Business Context and Reporting Period
Company: Macro Bank Inc. (Banco Macro S.A.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2014
Filing Date: May 19, 2014
Business Overview: A commercial bank authorized by the Central Bank of Argentina (BCRA), operating primarily in regional areas outside Buenos Aires. The bank offers traditional banking products to companies and individuals and operates through subsidiaries including Banco del Tucumán S.A. and Macro Bank Limited.
Key Financial Metrics (Stand-Alone)
Figures in thousands of Argentine Pesos (ARS), unless otherwise noted.
| Metric | Q1 2014 | Q1 2013 | Dec 31, 2013 |
|---|---|---|---|
| Total Assets | 61,913,704 | N/A | 53,903,954 |
| Total Liabilities | 52,099,935 | N/A | 45,276,523 |
| Shareholders' Equity | 9,813,769 | N/A | 8,627,431 |
| Net Income | 1,186,338 | 457,925 | N/A |
| Gross Intermediation Margin | 2,205,090 | 1,046,716 | N/A |
| Provision for Loan Losses | 120,355 | 120,924 | N/A |
| Cash and Cash Equivalents | 9,732,376 | 9,082,167 | 11,249,840 |
| Net Cash Flow (Operating) | (2,515,181) | 242,992 | N/A |
Material Changes vs. Prior Period
- Profitability Surge: Net income for Q1 2014 increased significantly to 1,186,338 (thousands ARS) compared to 457,925 in Q1 2013, representing a 159% year-over-year increase.
- Revenue Growth: Financial income rose to 3,558,682 from 1,865,947 in the prior year period. This was driven largely by a 564% increase in "Difference in quoted prices of gold and foreign currency" (599,417 vs. 90,039) and a 85% increase in interest on credit card loans.
- Expense Increases: Financial expenses increased to 1,353,592 from 819,231, primarily due to higher interest on time deposits (1,045,094 vs. 621,628). Administrative expenses also rose to 1,119,879 from 803,008, with personnel expenses increasing by 31%.
- Balance Sheet Expansion: Total assets grew by approximately 15% from year-end 2013 to March 31, 2014. Loans to the non-financial private sector increased, particularly in credit cards and personal loans.
- Cash Flow: Operating cash flows turned negative at (2,515,181) in Q1 2014, compared to positive 242,992 in Q1 2013, largely due to net payments for government and private securities and other receivables from financial intermediation.
Guidance, Outlook, Risks, and Contingencies
- Macroeconomic Environment: Management notes uncertainty due to contractions in growth levels, volatility in financial assets, and the foreign exchange market. Specifically, there was a strong appreciation of foreign currency and a rise in interest rates in Q1 2014.
- Regulatory Changes: The bank is adapting to a new Capital Markets Law enforced in late 2012 and subsequent regulations (CNV General Resolution No. 622), which are undergoing gradual implementation.
- Legal and Tax Contingencies:
- Tax Claims: Ongoing disputes with AFIP and City of Buenos Aires tax authorities regarding income tax and turnover tax for prior years. Management believes no additional significant effects beyond recognized amounts are expected.
- Consumer Lawsuits: A settlement regarding "life insurance" charges was reached in 2010, but a judge ordered an adjustment in 2013 which the bank appealed. Other consumer association claims are pending.
- Central Bank Proceedings: The bank and its directors have been notified of financial and exchange proceedings by the Central Bank and the Financial Information Unit (UIF) related to regulatory breaches by customers. These are being challenged.
- Accounting Standards: Financial statements are prepared under BCRA rules, which differ from Argentine professional accounting standards (FACPCE) regarding valuation of government securities, business combinations, and deferred taxes. A qualified opinion was issued on the 2013 audit due to these differences.
Investor Verification Checklist
- Currency Volatility Impact: Verify the sustainability of the high income derived from "Difference in quoted prices of gold and foreign currency" given the noted volatility in the Argentine exchange market.
- Deposit Cost Structure: Analyze the rising cost of funds, specifically the sharp increase in interest paid on time deposits, and its impact on future net interest margins.
- Regulatory Compliance: Monitor the status of the Central Bank and UIF proceedings and the potential for fines or operational restrictions.
- Accounting Adjustments: Review Note 5 to understand the quantitative differences between BCRA reporting and standard Argentine accounting principles, particularly regarding deferred taxes and goodwill amortization.
- Liquidity Position: Assess the negative operating cash flow in Q1 2014 and the bank's reliance on securities and Central Bank instruments to maintain liquidity.