Oct. 16 (Bloomberg) -- Macquarie Group Ltd., Australia's biggest investment bank, had its long-term outlook cut to negative by Moody's Investors Service because a global economic slowdown threatens its earnings.

Moody's affirmed its A2 rating for Sydney-based Macquarie's long-term senior debt, and A1 ratings for the long-term deposits and senior debt of its subsidiaries, including Macquarie Bank Ltd., according to an e-mailed statement. The ratings company maintained its stable outlook on Macquarie's short-term debt.

Macquarie has lost more than half its market value this year as investors shun financial companies that depend on debt to drive growth, even as the company sidestepped losses on subprime mortgages and credit derivatives. Chief Executive Officer Nicholas Moore in July pledged to stick to the company's strategy of buying assets and bundling them into funds.

``The negative outlook on the long-term ratings addresses the potential for an extended, global economic and capital markets slowdown to negatively affect Macquarie's earnings in calendar 2009 and possibly beyond,'' Moody's said. ``The outlook also reflects the challenges to wholesale banking business models created by the current environment, which may continue to some degree, even post-crisis.''

Officials at Sydney-based Macquarie weren't immediately available for comment. Cutting the long-term outlook on Macquarie to negative means Moody's is more inclined to reduce its ratings.

Macquarie's shares fell 8 percent to A$32.05 at the close of trading in Sydney, extending their decline this year to 58 percent. Moore warned in July that the company may fail to repeat last year's record A$1.8 billion ($1.2 billion) profit.

Cash Reserves

Macquarie's credit profile remained ``robust'' with negligible investments in troubled assets amid the global credit crisis, Moody's said. The agency affirmed its Prime-1 ratings and stable outlook for the company's short-term debt.

Fitch Ratings reaffirmed on Oct. 8 its stable outlook for Macquarie after the bank increased its cash holdings as a buffer against the seizure in global credit markets.

Macquarie's fundamentals remain ``solid'' as the company responded early to the global credit crisis by increasing cash levels to A$20 billion, Fitch said.

The company has about A$6 billion of long-term funding maturing in the next one to two years and another $25.8 billion of short-term paper coming due in the same period, the bank said in August. It has raised A$6.4 billion of debt with maturities of more than two years since March 31 and has A$20 billion in liquid assets.

Short Sellers

Macquarie has blamed short-sellers for targeting its stock as plunging asset values and higher funding costs sparked losses at rivals such as Babcock & Brown Ltd. and Allco Finance Group, which adopted the bank's strategy of borrowing to buy infrastructure assets for their funds.

Macquarie gets 20 percent of its income from borrowing to buy assets such as airports in Copenhagen and bridges in Lisbon, and then bundling them into funds it manages for fees.

About 60 percent of Macquarie's income comes from investment banking activities such as advising on acquisitions or selling stocks, with the rest derived from lending and funds management.

It is the sixth-largest financial adviser on mergers and acquisitions involving companies in Australia and New Zealand, according to data compiled by Bloomberg.

The bank and its 38 investment funds have a combined A$167 billion of debt, according to Credit Suisse Group.

To contact the reporter for this story: Stuart Kelly in Sydney skelly22@bloomberg.net

Last Updated: October 16, 2008 02:02 EDT