Macquarie Bank, Australia's top listed investment bank, said on Friday its first-half profit is expected to be about 40% higher than the previous corresponding period, on strong M&A flows. But Macquarie added that there had been a slowdown in deals due to current market conditions.
Looking to soothe investor nerves about its vulnerability to a global credit squeeze, Macquarie said it had no material problem credit exposures and no exposure to structured investment vehicles.
Its exposure to the hedge fund industry, which has been hit hard by heavy stock market losses and as banks reduced credit lines amid a crisis in the U.S. subprime market, was also modest.
Macquarie shares rose as much as 3.7%, in a firm overall market, though the stock is still down 24% from a life high in May.
Macquarie, though, has not been totally immune to events in global credit markets, and CEO Allan Moss noted a slowdown in deals. "Deals aren't being pulled, some deals are slowing down," he told the firm's first analysts briefing since a credit crunch roiled markets more than a month
Australia's top lenders such as National Australia Bank are being forced to shift billions of dollars of loans back onto their balance sheets as once abundant liquidity in the short-term commercial paper market has dried up.
"We are conservatively capitalized ... and we are well funded," Moss said earlier in a statement. "All groups are operating profitably, there are no unusual provisions or write-downs."
Chris Halls, portfolio manager with Argo Investment, which owns 3.78 million Macquarie Bank shares, said Moss was "putting all the skeptics to bed." "Macquarie has sent a clear and strong message to the market that its business is different from other Wall Street banks," he added.
Macquarie had warned that retail investors in two of its debt funds could face losses of up to 25% due to the credit squeeze.
Macquarie's confident outlook comes ahead of Wall Street banks' reporting season over the next few weeks and less than a month after smaller rival Babcock & Brown upgraded its full-year profit forecasts.
Moss said April-September profit would be strongly up on the A$730 million (US$608 million) posted a year ago.
Macquarie -- which buys infrastructure and real estate assets around the globe, packages them into listed and unlisted funds and earns fees for managing them -- said assets under management rose 14% from March to A$225 billion at end-August.
Like many Wall Street investment banks such as Goldman Sachs and Merrill Lynch, Macquarie has thrived in recent years on the back of a boom in share markets and private equity deals.
It raised A$12.4 billion in April-August, with two-thirds of that coming from international investors.
However, the rising cost of debt caused by the global credit crunch has slowed buyout deals, while stock market volatility has curbed new share issuances.
On the plus side, volatile stock markets have boosted equity market volume to records in Australia and Asia, Macquarie said, adding that the investment banking pipelines were reasonable. "There was very strong M&A completion in the first quarter to June," Moss said.
Deputy Managing Director Richard Sheppard said Macquarie's planned restructuring was on track. Macquarie had flagged previously it would operate under a non-operating holding company structure, which would allow it to grow its non-banking businesses.