Macquarie Warns Of Savage Fall In Profits
Sydney Morning Herald
Friday January 9, 2009
NICHOLAS MOORE has delivered Macquarie Group's second profit warning in seven weeks and now faces the bank's annual profit slipping below the $1 billion mark, nearly half that of predecessor Allan Moss's swansong last year.
In a market update, Macquarie said yesterday it had experienced "exceptionally challenging" trading conditions in the December quarter that hit profitability across almost all its businesses.At the same time, it offloaded more than $8 billion in assets in the last quarter as part of a $15 billion asset sale program designed to strengthen its balance sheet. A further $3 billion in asset sales are planned by the end of March.The latest sale announced yesterday, Macquarie's margin lending business, was picked up by Bendigo and Adelaide Bank. It paid $52 million in short-dated convertible preference shares which Macquarie will sell as they convert over the next 90 days.Macquarie is exiting low-margin businesses and increasing its deposit base to counter the global financial crisis that has rocked investment banks and ruined its Wall Street peers.Macquarie has now exited divisions including Italian mortgages, margin lending, warehousing of leasing business and real estate investments. On top of the $15 billion asset sale target, the bank began a wide-ranging redundancy program that cost more than 1000 jobs before Christmas.But the measures won't be enough to spare Mr Moore, who took over as the group's chief executive eight months ago after Mr Moss's retirement, from delivering Macquarie's first fall in annual profit in 16 years.Macquarie yesterday repeated its caution from its November interim results that "unprecedented market conditions make short-term forecasting extremely difficult and . . . subject to a number of significant swing factors notably market conditions, asset realisations, completion rate of transactions and asset prices".It said market conditions had worsened in the December quarter and "were exceptionally challenging for almost all Macquarie's business, adversely impacting levels of business activity and profitability".Macquarie shares slumped $1.25 yesterday to $32.50.ABN Amro analyst John Heagerty said the statement constituted a fresh profit warning. "It's difficult really to interpret it as anything else. It's certainly not an upgrade," Mr Heagerty said. "There's no getting away from the fact that there are deteriorating trends across the board. All parts of the economy are starting to be affected now. I think now post-Lehman [Brothers' collapse] things have just deteriorated quite rapidly."At last year's full-year result, Macquarie said repeating the $1.8 billion result would be a challenge "but may be achievable". In November, it expected its second-half result to be in line with the first half, leading to analyst consensus of a $1.2 billion full-year profit. The latest warning put the $1 billion mark in question, Mr Heagerty said."It's pretty evenly balanced at the moment. It depends on the next three months. It's certainly a possibility."
© 2009 Sydney Morning Herald