SYDNEY (Reuters) – Macquarie Group, Australia’s biggest investment bank, posted a sharp decline in first-half profit and wrote off $750 million from assets, but its shares leapt after it doused fears it needed to raise capital.
The bank, which is heading for its first fall in annual profit in 17 years, had been hammered by investors in recent months as it suffered from a reputation for being an aggressive, expansive bank with market exposure worldwide.
Global investment banks have been punished by investors questioning their high-risk, high-leverage business models following the collapse of Lehman Brothers, which prompted Goldman Sachs and others to become bank holding companies.
Macquarie reported a 43 percent drop in half-year profit, dented by A$1.14 billion in gross asset writedowns, but investors cheered the fact that it did not announce a big share sale to shore up its capital like a number of other banks.
Its shares soared as much as 26 percent at one point to A$26.03, after touching a 6-year low on Monday, as Macquarie indicated it was in no rush to raise capital and was already sitting above the minimum capital requirement.
The stock ended up 16.5 percent at A$24, while the main index dipped 3.6 percent.
“It’s a relief. There’d been some concern about an equity raising in the profit announcement today. That didn’t eventuate and the numbers were not too far away from forecasts,” said Leigh Gardner, head of distribution at ABN AMRO.
Australia’s largest lender, National Australia Bank (NAB.AX), said this month it would sell up to A$3 billion in shares to strengthen its balance sheet, prompting analysts to predict others would follow suit as bad debts increase amid the global credit squeeze.
Macquarie, known locally as “the millionnaire factory” as it is said to pay the highest executive salaries in Australia, said its first-half employment expenses were down 48 percent on the previous corresponding period, driven by significantly lower profit share.
Macquarie was vague on any potential job cuts that have swept through the financial industry.
“All those winding back steps that we have taken have all had an impact on jobs already. These initiatives are continuing across the board,” Chief Executive Nicholas Moore said after the results announcement.
Macquarie reported April-September net profit of A$604 million, down from A$1.06 billion a year earlier, but in line with market forecasts. After tax, the writedowns took A$395 million away from net profit.
“While the extreme market conditions have led to a number of writedowns and one-off costs in the latest half year, the underlying performance of the Macquarie business has been solid,” Moore said.
“Importantly, the group took its medicine with A$1.1 billion of writedowns against managed funds and unlisted assets,” Citigroup said in a note to clients.
The group said its balance sheet was strong, and it was holding capital at about 40 percent above the minimum regulatory requirement.
“We would only look to raise capital if we found a really good use and really good need for capital … we have got a lot of capital already going forward,” Moore said.
He said acquisition opportunities, as competitors exit non-core activities, could provide such a need.
Macquarie had warned in mid-July that its first-half net profit would be 25-40 percent below a year earlier, and its earnings for the full-year to end-March would not beat last year’s, due to difficult market conditions.
The last time Macquarie reported a fall in annual net profit was in 1991/92, during the last recession in Australia.
Macquarie has not been directly exposed to the U.S. subprime mortgage meltdown and has avoided the pain of many of its U.S. and European peers, but its shares have fallen 69 percent so far this year as part of a global market rout.
In August, smaller domestic rival Babcock & Brown reported a 24 percent drop in first-half net profit. Shares in Babcock have plunged 98.5 percent this year, while the broad S&P/ASX 200 index is down 42.5 percent. Shares in Macquarie have fallen 69 percent since the beginning of the year.
Besides its traditional investment banking operations, Macquarie manages about A$225 billion worth of infrastructure assets, such as toll roads and airports, which it bundles into listed and unlisted funds, and manages, earning fees in return.
By Mette Fraende
(Additional reporting by Sonali Paul and Denny Thomas, Editing by Mark Bendeich & Ian Geoghegan)