By Cynthia Koons, Ross Kelly, The Australian, July 29, 2009
MACQUARIE Group forecast today a rise in profit for the current half year from the previous six months and signalled its intention to expand in the dispirited US and European financial sectors.
The investment bank , which has been making
headlines for distancing itself from a listed infrastructure fund model that
has become its hallmark, plans to focus its energies on growing its global
footprint at a time when others are offloading assets due to the economic
downturn.
Macquarie said its balance sheet and funding position was "strong"
and it had $4.3 billion in excess of minimum regulatory capital requirements.
The firm is looking at acquisitions in the asset management industry and in the
banking and financial services sector.
Chief executive Nicholas Moore said there were opportunities in the US and
European investment banking sectors, for one.
Still, the group tempered this confidence with caution.
Acting chairman Kevin McCann said it was too early to say the recent period of
"extreme" volatility had passed, and Mr Moore said the bank would
maintain a conservative approach to funding and capital.
Macquarie expects first-half earnings to be halfway between the levels reported
in the first and second halves of last year.
Macquarie booked a full-year profit last year of $871 million, of which $604m
was earned in the first half, indicating it is forecasting a first half 2010
profit somewhere between $604m and $267m. The mid-point is about $435.5m.
That means a decline in profits from the previous first half, but indicates the
bank is digging itself out of the slump that has plagued it ever since global
markets collapsed under the weight of Lehman Brothers' failure in September.
Macquarie's relatively upbeat forecast adds to mounting optimism that the worst
of the global financial crisis has passed and comes amid a 33 per cent bounce
in the Australian share market since early March.
The investment bank said operational performance during the first quarter of fiscal
2010 was better in all its businesses, except for the investment banking
division Macquarie Capital, at which it said the timing of certain transactions
weighed on its results.
Management said Macquarie Capital's business was lumpy and didn't express
concern about the unit's relative underperformance.
The firm's profitability was also hurt by high levels of cash on the bank's
balance sheet as the group reduced its exposure to riskier assets amid falling
interest rates.
Macquarie also expects to report a loss of $200m to adjust for the value of
some debt in the half as well as a gain of $180m on buying back some securities
and debt.
Although its profitability has been hurt in recent times, Macquarie has
sidestepped the massive writedowns experienced by its US and European peers,
largely because it had a marginal exposure to complex US real estate-based
derivatives products.
Macquarie, however, has come under fire for what has been tagged "the
Macquarie model," in which the group purchases infrastructure assets,
often with relatively high debt levels, and then rolls them into funds that it
manages for a fee.
Some of these funds are listed on stock markets and their recent poor market
performance and the rising cost of credit has prompted disquiet among investors
and market watchers about their viability.
In a sign it might want to change the model, the group recently agreed to sell
the management rights to listed satellite fund Macquarie Airports back
to the fund.
In June, Macquarie Leisure Trust Group also internalised its management and
earlier this year Canada Pension Investment Board bought Macquarie
Communications Infrastructure Group for $1.36bn.
Mr Moore denied that Macquarie's business model was broken and said it
continued to adapt to changing markets.
"The Macquarie model is about a broad diversity of businesses continuing
to develop and evolve," he told reporters. "That's continuing to take
place so the Macquarie model continues to grow."
Mr Moore downplayed the importance of Macquarie's listed and unlisted funds,
which make up only 13 per cent of Macquarie's income.
He said Macquarie had no plans to move away from management of the group's
unlisted funds
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