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Macquarie's Profit Up, Sees Challenge Ahead

Macquarie Group, Australia's top investment bank, posted a 1.4 percent rise in second-half profit, and said it would be challenging, though possible, to repeat its record full-year profit
this year.

Second-half profit was A$743 million (US$708 million), up from A$733 million a year earlier and compared with a range of forecasts of between A$725 million and A$780 million, according to calculations by Reuters.

Net profit in the 12 months to March rose 23 percent to a record A$1.803 billion from A$1.463 billion.

Macquarie had said in November it expected the second half to be at least in line with the year-earlier period but down on a strong first half of A$1.06 billion.

Six analysts on average had projected full-year profit to rise 24 percent to A$1.813 billion. Five of the six analysts rated the stock a buy.

The steady result is in contrast to the troubles that hit Wall Street investment banks, many of which have written off billions of dollars due to their exposure to distressed subprime mortgage loans and related high-risk credit instruments.

Macquarie has no exposure to U.S. subprime mortgage loans and repeated it had no material exposure to problem credit. Still, a pull-back in global equity markets could impact demand for assets Macquarie sells from its balance sheet and other managed funds.

"The current state of financial markets means that it will be challenging to repeat last year's record performance, but this may be achievable," said Nicholas Moore, who takes over as chief executive on Saturday when Allan Moss steps down after nearly 15 years.

"It is also possible there will be opportunities for acquisitions in the current environment due to our strong capital position," Moore said.

Punished

Since the start of the credit crisis, nervous investors have punished Macquarie and smaller domestic rival Babcock & Brown on any whiff of trouble at bigger global rivals such as Goldman Sachs.

Shares in Macquarie, which manages about A$200 billion in global infrastructure assets, closed on Monday at A$66.10. The stock traded near A$100 a year ago but dropped as low as A$43 in March.

Both debt and equity market conditions were tougher in the last half of the year, the bank said.

Credit market deterioration affected earnings in the U.S. and Europe, funding costs rose as Macquarie wound back its mortgages business and it wrote down the value of holdings in listed real estate investments.

Lucrative asset sales, including a stock market float of mining services company Boart Longyear, took place in the first half.

Macquarie had said its full-year profit would be at least A$1.8 billion as strong conditions in Asia boosted its regional broking business.

International income rose to A$4.3 billion, or 57 percent of total operating income. Asia-Pacific income rose 71 percent.

Apart from its traditional investment bank operations, Macquarie manages infrastructure assets, such as toll roads and airports, which it bundles into listed and unlisted funds.

It earns fees in return for managing these assets, the value of which jumped 18 percent to A$232 billion.

Key profit drivers were strong equities unit performances in Asia, Australia and Europe in the first half, investment banking deal flows, record volumes in foreign exchange and commodity businesses, and record performance fees.

The group's capital base stood at A$10 billion at end March.

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