Investors fly high on Macquarie share plan

Plans by Macquarie Bank to give shareholders its $1.4 billion stake in Sydney Airport pushed the bank's shares to four-year highs on Friday, with sentiment also buoyed by optimism over robust profit growth.

In the September half, Macquarie lifted its net profit 39 per cent to $501 million amid benign conditions in global financial markets.

The move to give shareholders one share in Sydney Airport for each share held in the bank - even though this may reduce prospects of a takeover for the airport operator in the near term - pushed the bank's shares up 4 per cent to $53.01, although shares in Sydney Airport fell 2.9 per cent to close at $4.07.

Macquarie had been expected to engineer a takeover for the airport company to get a premium for its 20 per cent stake.

"I'm sure they canvassed all options," BBY analyst Brett Le Mesurier said of the holding in the airport owner. "This a great outcome for Macquarie Bank shareholders."

The bank's chief executive, Nicholas Moore, said Macquarie had received interest from investors seeking to buy its stake in the airport "for some time now".

The bank's munificence comes as it has also lifted the interim dividend to $1 a share, from 75¢ paid a year earlier, reflecting its buoyant trading conditions.

The bank remained careful of forecasting the outlook for the balance of the financial year, saying only that subject to market volatility, it expects the second-half profit to exceed the profit posted in the first half.

"Its earnings are very highly correlated with [financial] markets," Mr Le Mesurier said. "It won't return to its glory days."

Difficult conditions in metals and commodity markets resulted in additional write-downs in this division, Macquarie said, although it defended its exposure by saying these activities were cyclical. In total, investment impairments fell to $82 million from $168 million, with loan impairments falling more modestly, to $95 million from $101 million.

Bank officials were defensive when discussing Macquarie's rising volume of mortgage lending, pointing out there has been no decline in lending standards. Borrowers are far more conservative than in the past, the bank told analysts, with no "low-doc lending", while borrowers are quick to switch to fixed-rate loans.

The bank has looked at loan serviceability of borrowers, should interest rates rise. "We're funding more out of [retail] deposits," one official told analysts. "We still securitise [mortgage loans] but that market is still coming back slowly. But with so much deposits we're using that [to fund mortgage lending]."

Analysts were also wary since Macquarie could not explain why its tax rate had risen so steeply.

Mr Moore said several years ago it had a highly profitable securities trading operation in Hong Kong, a low tax regime, but this operation was now losing money.

Similarly, the bank now has a sizeable US trading and infrastructure business, which has a tax liability in what is a comparatively high-tax regime.