February 10, 2020 / 10:07 PM / 8 days ago

Macquarie sticks to lower profit guidance, talks low-carbon projects

SYDNEY (Reuters) - Australian financial conglomerate Macquarie Group (MQG.AX) disappointed some analysts and investors on Tuesday by sticking to guidance that it expected a profit decline in full-year 2020, hit by lower gains from investment banking.

FILE PHOTO - A pedestrian walks past the logo of Australia's biggest investment bank Macquarie Group Ltd which adorns a wall on the outside of their Sydney office headquarters in central Sydney, Australia, July 18, 2017. REUTERS/David Gray

In a limited third-quarter trading update, it pointed to higher fee income from its asset management and lending businesses and flagged low-carbon opportunities at its energy trading unit, but said its investment banking operations had a “significant” decline in their contribution to profit.

The guidance came as the bank reported third-quarter results showing earnings from its funds management business, which contributes more than a third to its profit, rose on higher base and performance fees in the nine months to Dec. 30.

Its home loan portfolio posted a rise of 11% in earnings during the third quarter, to A$48.6 billion ($32.5 billion).

But its investing banking businesses had completed fewer M&A and capital market transactions than in the previous corresponding period, the bank added, hitting their contribution to profit.

Macquarie shares were down 0.74% in afternoon trading, while the rest of the market was up 0.55%.

“There is no doubt the market was expecting them to up their guidance a little bit, so there is some disappointment by the market,” said Matthew Ryland, a portfolio manager at Greencape Capital, a Macquarie investor.

“But that said, they are cycling a big spike in realizations last year and I do have some sympathy for that.”

The bank’s trading unit, Commodities and Global Markets (CGM), had a “strong” performance during the quarter across its global oil, North American gas and power, and metals and agriculture businesses, it said, without elaborating.

LOW-CARBON ECONOMY

The bank, already one of the world’s largest energy traders, believed there was “significant upside and potential to grow” into adjacent areas, CGM head Nicholas O’Kane told the operational briefing.

That included development of carbon-offset energy products in response to client demand, he added.

“We see a really exciting opportunity in the transition to a low carbon economy,” O’Kane said.

“We understand gas, we understand electricity, we understand oil and renewable markets... we think this uniquely positions us to capitalize on the opportunities that are related to the energy transition.”

Macquarie is working to set up jet fuel contracts with integrated carbon offsets, developing carbon-neutral barrels of oil and carbon-neutral aircraft, besides working with a ride-share company to include a carbon offset option into the app, O’Kane said.

In November, the Sydney-based company posted a record first-half profit, driven by higher fund management fee and investment gains from asset sales.

The bank’s asset management business, its biggest earnings contributor, saw assets under management rise 5% as of Dec. 31 to A$587.5 billion, compared with the September quarter.

Reporting by Paulina Duran in Sydney, and Aby Jose Koilparambil in Bengaluru; Editing by Stephen Coates and Clarence Fernandez

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