freaky friday

are we going to come in at $900m for the year
$300m for the half?



Macquarie Group set for first profit fall in 17 years

Macquarie Group Ltd is set to post its first annual profit decline in 17 years on Friday, reflecting the impact of asset devaluations and soft investments market on the back of the global economic downturn.

But the result may also signal the worst is over for Australia's biggest investment bank in the current cycle, with Macquarie expected to perform more strongly in the new year, analysts say.

Macquarie in February forecast net profit for the 12 months to March 31 was likely to halve to about $900 million, after allowing for writedowns, from $1.8 billion the year before. Operating income is expected to fall by 15 per cent.

That suggests its second-half net profit slumped to about $300 million, falling more than 60 per cent from the prior corresponding period's figure of about $800 million.

The full year result is set to be the first annual decline since profit fell 11 per cent to $47.2 million in 1992 due to a recession.

Analysts estimate that it will be slightly lower, at about $880 million, according to Reuters data.

"We expect that the 2009 full year is likely to be Macquarie's most challenging year in this investment market cycle," Credit Suisse analysts led by James Ellis said in a note to clients.

Credit Suisse, which rates Macquarie shares at "outperform", expects the bank's earnings to grow again in fiscal 2010, as the company benefits from measures to reduce costs and getting out of unprofitable businesses.

Analysts at Bank of America Merrill Lynch agree that its profits are likely to increase in 2010.

"We believe the sustainable earnings base is well above current levels and the group retains the opportunity to profitably expand in some areas," the analysts led by Matthew Davison said in a research note.

While Bank of America Merrill Lynch has a "buy" rating on Macquarie its analysts remain cautious.

"The unwinding of the specialist fund model and problems in unlisted funds may have a lot further to run and bad news to flow," they said.

"The risk for the stock ... is whether concerns over the medium term outlook for this segment grow."

One concern investors may have is how assets in funds with high levels of debt will be revalued, the Bank of America analysts said.

They also noted that investors were worried that Macquarie may not have enough capital.

During its investor update in February, Macquarie said it had $32.1 billion of cash and equivalents that easily covered debt due in the next 12 months.

Macquarie also said its regulatory capital position remained strong with a $2.9 billion buffer of capital in excess of its minimum requirements.

The company also said values in its satellite funds were showing resilience.

Still, investors are expected to keep an eye on asset values an its capital position, which has so far held up well during the global financial crisis

Shares in Macquarie were up 13 per cent to $32.19 at 1313 AEST on Wednesday.