Macquarie warns of challenging year, shares fall
SYDNEY (Reuters) - Macquarie Group Ltd (MQG.AX), Australia's top investment bank, said its second-half earnings barely grew and warned it would struggle to avoid a drop in profit this year, sending its shares down as much as 5.3 percent.
Investors are cautious about Macquarie's prospects even though the steady result contrasted with credit troubles that have mauled Wall Street investment banks, many of which have written off billions of dollars.
Macquarie repeated it had no material exposure to problem credit but said worsening debt and equity markets had crimped earnings in the U.S. and Europe, while its funding costs had risen as its mortgage business was wound back. It also took a charge as the value of its listed real estate investments fell.
"It's clearly the economic environment that is going to lean on them going forward," said Robert Hook, portfolio manager at SG Hiscock & Co.
"There is not a big pipeline of M&A activity and although we've seen a few takeovers, things are not quite the same."
A pull-back in global equity markets could further impact demand for assets that Macquarie sells from its balance sheet and other managed funds.
Nicholas Moore, who takes over as chief executive when Allan Moss steps down after nearly 15 years at the end of this week, told analysts the global credit crunch and decline in debt market activity had hampered mergers and acquisitions.
"It will be challenging to repeat last year's record performance, but this may be achievable," Moore said.
He added it was "possible there will be opportunities for acquisitions in the current environment due to our strong capital position."
Second-half profit for the six months to March was A$743 million ($708 million), up just 1.4 percent from A$733 million a year earlier and compared with six forecasts that averaged A$753 million, according to calculations by Reuters.
Shares in Macquarie were down 4.6 percent at A$63.08 by 0240 GMT. The stock traded near A$100 a year ago but dropped as low as A$43 in March on global fears of an economic slowdown and mounting credit market troubles sparked by the collapse of the high-risk U.S. subprime mortgage market.
"I don't expect them to meet the record profits this year," said Timothy Mak, analyst at Lehman Brothers in Sydney. "Their guidance is fairly non-specific."
Mak said investors were disappointed Macquarie had failed to win a 75-year lease for Pennsylvania's Turnpike toll road, for which a group led by Citigroup (C.N) offered $12.8 billion.
"In the overseas markets you are starting to see a few more serious competitors. It will be slightly harder," Mak said.
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