Macquarie out of doldrums on merger rebound

Macquarie Group's profits appear on track to exceed $1 billion this year for the first time since 2010, as a global rise in market confidence propels the investment bank's earnings.

After a sharp rally in its share price in recent months, on Tuesday Macquarie said first-half profit was about $490 million, and noted that the second half had historically been the stronger of the two, pointing to a full-year profit of at least $980 million.

Such a result would constitute profit growth of about 15 per cent, but many analysts are banking on growth of more than 25 per cent over the year to March.

While earnings are still well below the peak hit before the global financial crisis, investors are taking an increasingly upbeat view on the stock amid signs of increased takeover activity and stockmarket listings.

The managing director of White Funds Management, Angus Gluskie, highlighted recent signs of a global lift in merger and acquisition activity and initial public offerings - trends that are beneficial to Macquarie.

"I think the specifics in the numbers for this half are less important in people's minds than the fact that in the last couple of months we've seen an uptick in the fundamental drivers of Macquarie's business," Mr Gluskie said.

The head of Australian banking research at Morningstar, David Ellis, said there had been a global improvement in sentiment towards investment banks.

"Macquarie has historically been a bull market stock. So, if you believe the equity market is going to move ahead, Macquarie is leveraged to a recovery in the market," Mr Ellis said.

Reflecting the improving outlook, Macquarie shares have risen strongly recently, last week hitting $50 for the first time since 2010. On Monday the stock fell 1.8 per cent to $49.12, as some had expected more bullish commentary from the bank.

Macquarie released the profit guidance in a presentation by executives at the CLSA Investors' Forum in Hong Kong. As always, it said its outlook was subject to market conditions not deteriorating.

Macquarie reports its results over the year to the end of March, so it is approaching the halfway point in its financial year.

It also said the profit would be affected by the cost of funding, greater competition in some markets, and the cost of regulatory changes.

Despite the signs of improvement for Macquarie, its profit is still well below the blockbuster earnings of $1.8 billion that were reached in 2008 before the peak of the global financial crisis.

In response to deep-seated changes in finance that have squeezed profits in investment banking and stockbroking, the bank has in recent years invested heavily in less volatile businesses such as funds management and mortgage lending.