Macquarie Group Ltd., Australia’s biggest investment bank, fell the most in almost nine months after forecasting full-year earnings below analyst estimates.
The stock dropped 4.1 percent, the biggest decline since May 7, to close at $A37.16 after the Sydney-based bank cut the outlook for its fixed-income, currency and commodity trading business. The decline pared its six-month advance to 48 percent.
Full-year earnings will rise about 10 percent as improved market conditions boost dealmaking, Macquarie said today. Chief Executive Officer Nicholas Moore, who joined banks including UBS AG and Credit Suisse Group AG in cutting jobs as trading and merger fees dwindled, has steered the bank toward more stable businesses such as lending, leasing and fund management.
Given that Macquarie’s shares have “run strongly in recent months, some near-term share price weakness is likely,” Deutsche Bank AG analysts led by James Freeman said in a note to investors after the announcement.
Net income will rise to about A$803 million ($838 million) for the year ending March 31 from an eight-year low of A$730 million a year earlier, Bloomberg calculations based on the company’s forecast show. Macquarie was expected to post full-year adjusted earnings of A$838.5 million, according to the median of 12 analyst estimates compiled by Bloomberg.
The bank’s forecast for profit growth is subject to market conditions, the completion of transactions, and impairment testing, Macquarie said in a regulatory filing today. A greater than 10 percent increase in profit is probable if improved market conditions persist, the bank said. It is scheduled to report full-year earnings on May 3.
“Macquarie would want to be conservative at this stage,” said Angus Gluskie, managing director at Sydney-based White Funds management, which oversees more than $350 million including Macquarie shares. “There is no point projecting a big uplift in earnings at this time.”
Macquarie said full-year profit at its fixed-income, commodity and currency trading unit will probably be broadly in line with a year earlier, compared with expectations for a rise in October.
It still expects the fund management, banking, securities trading and investment banking operations to report higher full-year earnings. The corporate and asset finance business, which ranges from aircraft leasing to auto lending, will probably be in line with a year earlier, it said.
“Since our result announcement for the first half of the 2013 financial year, market conditions have shown some signs of improvement, however client activity remains subdued for capital markets facing businesses,” Moore said in the statement.
Global investment banks are seeing a return to profit growth as trading income climbs. Goldman Sachs Group Inc., the fifth-biggest U.S. bank by assets, said on Jan. 16 that fourth-quarter earnings more than tripled to $5.60 a share, helped by a stock-market rebound. The result surpassed even the highest estimate of 26 analysts surveyed by Bloomberg.
Macquarie said its cash equities business remained marginally profitable with expenses declining while deal activity was picking up at its investment bank.
The company’s investment-banking fees reached a two-year high of $174 million in the last three months of 2012, according to New York-based consultant Freeman & Co.
Macquarie has been shrinking its equity trading and investment banking units to concentrate on businesses such as corporate lending, aircraft leasing, automobile financing and fund management.
It had 13,549 employees on Dec. 31, down 1,079 from a year earlier, company statements show. Operating expenses fell 10 percent last quarter from a year earlier, the bank said.
Macquarie, regulated by Australia’s banking watchdog, had A$3.3 billion in capital surplus above minimum requirements on Dec. 31. It expects its tax rate to rise to more than 30 percent in the year ending March from 28 percent a year earlier due to the strength of its U.S. business.