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Macquarie Reports 43% Profits Drop. Stock Still Rockets
Macquarie Group, Australia’s leading investment bank reported half yearly earnings yesterday, and despite first half profits falling 43 per cent to the same level as in 2006. Investors took comfort in the investment bank’s conservative accounting approach and the maintenance of its dividend sending the stock soaring 26% in intraday trade on Tuesday.
The fall in profits was Macquarie’s first profits drop since 1991-1992, when Australia last entered into a recession. Macquarie’s main issue lies in whether capital markets will enable them to finance infrastructure investments, that drive both deal and revenue flow for the investment bank.
The group reported impairment charges and provisions of $1.1 billion for the six months to September 2008. The charges had a net impact of $395 million on earnings, contributing to a 43 per cent fall in interim net profit from $1.06 billion in the September half last year to $604 million in the latest half.
The group declared the same dividend as in the previous corresponding period but only by increasing the dividend payout ratio from 37.1 to 67.4 per cent. Staff had to bear some pain in the form of lower bonuses. The compensation ratio fell from 47.9 per cent in September last year to 40.1 per cent. The only division that performed in line with prior periods was Treasury and Commodities, which made a $285 million contribution to profit.
Investors, bid the stock up as much as 26 per cent during Tuesday’s trading session, with the stock finally closing the day 16.5 per cent firmer. The fact that a company can report a drop in profits of almost a half, and still end the day stronger is a sign of just how risk averse investors have become. Though it must be said that the dividend was the main reason the stock rose 16.5 per cent yesterday.
The company had previously issued guidance, warning in mid-July that its first-half net profit would be 25 to 40 per cent below a year earlier, and its earnings for the full-year to end-March would not beat last year’s, due to difficult market conditions. Its subsequent earnings announcement offered no real surprises which is why the market reacted so positively.
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