Macquarie delivers profit warning

MACQUARIE has sounded an effective profit downgrade by warning that its three largest businesses are unlikely to reach forecasts.

In a first-quarter update at the bank’s annual meeting, Macquarie chief executive Nicholas Moore said its corporate advisory, securities and fixed income, currencies and commodities (FICC) units were each facing revenue pressure because of the ongoing global market upheaval.

If the volatile conditions were maintained for the rest of Macquarie’s financial year, the trio of divisions would not make the same contributions to the investment bank’s bottom line as they did in last year, Mr Moore said.

The outlook was not a profit warning but a “statement of fact”, he said. But investors interpreted the news negatively and sold down Macquarie’s shares by 2.71 per cent to $37.35. The stock was down by more than 5 per cent at one point during the session.

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“The market conditions are impacting on the operations of our business, of our three largest businesses,” Mr Moore said.

“Unless the market conditions improve, we don’t expect them to meet their results of 2010 in 2011. We don’t think they will meet their results of last year.”

In the previous financial year, Macquarie Securities, which is the bank’s stockbroking and research arm, contributed $580 million to the bank’s bottom line. Macquarie Capital, which encompasses investment banking, injected $657m.

The FICC division was a star performer for Macquarie during the global downturn because of its trading strategies. It contributed $827m to Macquarie’s profit last year.

Mr Moore last night told The Weekend Australian the performance of FICC was influenced by a lack of trading on global markets and that rival investment banks had shown similar results to Macquarie’s experience.

“All of the banks out there are suffering the same quiet circumstances,” he said.

“If you look at the results from Wall Street and the European banks it shows the same. It’s just a lack of confidence — people are very nervous, corporates are not issuing.

“If you’re an institutional investor you’re very conservative. The aim of the day is to take risk off the table; everyone is sitting and watching. People aren’t trading and volumes are down. These (FICC) are flow-based businesses: they need trading to occur.”

In a presentation to shareholders at the annual meeting in Sydney, Macquarie emphasised that the decline of investment banking revenue was being felt across the industry.

It said the global investment banking pool of fees had fallen 32 per cent compared with last year and said the first-quarter revenue for the year was the lowest for six years.

Despite the revenue slide, Mr Moore defended the performance of Macquarie Capital, which recently led the high-profile float of Agricultural Bank of China.

Mr Moore also downplayed suggestions Macquarie was on the verge of ordering a widespread reduction of its workforce in Macquarie Capital, similar to the job cuts in 2008.

“All our businesses are looking at their resources and their people and their development plans and what have you, so it’s really not for me to comment on any individual businesses,” he said.

Citi analyst Wes Nason said the dim outlook delivered by Macquarie would prompt analysts to downgrade their profit forecasts for the bank for the current financial year.

Mr Nason said the first-half profit estimate was now $500m, which meant the full-year consensus earnings prediction of $1.4 billion would be a “stretch”.

At the annual meeting, shareholders approved Macquarie’s plan to increase its remuneration pool by $1m for its non-executive directors. But there was a 5 per cent vote against it. There was a similar level of dissent about tying executive salaries more closely to profit performance.

source : www.theaustralian.com.au

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