Macquarie gets first-quarter profits wrong

Macquarie Group yesterday produced a curious update on its earnings outlook for its present financial year, and one that in key details contradicted the guidance - in connection with the bank's first quarter - given at the bank's annual meeting five weeks ago.

The group said yesterday that earnings in the June 2010 quarter (the first quarter of the bank's financial year) were ahead of those in the "subdued" June 2009 quarter.

Profits from three divisions - Macquarie Securities, Macquarie Capital and Fixed Income, Commodities and Currencies - were all down in the first quarter, the group said.

Five weeks ago at the AGM, Macquarie's management said earnings in the June 2010 quarter across all businesses were "slightly ahead of a subdued June 2009 quarter" - so some anticipated capital gains or revenue flows that the bank planned then to allocate to the June quarter profit must have been a lot more uncertain than they seemed to be at the time.

In yesterday's profit update Macquarie said that profits in the June quarter were higher from Corporate Finance, Macquarie Funds and Banking and Financial Services.

The bank said it expected the September 2010 half year profit to be around one quarter less than in the September 2009 half.

It said the profit for the full year to March 2011 would be "broadly in line" with 2010, but "subject to market conditions recovering to more normal levels" in the second half of its year.

This proviso may be tough to meet. The bank's deputy managing director overnight gave a presentation to an investor conference in London hosted by Goldman Sachs that highlighted how poor are numerous measures of deal flow - that affect all investment banks - in financial markets.

One financial detail in Macquarie's presentation yesterday was that recent acquisitions and some lending growth reduced the bank's estimate of its "capital buffer" over regulatory minimums to $3.1 billion at June 2010 from $4.0 billion at March 2010.

Macquarie said its capital ratios in its banking group were 10.3 per cent for tier one and 11.5 per cent in total.