Macquarie Group Ltd. (MQG), which earned 63 percent of its revenue from outside Australia last year, is set for a profit boost from the local currency’s decline to a near three-year low against the U.S. dollar.
For every sustained one-U.S.-cent drop in the Australian dollar, the country’s largest investment bank could increase earnings by as much as 1.4 percent, said Christopher Hall, a senior investment officer at Adelaide-based Argo Investments Ltd. (ARG), which owns Macquarie shares. Net income could gain as much as 4 percent in the quarter ended June, he said in an interview. The currency touched the lowest since September 2010 today.
Macquarie has expanded its offshore operations since 2009, buying five North American businesses in that year to offset slowing growth at home. Even before the currency’s slide, the company was on course for a second consecutive year of profit gain after it cuts costs.
“Macquarie is a clear beneficiary from the falling Australian dollar,” James Ellis, a Sydney-based analyst at Credit Suisse Group AG (CSGN), said by phone. “The growth from their Americas earnings in recent periods has been more consistent than from other regions.”
The investment bank’s revenue from the Americas, mainly the U.S. and Canada, rose to 33 percent of the total in the year ended March 31 from 8 percent four years earlier, filings show.
Navleen Prasad, a Sydney-based spokeswoman for Macquarie, declined to comment on the impact of the falling currency on profit.
The so-called Aussie has declined 7.5 percent this year, making it the second-worst performer among 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes, outperforming only the yen. The Australian currency weakened to 91.10 U.S. cents today, the lowest since September 2010, before trading at 91.67 as of 11:37 a.m. in Tokyo.
Analysts have cut their year-end forecasts for the Aussie and now expect it to trade at 95 U.S. cents from $1.01 at the end of March.
All other things being equal, “if the currency remains low, profit accretion will certainly be significant going forward,” Argo’s Hall said. Macquarie derived 51 percent of its revenue from market-facing businesses such as advisory, equities, fixed income and currencies in the year to March 31, filings show.
Earnings gains from the weaker currency will probably be greater for Macquarie than for Australia’s four major commercial banks, based on estimates by UBS AG. (UBSN)
Australia & New Zealand Banking Group Ltd. (ANZ), the nation’s third-largest lender by market value, is expected to improve earnings for the year to Sept. 30 by only 0.3 percent due to the currency’s fall as its foreign-exchange exposure for the period is 70 percent hedged, UBS analysts led by Jonathan Mott said in a note on June 25. ANZ is expanding in Asia and plans to double the contribution to profit from the region to 30 percent by 2017. Other lenders will see little change in their earnings from the dollar’s move, the UBS analysts said.
Macquarie said in 2010 that the global credit crunch after the collapse of Lehman Brothers Holdings Inc. in 2008 provided a “once-in-a-generation” window to expand in the U.S.
Shares of Macquarie have gained 14 percent this year, compared with a 1.6 percent advance for the benchmark S&P/ASX 200 (AS51) index. The Sydney-based bank fell 3.2 percent to A$40.52 at 12:45 p.m. local time.
Macquarie will probably report net income of A$1.1 billion in the year ending March, according to the average estimate of 13 analysts surveyed by Bloomberg.
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