Listed fund sales boost Macquarie profit

During a year when base, performance, mergers and acquisitions advisory and other fees fell, A$572m of gains from sales and spin-offs of listed funds boosted the annual results of Macquarie’s investment banking arm, Macquarie Capital.

Sales and spin-offs of listed funds totaling A$572 million (€397 million; $528 million) buffered the income of Macquarie Capital, the investment banking arm of Macquarie Group as the Australian financial services giant reported an annual profit of A$1.05 billion.

Macquarie: A$1.05bn in
annual profit

The A$1.05 billion profit for the year ended 31 March 2010 is a 21 percent increase over last year’s total profit of A$871 million. But it’s still down about 42 percent from the all-time high of A$1.8 billion annual profit Macquarie declared for its financial year ended 31 March 2008.

Macquarie’s investment banking arm, usually a large contributor to its total profit, contributed A$657 million of the A$1.05 billion 2009 total, or about 62 percent. But a large portion of that contribution can be credited to a line item the investment banking business did not include in its substantially weaker 2008 results of A$257 million: “gains on listed fund initiatives”.

These include transactions such as last year’s sale of the Macquarie Infrastructure Communications Group to the Canada Pension Plan Investment Board for A$3 per share. Macquarie undertook such initiatives as part of an effort to move its business away from listed funds, many of which focus on infrastructure and have seen their shares plummet in the wake of the financial crisis.

All told, Macquarie’s investment banking arm booked A$572 million in gains from such initiatives, which offset about A$500 million in write-downs, impairment charges and losses it booked throughout the financial year. In 2008, it booked no such gains, while recognising more than A$900 million in write-downs and impairments.

All of Macquarie’s other drivers of investment banking income – base fees and performance fees for funds management, mergers and acquisitions, advisory and underwriting fees, among others – showed declines from their levels a year earlier, according to the results. Investment banking headcount also declined, standing at 2,148 employees worldwide, versus 2,617 a year earlier.

The decrease in mergers and acquisitions, advisory and underwriting fees came despite an overall increase in the number of deals Macquarie has advised on: 448 deals valued at A$121 billion, versus last year’s 299 deals valued at A$203 billion. Infrastructure, traditionally a strong source of dealflow for Macquarie, was responsible for 83 deals valued at A$39 billion, versus 66 deals valued at A$96 billion last year.

Macquarie Group chief executive officer Nicholas Moore said in a statement that “operating conditions continued to improve during the year, leading to greater activity across many of our business”, though the statement acknowledged a smaller average deal size despite the pick-up in activity.

Looking ahead, Moore predicted improved operating results for all of Macquarie’s businesses in 2011 compared with this year’s result.

The firm also predicted in a results presentation that its strategy for its investment bank-managed funds will be characterized by “substantially lower income from listed funds” and a “focus on unlisted fund raisings” as well as “expansion into new geographies and sectors”.

At A$3 billion, investments in listed funds are still a major portion of Macquarie Group’s equity portfolio. That’s about A$400 million less than the A$2.6 billion the firm had invested in unlisted funds as of March 2010.

Macquarie ended trading up 2.7 percent on Friday, 30 April, when the results were announced, closing on A$50.29 per share.