Macquarie Group, Australia’s largest investment bank, reported a 43 per cent drop in opening half-year profits and warned operating conditions remained difficult. Its net profit dropped from A$1.06 billion ($686 million) to A$604 million, amid one-off costs and write-downs totalling A$1.14 billion in the half year ending 30 September.

“Financial markets have been highly disrupted during the period, with a crisis of confidence in credit markets and systemic falls in global liquidity leading to the stress and failure of major financial institutions,” said Nicholas Moore, chief executive, in a statement.

He said profits in the second half were likely to be at a similar level to the first half and forecast further writedowns of close to A$400 million.

The group said its funding position was strong with cash and liquid assets of A$26.3 billion exceeding short-term wholesale issued paper of A$18.9 billion.

“ Macquarie continues to be cautious with a conservative approach to funding and capital. Unprecedented market conditions make short-term forecasting extremely difficult. However, Macquarie currently expects the result for the second half to 31 March 2009 to be broadly in line with this first half result,” the bank said.

The Banking and Financial Services Group reported a net loss during the half year as difficult credit and equity markets affected both volumes and margins and as a result of the impact of the loss on the sale of the Italian mortgages portfolio. Retail deposits rose by 71 per cent from March 2008. Brokerage volumes were down due to weak market conditions, wrap funds under administration were down 7 per cent from March, as negative market movements offset good inflows. Provisions were also made on some loan assets and equity investments.

Macquarie Funds Group recorded a lower contribution to profit due to the impact of increased funding costs on the interest margin on the retail loan books. Last year’s first half result included profit on the sale of Macquarie-IMM. Declining equity values and redemptions from Asian retail investors led to a reduction in assets under management, which impacted base management fees.

The contribution from seed investments and performance fee products was adversely affected by market volatility.