By Praveen Menon and Echha Jain
SYDNEY (Reuters) -Australian financial conglomerate Macquarie Group (OTC:MQBKY) said on Tuesday its nine-month profit fell "substantially" due to weakness in its commodities and global markets business, adding the high-profile head of the division would exit the company.
It also issued a softer-than-expected outlook for the remainder of the financial year ending March 31, sending shares down 4.3% in early trading.
Macquarie had benefited from a surge in commodities prices and volatility in the prior financial year after Russia's invasion of Ukraine, but those "exceptional" conditions had waned, the company said.
Full-year commodities and global markets income, which reached A$6 billion in FY23, was likely to be broadly in line with FY22 levels of A$3.9 billion, it added.
"In addition to that we had lower fee income in Macquarie Capital where market activity in M&A, despite the perceived slowing of interest rate increases, still has not picked up, confidence has not returned and activity levels have not returned," Macquarie CEO Shemara Wikramanayake said in a presentation to investors.
The value of Australian M&A activity fell 23% in 2023, according to LSEG data, and Macquarie fell from second to 10th in terms of deals advisory market share.
The gloomy performance update from the Sydney-based company, which prides itself on a global breadth stretching from retail banking to offshore wind and commodity trading, follows a drop in half-year profit reported in November last year.
UBS analyst John Storey said the trading update was "disappointing", adding consensus downgrades to full-year earnings were likely.
Before the update, Macquarie had been expected to post a full-year net profit of A$3.81 billion based on the average of 12 analysts polled by LSEG, down from a record A$5.18 billion in FY23.
COMMODITIES HEAD EXITS
Macquarie said veteran banker and star performer Nicholas O'Kane would step down as head of the commodities and global markets division effective on Feb. 27 to pursue opportunities outside the company.
O'Kane was one of the country's highest-paid bankers, with the division performing exceptionally under his watch. His remuneration, which reached A$58 million ($37.86 million) in 2023, often exceeded that of Wikramanayake.
Simon Wright, currently global head of the financial markets part of the division, will become group head of the business and join the executive committee from April 1.
'CAUTIOUS STANCE'
Macquarie, which does not disclose earnings figures in quarterly updates, said net profit in the first nine months was substantially down on the prior period primarily due to lower asset realisations in green investments and continued investment in the development of green energy portfolio companies.
It also forecast a substantial fall in its second-half operating income, excluding fees, for Macquarie Asset Management, which oversaw A$882.5 billion of assets as at December-end, a 1% drop on September-end.
"We continue to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions us well to respond to the current environment," the company said.
Macquarie, however, said it remained well-positioned to deliver superior performance in the medium-term.
"It's all about expectations," said Henry Jennings, senior analyst and portfolio manager at Marcus Today. "Macquarie tends to underpromise and overdeliver. This looks like it has underpromised and underdelivered. The O'Kane news adds to the issue."
($1 = 1.5321 Australian dollars)