Macquarie Group has downgraded its 2012 profit forecast after subdued market activity led to reduced income and a 24 per cent fall in first half profit.
But the investment bank’s shares rose on Friday as it unveiled a plan to buy back up to 10 per cent of its issued shares in an effort to return to shareholders some if its $3.5 billion of surplus capital.
Profit for the six months to September 30 was $305 million, down from $403 million in the previous corresponding period.
Return on equity, a key performance indicator for investment banks, dropped to 5.7 per cent in the six months to September, from 7.4 per cent a year ago.
Macquarie now expects its result for the fiscal year to be lower than last year’s $956 million, if market conditions remain unchanged.
If markets recover to conditions experienced in the second half of fiscal 2011, Macquarie expects this year’s result to be broadly in line with fiscal 2011.
The new guidance differs from the group’s forecast issued just under two months ago of a higher fiscal 2012 result.
The downgrade was also due to continued difficult trading conditions, chief executive Nicholas Moore said.
“The global markets and capital markets have been impacted by a lack of confidence out there, and very, very low levels of activity,” he told journalists.
“That has flowed through to the results that you can see for our market-facing businesses.”
It remained too early to say if Europe’s debt crisis deal would spark a sustained recovery in markets, Mr Moore said.
World markets rallied after the announcement of the deal on Thursday, local time.
“Obviously the market was looking for something of the sort of what we saw, and given the market was looking for it, it has responded well to it,” Mr Moore said.
“We can be hopeful but we are unsure in terms of where we are going to end up.”
Mr Moore said Macquarie believed it could satisfy the requirements of the first stage of the Basel III reforms and the 2016 requirements, allowing it to conduct an on-market share buyback, conditional on regulatory approval.
At the current Macquarie share price, the buyback will be worth around $870 million.
Macquarie shares gained 80 cents, or 3.3 per cent, to close at $25.15, the highest in almost two months. However, the stock is still down 32 per cent this year.
Weak investor confidence and subdued merger and acquisition activity in the six months to September led to a 11 per cent drop in Macquarie’s operating income and in its fees and commissions.
Net trading income in the first half was down 38 per cent from the same period last year.
One positive for the group was a further reduction in operating expenses, with an 11 per cent fall to $2.8 billion, due in part to lower employment expenses as staff numbers fell by three per cent.
Macquarie declared an unfranked dividend of 65 cents per share, down 24 per cent on the same period last year.
