Macquarie Announces First Half Profits Drop, May Raise Capital

Post by Sharat on May 1, 2009 · Under Australian Economy, Capital Markets, Company News, Equities, banking, investments · Comment

Domestic Australian investing banking major Macquarie Group, reported a drop in its first half profit for the first time in 17 years after being force to write down assets on its balance sheet and take charges. The investment banking group also said that it intended to raise cash so it was better positioned to face tough times ahead.

Macquarie’s stock price, which has fallen 66 percent from its May 2007 peak, was placed in a trading halt on Thursday, after it said it was weighing a possible capital raising.

The Reuters news agency citing unnamed fund managers as its source said that Macquarie had approached market participants on Friday about the possibility of raising $450 million by selling stock at a 20 per cent discount or $27.00. For its part Macquarie had no comment on that speculation when it announced its results.

Macquarie’s stock price which has recovered in line with banking stocks globally, has doubled in the last couple of months, last trading at $33.48. The price increase in its stock is the logic behind the theory that it intends to raise capital, so that it could take advantage of an improved valuation, giving it leg room to move should there have to be further asset write-downs.

In its report Bloomberg cited unnamed sources allegedly close to the transaction for speculation that Macquarie itself and Credit Suisse would be arranging any planned share sale.

Macquarie, like its Australian peers has not had much exposure to US property derived securities, but it has taken a hit as the Australian economy contracts and investors question the value of off balance sheet and unlisted assets that it holds and whether the group has valued them properly.

Macquarie’s net profit for the year ended March 31 fell 52 percent from a year earlier to A$871 million, in line with an average estimate from seven analysts of A$868 million. It booked A$2.5 billion in asset write-downs.

Macquarie back in February issued guidance and cut its dividend by 46 per cent, warning that full year profits would halve to approximately $900 million, citing lack of deal flow resulting from poor market conditions and increased borrowing costs.

Chief Executive Nicholas Moore said market conditions were likely to remain challenging, making short-term forecasting extremely difficult.

“While there were some early signs of markets stabilising in March and April, significant uncertainties remain and it is still too early to make any judgements on sustained market improvements,” Moore said.

Macquarie has cash and liquid assets of $30.3 billion, compared with short-term wholesale issued securities of $7.7 billion, it said in today’s statement. It has raised $21.5 billion of funding since March, 2008 and increased deposits to $18.8 billion, it said. The company has capital of $10.2 billion, $3.1 billion above its minimum capital regulatory needs, it said.

The last time Macquarie reported a fall in annual net profit was in 1991/92, during the last Australian recession.

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