Not for the first time Macquarie Bank's operational update failed to convince the market.
The 2007 profit in the year to the end of March is going to be a record, even if the second half will be a little lower than the first and despite higher income from buyouts and increased fees from arranging mergers and acquisitions.
CEO, Allan Moss said in a statement and in a conference call yesterday, that investment banking earnings will be "substantially up'' due to "continuing strong transaction volumes.''
Investment banking contributed almost 60 per cent of profit in 2006 and will be the major earner this year and into 2008 thanks to the Qantas deal.
But yet the market went sour for MBL despite a 43 point gain in the All Ords and a record day on the market generally.
MBL was the odd stock out: its shares fell $2.48 to $81.40 after hitting a low of $80.50. The high was the opening quote of $83.88 and it was all downhill from then on.
Perhaps Moss wasn't bullish enough or perhaps news of a lower second half after the huge first half spooked punters and the more aggressive investors.
It would seem many analysts and investors were looking for a bigger second half than that suggested by Mr Moss and a profit upgrade into the bargain.
In any case investors and analysts left the briefing with the clear understanding that Macquarie is looking at a lot of deals in the 2008 financial year, and looking at a few disposals over the next two months.
The bank has a habit of over delivering at results time and under promising at annual meetings and briefings.
Reports this morning say MBL could be looking for new capital to help handle an estimated $40 billion in new deals over the next year or so.
It raised around $700 million 10 months ago from shareholders but with its core capital strong there probably isn’t a need to go back to them.
While Mr Moss said the bank would have a strong second-half analysts had been expecting guidance for a figure above $600 million. That in turn would mean earnings of more than $1.2 billion for the full year.
But nothing as bullish was suggested so investors sold, which is a bit rich because MBL shares have risen 10 per cent or so in the past month.
They obviously want some good numbers to flesh out the dealing making record of the past year where Macquarie participated in two of the world's ten largest buyouts including RWE AG's Thames Water unit and BAA Plc.
It ranked first for takeover work in Australia in 2006, advising on $77.1 billion of deals against an estimated $200 billion of takeovers in this country.
Mr Moss said second-half profit will be "slightly down'' on the record $730 million earned in the first half ended to the end of September.
A Macquarie-led buyout group has offered $11.1 billion for Qantas, a bid backed by the airline's board. That will generate hundreds of millions of dollars in fees for MBL in the 2008 year.
Total assets under management rose 16 percent to $177 billion in the December quarter, the bank said, including the purchase of Thames Water.
The bank expects continued strong transaction levels and substantial raisings in unlisted international specialist funds in the remainder of the full year.
The bank has put $1.3 billion of assets into funds since September and bought around $990 million of assets in the same period.
Moss said most of these assets held for re-sale "are either subject to contract or are subject to active confidential negotiations with respect to their disposal.''
Macquarie said that over the past four months, it had sold two-thirds of its holding in Thames Water, its luggage trolley business Smart Carte Corp., bought for $270 million in January 2006, and Stagecoach Group Plc's London bus operation, acquired for more than $600 million last June,.
Mr Moss also said a proposed restructure of the bank to create a non-operating holding company, announced last year, is on schedule.
"There are industry discussions progressing with the Commonwealth Department of the Treasury on the required legislative changes for bank restructures, although the timing of required legislation is still uncertain," he said.
"Subject to legislative changes and regulatory approvals, we expect to submit a proposal to shareholders later in 2007 and we plan increased consultations with external counterparties over the coming months."
"As a result of recent asset sales, combined with the profit for the December quarter and the additional capital from the dividend reinvestment participation plan, the Bank’s Tier 1 capital ratio had risen to 15.5% at 31 December 2006. However, this may decline as a result of expected good growth across the businesses," Mr Moss said.
The Bank expects to announce its full year results on May 15.
