May 2, 2014 / 3:55 AM / 4 years ago

US gas, power markets drive Macquarie annual profits

* Record net operating income from fixed income, currencies and commodities unit

* Analysts caution similar growth may be hard to replicate

* Expects trading unit to benefit from better markets in medium term

By Swati Pandey and Melanie Burton

SYDNEY, May 2 (Reuters) - Strong trading gains in the U.S. energy markets bumped up annual earnings for top Australian investment bank Macquarie Group Ltd, helping lift its net profit over A$1 billion ($927.25 million) for the first time in four years.

Net operating income from trading hit a record A$1.7 billion led by gains in gas and power markets in the United States and global oil, while client hedging and trading in metals and energy segments were also up.

Over the last decade, the business has become increasingly important to the Australian banking group’s fixed income, currencies and commodities unit (FICC), which now generates some 60 percent of its operating income from commodity markets.

Macquarie has grown its commodity trading business through a handful of bite-sized U.S. acquisitions, and on Friday re-iterated that it was still looking to expand through self-funded growth initiatives and acquisitions.

It started small, buying a natural gas trading desk, Cook Inlet Energy Supply, in 2005, and followed that with a larger deal for Constellation Energy Partners’ downstream natural gas trading operations in 2009. It began trading physical power in 2007 and, eventually, physical oil in 2010.

While Macquarie expects the segment to benefit from better market conditions in the medium term, analysts caution that such massive trading gains may not be easily replicated in coming years.

“It’s a good, large business (but) it’s a cyclical business, not a growth business. Some years you make money, some years you don‘t,” a banking sector analyst with a foreign brokerage in Sydney said.

FICC, which provides trading, research, sales and financial services across the globe, posted net profit of A$726 million for the year-ended March 2014 compared with $563 million a year ago. The combined annual profit for the group rose nearly 50 percent from a year ago to A$1.27 billion.

Macquarie, which maintained its ranking as No. 4 U.S. physical gas marketer in North America, said overall income from the Americas exceeded its strong Australian business for the first time.

Profits may have been boosted by higher natural gas prices in the United States, where an exceptionally cold winter resulted in a spike in demand for the fuel. Natural gas prices at key delivery point Henry Hub rose more than 50 percent in the beginning of the year.

Trading and hedging in metal and agricultural markets also picked up after a weak first half. Macquarie’s physical metals trading and financing activities also boosted overall operating income, the bank said.

In particular, the bank has recommended a bullish stance on nickel given a ban on Indonesian ore exports that came into force in January. Nickel prices are up 31 percent this year. ($1 = 1.0785 Australian Dollars) (Additional reporting by Jacob Gronholt-Pedersen in SINGAPORE; Editing by Stephen Coates)

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