Macquarie Strengthens Profit Outlook

By Robb M. Stewart 

MELBOURNE, Australia--Global-market volatility and a weaker local currency is helping boost profit for Australian investment bank Macquarie Group, which on Monday emboldened its earnings guidance.

Macquarie, which began life as a subsidiary of the London-based merchant bank Hill Samuel & Co., forecast a jump of between 10% and 20% in net profit in the year through March. In late October, Macquarie said merely that earnings would be slightly higher, but the consensus view was for a less-than-10% rise in profit in the current fiscal year.

As a result of the discrepancy, analyst forecasts are likely now being upgraded, said Omkar Joshi, an investment analyst at Watermark Funds Management in Sydney. Macquarie's shares jumped as much as 6.7% in Sydney following the more specific guidance, outpacing the wider market's gains. The stock, which rose 6% last year, had fallen roughly 5% this year up until the end of last week.

Volatility in equity and commodity markets has risen in recent months as concern has grown over the health of the global economy-- with oil and other commodities plunging, China's growth slowing and Europe remaining wobbly. Such turbulence helps investment banks like Macquarie, whose fund-management business in particular is well placed to profit from sharp and frequent price movements.

With almost two thirds of Macquarie's income coming from outside Australia, the bank has also got a windfall from a falling Australian dollar against, particularly, a resurgent U.S. currency as that country's economy strengthens. The Aussie fell by around 15% last year as the price of the country's biggest export, iron ore, also plunged by almost 50%, knocking confidence in Australia's prospects.

Macquarie's profit jumped 49% last fiscal year to 1.27 billion Australian dollars (US$1.04 billion), the highest level since 2008. Earnings rose 35% to A$678 million in the first six months of the current fiscal year, already beating analyst expectations.

In recent years, Macquarie has shifted its focus away from riskier exposure to more reliable annuities-style investments to balance its cyclical investment-banking and trading businesses. At the same time, it has moved to cut costs. In the first half of the fiscal year, Macquarie's funds division, its largest unit, recorded a 57% jump in profit thanks in part to a sharp rise in performance fees.

The company is set to update the market on its operations on Feb. 17. On Monday it said its annual result remained subject to the completion rate of transactions it is involved in, and flagged uncertainties including global-market conditions and the impact of any unpredictable foreign-exchange movements.

Write to Robb Stewart at [e-mail]

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