Macquarie Shares Slump After Forecast Disappoints

Feb. 9 (Bloomberg) -- Macquarie Group Ltd., Australia’s largest investment bank, fell the most in more than eight months in Sydney trading after its forecast for second-half profit failed to match analyst estimates.

The shares dropped 6.6 percent after Macquarie said net income in the six months to March 31 may climb 10 percent from the first half. That indicates second-half profit of A$526.9 million ($455 million), below the A$586 million average estimate of three analysts surveyed by Bloomberg.

“Some investors were looking for a greater upgrade, so on a short-term basis are happy to close out positions,” said Angus Gluskie, who oversees $300 million at White Funds Management Pty in Sydney.

Australian financial companies such as Commonwealth Bank of Australia and Axa Asia Pacific Holdings Ltd. have reported profits that beat analyst estimates as markets and economies recover from the global financial crisis. Macquarie stock more than doubled in the past year as the credit squeeze eased.

Macquarie, which earned A$479 million in the first half, said its forecast is “subject to market conditions, significant swing factors and unexpected one-off items.”

Moore ‘Balancing Act’

“They’ve issued an outlook statement that is qualified with a number of items, which seems to have muddied the water a bit instead of providing the clarity that a statement of this nature seeks to provide,” said Prasad Patkar, who helps manage about $1.5 billion at Platypus Asset Management in Sydney.

The shares tumbled to A$47.07 at 11:55 a.m. local time, posting their biggest percentage drop since May.

Sydney-based Macquarie, with capital of A$4.5 billion above the regulatory minimum at the end of December, said today the completion of acquisitions will add to services on offer worldwide, without detailing any earnings contributions.

Chief Executive Officer Nicholas Moore spent more than $770 million on acquisitions last year in North America, ranging from energy advisory and asset management units to brokerages.

“There’s a fair bit more to come,” said Hugh Dive, who helps manage about $3 billion at Investors Mutual Ltd. in Sydney. Moore is performing a “balancing act” between buying assets and keeping a capital cushion against volatility, said Dive.

Macquarie last week agreed to buy the equity trading and research operations of Sal. Oppenheim Jr. & Cie KGaA to expand its business in Europe, following a December agreement to purchase the company’s derivatives business.

Corporate Advisory

“I am not ruling out any acquisitions, but in terms of normal trends, you’d expect those to be going back to normal rates as markets settle down,” Moore said on a call with investors today. “We have sufficient capital for the plans we are working on at the moment.”

Profit at Macquarie may almost double in the next two years as takeovers pay off and fees swell from advising on mergers and acquisitions, Bank of America Merrill Lynch said in a Jan. 28 report. Macquarie Capital, which arranges debt and equity sales and gives corporate advice, will drive growth, Bank of America said.

Moore said today the operating result at that unit in the three months ended December fell from the previous quarter, though beat that of the three months ended June. That matched the trend at the securities division, the corporate and asset finance business, and the fixed-income, currencies and commodities division, he said.

‘Cyclical Effect’

In Australia, where Macquarie makes about half its profit, the benchmark S&P/ASX 200 has climbed for three consecutive quarters. If that trend continues, companies are more likely to attempt takeovers, boosting earnings at the banks advising on the deals, said Peter Swan, finance professor at the Australia School of Business at the University of New South Wales.

“There’s always a cyclical effect,” said Swan. “M&A is much more successful when investors are more optimistic. That’s what Macquarie is relying on.”

Australia’s government said on Feb. 7 that it will withdraw on March 31 a guarantee on large deposits and wholesale funding that helped banks access credit after the global financial crisis. That removal is “not expected to impact” Macquarie’s funding position, the bank said today.