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October 28, 2011 3:33 pm
Volatile markets pushed Macquarie to cut its full-year earnings guidance and announce a major share buy-back after the Australian bank reported a sharp fall in net profit for the first half of its fiscal year.
After-tax profit for the six months to September was A$305m (US$326.5m), down 24 per cent from a year ago, and its return on equity fell to 5.7 per cent for the period, its worst performance since at least 2002.
Overall, the bank now expects its profits for the year to March 2012 to be lower than last year if markets remain in their currently depressed state throughout the second half. Just last month, the bank had said it expected an improvement on last year’s A$956m profit.
Jobs, as well as forecasts, have been trimmed. Since March, the bank has cut 3 per cent of its then 15,556 strong workforce, and analysts expect further cuts.
“I thought [the revenues] would be pretty bad, but I didn’t realise they would be that bad,” said Brett Le Mesurier, a banking analyst with BBY, an Australian financial services group.
Weak markets, particularly in Asia, hit the bank’s capital market-facing businesses, such as its investment banking and securities division. Its annuity-style businesses such as its funds unit, however, held up.
In September, the bank cut its projection for Macquarie Securities to flat net profit growth, down from a previously forecast improvement on last year’s results. On Friday, the bank said that division – as well as its fixed income, commodities and currencies business – was now expected to report lower net profits than last year.
“As previously foreshadowed, uncertain market conditions make short-term forecasting very difficult,” said Nicholas Moore, chief executive.
Yet Macquarie Funds Group increased its assets under management by 6 per cent to A$324bn from the end of March, and its net profit contribution rose 80 per cent from the first half of last year.
Its corporate lending business showed comparable strength, and the bank’s asset and loan portfolio were up 29 per cent from last year.
“The value in this organisation is the Macquarie funds business and the annuity business, and they are performing,” said Brian Johnson, an analyst with CLSA, the Asia-Pacific brokerage.
The bank also announced that it would buy back as much as 10 per cent of its shares, helping to push its stock price up 3.3 per cent to A$25.15 for the day despite the otherwise disappointing results.
Although analysts said the announcement reflected the bank’s discipline in managing its capital, they cautioned that continued uncertainty about what the bank’s capital requirements will be under Basel III regulations makes the timing of the buy-back uncertain.
“I don’t expect it to happen any time soon. I would be amazed if it happened next year,” said Mr Le Mesurier.
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