The global financial turmoil has stopped Macquarie Group's 15 year golden run of profit growth in its tracks after the investment banking and fund management combine today reported a sharp fall in net half year earnings to $604 million.
The result is 43% below the corresponding period last year and a fifth lower than its most recent second half performance that marked the high point of Macquarie's charmed and unbroken increase in earnings since the early 1990s.
Shares in Macquarie jumped as much as $5.43, or 26%, to $26.03 this morning. They were recently trading at $24.30, a rise of $3.70, or 18%.
No bad surprises
ABN Amro Morgans private client adviser Bill Bishop said investors didn't like surprises and there weren't any in Macquarie's result.
"We have a market that's desperate for good news,'' Mr Bishop said. "At least (Macquarie) made a profit and they've been transparent and they don't have exposure to the toxic assets in America.''
Macquarie also warned today that it will also fall far short of its record annual $1.8 billion net profit outcome in 2007-08 with its 2009 earnings figure likely to come in at just over $1.2 billion.
The group is expecting to produce second-half profits broadly in line with today's interim result although it underlined just how difficult the position it and other financial services companies are facing as a consequence of the maelstrom that has gripped equity and debt markets.
''Unprecedented market conditions make short-term forecasting extremely difficult,'' Macquarie told investors in its results statement released to the ASX this morning.
''The final result will however, be subject to a number of significant swing factors, particularly market conditions, the completion rate of transactions, asset realisation and asset prices.''
Today's figures also prove just how prescient the recent warning was from Macquarie's new chief executive Nicholas Moore about the difficulties the group faced in trying to match last year's record result.
Mr Moore said on succeeding his long standing mentor, Allan Moss, as managing director just over six months ago, it would be a major ''challenge'' to turn in the same performance given the on-going market turmoil.
That challenge has since resulted in the group having taken substantial write-downs in key parts of its business including the sale of Italian mortgages division, its fund management assets, loan impairment charges and losses on its certain trading asset positions. In all, these totalled $1.14 billion and saw $395 million wiped off the bottom line of its half year result.
Solid performance
Mr Moore said that despite the financial impact suffered by the group, Macquarie had still managed to turn in a ''sound'' result.
''While the extreme market conditions have led to a number of writedowns and one-off costs in the latest half year, the underlying performance of the business has been solid,'' he said.
But there was no hiding how difficult the most recent period had been, he added. ''Financial markets have been highly disrupted during the period with a crisis in confidence in credit markets and systemic falls in global liquidity leading to stress and failure of major institutions,'' said Mr Moore.
This would continue into the second half. Investors were also warned to expect further write downs in the second half of its ASX-listed funds which have all seen their share prices fall dramatically over the past year as the market has voiced concerns about their debt-fuelled business models. Continued…
