Fitch Ratings has downgraded Macquarie Group after a global review of banking institutions.
The ratings house said that Macquarie Group has exposure to a number of market-oriented businesses, and that uncertain global economic conditions and increased regulation meant absolute returns would remain subdued compared with pre-2008 levels.
In addition, Fitch said Macquarie relied more heavily on wholesale funding more than its peers, a source of funding that has become increasingly volatile due to swings in investor confidence.
"Although MGL manages this exposure well, with a conservative liquidity policy and limited use of short-term wholesale funding, in Fitch's view this reliance, when combined with a more volatile earnings profile relative to that of commercial banks, is better reflected at the new rating levels," Fitch said.
Fitch dropped the 'long-term issuer default' rating of Macquarie Group and its subsidiaries, including Macquarie Bank, by one notch. However, a rating watch negative that had been placed on MGL was removed, with Fitch replacing this with a 'stable outlook for long-term IDRs.
Fitch acknowledged mitigating factors in its decision, including Macquarie's market-oriented businesses being client focused with only modest trading exposures, being proactive in addressing a changing landscape through exiting a number of businesses, as well as increasing capital efficiency.
The global review of banking institutions was prompted by the challenges facing financial institutions globally, in particular those that are more exposed to market- oriented income.
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