By Paulina Duran
SYDNEY (Reuters) - Australia's biggest investment bank Macquarie Group Ltd on Friday posted record first-half profits, upgraded its full-year earnings forecast and unveiled plans for a A$1 billion ($766 million) share buyback, sending its stock to an all-time high.
Macquarie said rising performance fees from its infrastructure funds in Europe helped lift net profit by nearly a fifth to A$1.25 billion ($957.75 million) in the six months to Sept. 30, handily beating the average A$1.14 billion forecast of analysts according to Thomson Reuters I/B/E/S.
Analysts say the results show the bank's strategy of hedging its exposure to volatile markets is working.
Macquarie makes money from M&A advisory and fees and trading commodities such as shares, currency and oil. But it also collects fees based on the performance of its global funds, which have proven to be a less volatile source of income.
"The group remains well-positioned, with a strong and diverse global platform and deep expertise across a range of products and asset classes," Chief Executive Officer Nicholas Moore said.
Macquarie shares rose as much as 4 percent to a record intraday high of A$98.28, in a largely flat market.
While the company tipped a weaker second half due to a dip in fees and M&A activity, it expected to post a modest improvement to last year's record profit of A$2.2 billion, which would add to the A$4.2 billion of "surplus capital" at the bank.
"We are in a position where not only do we have a capital surplus...but if we do nothing, that capital position is expected to grow, so we need to respond to that," Moore added, on a call with analysts.
The Sydney-based company, which also raised its interim dividend to A$2.05 per share, is the first bank to announce a buyback, after Australia and New Zealand Banking Group on Thursday said it would explore returning capital from record profits to shareholders.
"The capital markets business was much weaker than expected, on low overall volatility, but what was really nice was the strength of the annuity style income, which offset that," Atlas Funds Management Chief Investment Officer Hugh Dive said.
Shaw and Partners senior analyst David Spotswood said Macquarie "has smashed it" with its earnings.
"We continue to believe that you can own it as a medium-term portfolio stock, with structural growth underpinning its global expansion, superior capital allocation and a strong culture driving outperformance," Spotswood added.
The company dubbed the "millionaire's factory" due to the salaries of its most successful executives, also said it was appointing Glenn Stevens, the long-time governor of the Reserve Bank of Australia until last year, to its board.
Stevens, who is partly credited with steering Australia through the global economic crisis of 2008-09, will focus on governance.
Westpac Chief Economist Bill Evans told Reuters Stevens' appointment would be good for Macquarie and help bolster optics around its governance credentials.
Australian banks are facing headwinds as regulators and politicians seek to quell a public backlash against the sector accused of a host of scandals.
The country's biggest bank, Commonwealth Bank of Australia, is facing a lawsuit after the anti-money laundering authority accused it of allowing illegal payments.
And the corporate regulator has taken three banks - not including Macquarie - to court accusing them of rigging bank bill swap rates to inflate profit. The banks have denied the allegations.
Macquarie's performance fees more than tripled to A$537 million, mainly driven by fees from Macquarie's funds in Europe with investments in Brussels, Czech Republic, and Copenhagen.
However, Moore said such strong performance fees were unlikely to be repeated in the second half.
The profit contribution from its Commodities and Global Markets segment fell 23 percent.
($1=1.30 Australian dollars)
(Additional reporting by Shashwat Pradhan in Bengaluru; Editing by Byron Kaye and Sam Holmes)
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