Macquarie's forecast falls short

CANBERRA - Macquarie Group, Australia's largest investment bank, fell the most in more than eight months in Sydney trading after its forecast for second-half profit failed to match analyst estimates.

Shares dropped 6.6 per cent after Macquarie said net income in the six months to March 31 might climb 10 per cent from the first half. That indicates second-half profit of A$526.9 million ($665 million), below the A$586 million average estimate of three analysts surveyed by Bloomberg.

"Some investors were looking for a greater upgrade, so on a short-term basis are happy to close out positions," said Angus Gluskie at White Funds Management in Sydney.

Australian financial companies such as Commonwealth Bank of Australia and Axa Asia Pacific Holdings have reported profits that beat analyst estimates as markets and economies recover from the global financial crisis. Macquarie stock more than doubled in the past year as the credit squeeze eased.

Macquarie, which earned A$479 million in the first half, said its forecast was "subject to market conditions, significant swing factors and unexpected one-off items".

The shares tumbled to A$47.07 during trading, posting their biggest percentage drop since May. They closed at A$47.28, down A$3.07.

Macquarie, with capital of A$4.5 billion above the regulatory minimum at the end of December, said the completion of acquisitions would add to services on offer worldwide, without detailing any earnings contributions.

Chief executive Nicholas Moore spent more than US$770 million ($1.12 billion) on acquisitions last year in North America, ranging from energy advisory and asset management units to brokerages.

"There's a fair bit more to come," said Hugh Dive at Investors Mutual in Sydney.

Moore is performing a "balancing act" between buying assets and keeping a capital cushion against volatility, said Dive.

Macquarie last week agreed to buy the equity trading and research operations of Sal Oppenheim Jnr & Cie to expand its business in Europe, following a December agreement to purchase the company's derivatives business.

"I am not ruling out any acquisitions, but in terms of normal trends, you'd expect those to be going back to normal rates as markets settle down," Moore said on a call with investors yesterday.

"We have sufficient capital for the plans we are working on at the moment."

Profit at Macquarie may almost double in the next two years as takeovers pay off and fees swell from advising on mergers and acquisitions, Bank of America Merrill Lynch said in a January 28 report. Macquarie Capital, which arranges debt and equity sales and gives corporate advice, will drive growth, Bank of America said.

Moore said yesterday that the operating result at that unit in the three months ended December fell from the previous quarter, although beat that of the three months ended June.

That matched the trend at the securities division, the corporate and asset finance business, and the fixed-income, currencies and commodities division, he said.

In Australia, where Macquarie makes about half its profit, the benchmark S&P/ASX 200 has climbed for three consecutive quarters.

If that trend continues, companies are more likely to attempt takeovers, boosting earnings at the banks advising on the deals, said Peter Swan, finance professor at the Australia School of Business at the University of New South Wales.

"There's always a cyclical effect," said Swan.

"M&A is much more successful when investors are more optimistic," he said. "That's what Macquarie is relying on."

- BLOOMBERG