By Paulina Duran and Byron Kaye
SYDNEY (Reuters) - Australian investment bank Macquarie Group Ltd (AX:MQG) posted a record first-half profit on Friday, driven by higher fees from its managed funds, but revealed a slump in traditional banking takings and forecast a weaker annual result.
The bank's profit for the six months ending Sept. 30 rose to A$1.46 billion ($1.01 billion), a better-than-promised 11.2% jump despite a slump in M&A fees and losses from investments.
The result benefited from Macquarie's diversified strategy, which allows it to offset underperformance in its traditional investment banking and advisory units with growth in its fund management businesses.
Despite this week's announcement of its exit from its cash equities units in the United States and Europe, Macquarie's Commodities and Global Markets business reported a 15% jump in operating income to A$2.47 billion, driven by oil and gas trading and hedging from clients.
Strong gains in its Europe-focused funds also led to a near doubling of performance fees to A$546 million, while a 2% increase in funds under management in its Macquarie Asset Management (MAM) unit to A$562 billion helped drive higher base fees.
Macquarie's exit from cash equity businesses outside the Asia Pacific region comes as tougher regulations bite. Still, while analysts believe the U.S. and Europe cash equity units were loss-making, they were concerned the retreat could hurt Macquarie's ability to grow its capital markets advisory business in those regions.
"We don't expect it to impact our ECM income because we can work with other distributors," Chief Executive Shemara Wikramanayake told Reuters, while declining to confirm whether the units had been unprofitable.
The first-half profit exceeded Macquarie's own forecast of a 10% rise, while revenue rose 8% to A$6.32 billion.
"Compositionally, the result was a little soft, with revenues missing our forecasts by 4%, despite a better-than-expected MAM performance fees result," Goldman Sachs (NYSE:GS) analysts said in a note to clients.
Macquarie shares closed 0.34% higher following the result, in line with the broader market (AXJO), which was 0.09% higher. The Sydney-based company's stock has gained around 23% so far this year.
WEAK OUTLOOK
The Macquarie Capital unit, which makes proprietary investments and sells M&A and capital markets advice, posted a 20% decline in operating income from a year earlier.
That was driven by lower advisory fees, lower income from investments, higher wages and impairment charges from some underperforming investments in Asia that the bank declined to name.
The Banking and Financial services unit reported a 3% fall in income in part due to weakness in operations brought over from the former Capital and Asset Finance unit, which it dismantled in July.
Macquarie declared an interim dividend of A$2.50 a share, up from A$2.15 last year and reiterated a weak outlook for fiscal 2020, citing unfavorable market conditions and regulatory uncertainty.
The bank, which raised A$1 billion in new equity to ramp up investments in renewable energy and infrastructure, remained "well-positioned" to continue delivering high returns in the medium term, Wikramanayake said.
($1 = 1.4510 Australian dollars)