Macquarie Group Ltd. (MQG) forecast profit growth this fiscal year as its U.S. expansion boosts returns, and dealmaking and equity trading rebounds.
Australia’s biggest investment bank said earnings will top the A$956 million ($1.04 billion) posted today for the 12 months to March 31. Second-half net income slipped 3.2 percent to A$553 million from a year ago, beating the A$544 million median estimate of analysts surveyed by Bloomberg News.
While Macquarie joins Wall Street rivals including Goldman Sachs Group Inc. in reporting a drop in earnings, the Sydney-based bank’s second-half trading income jumped 27 percent from the preceding six months. Chief Executive Officer Nicholas Moore positioned the bank for a rebound in markets by expanding in the Americas, Asia and Europe, which accounted for a record 64 percent of earnings in the second half.
“They’ve got what they need to profit from any recovery,” said Mark Nathan, who helps manage $5.5 billion of assets at Arnhem Investment Management in Sydney. “From here on out, the transition is largely complete, and now it’s just building out what they’ve already got.”
Shares of Macquarie gained 0.7 percent to A$35.16 in Sydney today. The benchmark S&P/ASX 200 index fell 1 percent.
Moore, who expanded into new products and markets following the financial crisis, said today that “overall we expect an improved full-year 2012 result.”
That’s “reflective of where we’ve been trading over the last six months” when earnings rose from the previous half-year period, Moore said in a telephone interview with Bloomberg News. “Those second-six month conditions we don’t see abating any time soon.”
Moore, 52, earned A$8.69 million in the year to March 31, down from A$9.56 million the previous year, according to the company’s annual report, which was also released today.
Profit at Macquarie Capital, which advises on takeovers, debt sales and stock issues, more than doubled to A$196 million from A$85 million in the half-year ended Sept. 30.
“The pipeline is definitely better than it was last year,” Chief Financial Officer Greg Ward told reporters today.
Transactions involving companies in Asia in the six months to March 31 climbed to $384 billion from $310 billion in the prior six months, according to data compiled by Bloomberg. Macquarie worked for Rio Tinto Ltd. on its A$3.9 billion offer for Riversdale Mining Ltd., and advised Origin Energy Ltd. as it bought New South Wales electricity assets, the data show.
Net trading income at Macquarie’s securities business in the half-year ended March 31 rose 46 percent to A$217 million from the previous six months, today’s report shows. Fee and commission income was little changed at A$464 million.
Profit at the fixed income, currencies and commodities unit, which contributed the most to the group’s earnings, jumped to A$408 million in the six months ended March 31 from A$167 million in the previous half-year period.
“Globally we’re seeing an improvement in confidence, but certainly people are not at a period of optimism just yet,” Moore told Bloomberg in an interview. “Things have become calmer than they were, but we continue to be in uncertain markets.”
The proportion of Macquarie’s full-year income generated outside Australia was 60 percent, with 30 percent derived from the Americas. Asia contributed 16 percent, while Europe, the Middle East and Africa accounted for 14 percent.
“Macquarie has invested heavily in markets outside Australia over the past two years,” Victor German, an analyst at Nomura Australia Ltd. in Sydney, said in an interview ahead of today’s earnings. “We are expecting to see some dividends and benefits from that investment materialize.”
Macquarie, founded in 1969 with three employees, had a 15,556-strong payroll as of March 31, after Moore almost doubled his workforce in the Americas in the last two years by buying units such as Fox-Pitt Kelton Cochran Caronia Waller LLC.
“The world market is improving, prices have moved up and so therefore it’s less appealing to buy and more appealing to grow,” Moore said in the phone interview today. “If opportunities do arise, we’ll step up, but at the moment, given the improved market conditions we’ve been experiencing, it looks less likely.”
As of March 31, Macquarie had A$3 billion of capital above the regulatory minimum, down from A$4 billion a year earlier. The group’s return on equity was 8.8 percent in the 12-month period, compared to 10.1 percent a year earlier. In the fiscal second half, the measure was 10.2 percent.
“We’d like it to be higher,” Macquarie’s Ward told reporters today. “There is still a lot of improvement possible.”
The bank plans to pay a second-half dividend of A$1 a share, taking the full-year payout to A$1.86.
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