Why I’d buy MQG shares before CBA shares

Out of all ASX 200 (ASX: XJO) bank shares, I think Macquarie Group Ltd (ASX: MQG) shares are much more attractive. Let me explain…

Macquarie (MQG) is one of the biggest businesses on the ASX. It’s almost as big as some of the biggest banks like Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA).

Editor’s note: Macquarie is a key holding inside many popular ASX shares ETFs like Vanguard Australian Shares ETF (ASX: VAS), Betashares Australia 200 ETF (ASX: A200) and VanEck Australian Banks ETF (ASX: MVB).

When looking at the different banks, I think Macquarie would be the clear winner to get into a share portfolio.

Why the Macquarie share price is tempting

What I like about the global investment bank compared to other banks is that it’s much more diverse within its operations.

CBA, NAB, Westpac and ANZ largely make their profits from lending. A big chunk of that lending is to Aussie (and New Zealand) households for their mortgage needs. The property market has been a strong performer over the last decade, which has been a very useful tailwind. However, it seems a bit risky for the big banks to have nearly all of their eggs in one basket.

Macquarie does have a banking division, it’s one of the largest outside of the big four. It can benefit from rising interest margins as central banks hike interest rates to tackle inflation. Macquarie’s lending has grown strongly over the past couple of years.

However, I like that Macquarie can generate earnings with all of its other divisions.

It has a huge asset management division. At 30 June 2022, it had $773.9 billion of assets under management (AUM). The great thing about this is that it generates consistent management fees, providing stability for the earnings.

Macquarie also has Macquarie Capital, the ‘investment bank’ bit of the business. While earnings here can be variable, it gives Macquarie earnings diversification by earnings type and geographically.

Another segment is called commodities and global markets (CGM). Again, the earnings here can be volatile, but Macquarie can profit from different parts of the global markets.

Impressively, the business recently reported that its earnings had grown again in the first quarter of FY23, meaning that it’s outperforming a number of other investment banks which are finding things tougher in the current environment. I appreciate that the bank is being conservative with its balance sheet in the current climate as well.

Final thoughts on the MQG share price

Looking at the current Macquarie share price, it’s valued at 16 times the estimated earnings for FY23 and 15 times the estimated earnings for FY24. That’s not exactly cheap, even though Macquarie shares have fallen almost 20% in 2022.

However, I think the diversification that Macquarie shares offer and the growth it could achieve over the years make it seem like the better pick compared to other big ASX 200 bank shares.

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