Australia’s Macquarie warns on profit

By Narayanan Somasundaram

SYDNEY (BestGrowthStock) – Australia’s top investment bank Macquarie Group Ltd (MQG.AX: ) warned investors it would miss profit forecasts after weak markets took a toll on its trading and advisory business, sending its shares to a 15-month low.

Macquarie, dubbed the “millionaires’ factory” for its senior bankers’ hefty pay packages, said its first half net profit would fall by a quarter and its fiscal year 2011 profit would be in line with last year’s.

The forecasts follow two earlier warnings on market conditions and come as analysts and investors call on the bank to cut jobs or pay to protect earnings.

Macquarie is not alone in suffering. Global rivals such as Goldman Sachs (GS.N: ), Morgan Stanley (MS.N: ) (Read more about the money market today. ), investment bank units of JPMorgan (JPM.N: ) and Credit Suisse (CSGN.VX: ) have all shared grim outlooks.

“The level of deal activity suggests there will be an earnings shortfall in the near-term,” said Christopher Hall, chief investment officer at Argo Investments , which owns Macquarie shares.

“But on a two to three year time frame, their focus on unlisted funds, deployment of surplus capital and a general lift in market sentiment should pay off.”

Globally advisory fees have fallen as deal flows slowed trading volumes have thinned amid increased market volatility and fears of a double-dip recession.

Equity capital market volumes have slid 10 percent and debt raising have slipped nearly a fifth so far this year, failing to offset a 23 percent rise in mergers and acquisitions volumes, according to Thomson Reuters data.

Macquarie’s trading and advisory businesses make up nearly three-quarters of its revenue.

At 0422 GMT, Macquarie shares had trimmed losses, down 5.2 percent at A$35.07 in a positive broader market (.AXJO: ). The shares had fallen as much as 8.1 percent to its lowest since June 2009.

The stock, down 28 percent so far this year, has recorded just three annual falls in the past 14 years.

“Conditions in most markets have continued to be weak,” Deputy Managing Director Richard Sheppard said in a statement.

“Full-year result continues to be impacted by the cost of our continued conservative approach to funding and capital.”

Macquarie’s prediction for a 25 percent first half profit fall compares with consensus expectations for an 11 percent rise. Its guidance that 2011 full-year profit would be in line with the previous year is also worse than forecasts for a 14 percent rise.

Macquarie until recently consistently beat expectations with its model of buying and pooling assets, listing them on an exchange and charging fees for managing.

But a migration to a more conventional investment banking model in the wake of the global financial crisis has married its fortunes to the market.

Macquarie, which gets almost half its revenue from Australia, has seen its dominance at home slip.

While it has maintained its No. 2 position in the Australia M&A league table, its market share has fallen more than a third, with UBS (UBSN.VX: ) gaining at the expense of Macquarie and last year’s leader Goldman Sachs. It is not among advisors in BHP Billiton’s (BHP.AX: ) $39 billion bid for Potash Corp

(POT.TO: ).

It has fallen to fifth position in its mainstay equity underwriting business ceding ground to Bank of America Merrill Lynch (BAC.N: ), JPMorgan and Royal bank of Scotland (RBS.L: ), according to Thomson Reuters data.

Macquarie, which has A$3.1 billion in surplus capital and A$29 billion in liquid assets, had twice earlier warned concerns about the global recovery had dragged down market activity to their lowest level since 2004, pushing analysts to cut forecasts.

But this is the first time it has given a specific forecast and analysts are expected to slash their forecasts once again.

(Editing by Jean Yoon)

Australia’s Macquarie warns on profit