Macquarie silences naysayers with record profit, dividend hike

By Byron Kaye and Jamie Freed

SYDNEY (Reuters) - Australia's Macquarie Group beat expectations to log record annual net profit, its fifth straight year of earnings growth, helped by acquisitions and a strong performance from its commodities and financial markets unit.

While the country's biggest investment bank also benefited from lower taxes, the results underscore its ability to profit off volatile markets and vindicate its decision to operate diverse businesses including funds management, mortgage lending and asset leasing.

Net profit surged 7.5 percent to A$2.22 billion ($1.6 billion), compared with expectations for flat growth, and the bank hiked its dividend above estimates, lifting its shares to their highest level in a decade.

"People have been calling out for the last 25 years 'they can't do it next year' but when we look at it, I can see growth from this level of profitability too," said CLSA banking analyst Brian Johnson.

Expectations of higher interest rates in the wake of a hike by the U.S. Federal Reserve and President Donald Trump's economic growth policies have prompted worries that Macquarie's asset management and advisory businesses may be hurt as they focus on infrastructure assets that typically have high levels of debt.

Its asset management unit reported a 6 percent fall in income, but overall its annuities-style businesses, which accounts for 70 percent of its earnings, climbed 4 percent. That includes income from fees for providing financing for aircraft, cars, energy, rail and mining equipment as well as mortgage lending and retail banking.

In particular, an aircraft leasing unit Macquarie bought the prior year as well as the purchase of Esanda Dealer Finance, a car loan finance portfolio, also helped boost profit.

Income from the commodities and financial markets unit, part of its market-facing division, rose 12 percent, highlighting its ability to make the most of volatile markets in year that saw Britain's vote to quit the European Union and Trump's surprise electoral win.

Expenses were also kept in check.

"It was a very good result. Expenses came in lower than what I thought. There was also a lower tax rate. The expenses and compensation ratio was below consensus. When the top-line growth is limited you try to cut costs which is what they did," said Bell Potter analyst TS Lim.

Macquarie said in its investment banking business, a strong performance in M&A as well as debt capital markets fees had partially offset reduced fee income from equity capital markets activities, particularly in Australia where the IPO market is subdued.

The company raised its final dividend to $A2.80 per share, from A$2.40 per share a year ago. The bank said it expects earnings in fiscal 2018 to be broadly in line with the year just ended.

Its shares closed up 3.2 percent at A$94.89 after touching a high of A$96.02.

($1 = 1.3499 Australian dollars)

(Reporting by Byron Kaye and Jamie Freed in Sydney; Additional reporting by Aparajita Saxena and Hanna Paul in Bengaluru; Editing by Edwina Gibbs)