Macquarie Slumps After Saying Profit to Fall 25%
Richard Sheppard of Macquarie Bank Ltd.
Sergio Dionisio/Bloomberg
Richard Sheppard, managing director and chief executive officer of Macquarie Bank Ltd.
Richard Sheppard, managing director and chief executive officer of Macquarie Bank Ltd. Photographer: Sergio Dionisio/Bloomberg
Sept. 6 (Bloomberg) -- Rhett Kessler, who helps manage about $1 billion at Pengana Capital Ltd. in Sydney, talks about his investment strategy for Australian stocks. Kessler also discusses the outlook for Reserve Bank of Australia monetary policy and the U.S. economy. He speaks with Susan Li on Bloomberg Television. (Source: Bloomberg)
Macquarie Group Ltd. tumbled to a 15-month low in Sydney trading after saying first-half profit will fall 25 percent as faltering markets sap the flow of deals.
Australia’s biggest investment bank slumped 4.7 percent to A$35.25 at the 4:10 p.m. local close in Sydney, extending this year’s decline to 27 percent. It said profit in the six months to Sept. 30 will fall about 25 percent from a year earlier, when it posted net income of A$479 million ($439 million).
“Anyone who comes out with negative news is going to get hit pretty hard,” said Shaun Manuell, who helps manage A$700 million in Australian stocks at Equity Trustees Ltd. in Melbourne. “There’s huge uncertainty out there. Merger and acquisition activity hasn’t picked up the way people thought.”
Macquarie, reliant on Australia for almost half its income, is on course for its worst domestic ranking among takeover advisers since 1999, according to data compiled by Bloomberg. That performance, coupled with concern that the global recovery will stall, is withering fee income and triggering calls for Chief Executive Officer Nicholas Moore, 51, to cut jobs at the Sydney-based bank.
Macquarie said July 30 that market declines worldwide, Europe’s debt crisis and economic concerns among investors had dragged deal-making down to the lowest level since 2004. It didn’t provide a specific profit forecast at that time.
‘Weak’ Markets
“Conditions in most markets have continued to be weak,” Macquarie said in a presentation to be given today in London by Deputy Managing Director Richard Sheppard. The company’s full- year result “continues to be impacted by the cost of our continued conservative approach to funding and capital.”
For the 12 months ending March 2011, Macquarie said it needs trading and deal-making to return to “more normal levels” in the second half for earnings to match the previous year’s total.
Macquarie is 12th among arrangers of takeovers in Australia this year, a list led by JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc., according to Bloomberg data. The Australian bank hasn’t finished a year outside the top 10 since 1999, when it placed 16th.
As well as advising on deals, investment banks rely on stock, currency and commodity trading to generate commissions. Those activities track investor confidence, which has been dented by concern that the global economic recovery will falter.
Goldman Sachs’s second-quarter profit plunged 82 percent to the lowest level since the end of 2008 as trading revenue fell, the bank said in July. Profit in the same three-month period at New York-based Citigroup Inc. dropped 38 percent.
‘Anemic Recovery’
Mohamed A. El-Erian, chief executive officer at Pacific Investment Management Co., last month said growth around the world will be below average during the next three to five years as developed economies struggle with mounting deficits. Joseph E. Stiglitz, a Columbia University professor and former World Bank economist, said the U.S. economy, the world’s largest, faces an “anemic recovery.”
“Global market conditions are significantly impacting activity levels in Macquarie Securities, Macquarie Capital and Fixed Income, Currencies and Commodities,” Macquarie’s Sheppard said in today’s statement. “Uncertain conditions make short- term forecasting very difficult.”
Australia’s benchmark S&P/ASX 200 Index has fallen for four of the past five months. In the U.S., the Standard & Poor’s 500 Index dropped 12 percent in the second quarter.
‘Bodes Well’
Worldwide, companies announced $232 billion of takeovers in August, including Intel Corp.’s purchase of security-software maker McAfee Inc. and BHP Billiton Ltd.’s $40 billion hostile bid for Potash Corporation of Saskatchewan Inc. Those deals made the month the busiest this year so far, according to Bloomberg data.
“We now appear to be moving into a period of increasing corporate activity, with cashed-up companies looking at on- market and off-market acquisitions,” said Angus Gluskie, who manages about $300 million at White Funds Management Pty in Sydney. “This bodes well for a strong second half for Macquarie.”
As of June 30, Macquarie had A$3.1 billion of capital above the regulatory minimum. That’s weighing on earnings because the cash hasn’t been deployed into faster growth areas.
Slumping profits mean less money to pay bonuses. Macquarie, with more than 14,600 workers, should cut jobs to increase compensation and retain talented staff, analysts at UBS AG said in a July 30 report.
To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net
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