Australian investment banking major Macquarie Group downgraded guidance on its full year profits in light of subdued global financial markets.
On Tuesday the investment bank said that despite second half profits ending March likely to clock an impressive 35 per cent gain, earnings would decline by 5 per cent compared to the same period in the previous year.
Full year profits are expected to come in at $950 million, compared to previous guidance of $1.05 billion.
Not surprisingly investors were not pleased with the news, and reacted negatively with Macquarie shares trading down 2 per cent on opening, though the stock price has since recovered and are now down just 0.3 per cent, against a backdrop of the broader ASX rising by 0.3 per cent.
Nicholas Moore, chief executive of the investment bank said that market conditions globally remained volatile, negatively impacting Macquarie Securities, the group’s primary trading business.
During December, Macquarie Securities was the group’s only major business which failed to deliver and improved performance.
Mr. Moore added the caveat that Macquarie’s full year result is dependent on market conditions continuing to remain stable and at “more normal levels”.
“In the full-year we would expected to see few one-off items, the compensation ratio will remain at historically average levels. And we would expect to see some of the capital on the balance sheet put to work.’” Mr. Moore said.
Macquarie has increased its capital buffer beyond the minimum requirement imposed by regulators. Currently it holds $3.2 billion, up from $2.9 billion, and Mr. Moore says that the excess liquidity would be deployed across major business lines in order to generate growth.
Mr. Moore ruled out the option of returning the capital to shareholders or increasing the company dividend.
“We have not contemplated that,” Mr Moore said.
“Given the uncertainty over Basel III, I don’t think any financial institution would be going down that path. The key thing is seeing the regulatory regime and how that will work before a decision on anything (capital return) like that could be made.”