November 1, 2018 / 10:19 PM / 3 months ago

UPDATE 2-Australia's Macquarie Group flags record annual profit as new CEO takes reins

* 1H19 profit up 5 pct on strong investment banking, commodities

* Corporate and Asset Finance unit to separate into non-bank

* CAF head Ben Brazil to leave

* Martin Stanley to head asset management business (Recasts with outlook, adds analyst comment, management changes, shares)

By Paulina Duran

SYDNEY, Nov 2 (Reuters) - The first female chief of Australia’s Macquarie Group Ltd sharply raised expectations for annual profit on Friday as the investment bank foreshadowed a surge in asset-management fees and strong earnings from its commodities and markets units.

The Sydney-based firm raised its profit guidance from zero to 10 percent growth in the year to March 2019, as it reported a five percent rise in first-half earnings driven by its investment-banking and commodities divisions.

The first-half result marks the end of a decade with Nicholas Moore at the helm of Australia’s largest investment bank, and an audacious start for incoming chief executive Shemara Wikramanayake.

The company has not given an annual profit forecast this early for years, showing its confidence in its ability to deliver, in Wikramanayake’s words, “superior performance in the medium-term”.

“We are expecting ... that our strong base of customers will continue to drive consistent flows and earnings in our commodities futures and fixed-income and currencies businesses,” Wikramanayake told analysts.

A solid pipeline of advisory work and investment realisations, as well as lower taxes in the United States, would also push earnings higher, she added.

Wikramanayake will shift from her current role of managing director to chief executive on Dec. 1.

“This is the earliest I can recall from them actually moving (expectations for full-year profit) from ‘broadly in line’ to up, so that tells you there’s a fair degree of confidence there,” CLSA banking analyst Brian Johnson said.

Macquarie posted net profit for the six months to Sept. 30 of A$1.31 billion ($943.7 million) from A$1.25 billion a year ago. That was broadly in line with the average forecast from four analysts polled by Reuters.

It said returns in its commodities, markets and investment-banking divisions more than offset declines in its asset-management and corporate-finance divisions.

Macquarie shares rose more than 3 percent after the result was announced, while the broader market was slightly lower.

MANAGEMENT CHANGES

Macquarie’s asset-management arm saw profit slump 36 percent after a slew of sales brought an earnings spike in the previous first half.

The profit contribution from its Corporate and Asset Finance (CAF) unit meanwhile shrank nearly 30 percent, continuing a decline of several years as record-low interest rates make turnaround investment opportunities harder to find.

Ben Brazil, one of the bank’s best-paid executives, would step down as head of CAF and would chair the principal finance unit until mid-2019, the bank said.

Most of CAF’s operations would be split from Macquarie’s banking arm and moved into its non-bank unit.

London-based Martin Stanley, currently its global head of Macquarie Infrastructure and Real Assets (MIRA), would take Wikramanayake’s role as head of the bank’s asset management unit.

The company also scrapped a A$1 billion share buyback announced last year, saying there was “currently no prospect of buying any shares”.

It declared an interim dividend of A$2.15 per share, up from A$2.05 last year but lower than second-half fiscal 2018 final dividend of A$3.20 a share.

$1 = 1.3881 Australian dollars Reporting by Ambar Warrick and Rushil Dutta in Bengaluru and Paulina Duran in Sydney; Editing by Stephen Coates

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