Oct. 30 (Bloomberg) -- Macquarie Group Ltd. said first-half profit fell 21 percent and its flagship road fund will split in two as Chief Executive Officer Nicholas Moore overhauls investment vehicles after writing down their value.

Net income dropped to A$479 million ($439 million) in the six months ended Sept. 30 from A$604 million a year ago, Australia’s largest investment bank said in a statement today. Macquarie Infrastructure Group plans to divide its portfolio of highways into two listed entities to isolate assets needing “substantial” management. Shares of Macquarie and MIG rose.

Macquarie will try to restructure the troubled assets in the fund in exchange for higher management fees, as Moore tries to contain writedowns that ended 16 years of rising earnings. Profit would have been wiped out without a gain from giving up management rights to Macquarie Airports Ltd. and the exclusion of unrealized mark-to-market losses for its managed funds.

“The good assets were being contaminated by the bad,” said Prasad Patkar, who helps manage about $1.3 billion at Platypus Asset Management in Sydney. “It’s an ongoing part of Macquarie’s evolution now that the good old days of cheap money are gone.”

While Macquarie remained profitable throughout the worst financial crisis since the Great Depression and didn’t receive government funds, it has failed to match global peers in this year’s rebound. Nomura Holdings Inc., Japan’s largest brokerage, this week reported second-quarter profit that beat analysts’ estimates, while Goldman Sachs Group Inc. this month reported a surge in third-quarter earnings.

‘Dreadful Year’

“Last year was a dreadful year for the industry and a dreadful year for us,” Moore said in an interview. “You’re not seeing the rebound take place as strongly in our numbers as you see in the other groups because we don’t have that same scale.”

Macquarie Infrastructure, which has lost 16 percent this year in Sydney trading, plans to put stakes in the Westlink M7 near Sydney and the 407 ETR near Toronto in Canada into a “Mature” unit, it said. A second “Active” division will hold assets needing “substantial operational and financial management,” including the M6 Toll near Birmingham in the U.K., the Chicago Skyway, and the Indiana Toll Road, it said.

Macquarie will increase its management fees for the Active fund and will receive a fee of A$50 million for the restructure.

Sydney Roads

In 2006, Macquarie Infrastructure spun off its M4, M5 and Eastern Distributor motorways into Sydney Roads Group, a separately listed fund that was later taken over by Transurban Group. Macquarie Infrastructure booked a loss of A$1.71 billion in the 12 months to June 30, largely due to writedowns on its toll-road assets.

Macquarie Group today flagged an unrealized loss of A$335 million, reflecting the difference between the carrying value and the market value of Macquarie’s stakes in managed funds and fund managers, it said in a presentation to investors.

Macquarie’s first-half profit fell as fee and trading income dropped and employment expenses jumped. Earnings included A$414 million of one-time charges and writedowns.

Profit in the fiscal second half will be “broadly in line” with the first-half total, the Sydney-based bank said. The bank plans to pay a first-half dividend of 86 cents a share, down from A$1.45 a year earlier, it said.

Macquarie stock has more than tripled from a March low in Sydney. The shares rose 1.5 percent to A$50 in Sydney today, while Macquarie Infrastructure jumped 5.9 percent to A$1.45.

Global Expansion

Macquarie, after adding capital each year since 2006, has used the global recession to buy advisory, wealth-management and energy-trading assets in North America, and reduce reliance on the bank’s home market.

The company had A$4.5 billion of capital above the regulatory minimum at the end of Sept. 30, providing scope for “incremental acquisitions,” Macquarie said in its statement.

“If there are good acquisition opportunities presenting themselves, then we will be examining them carefully,” Moore told analysts on a conference call. “We’re comfortable with the capital level we have today.”

Macquarie, which employs about 12,700 people worldwide, said this week it will buy CI Financial Corp.’s Blackmont Capital unit for C$93.3 million ($87 million) to add a brokerage in Canada and gain 130 employees.

The acquisition followed a September agreement to buy Fox- Pitt Kelton Cochran Caronia Waller LLC for about $146.7 million and an August accord to buy Lincoln National Corp.’s asset- management business. Macquarie agreed in May to purchase energy advisory firm Tristone Capital Global Inc.

Survivor

“They’ve been one of the few global investment banks to survive without government assistance,” said Angus Gluskie, who oversees about $300 million at White Funds Management Pty. in Sydney. “They’ve been pretty busy on the acquisition front. We’d like to get a handle on the quantum of the benefits likely to come in future years.”

The transactions represent a step away from the Macquarie formula of buying and pooling assets, listing them, and extracting fees for managing the businesses -- the so-called satellite model. Macquarie Airports, one of those funds, last month agreed to pay A$345 million to Macquarie Group to relinquish ties and avoid paying future performance fees.

“They need to capitalize on the market recovery and extract as much value as they can from the acquisitions,” said James Ellis, an analyst at Credit Suisse Group AG with an “outperform” rating on Macquarie. “A lot of the metrics need to get back to normal -- progressively re-orientate the balance sheet to a more normal level of liquidity and surplus capital.”

One of Moore’s biggest tasks is to restore 40-year-old Macquarie’s return on equity to “historical” levels, he said.

Annualized return on equity, a gauge of how effectively a company invests profit and delivers returns to its owners, was 10 percent in the six months ended Sept. 30, the bank said today. Return on equity dropped to 9.9 percent in the year ended March 31, from 23.7 percent a year earlier.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

Last Updated: October 30, 2009 01:32 EDT