Macquarie Reiterates Flat 2017 as Quarterly Profit Slips

  • Lower volumes weighed on some market-facing units last quarter
  • Full-year net income seen at A$2.12 billion: Bloomberg survey

Macquarie Group Ltd. said it expects earnings in the year ending March to be similar to last year’s record income as Australia’s biggest investment bank reiterated its outlook.

Operating profit from business units in the three months ended June 30 were lower than a year earlier though exceeded the previous quarter, the Sydney-based bank and fund manager said in a statement Thursday before its annual shareholders’ meeting.

Fund management, leasing and banking gained from higher fees and assets, vindicating Chief Executive Officer Nicholas Moore’s push to expand into non-cyclical areas to smooth out earnings volatility. At the same time, lower trading volumes weighed on markets-reliant businesses, and Morningstar analyst David Ellis expects annual profit growth to cool after earnings almost tripled over four years.

“After the recent profit run, it is only expected that their growth would slow,” Sydney-based Ellis said by phone. “They still have a history of upgrading guidance as the year progresses. The biggest positive for now is that Macquarie isn’t flagging any fallouts from the U.K.’s decision to exit the European Union as they have a sizable business in the region.”

Brexit Impact

It was “too early to tell” how the U.K.’s decision to leave the European Union might impact Macquarie’s earnings and for now the the firm’s businesses in Europe and Britain were “going well,” Moore said in a media call. Macquarie has a team focused on assessing the potential implications from the event, he said.

Shares of Macquarie gained as much as 2.2 percent to their highest level in more than a month. The stock rose 0.6 percent to A$74.27 at 11:10 a.m. in Sydney, trimming losses for the year to 10 percent. That compares with an almost 5 percent gain for the benchmark S&P/ASX 200 Index, which rose 0.2 percent in morning trading.

Macquarie is expected to post full-year net income of A$2.12 billion ($1.6 billion) this financial year, up from A$2.06 billion a year earlier, according to the mean estimate of nine analysts surveyed by Bloomberg.

‘Well Positioned’

The equities trading unit saw lower client volumes, particularly in Asia, and Macquarie’s investment bank faced “subdued” trading activity, it said. Commodities trading was “solid” from global oil and North American gas in the first quarter, it said in a presentation before the annual meeting. The fund management business is expected to garner higher base fees, while the corporate asset finance and leasing business was expected to gain from acquisitions.

“Macquarie remains well positioned to deliver superior performance in the medium term,” Moore said in the statement, citing the firm’s ability to adapt its portfolio mix to changing market conditions and the ongoing benefits of cost reductions. The firm cut about 30 jobs in its Asian equities unit, a person with knowledge of the matter said last month.

Macquarie had A$3.5 billion in surplus capital as of June 30 compared with A$3.9 billion three months earlier after accounting for the final dividend and buyback of shares to negate dilution from the issue of fresh equity to employees.

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