Macquarie Falls After Saying M&A Activity Subdued: Sydney Mover

Feb 11, 2014 1:16 am ET

Feb. 11 (Bloomberg) -- Macquarie Group Ltd. shares fell the most in nine months as Australia’s largest investment bank said mergers and acquisitions activity was muted even as it forecast a higher profit for the year.

Macquarie slid 3.8 percent, the sharpest decline since May 16, to A$53.52 at the close in Sydney after it said in a statement that while market conditions were improving, customer activity in some capital markets-facing businesses was subdued. It continued to expect net profit for the 12 months ending March 31 would be higher than a year earlier.

“Macquarie’s outlook was a lot more cautious than what the market expected,” Angus Gluskie, chief investment officer at White Funds Management, which manages $550 million including Macquarie shares, said by phone. “While the level of market activity has been strong in the last quarter, Macquarie’s comments seem to suggest they haven’t benefited as much from it as the investors expected. In short, while the business seems to be ticking along it isn’t yet spectacular.”

Chief Executive Officer Nicholas Moore has undertaken a cost-cutting program in the past three years while shifting to less volatile businesses such as lending and fund management. The Sydney-based bank continues to increase its funds management business and grew its mortgage lending book in Australia by 8 percent in the quarter, it said today.

The outlook for each of the bank’s operating groups is unchanged apart from its fixed-income, currencies and commodities unit, where net profit for the 12 months ending March 31 has potential to be in line with the year earlier, Macquarie said. It previously forecast a fall for that unit.

Fund Management

The bank may report an increase in net profit to A$1.19 billion ($1.07 billion) for the full year, from A$851 million a year earlier, according to the mean estimate of 11 analysts surveyed by Bloomberg. Macquarie’s profit last year gained for the first time in three years.

Second-half profit is expected to be stronger than the first half, the bank said. Macquarie reported a profit of A$501 million for the six months ended Sept. 30.

Macquarie’s distribution of its stake in Sydney Airport to shareholders resulted in an income gain of A$228 million, it said.

The bank boosted its funds under management to A$430.7 billion by the end of December from A$380.7 billion as of Sept. 30, helped by the acquisition of ING Investment Management Korea. It had surplus capital of A$2.7 billion, the bank said.

Equity Offerings

“Market conditions continued to show signs of improvement, however client activity remains subdued for some capital markets-facing businesses,” Moore said in the statement.

Macquarie Securities and Macquarie Capital increased equity capital markets activity, particularly in Asia and Australia, while M&A levels remained subdued, the bank said.

Equity offerings are gaining momentum in Australia, Macquarie’s largest market. A total of A$9.8 billion in equity was raised in the three months to Dec. 31, the most since the third quarter of 2009, according to data compiled by Bloomberg. Macquarie, which was the second-largest underwriter in the country in 2013, behind UBS AG, is seeing the biggest buildup in initial public offerings in six years, Hugh Falcon, co-head of equity capital markets at the bank, said Jan. 20.

Total staff at Macquarie fell by 323 to 13,578 as of Dec. 30, due primarily to the sale of its Canadian private wealth business in November.

Macquarie’s updated forecast follows Morgan Stanley’s fourth-quarter earnings, which beat estimates Jan. 17. Goldman Sachs Group Inc. reported a day earlier that net income dropped 19 percent as trading revenue fell. The Wall Street firms cut their compensation ratios, according to company filings.

Macquarie shares, which climbed 58 percent in 2013, the most in four years, have fallen 2.6 percent this year. The benchmark S&P/ASX200 index has lost 1.8 percent. The MSCI global index of shares climbed 12 percent in the past 12 months.

--Editors: Iain McDonald, Russell Ward