Macquarie Group Ltd., Australia’s largest investment bank, cut its second-half earnings forecast as “subdued” equity markets dent trading income.
Profit in the six months to March 31 will drop about 5 percent from A$571 million ($579 million) a year ago, Sydney-based Macquarie said today in a statement. That implies earnings of A$542 million for the period, reversing a forecast in October for profit to increase to about A$647 million.
Chief Executive Officer Nicholas Moore had been counting on a rebound in mergers, equity sales and trading in a market that has weighed on earnings at Wall Street rivals including Goldman Sachs Group Inc. and Bank of America Corp. Macquarie shares fell, cutting some of the 14 percent gain since Moore said on Oct. 29 that full-year earnings were on course to match last year’s.
“It’s a miss,” said Prasad Patkar, who helps manage about $1.8 billion at Platypus Asset Management Ltd. in Sydney. “It shouldn’t surprise anyone considering how lackluster the results from U.S. investment banks were.”
Macquarie stock lost as much as 2.6 percent, before closing down 0.3 percent at A$41.10 at the 4:10 p.m. close in Sydney, giving the bank a market value of A$14.3 billion. Australia’s benchmark S&P/ASX 200 Index climbed 0.5 percent.
The operating result at Macquarie Securities, the equity and research unit, worsened in the final quarter of 2010 from a year earlier. That contrasted with improvements at all other divisions and dragged down the group result, Macquarie said, without providing figures.
“Market conditions continue to trend back to normal levels, with the exception of equity markets where volumes remain subdued,” Moore said in the statement. “Where we are doesn’t feel like normal. We do see volumes picking up,” he said later on a call with investors.
The volume of shares traded on the MSCI World Index has declined for three straight years since the financial crisis roiled markets globally. Listed companies raised about A$31 billion in secondary share sales on Australia’s stock exchange last year, less than a third of the total for 2009, according to data on ASX Ltd.’s website.
There are signs that corporate demand for takeovers is increasing in Australia, where Macquarie generated almost half its income in the first half of the fiscal year.
The value of mergers and acquisitions announced in Australia in the final three months of 2010 jumped to a record $71.3 billion, according to data compiled by Bloomberg. That was more than all the deals in the first nine months of the year.
“I get a sense there’s a momentum of M&A opportunities filling up behind a dam wall,” said Ian Harding, chairman and founder of Sydney-based Wavestone Capital, which oversees $223 million in assets including Macquarie shares. “It will spill over at some point.”
Macquarie in October reported first-half net income of A$403 million and said second-half income would help deliver a full-year total that was “broadly in line” with the A$1.05 billion reported last financial year.
Investors aren’t used to Macquarie’s missing estimates, said Ken Hanton, a fixed-interest credit-research analyst in Sydney at National Australia Bank Ltd.
“Today’s guidance might come as a bit of a shock, particularly for the equity market,” Hanton said in a note. “However, from a credit perspective, we note the group’s balance sheet and capital positions are relatively unchanged. We don’t think today’s guidance should provide debt investors with too much cause for concern.”
The group’s capital at the end of December was A$12 billion, providing a A$3.2 billion buffer above the regulatory minimum, Macquarie said in its statement.
“Cash is being deployed across all the businesses,” Moore said on the call with investors.
Planning for a market rebound, Moore 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.
In the U.S., Goldman Sachs said Jan. 19 that fourth-quarter earnings dropped 52 percent as revenue from trading and investment banking fell. Bank of America on Jan. 21 reported a $1.24 billion fourth-quarter loss as profit in the global banking and markets group halved. In Japan, Nomura Holdings Inc. on Feb. 2 posted third-quarter profit that missed analysts’ estimates as investment banking fees declined.