Macquarie Record Profit Bucks Global Trend on Funds, Currency

  • The shares are on course for the highest close in eight years
  • Banks forecasts higher annual profit than the previous year

Macquarie Group Ltd. posted a record half-yearly profit, driven by its fund management business and currency gains, as global investment banking competitors such as Goldman Sachs Group Inc. and Morgan Stanley were buffeted by a slump in trading income.

Net income for the six months ended Sept. 30 jumped 58 percent to A$1.07 billion ($758 million) from A$678 million a year earlier, the Sydney-based firm said in a regulatory filing Friday. That compares with a forecast of a 55 percent gain Macquarie made on Oct. 8.

Chief Executive Officer Nicholas Moore’s strategy to expand into stable businesses such as fund management and lending along with a falling Australian dollar are cushioning Macquarie from the hostile trading environment that has dragged down earnings at U.S. firms. Australia’s largest investment bank forecasts annual profit will rise, with the mean estimate of 11 analysts surveyed by Bloomberg putting it at a record A$1.98 billion.

“The diversity of Macquarie’s business mix makes it quite different to the global investment banks,” David Ellis, a Sydney-based analyst at Morningstar Inc., said by phone. “It is illustrated by the asset-management unit profit shooting the lights out and leasing businesses continuing to grow. There is massive demand for defensive income-generating assets and Macquarie is a big player in that segment.”

Macquarie shares climbed 2 percent to A$85.72 at 1:03 p.m. in Sydney and are on track for the highest close in eight years. That extended this year’s advance to 47 percent compared with a 3.5 percent drop in the benchmark S&P/ASX 200 Index.

Asset Management

The bank said it expects higher earnings than a year earlier from its asset-management unit, banking and wealth management, equity trading, and advisory business. The leasing and commodities businesses will be broadly in line with the previous year, it said.

Its asset-management business, the largest profit contributor for the six months to Sept. 30, is gaining from performance fees that are collected from investors when returns from the sale of underlying assets exceed previously defined benchmarks. The business managed A$502.3 billion in funds and posted a 45 percent profit increase. Performance fees climbed 63 percent to A$609 million in the first half, the bank said.

Currency Gains

Macquarie, which got 71 percent of its income from outside Australia in the first half, is also benefiting from a 20 percent slump in the nation’s dollar in the past year. A 10 percent decline in the currency will boost full-year net income by 7 percent and a quarter of the first-half profit increase came from that weakness, it said.

“This reflects the growth of our international operations, as well as the favourable impact of foreign exchange movements,” Moore said in the statement Friday.

Macquarie’s earnings compare with falling quarterly profits and trading income at Goldman Sachs and Morgan Stanley. Firms such as Deutsche Bank AG, Credit Suisse Group AG and Barclays Plc are pulling back from some trading operations as investors hold back from buying and selling assets amid concern about a slump in the price of oil, higher U.S. interest rates and the Chinese economic slowdown.

Notwithstanding the record profit, Macquarie cut 503 jobs in the first half, the most since September 2012, according to earning statements. The firm employed 13,582 as of Sept. 30.

Jobs were cut across all business units except commodities and financial markets, with the biggest drop at the banking and financial services business, the filings show. Globally, the bank added staff in the Europe, Middle East and Africa region, according to a presentation by the bank.

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