Australia's Macquarie profit slips to three-year low on asset sale pause

Macquarie Group reported its lowest half-year profit in three years on Friday. The Australian financial conglomerate faced rising costs and paused green asset sales, resulting in a 39% drop in net profit to A$1.42 billion ($913.49 million) for the half ended Sept. 30. This was well below the consensus estimate of A$1.77 billion compiled by Citi. Despite the weaker result, the company stated that its performance would pick up in the second half and it had enough excess capital to buy back shares.

This rare miss in first-half profit for Macquarie comes after the company trimmed its earnings forecasts twice since announcing record fiscal 2023 results in May. Macquarie’s shares initially fell by 3% in early trading but later regained ground to trade more than 1% higher after an investor earnings call.

The decline in earnings was mainly led by the A$892 billion asset management division, where profits fell 71% to A$407 million. Costs rose and Macquarie paused green asset sales due to turmoil in renewable energy markets and the need to seed a new fund. However, Macquarie’s Chief Executive, Shemara Wikramanayake, assured investors that the company expected to sell the assets without major discounts and avoid the problems faced by other operators in the market.

Macquarie also highlighted a decline in profits in the commodities and global markets segment, where it fell by 31% to A$1.4 billion. This decline was attributed to a return to normalcy in energy markets after the turbulence caused by Russia’s invasion of Ukraine and turbulent weather conditions in North America last year.

Despite the disappointing results, Macquarie’s board approved an on-market share buyback of up to A$2 billion and declared an interim dividend of A$2.55 per share, citing its ability to return excess capital to investors. However, UBS noted that the results would likely lead to further cuts in earnings forecasts.

The banking and financial services division was a bright spot for Macquarie, with earnings rising 10% to A$638 million. This growth was driven by loan expansion and stronger margins in Australia’s fifth-largest retail mortgage business.

Macquarie’s investment banking arm, Macquarie Capital, reported fees and commissions in line with the previous period. However, profits fell 28% to A$430 million. The division expects full-year transaction activity to be in line with the previous financial year.

Macquarie Group remains confident in its future performance, with expectations that the asset management division’s income will rebound in the second half. The company stated that it has a diverse portfolio and is confident in selling the assets without major setbacks.

($1 = 1.5550 Australian dollars)

(Reporting by Lewis Jackson in Sydney and Roushni Nair and Rishav Chatterjee in Bengaluru; Editing by Jamie Freed)