MACQUARIE GROUP'S flagship stockbroking arm is poised to post a loss for the second consecutive year, weighing on the investment bank's profits as it continues to battle global market volatility.
Macquarie's chief executive, Nicholas Moore, told the bank's annual meeting he was expecting some improvement in earnings from last year's low but sounded a sombre note.
"The securities group is suffering," Mr Moore said. ''When you're on the downside of the cycle it's like a drought - you know the drought will turn, but you don't know when."
In boom times, Macquarie's securities business can generate earnings in excess of $1 billion annually but it is being squeezed as investors pull money out of equities to invest in the relative safe haven of bonds.
Last year, the securities business returned a loss of $194 million.
Macquarie, like most investment banks around the world, has been facing a deeply unfriendly environment.
Revenue has been under pressure as markets have been racked with uncertainty on the back of European debt crisis, tougher regulations and now questions over the outlook for Chinese growth.
Mr Moore pointed to Macquarie's first-quarter earnings as being ahead of this time last year but added that the start of last year ''was a very subdued environment''.
Describing the market as "very, very tough", he said he was not expecting the European crisis to improve any time soon.
This was also hurting other key businesses such as Macquarie's capital arm which advises on mergers and acquisitions.
This volatility has seen Macquarie push deeper into so-called annuity style businesses such as funds management and corporate lending, compared to traditional market-facing businesses like share trading and investment bank deal-making.
Reports from Bloomberg in Europe this week named Macquarie as being one several potential buyers for the asset management arm of troubled Franco-Belgium bank Dexia. While Mr Moore yesterday declined to comment on the sale, he suggested the business, which has more than $90 billion under management, could be a good fit.
"We do like the funds management industry," he said. "If we find businesses that will enhance what we have, we do have the funding to actually step-up."
A sale could fetch $500 million, with an exclusive bidder to be named within the next two weeks.
Meanwhile, the investment bank is seeking to push ahead with cost-cutting efforts with expenses so far down 10 per cent, mostly through cutting hundreds of staff.
Investors backed a proposal to extend the bank's current $500 million share buyback to up to 15 per cent of its shares over the next year. While this would put a floor under Macquarie's lagging share price, the buyback would be placed on hold if the bank opted for an acquisition. Mr Moore maintained the bank was positioned to deliver ''superior performance'' over the medium term.
Macquarie shares hit a seven-month low yesterday, closing down 1.8 per cent at $23.87.