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UBS: Macquarie Bank - Trading update - 1H08 up 40%
17/09/2007


Macquarie Bank
MBL.AX - PRICE TARGET: $114
Trading update - 1H08 up 40% on pcp

MBL Trading Statement - "Up strongly on pcp" = +40%:

MBL provided a trading update stating that it expects 1H08E (ends Sept) to be up around 40% on pcp of $730m (implying 1H08E of c$1,030m). Given 1H07 included the profit on sale of MGQ ($92m NPAT) "core NPAT" is up 62% on pcp. MBL also stated it has: no unusual trading exposures; no material problem credit exposures; no exposure to SIVs, no debt underwriting or leveraged loan problems. MBL's level of assets-held-for-sale is the lowest since 2005. Tier 1 is >15%. We have adjusted our forecasts in line with this guidance.

Growth outlook remains despite the peak in the Investment Banking cycle:

MBL stated the IB pipeline still remains "reasonable" versus the last few years, but is down on levels seen over the last 12 months. Volumes have slowed since the beginning of Sept. As a result we have not fully passed through 1H08E outcomes. Thus, we have upgraded FY08 EPS by 16% and FY09E by 8%.

Non-Operating Holding Company remains on track (EGM vote 25th Oct):

MBL released the EM for NOHC restructure. Key points: (1) Post NOHC shares called "MQG" (from 5th Nov) (3) MQG will own the Bank (MBL) & Non-Bank (largely IBG), (4) MQG receives $18bn of funding to buy assets from MBL (5) APRA requires present capital until new NOHC standards are established in 2009.

Valuation - Maintain Buy. PT $114. MBL is on 9.7x FY09