Macquarie Cuts Its Profit Forecast for Commodities Business

(Bloomberg) -- Macquarie Group Ltd. cut its full-year forecast for the commodities and financial-markets business as falling oil prices and a selloff in U.S. credit markets take a toll on client activity, though it still expects profit to beat the previous year.

Profit from the commodities and financial markets unit for the year ending March 31 is expected to be lower than the previous year, compared with a flat forecast previously, the Sydney-based investment bank said Thursday in a regulatory filing. The firm is expected to post a record A$2.07 billion ($1.5 billion) net profit for the year, according to the mean estimate of 10 analysts surveyed by Bloomberg.

Falling commodity prices threaten to take the steam out of Macquarie’s profit juggernaut. A declining Australian dollar is expected to provide some cushion to the bank, which got 71 percent of its first-half income from overseas.

“Weak commodity prices could start to hurt Macquarie,” T.S. Lim, a Sydney-based analyst at Bell Potter Securities Ltd., said in a telephone interview before the announcement. “A few months back, everything was spot on for Macquarie. Now, amid the commodity drop and broader global economic weakness taking a toll on investor confidence, the bank may face some challenges.”

Commodities Unit

While Macquarie gained from the volatility afflicting commodities markets in the third quarter, it sees trading slowing in the final three-month period. The firm provides clients with hedging, trading and physical storage and transport of oil.

Oil dropped to a 12-year low in January amid brimming U.S. crude inventories and the outlook for increased exports from Iran after the removal of sanctions. Prices of minerals such as iron ore dropped 39 percent in 2015 hurt by a global oversupply and shrinking demand in China.

Macquarie’s fixed-income trading business had lower debt- capital-market fees and client trading revenues due to the sell off in U.S. credit markets, it said.

The commodities and financial markets division, which got 55 percent of its operating income from energy markets, metals mining and agriculture in the six months ended Sept. 30, contributed A$835 million to Macquarie’s profit last year. That was the third largest after its asset management and corporate lending and leasing business, according to filings.

The investment bank left its profit forecast for all other units unchanged. The bank still expects profit from funds management, banking and wealth management, equity trading, and investment banking to be higher than the previous year. Corporate lending and leasing is expected to be “broadly in line” with the previous year.

Macquarie shares have lost 18 percent this year compared with a 7.9 percent increase for the benchmark S&P/ASX 200 Index.

To contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net Andreea Papuc, Edward Johnson

Copyright 2016 Bloomberg News.

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