Australian heavyweight Macquarie sees H1 profit slump in virus upheaval

The conglomerate said net profit for the current September half year would be hit as delayed deals and subdued market trading curtailed income

By Byron Kaye

SYDNEY (Reuters) - Australia's Macquarie Group Ltd warned its first half profit will fall by around 35% as the coronavirus pandemic shreds economies around the world, a rare downgrade from the financial powerhouse that pushed its shares lower on Monday.

The conglomerate said net profit for the current September half year would be hit as delayed deals and subdued market trading curtailed income, while it has made provisions for business clients affected by shutdowns to slow the virus.

That represented a clearer - and bleaker - outlook than Sydney-listed Macquarie gave in July when it anticipated a slightly lower profit contribution from its main operations.

The update from a company known for its diversification gives a sense of how the turmoil brought by the coronavirus has made its way to every corner of the world economy. Macquarie makes money advising M&A deals, owning infrastructure, trading commodities and selling home loans, among other things.

Shares of Macquarie fell as much as 6% and were down 4.3% by mid-session on Monday, against a broader market gain of 0.7%.

"Market conditions are tough and, Macquarie being an investment bank, it goes to show that some things you just can't plan for," said Bell Potter analyst TS Lim.

Although Macquarie stopped short of giving guidance for the full financial year, which runs to end-March, it said its four main business units would be affected by challenging market conditions.

Macquarie's biggest earner, its asset management unit, would receive significantly lower income, other than base fees, due to delayed sales. An aircraft leasing business half owned by that division was "actively working with airlines to provide temporary relief to reflect their near-term revenue challenges, due to ongoing stress in the airline industry", Macquarie said.

Its deal making arm, Macquarie Capital, would receive less investment-related income, with a rush of equity capital raisings in Australia at the start of the pandemic not expected to continue into the second half.

At the same time, Macquarie was increasing provisioning for its banking and financial services unit for customers affected by the pandemic.

In a worst-case economic forecast, Macquarie envisaged Australian gross domestic product shrinking 9% in calendar 2020, with house prices down 29% in the year to March 2021, a scenario which would result in the company taking impairment charges of about A$1.9 billion.

Macquarie reported a record first-half profit of A$1.46 billion in 2019, and is expected to report first-half 2021 results on Nov. 6.

($1 = 1.3729 Australian dollars)

(Reporting by Byron Kaye and Renju Jose in Sydney and Rashmi Ashok in Bengaluru; Editing by Daniel Wallis, Sam Holmes and Jane Wardell)

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