Macquarie Sees Income Meeting Forecasts

Australian investment bank Macquarie Group warned its profit would fall 50 percent this year, the first decline in 17 years, due to writedowns, but underlying income was in line with market forecasts.

Macquarie's shares rose 4.3 percent after the update as investors were relieved that operations had not deteriorated more than expected.

"It's soft as expected," said a portfolio manager, who declined to be named ahead of Macquarie's full briefing.

He said the bank's forecast for a 15 percent fall in underlying income was roughly in line with market forecasts, but the outcome could be worse if conditions continue to worsen.

"Liquidity looks pretty good. But Tier 1 capital is getting a bit tight," he said. Macquarie said in an operational update on Thursday that it saw an after-tax profit of about A$900 million (US$584 million) for the year to March 31, down from A$1.8 billion last year, hurt by an additional writedown of A$900 million in the second half.

That marked a downgrade from last November, when it said second-half profit would be broadly in line with the first half, which would have equated to a full-year result of about A$1.2 billion, but it was no surprise.

The new forecast is slightly below analysts' expectations of A$1.07 billion, according to Reuters Knowledge.

Macquarie already took A$1.14 billion in gross asset writedowns in November, and warned last month it faced extremely tough market conditions in the December quarter that would hit its profits.

The last time Macquarie reported a fall in annual net profit was in 1991/92, during the last recession in Australia.

"We informed the market at our 2008 full-year results, 2008 annual meeting and the 2009 first-half results presentation that unprecedented market conditions made short-term forecasting extremely difficult," said Chief Executive Nicholas Moore.

The group said market conditions remained extremely challenging, but opportunities were emerging despite the tough conditions, and Macquarie was well placed in the medium term.

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On Wednesday, Macquarie said it had agreed to buy one of the largest natural gas trading operations in north America from Constellation Energy.

While Australian banks have avoided much of the pain of a global financial crisis that has hurt U.S. and European peers, Macquarie and others are feeling the pinch as the domestic economy slows and bad debts rise.

For Macquarie that means a downward re-evaluation of assets, fewer deals, less fees, and much higher borrowing cots.

Macquarie said its cash and liquid assets of A$32.1 billion significantly exceeded short-term debt of A$12.7 billion.

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