MACQUARIE Group remains cautious about future profit growth despite the powerful market rally in recent months, as it grapples with how to revive earnings in a post-global financial crisis world.
The investment bank dampened market expectations on Tuesday, citing low equity market turnover and a prolonged slump in corporate deal-making in the Asia-Pacific region.
In contrast to analyst expectations of 15 per cent earnings growth this financial year, the bank forecast a more moderate 10 per cent rise in profits. After a sharp rise in Macquarie shares in recent months, the prediction sparked a 4 per cent slump in the stock, which fell by $1.57 to $37.16.
Chief executive Nicholas Moore said profits could well be higher if the recent market bounce was sustained, but he was decidedly cautious in his outlook for the bank.
Although investment banks in the US enjoyed surprisingly strong December quarter results, Mr Moore stressed that conditions remained "subdued" in its investment banking and securities businesses.
Conditions had improved in the last quarter, he said, but the lift had come from a low base and deal-making was soft in the Asia Pacific region.
"Things are better but they are still subdued," Mr Moore told an analyst briefing on Tuesday. "We have not seen the same pick-up in Australia as we've seen in the United States."
Most parts of the Macquarie empire are forecast to post higher profits this year, but the securities division - which houses its stockbroking arm - is expected to continue making losses.
The cautious comments come as Macquarie seeks to find a source of future profit growth to make up for lower turnover on equity markets and weaker merger and acquisition activity.
The bank's star division in this regard has been its annuity-style business, which made almost half the group's profits in the latest half.
The division, which manages global funds worth $334 billion, is forecast to continue growing this year, but could be negatively affected by ructions in the bond market, which has recently been sold off heavily.
Another potential source of growth is the mortgage market, after Macquarie last year teamed up with the Mark Bouris-backed Yellow Brick Road to take on the big four lenders. Macquarie's mortgage book had expanded by 5 per cent in the latest quarter, to $11.1 billion, though Mr Moore said this was still only about 1 per cent of the home loan market in Australia.
An analyst at Bell Potter, T S Lim, said Macquarie was on track to post solid revenue growth, but it might need to embark on further cost cutting to match the performance of investment banks overseas.
"The improvement is still going to come, but it's probably slower for Macquarie than for the other guys," Mr Lim said.