Bank Limited had its long-term issuer default rating downgraded from ‘A+’ to 'A’ but was removed from RWN to stable outlook. Its viability rating was also downgraded to 'a' from 'A+', but was removed from RWN. See more.
The downgrades were due to the market-oriented nature of Macquarie's businesses, plus the group's reliance on wholesale funding, Fitch says.
"An uncertain global economic environment and increasing regulation mean that absolute returns from these businesses are likely to be subdued relative to pre-2008 levels in the short to medium term," Fitch’s statement says.
"Also, market-oriented businesses have a more volatile earnings profile than traditional commercial banking businesses."
Macquarie's market-oriented businesses are client-focused, with only modest proprietary trading exposures, which offset some of the noted risks, Fitch says.
“The group has also been proactive in addressing the changing operating environment and regulatory issues, exiting a number of businesses, reducing costs and undertaking capital efficiency initiatives.”
Fitch's review of global banking institutions saw credit ratings for Commonwealth Bank, Westpac and National Australia Bank all drop in February.