Macquarie Group Ltd. (MQG) announced plans to buyback as much as 10 percent of its stock, sending its shares higher in Sydney even after announcing profit that missed analysts estimates and cutting its full-year forecasts.
Net income at Australia’s biggest investment bank declined in the six months to Sept. 30 to A$305 million ($327 million) from A$403 million a year earlier, versus the median estimate of seven analysts for profit of A$322 million. The Sydney-based bank said full-year earnings will be lower than the previous year if market conditions don’t improve in the second half.
Chief Executive Officer Nicholas Moore is seeking to revive shares that have tumbled 32 percent this year after turmoil in markets sapped confidence and cut demand for brokerage and advisory services. Moore joins Wall Street rivals including Goldman Sachs Group Inc. and UBS AG in reducing his workforce, announcing a 445 reduction in headcount today.
“Macquarie’s management appears to be taking pro-active steps to manage costs,” Victor German, an analyst at Nomura Australia Ltd., said ahead of today’s report. The bank is likely to benefit from any rebound in market confidence, and a buyback “is likely to have a positive impact on its share price.”
Shares of Macquarie climbed 3.3 percent to A$25.15 in Sydney. Australia’s benchmark S&P/ASX 200 index was little changed. Markets rallied overnight after European leaders agreed to expand the region’s rescue fund by 1 trillion euros ($1.4 trillion) and investors agreed to a voluntary writedown of 50 percent on Greek debt.
“There have been some very good steps that have been taken in terms of giving confidence to the market that’s been sorely lacking,” Moore said in a telephone interview with Bloomberg. “But how far that goes, we really don’t know.”
Increased turmoil in global markets, which have been battered by doubts about whether European policy makers can resolve the region’s debt crisis, threaten to undermine Moore’s expansion plans. The MSCI World Index of equities tumbled almost 23 percent from early May to Oct. 3. Since then, the index has rebounded more than 16 percent.
“The capital markets-facing businesses have continued to experience difficult trading conditions,” Moore said in today’s statement. “Uncertain market conditions make short-term forecasting difficult.”
Macquarie said it expects full-year profit to be lower than the previous year if markets and investor confidence don’t rebound in the six months to March 31, 2012. Last fiscal year, Macquarie posted net income of A$956 million.
Trading income at the fixed income, currencies and commodities unit slumped 18 percent to A$268 million in the first half, Macquarie said today.
Moore cut operating expenses across the company by 11 percent in the first half as it reduced headcount by 3 percent, the first reduction in 2 1/2 years.
The bank expects to find “ongoing efficiencies” as it focuses on costs, Chief Financial Officer Greg Ward told reporters in Sydney today.
Banks around the world are slashing jobs to reduce expenses as fee income growth slows. Bank of America Corp. said Sept. 12 it will eliminate 30,000 jobs in the next few years, and HSBC Holdings Plc, Europe’s largest bank, said in August it will shed 30,000 workers by the end of 2013.
Moore may need to cut about 1,000 jobs to offset a decline in trading and corporate advisory income, UBS analysts including Jonathan Mott and Chris Williams wrote in a note to investors last month.
Macquarie, regulated by the nation’s banking watchdog, has A$3.5 billion in capital surplus above minimum requirements, according to the bank.
“We have more than enough capital,” Ward told reporters in Sydney today, adding that Macquarie has sufficient resources to make acquisitions “if they arise.”
The bank plans to buy back as much as 10 percent of its shares, equivalent to A$890 million at today’s price, according to Bloomberg data. The last time the bank returned capital to shareholders was via a special dividend in 2005, Ward said.
The bank’s annualized return on equity, a measure of how well it used reinvested earnings to generate extra earnings, fell to 5.7 percent from 10.2 percent six months earlier. That was the lowest level since at least 2002, company filings show.
The bank plans to pay a first-half dividend of 65 cents a share, down 24 percent from a year earlier, it said.
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