Macquarie Raises Funds Unit Outlook as Aussie Boosts Profit

Macquarie Group Ltd. (MQG) raised the earnings outlook for its funds management unit as Australia’s largest investment bank said it continues to expect higher net income this fiscal year assisted by a weaker local currency.

Since providing earnings guidance in May, higher fund management fees and the currency’s fall have improved the group’s outlook for the year ending March 31, Macquarie said in a statement ahead of its annual shareholders meeting today. It cut its short-term outlook for its fixed income, currencies and commodities unit to “in line” with the previous year from earlier expectations of an increase.

Macquarie is benefiting from a 12 percent decline in the Australian dollar since March 31. A 10 percent fall in the Australian currency would add about 6 percent to the Sydney-based company’s annual net income, Chief Executive Officer Nicholas Moore said in the statement.

“Many were expecting stronger performance fees in the funds management business, perhaps not as early but in the next couple of years,” Victor German, a Sydney-based analyst at Nomura Holdings Inc. (8604) said. “Given rising asset prices, performance fees will be a feature of their future results.”

Macquarie shares closed 2.3 percent lower at A$44.65, trimming gains for the year to 26 percent. The benchmark S&P/ASX 200 index was little changed.

Funds Management

The funds management unit, which managed A$380 billion as at June 30, contributed 24 percent of Macquarie’s revenue in the 12 months to March 31, when the bank reported its first profit growth in three years, filings show. Macquarie didn’t alter its full-year forecasts for other operating groups -- lending, leasing, equities trading and investment banking.

The group’s net income will rise 27 percent to A$1.1 billion ($1 billion) this fiscal year, according to the mean estimate of 14 analysts surveyed by Bloomberg. It posted a profit of A$851 million last year.

“The broad underlying drivers are pointing to the early stages of an upward trend for Macquarie,” Angus Gluskie, chief investment officer at White Funds Management Pty Ltd., said before the announcement. “An increase in revenue in a potentially lower-cost environment will give profits a boost.” White Funds owns shares in the bank.

Macquarie has slashed operating expenses by 17 percent in the two years to March 31 to offset falling income from trading and advisory.

Impairments in the fixed income, commodities and currencies business and tax remaining at elevated levels are a negative, Credit Suisse Group AG (CSGN) analysts led by James Ellis said in a note to investors today.

Better World

“There is growth taking place across many different areas,” Moore said in a conference call. “The world feels better now than it did 12 months earlier.”

Macquarie’s forecast follows higher profits from Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS), which led Wall Street banks in posting a collective 42 percent increase in equities-trading revenue in the second quarter, the largest jump in more than three years.

The performance of Macquarie’s annuity-style businesses, which Moore expanded to ensure a steady flow of revenue, was higher in the first quarter to June 30 led by the funds management business, he said. The performance of its capital markets-facing businesses was up “significantly,” he said.

Macquarie, which had A$2.8 billion in surplus capital as at June 30, agreed to buy ING Groep NV (INGA)’s South Korean investment management business to add 25.2 trillion won ($22.5 billion) of assets. Moore said assets were getting pricier, making acquisitions harder.

To contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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