LSE suitor Macquarie warns on investment profits

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Macquarie, the Australian bank that has tabled a £1.5bn hostile bid for the London Stock Exchange, warned yesterday that profits from investment banking would fall well shy of expectations in the second half of its year.

Investment banking, which was responsible for more than half of the group's earnings between April and September, has been thumped of late by a paucity of hefty performance fees.

Its string of listed investment funds - which includes Macquarie Airports Group, the owner of chunky stakes in Bristol and Birmingham airports, among others - has lagged the wider Australian market. Dwindling fees mean Macquarie's profits this year are likely to be only modestly better than last.

Analysts had slated net profits of about A$974m (about £413m) for the year to the end of March, against A$823m last time. Overall profits will also be hit by weaker performances at Macquarie's treasury and commodities operations and in its equity markets group, which has been unsettled by less buoyant trading in Hong Kong.

Tony Russell, at ABN Amro Morgans, said: "Macquarie has always been treated as a growth bank and their guidance that came out, even though it was strong, was probably disappointing to what the market was chasing."

Allan Moss, the chief executive of Macquarie, told investors in Australia the bank's reputation had not been tarnished by criticism of its bid for the LSE. He said: "I don't think the LSE bid has damaged our brand. I say that regardless of how it turns out."

This week, the LSE, determined to preserve its independence, once again urged shareholders to reject Macquarie's 580p-a-share offer.

Its two biggest shareholders, Threadneedle and Scottish Widows, have dismissed the bid as too mean. Threadneedle, it emerged, topped up its holding on Tuesday by snapping up 100,000 more shares at 725p each.

Hopes that Macquarie may lift its offer, and confidence in the LSE's prospects should the Australians choose to walk away, drove LSE shares 25.5p higher to 753p yesterday.