* Full-year earnings A$2.7 bln vs expected A$2.81 bln
* Impairments of A$1.04 bln drag profit down 8%
* Scraps full-year profit guidance (Updates with shares, analyst comment)
By Paulina Duran
SYDNEY, May 8 (Reuters) - Australian investment conglomerate Macquarie Group halved its dividend on Friday after reporting an 8% drop in annual profit, and withdrew its guidance for the year due to the coronavirus pandemic, the first time it has done so in a decade.
The COVID-19 pandemic and restrictions to curb its spread have so far cost Macquarie its first fall in profits since 2012, and A$1.04 billion in credit and investments impairments, as global economic activity plummeted and investors repriced assets.
Hurt by the writedowns, profit for the year ended March 31 fell to A$2.73 billion ($1.78 billion) from a record profit of A$2.98 billion a year earlier, missing analysts expectations.
Macquarie, which had guided for a ‘slightly lower’ 2020 result, also warned conditions would remain challenging given the worldwide impact of COVID-19 and withdrew its yearly earnings guidance for the first time since 2009.
“Market conditions are of course likely to remain challenging and that’s particularly so given the...uncertain speed of the global economic recovery,” Macquarie CEO Shemara Wikramanayake told an investor call.
“Accordingly we are unable to provide meaningful guidance for this year ahead.”
The Sydney-based company slashed its final dividend to A$1.80 per share, down from last year’s A$3.60 per share payout, as it booked A$1.04 billion in impairment charges related to the potential economic impact of the COVID-19 pandemic.
These included writedowns on Macquarie Infrastructure Corporation, bad debt provision charges on its banking and financial services unit, impairments on Macquarie Capital’s debt portfolio, and charges on a small number of counterparties in its futures and commodities business.
Profit from Macquarie’s commodities, markets and capital divisions, plunged 29% for the year with lower fees offseting higher income in its commodities business as clients hedged against extreme volatility in commodity prices.
Commercial banking and asset management earnings were 12% higher for the year, buoyed by interest income as its home loan book in Australia grew 35% in the period.
Excluding impairments, net operating income was flat for the year.
Macquarie shares rose 6.1% to A$105.6 on Friday afternoon, as investors shrugged off the writedowns and sentiment improved on the easing of some coronavirus restrictions in Australia.
Macquarie “is well positioned to absorb a drop in business volumes and increase in credit and market risk impairments that could emerge due to the COVID-19 outbreak,” S&P Global Ratings said.
Macquarie shares are still 30% lower than at their February peak, before the virus spread outside China, where it was first detected in December.
Macquarie said challenging conditions would reduce the number of successful transactions and lower investment-related income in its investment banking unit, and expected subdued consumer activity in the commodities sector for the first half of fiscal 2021.
Performance fees from its asset management business would likely be “significantly down” due to delays in the timing of asset sales, but the company expected strong lending volumes at its financing unit.
“Activity level will be subdued because people won’t be able to get around, but also people will be cautious about making calls until they know exactly how this is going to play out and impact various businesses,” Wikramanayake said.
$1 = 1.5370 Australian dollars Reporting by Paulina Duran in Sydney, and Shriya Ramakrishnan and Shreya Mariam Job in Bengaluru; Editing by Muralikumar Anantharaman and Jacqueline Wong