By Robb M. Stewart
MELBOURNE, Australia--Global-market volatility and a weaker
local currency is helping boost profit for Australian investment
bank Macquarie Group, which on Monday emboldened its earnings
guidance.
Macquarie, which began life as a subsidiary of the London-based
merchant bank Hill Samuel & Co., forecast a jump of between 10%
and 20% in net profit in the year through March. In late October,
Macquarie said merely that earnings would be slightly higher, but
the consensus view was for a less-than-10% rise in profit in the
current fiscal year.
As a result of the discrepancy, analyst forecasts are likely now
being upgraded, said Omkar Joshi, an investment analyst at
Watermark Funds Management in Sydney. Macquarie's shares jumped as
much as 6.7% in Sydney following the more specific guidance,
outpacing the wider market's gains. The stock, which rose 6% last
year, had fallen roughly 5% this year up until the end of last
week.
Volatility in equity and commodity markets has risen in recent
months as concern has grown over the health of the global economy--
with oil and other commodities plunging, China's growth slowing and
Europe remaining wobbly. Such turbulence helps investment banks
like Macquarie, whose fund-management business in particular is
well placed to profit from sharp and frequent price movements.
With almost two thirds of Macquarie's income coming from outside
Australia, the bank has also got a windfall from a falling
Australian dollar against, particularly, a resurgent U.S. currency
as that country's economy strengthens. The Aussie fell by around
15% last year as the price of the country's biggest export, iron
ore, also plunged by almost 50%, knocking confidence in Australia's
prospects.
Macquarie's profit jumped 49% last fiscal year to 1.27 billion
Australian dollars (US$1.04 billion), the highest level since 2008.
Earnings rose 35% to A$678 million in the first six months of the
current fiscal year, already beating analyst expectations.
In recent years, Macquarie has shifted its focus away from
riskier exposure to more reliable annuities-style investments to
balance its cyclical investment-banking and trading businesses. At
the same time, it has moved to cut costs. In the first half of the
fiscal year, Macquarie's funds division, its largest unit, recorded
a 57% jump in profit thanks in part to a sharp rise in performance
fees.
The company is set to update the market on its operations on
Feb. 17. On Monday it said its annual result remained subject to
the completion rate of transactions it is involved in, and flagged
uncertainties including global-market conditions and the impact of
any unpredictable foreign-exchange movements.
Write to Robb Stewart at robb.stewart@wsj.com
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