Macquarie Profit Climbs 39% as Firm Predicts Further Gains

Macquarie Group Ltd., Australia’s biggest investment bank, boosted half-year net income 39 percent and proposed to distribute to shareholders its stake in Sydney Airport, sending its shares to a three-and-a-half-year high.

Profit for the six months ended Sept. 30 rose to A$501 million ($474 million) from A$361 million a year earlier, the Sydney-based firm said in a statement today. That compares with the A$504 million median estimate of nine analysts surveyed by Bloomberg News. The bank expected a stronger second half.

Macquarie is benefiting from a revival in financial market activity as Chief Executive Officer Nicholas Moore shifts from deal-making and trading to less volatile businesses such as lending and fund management. The bank’s assets under management climbed 13 percent from a year earlier to A$385 billion.

“The Sydney Airport security proposal is a smart way of distributing the assets,” said Paul Xiradis, chief executive officer of Sydney-based Ausbil Dexia Ltd., which manages about $9 billion in assets including Macquarie shares. “While the distribution is real value back to shareholders, results were solid too. The market recovery bodes well for the second half.”

Macquarie shares rose 4.2 percent to A$53.10 in Sydney to close at their highest since Feb. 4, 2010. That extended gains for the year to 50 percent. The benchmark S&P/ASX 200 index fell 0.3 percent.

Stronger Full Year

The bank said it expects an improved result for the full year to March 31 from a year earlier and a stronger outcome in the second half than the first. Macquarie will post a 27 percent increase in net income to A$1.08 billion in the year to March 31, according to the average of 11 analyst estimates compiled by Bloomberg.

The bank retained its forecast of a higher profit contribution from its fund management, securities and investment banking units in the full year and said it now expects its corporate and asset finance business to also contribute a higher profit. It lowered its expectation for the fixed-income, currencies and commodities business, which it said will contribute less profit this year after recording a 7 percent fall in net profit to A$203 million in the first half.

Fund management contributed the most to Macquarie Group’s first-half profit, posting a 40 percent rise to A$500 million from a year earlier, while its banking unit registered a 10 percent profit drop. Macquarie Securities, the bank’s equity trading business, reported a net profit of A$71 million after a year-earlier loss of A$64 million.

Investment Banking

Macquarie Capital, the advisory and underwriting unit, reported a jump in net profit to A$101 million from A$10 million a year earlier. In Australia, whose 37 percent contribution to Macquarie’s revenue makes it the bank’s largest market, mergers and acquisitions have totaled $61.3 billion so far this year compared with $88.1 billion all of last year, the data show.

Equity offerings are gaining momentum in Australia. Around a dozen companies are planning to list on Australia’s stock exchange by year-end as business confidence surges following a change in the nation’s government, according to Commonwealth Bank of Australia, the nation’s biggest lender.

Airport Distribution

The bank plans to distribute its stake in Sydney Airport to Macquarie shareholders, who will get one share in Sydney Airport for every share they own in Macquarie. The bank, which owns 16.8 percent or 369 million shares in the airport operator, will distribute 340 million of the securities to its shareholders, it said in today’s statement.

Based on Sydney Airport’s closing price yesterday, the 340 million shares were valued at A$1.4 billion. Distribution of the shares, which is set for January, would give Macquarie a A$377 million gain, it said. The process will reduce Macquarie’s surplus capital by A$250 million and if implemented, the bank’s buyback of its own shares will be canceled, it said. As part of this process, Macquarie plans to consolidate its own shares by swapping 0.9438 share for each held.

“The Sydney airport securities distribution removes the capital impost, resulting in an improvement in ROE as well as additional distribution to shareholders, which should support the share price,” Victor German, a Sydney-based analyst at Nomura Holdings Inc., said.

More Employees

Macquarie had surplus capital of A$3.1 billion as of Sept. 30, and announced an interim dividend of A$1 a share, representing a payout ratio of 67 percent of profit. It raised the dividend payout range to 60 percent to 80 percent in May after it couldn’t find immediate use for its capital.

The bank employed 13,901 people as of Sept. 30, up from 13,663 in March and increased total operating costs by 13 percent. Macquarie’s return on equity, a measure of how effectively the bank invests shareholder funds, was 8.7 percent, up from 7.8 percent in March and still about half the return delivered by Australia’s largest commercial banks.

Goldman Sachs Group Inc. reported Oct. 17 that its third-quarter net income rose to $1.52 billion from $1.51 billion a year earlier as it cut expenses to offset the largest drop in revenue among the biggest Wall Street banks. Morgan Stanley’s third-quarter earnings beat analysts’ estimates as equity trading revenue jumped. Nomura Holdings Inc. on Oct. 29 said its quarterly profit rose less than analysts estimated as demand waned for Japanese stocks.

Before it's here, it's on the Bloomberg Terminal.