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Macquarie Shares Slump on Profit Outlook

02/04/2013 | 06:05pm US/Eastern
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--Macquarie predicts 10% rise in profits in fiscal 2013

--Shares slump 4.4% as forecast misses expectations

--Bank says market conditions still "subdued"

SYDNEY--Shares in Macquarie Group Ltd. (>> Macquarie Group Limited) slumped 4.4% Tuesday after Australia's largest investment bank disappointed investors with its forecast of a 10% rebound in earnings for this financial year.

Chief Executive Nicholas Moore forecast profits would increase in fiscal 2013 thanks to "strongly" higher earnings from its market-facing divisions--Fixed Income, Currencies and Commodities, Macquarie Securities and Macquarie Capital businesses--which dragged its profits down almost a quarter last year.

If achieved, a 10% increase would take Macquarie's profits for the year ending March 31 to 803 million Australian dollars (US$838 million), up from A$730 million in fiscal 2012. That's below a market consensus of around A$832 million, according to five analysts surveyed by Dow Jones Newswires.

The prediction dashed hopes in some corners of the market that Macquarie would benefit from the same trends that have buoyed results at U.S. peers such as Goldman Sachs. Bank of America Merrill Lynch analyst Matthew Davison last month predicted Macquarie's mergers and acquisitions business was on track for its strongest six months of completed deals in two years in the second half of fiscal 2013, thanks to its U.S., Asia Pacific and European divisions.

That expectation, as well as growing optimism about the health of the global economy, has helped to boost Macquarie's shares by 65% since late July, taking them to a two-year high of A$39.29 as of last Friday. Shares plunged as much as 4.4% to A$36.97 in early trade Tuesday.

"No doubt financials in Australia have been trending upwards on a more favourable environment," said Matt Sherwood, head of Investment Market Research at fund manager Perpetual Ltd. (>> Perpetual Limited), which manages A$24.3 billion of funds. "A slightly better economic environment won't camouflage every stressed financial institution for investors."

But others were more bullish. Credit Suisse analysts said in a note to clients that Macquarie remains attractive as a long-term investment because of its "leverage to the increasingly likely recovery in financial market activity in fiscal 2014 and fiscal 2015."

Deals such as the listing of Macquarie's Mexican property fund and the sale of Wales and West Utilities to a Hong Kong consortium led by billionaire Li Ka-shing are expected to help profits at Macquarie's Capital division in the three months to Dec. 31, Macquarie said in the stock exchange filing. Energy markets and credit trading are also expected to support profits at its FICC division, where costs have been cut about 10% since the third quarter of 2012.

"It is continuing to be difficult to complete M&A transactions," Mr. Moore told investors. "There's still a gap between what sellers want and what buyers are expecting to pay."

Write to Caroline Henshaw at caroline.henshaw@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Stocks mentioned in the article : Macquarie Group Limited, Perpetual Limited
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