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Macquarie Targets Biggest Profit in 3 Years as Markets Recover

Macquarie to Keep Expanding Even After Profit Slide
Nicholas Moore, chief executive officer of Macquarie Group Ltd. Photographer: Ian Waldie/Bloomberg

Macquarie Group Ltd. Chief Executive Officer Nicholas Moore said investor confidence is returning along with corporate appetite for mergers, and predicted second-half profit may rise to the highest in three years.

“Conditions are improving as markets trend back to normality,” Moore said in an interview in Sydney today. “Confidence is building, people are stepping up to investments.”

Companies have announced $321 billion of acquisitions since Sept. 1, a 20 percent increase from the year-earlier period, and the MSCI World Index has climbed 9.8 percent. Macquarie, Australia’s biggest investment bank, rose the most in almost three months in Sydney trading today after reporting first-half profit that beat analysts’ estimates.

Earnings in the 12 months ending March 2011 are on track to match last year’s total, Moore said, after reporting first-half net income of A$403 million ($393 million). His forecast implies second-half income of A$647 million, which would be the highest since March 2008, data compiled by Bloomberg show.

“The outlook looks more confident,” said Prasad Patkar, who helps manage about $1.8 billion at Platypus Asset Management in Sydney, and doesn’t hold Macquarie shares.

Moore, 52, boosted Macquarie’s workforce by 22 percent in the 12 months to Sept. 30 in part through acquisitions in the U.S. and Europe, including the equity trading and research business of Sal. Oppenheim Jr. & Cie. Net income in the first half fell 16 percent, less than the median estimate by analysts of a 24 percent decline.

Balance Sheet

Macquarie may deploy a balance sheet carrying A$2.9 billion in excess capital in the second half to bolster returns, Moore said on a conference call. He declined to specify where the bank would spend, saying capital will be allocated where there is the most demand.

“Weak market conditions have impacted activity levels in fixed income, currencies and commodities,” he said today. “We think we’re well placed in all these businesses just to benefit from conditions returning to normal.”

Shares of Macquarie added 4.8 percent to A$36.20 at the 4:10 p.m. close, paring this year’s drop to 25 percent. New York-based Goldman Sachs Group Inc. has fallen 3.3 percent this year and Credit Suisse Group AG has slipped 19 percent in Zurich.

Goldman Sachs, Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp. posted an average 24 percent drop in third-quarter trading revenue, according to data compiled by Bloomberg. Credit Suisse said Oct. 21 that third-quarter profit slumped 74 percent, while UBS AG, Switzerland’s biggest bank, this week reported a surprise loss at its investment bank.

‘More Normal’

Macquarie’s annualized return on equity, a measure of how well the bank used reinvested earnings to generate extra profits, fell to 7.1 percent from 9.6 percent a year earlier.

“We don’t think this is a long-term return on equity for our group,” Moore said in the interview. “We are very confident that when markets do come back to more normal levels, that would lead to a more normal return on equity.”

Macquarie’s return on equity averaged 21 percent in the past decade, according to company statements.

Moore increased the workforce by 2,775 in the year to Sept. 30. The biggest gains were in the Americas, where headcount jumped 70 percent after Macquarie bought Philadelphia-based Delaware Investments from Lincoln Financial Group for $428 million and CI Financial Corp.’s Blackmont Capital unit.

“We are conscious of the growth that’s taken place,” Moore said on the call. “It’s all very justified.”

M&A Rankings

Macquarie workers bring in less than half the $1.15 million average annual revenue generated by staff at global rivals including Goldman Sachs, Credit Suisse and Deutsche Bank AG, UBS analyst Jonathan Mott estimated in a Sept. 6 report.

Macquarie Capital, which arranges share sales and advises on takeovers, reported a profit of A$85 million after a A$123 million loss a year earlier.

The firm is 15th among arrangers of takeovers in Australia this year, a list led by Goldman Sachs & Partners Australia Pty and Bank of America Corp., according to Bloomberg data. The bank -- which wasn’t among advisers on this week’s offer by Singapore Exchange Ltd. to buy Australia’s main stock exchange -- hasn’t finished a year outside the top 10 since 1999.

Macquarie’s funds unit added most to first-half profit, earning A$335 million, boosted by a A$95 million contribution from the reclassification of a stake in MAP Group, which invests in airports worldwide. The bank’s fixed income, currencies and commodities division reported a 55 percent slump in first-half earnings to A$167 million.

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