Macquarie's shares tumble

Macquarie Bank warned yesterday that investment banking revenues would be significantly lower in the second-half, sending its shares down as much as much as 7.4 per cent - the biggest fall in four years.

The division, which contributed more than half of first-half group operating earnings, has been hit by the absence of large second-half performance fees from its listed investment funds, which have had a sluggish performance against stock indices.

With fee income slowing, Australia's largest investment bank said its fiscal 2006 profit would rise only slightly from last year's record of A$823 million ($906 million).

"They are predicting that profit will be up a bit, whereas the momentum previously was quite strong over several years," said Stuart Smith, a senior client adviser at broker Bell Potter.

Analysts had expected Macquarie to post a net profit of about A$974 million for the year ending March 31, 2006. Shares in Macquarie, which has more than 7200 staff and assets under management of about $A$112 billion, fell A$4.93, or 7.21 per cent, to A$63.45. The stock has fallen about 16 per cent in the four months since September.

"Macquarie has always been treated as a growth bank and their guidance that came out, even though it was strong, was probably disappointing to what the market was chasing," ABN Amro Morgans senior equities adviser Tony Russell said.

Still, there was some possible upside to its forecast for the year from the activities of its specialist investment funds and asset sales, said chief executive Allan Moss, repeating comments from the first-half results in November.

"In this regard, the timing of a few large transactions will have an effect on the full-year result," said the bank, which has extended its acceptance deadline to February 14 for its £1.5 billion ($4 billion) bid for the London Stock Exchange (LSE).

Macquarie manages assets ranging from toll roads, airports, utilities and media firms to property in its funds, drawing management and advisory fees and, depending on how a listed fund performs against a particular stock index, performance fees.

Moss said the short-to-medium-term outlook for its funds and co-investment syndicates was still reasonable, although there had been some softening in markets such as Singapore, where in December it had to postpone a property fund's initial public offering.

"Broadly, soundings with investors indicate a continuing interest and appetite for new products," said Moss, adding the bank would continue the sale of seed fund assets in calendar 2006 and create new funds in Europe, Asia and North America.

Two of the bank's highest-profile managed funds - global toll road owner Macquarie Infrastructure Group and global airport owner Macquarie Airports Group - have both underperformed Australia's main S&P/ASX 200 Index.

"We're not unduly concerned," Moss said.

- REUTERS