July 29, 2020 / 11:51 PM / 10 days ago

UPDATE 2-Australia's Macquarie reports lower Q1 profit, sees challenging outlook

* Macquarie says Q1 slightly below last year

* High client activity in trading unit seen easing

* Strong ECM activity in Australia set to fall

* No profit guidance for fiscal 2021

* Excess capital up 14%, shares higher (Adds CEO comment on call, shares, analysts reaction)

By Paulina Duran

SYDNEY, July 30 (Reuters) - Australia’s Macquarie Group on Thursday reported a lower first-quarter profit and continued to withhold earnings guidance for fiscal 2021, warning that the impact of the global pandemic would challenge each of its units.

The company did not disclose a figure, but said the profit contribution from its operating groups was slightly below a year ago, as lower investment income and ongoing provisions for expected losses in its financing business hurt performance.

Market conditions were likely to remain challenging due to the global fallout from COVID-19 and the uncertain economic recovery, the bank said.

“The extent to which these conditions will adversely impact our FY21 result is uncertain,” Chief Executive Shemara Wikramanayak said in a media call ahead of the financial conglomerate’s annual shareholders meeting.

In May the Sydney-based firm said the pandemic crisis had already cost it A$1.04 billion in credit and investment impairments, leading to its first fall in annual profit since 2012.

Still, Macquarie shares edged higher as investors focused on a 14% increase in excess capital since the May update, driven by the sale of its rail operation business in Europe, reduced derivatives exposures and foreign exchange benefits.

In its global commodities trading business, Macquarie benefited from clients rebalancing portfolios in a volatile market, however this activity was subsiding, it said.

Similarly, a wave of capital raisings in Australia was unlikely to continue, while the uncertainty in markets would curb M&A deals.

“On balance it would appear that the benefits of strong trading conditions in 1Q are not expected to continue while headwinds from customer support are likely to remain or increase,” Credit Suisse said in a note.

At its asset management business, its biggest earner, Macquarie said operating income was expected to be “significantly” lower in 2021, due to delays in asset sales.

An airline investment joint venture was providing temporary relief to airlines due to stress in the industry, it added.

$1 = 1.3933 Australian dollars Reporting by Paulina Duran in Sydney; and Shruti Sonal, Nikhil Kurian Nainan and Shriya Ramakrishnan in Bengaluru; Editing by Muralikumar Anantharaman and Richard Pullin

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