Macquarie Cuts Outlook for Securities Unit on Slower Markets

Jul 24, 2014 2:49 am ET

(Updates with Macquarie stock falling most in more than five months in third paragraph.)

July 24 (Bloomberg) -- Macquarie Group Ltd. said earnings at its securities division will probably fall this fiscal year after markets slowed in the three months through June.

Lower volatility and trading volumes, particularly in Asia, also hurt some fixed-income, currencies and commodities units, Australia’s largest investment bank said in a statement today.

Macquarie fell the most in more than five months in Sydney trading as the bank said earnings from its operating groups dropped in the first quarter of the fiscal year. Chief Executive Officer Nicholas Moore has focused on less volatile businesses including lending and funds management to offset the cyclical nature of investment banking and trading.

“The securities business is obviously very dependent on market conditions,” Moore told reporters on a conference call today. “It is obviously suffering. The low volumes we’re seeing coming out of the Asian market are having a direct impact.”

Macquarie shares fell 2.9 percent to close at A$59.51, the steepest drop since Feb. 11. The decline trimmed the gain this year to 8.3 percent.

The group left unchanged the outlook for its other divisions, including the funds business, which is Macquarie’s most profitable unit. Sydney-based Macquarie didn’t provide any specific numbers with its outlook.

Improvement Expected

“The update was weaker than the market was expecting,” Omkar Joshi, an analyst at Watermark Funds Management in Sydney, said in an e-mail. “But there are still another nine months to go.”

Macquarie said its performance should improve in the second half of the year and expects group profit for the 12 months ending March 2015 to broadly match last year’s result.

Net income at Macquarie in the 12 months ended March 2014 jumped 49 percent to A$1.27 billion ($1.2 billion). Macquarie’s funds division contributed A$1.05 billion of the total. The unit had A$405 billion in assets under management at June 30.

Moore said the bank will keep its securities business because it can rebound when markets improve. The division last year swung from a loss to a profit of A$107 million.

“We still believe it can be a profitable contributor to the group and it can provide the sort of returns on capital that justifies the retention of the business,” Moore said. “In good markets it can provide very good returns.”