Investment bank in lush clover

SYDNEY - Australia's Macquarie Bank posted a 78 per cent jump in second-half profit on buoyant fee income, and forecast 2006 earnings ahead of analysts' expectations if soft sharemarkets recover.

Shares in the country's biggest investment bank jumped A$1.80, or 3.75 per cent, yesterday to an eight-week high of A$49.80 on the back of the result, a better-than-expected dividend and a special dividend for a one-off gain from a property merger.

Macquarie's full-year profit before a A$91 million gain from the formation of the Macquarie Goodman Group in January rose 48 per cent to A$732 million.

Macquarie said in February that it expected its annual net profit to rise at least 40 per cent.

Full-year net profit, including the one-off property merger gain, rose 67 per cent to A$823 million.

"It is a good-quality result. They generally err on the side of caution when it comes to guiding," said Jack Chemello, an analyst at fund manager BT Financial.

"But the reality is they don't have a crystal ball either, so if the markets keep deteriorating, as they have for the last month or two, then obviously the earnings from their businesses that are sensitive to those markets will deteriorate as well."

Macquarie, which has 6560 staff and operates in more than 20 countries, forecast that 2006 profits would equal this year's, subject to "swing factors" such as the performance fees it receives from the investment funds it manages, market conditions and asset sales.

"We note that equity market conditions have recently softened and we may not achieve this outcome if this softening is sustained," said chief executive Allan Moss, whose total remuneration rose 46 per cent to A$18.55 million this year.

Net profit before the A$91 million gain from the formation of Macquarie Goodman climbed to A$448 million for the six months to March 31, from A$252 million a year earlier. A Reuters poll had the average of seven analysts' forecasts at A$416 million.

The forecast for a flat fiscal 2006 result is above five analysts' forecasts for net profit before one-off items of A$681 million to A$707 million.

Macquarie, dubbed the "millionaires factory" because of the rewards it pays its deal-makers and traders, manages about A$89 billion of assets worldwide, ranging from airports, toll roads, utilities, rest-homes and property to radio stations.

Some of those assets have been bundled into listed vehicles such as Macquarie Airports and Macquarie Infrastructure, from which the bank draws management and performance fees. It also spreads the risk among other investors.

Assets under management in its property and infrastructure funds soared 77 per cent to $46 billion.

"It would be optimistic to expect that rate would continue indefinitely, but everything really depends on finding quality assets," Moss said.

The bank, which earns about 37 per cent of its income overseas, is also expanding its profitable equities products, research and corporate advice business, Macquarie Securities, in Asia after buying it from Dutch group ING last year.

Moss said Macquarie Securities Asia had roughly doubled its market share and was ranked about 10th in the region.

The bank was also upbeat about overseas income growth.

"International income could in fact become the majority of income in the bank over the next few years, given the progress we are making around the world," said Moss.

All business groups within the bank made "record contributions" to the fiscal 2005 result, with full-year profit in the deal-making part of the business, the investment banking group, soaring 73 per cent over the previous year.

Investment banking accounted for half of the result.

According to Thomson Financial, Macquarie was the top mergers and acquisitions adviser in Australia for completed deals in the first quarter of 2005, advising on nine deals valued at US$7.58 billion.

- REUTERS