MACQUARIE Group’s profit suffered after fewer asset sales and weakness in its commodities and global markets business. A surprise buyback of as much as A$2 billion (S$1.8 billion) offered some relief to investors.

Net income tumbled 39 per cent to A$1.4 billion in the six months to Sep 30, missing the average A$1.7 billion estimate of three analysts surveyed by Bloomberg.

Investors were primed for a soft result after the Sydney-based bank and asset manager twice in recent months dialled down expectations for profitability. As chief executive officer Shemara Wikramanayake prepares shareholders for more challenging times, Macquarie shares are still outperforming global bank stocks this year as its diverse set of businesses provides a cushion to investment-banking focused rivals.

Guidance suggests some stabilisation in the second half of the year, “but overall we would expect the market to continue to cut earnings expectations for Macquarie”, John Storey, an analyst at UBS Group, wrote in a report. “The only silver lining, in our view, is the buyback, which might indicate Macquarie views the stock as undervalued.”

Profit contribution from Macquarie Asset Management was down 71 per cent due to the timing of asset realisations in green investments and higher expenses. The commodities and global markets unit’s contribution was 31 per cent lower as volatility subsided.

“Our annuity-style businesses saw growth in loan books, deposits and assets under management, but the first-half result was substantially down compared to a strong period of realisations in the prior corresponding period,” Wikramanayake said on Friday (Nov 3). There is an “expectation that green energy realisations will be predominately in the second half”.

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The shares closed 1.8 per cent higher at A$163.24 in Sydney on Friday, while the S&P/ASX 200 Index rose 1.1 per cent.

Matt Ingram, senior industry analyst at Bloomberg Intelligence, said Macquarie’s big buyback might be a savvy trade, given its possible 20 per cent discount to 2021’s capital raise, and could offset the return impact of a very weak first half.

Surplus capital remains sufficient to support growth and possible asset management mergers and acquisitions, which would be very accretive to returns, he added. BLOOMBERG