MQG Warns on Profit

Macquarie pre-announced earnings today citing further writedowns and forecasting a full year result which takes the company back to profit levels last seen in 2005. From the announcement:

• Currently anticipate FY09 profit being approximately $0.9b after allowing for an additional $900m in writedowns and impairment charges for the second half (after $1.1b of writedowns and impairment charges in the first half)
  

• Operating income (before impairments) is expected to be down 15%

• Outlook remains subject to significant swing factors including market conditions, asset realisations, completion rate of transactions and asset prices

The important point is that MQG has a business model that thrives in an environment of cheap credit and rising asset prices but that suffers enormously in an environment of deflating asset prices and tighter access to funding.

This is not a temporary blip for MQG, their profits this year will be half their record earnings of last year. It is doubtful that MQG can return to that record level of profitability for some years to come, a statement that you can make about all the major Australian banks and insurance companies.