Almost $467 million has been wiped off Macquarie Group’s market value despite the investment bank sticking with its forecast of an improved full year net profit.
In a first quarter update issued in conjunction with its annual general meeting on Thursday, Macquarie said its earnings contributions in the period to July 31 were down on the preceding three months.
It also forecast a smaller first half contribution than in the same period last year.
Weak investor confidence has seen continued subdued market activity, particularly affecting Macquarie’s capital market focussed businesses, which make up half of its six main operations.
But chief executive Nicholas Moore issued an unchanged full year earnings forecast, tipping an improvement on the prior year’s $956 million net profit.
The forecast assumes market conditions don’t worsen materially, and is also subject to movements in foreign exchange rates, increased competition in all markets and potential regulatory changes.
Macquarie shares lost $1.34, or 4.57 per cent, to close at $27.99, well off the $41.78 it traded at in early February.
White Funds Management managing director Angus Gluskie said Macquarie shares were an easy selling target on a day of widespread weakness on the Australian market.
It came as many analysts had overestimated Macquarie’s performance and were now revising down their forecasts, he said.
“I don’t believe that Macquarie’s comments were particularly bad,” Mr Gluskie told AAP.
“They recognise that a number of their earnings areas are cyclical, and they are expecting a bounce back in the latter stages of the year from the very subdued first quarter that they’ve had.”
Macquarie’s first half result is expected to be dampened by a higher tax rate than in the previous period, plus the absence of an adjustment included in the prior period on the value of assets for sale in airport owner MAp Group.
Its full year forecasts would be downgraded if the United States defaults on its debt, with Mr Moore describing that prospect as a “disturbing possibility”.
Almost two thirds of Macquarie’s income is generated overseas, exposing it to the debt concerns dominating world markets.
“If there is going to be anything like a sovereign default, the lack of confidence that we’ve seen in the markets will continue,” Mr Moore said.
“So I think we would see materially worse market conditions, one would expect.”
In response to a question from a shareholder at the AGM, Mr Moore said Macquarie always managed its business cautiously to ensure it can “afford terrible outcomes” such as a US debt default.
“We don’t have a plan B because frankly we don’t know what the events could be,” he said.
The strong Australian dollar has impacted the value of Macquarie’s assets under management, much of which is offshore.
It had $308 billion of assets under management at June 2011, down from $310 billion three months earlier.
AAP
