Macquarie Cuts Profit Forecast for Its Commodities Business

  • Shares drop as much as 9.4 percent to the lowest in a year
  • First profit forecast reduction for a business unit since 2014

Macquarie Group Ltd. cut its full-year forecast for the commodities and financial-markets business as falling oil prices and a selloff in U.S. credit markets take a toll on client activity. The shares slumped to the lowest in a year, even as the Australian investment bank said it expects full-year profit to rise overall.

Profit from the unit is expected to be lower in the full year to March 31, compared with a flat forecast previously, the Sydney-based bank said Thursday in a regulatory filing. It’s the first time Macquarie has trimmed the outlook for a business group since July 2014, when it reduced earnings expectations for the equity-trading unit.

“It’s been a long time since Macquarie cut its forecast for any division and that is clearly a negative,” said Omkar Joshi, a Sydney-based investment analyst at Watermark Funds Management. “Given today’s update could mark the end of Macquarie’s profit upgrade cycle, the share-price fall isn’t surprising.”

Macquarie tumbled 6.3 percent to A$63.98, the lowest since February last year, as of 11:45 a.m. in Sydney. The shares have lost about 22 percent this year compared with a 7 percent decrease for the benchmark S&P/ASX 200 Index. The index rose 1.2 percent Thursday.

Falling commodity prices threaten to take the steam out of Macquarie’s profit run, which has seen net income more than double in the past three years. A declining Australian dollar is expected to provide some cushion to the bank, which got 71 percent of its first-half income from overseas.

The firm is expected to post a record A$2.07 billion ($1.5 billion) profit for the year to March 31, according to the mean estimate of 10 analysts surveyed by Bloomberg.

While Macquarie gained from the volatility afflicting commodities markets in the third quarter, it sees trading slowing in the final three-month period. The firm provides clients with hedging, trading and physical storage and transport of oil.

Oil dropped to a 12-year low in January amid brimming U.S. crude inventories and the outlook for increased exports from Iran after the removal of sanctions. Prices of minerals such as iron ore dropped 39 percent in 2015 hurt by a global oversupply and shrinking demand in China.

Macquarie’s fixed-income trading business had lower debt-capital-market fees and client trading revenues due to the sell off in U.S. credit markets, it said.

The commodities and financial markets division, which got 55 percent of its operating income from energy markets, metals mining and agriculture in the six months ended Sept. 30, contributed A$835 million to Macquarie’s profit last year. That was the third largest after its asset management and corporate lending and leasing business, according to filings.

The investment bank left its profit forecast for all other units unchanged. The bank still expects profit from funds management, banking and wealth management, equity trading, and investment banking to be higher than the previous year. Corporate lending and leasing is expected to be “broadly in line” with the previous year.

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