By Byron Kaye and Savyata Mishra

(Reuters) -Australia’s Macquarie Group Ltd posted forecast-beating record annual profit powered by a surge in commodities trading and frenzied M&A activity, but it also warned earnings would decline, sending its shares tumbling.

Shares in the financial giant slid 8% by midsession on Friday, their biggest fall in two years, helping drag the broader Australian market 2.5% lower.

Net profit leapt 56% to A$4.71 billion ($3.4 billion) for the year that ended in March, blitzing a Visible Alpha consensus of A$4.45 billion, as its commodities trading unit saw operating income grow 50% due to high levels of trading and hedging.

“We had the recovery out of COVID where demand for goods surged and we had some challenges on the supply side, we then had the Russia-Ukraine issue,” CEO Shemara Wikramanayake said of commodities trading conditions on an analyst call.

The price of oil has swung wildly since the start of the COVID-19 pandemic, first plunging on tumbling demand then climbing again as economies reopened and supply chain blockages choked supply. The war in Ukraine then sent oil prices rocketing higher as Western countries look to stop buying from Russia, a major producer.

Macquarie’s investment banking unit, the top adviser for M&A deals in Australia, nearly quadrupled operating income after a blockbuster year that included advising on a $17 billion buyout of Sydney Airport and oil producer Santos’ $6 billion purchase of rival Oil Search.

Macquarie warned, however, that income from its commodities unit, which now generates more than a third of its income, would be “significantly down”, while M&A transactions would also drop in the current year.

“We have a very uncertain year ahead of us,” Wikramanayake said without giving specific financial guidance.

Ord Minett analysts said they now expect Macquarie’s 2023 annual profit to be “in-line to slightly ahead of” current forecasts of about A$4.2 billion “with potential for upgrades as the year progresses”.

Macquarie declared a final dividend of A$3.50 per share, up from A$3.35 per share a year earlier.

($1 = 1.4047 Australian dollars)

(Reporting by Byron Kaye in Sydney and Savyata Mishra, Additional reporting by Riya Sharma in Bengaluru; Editing by Edwina Gibbs)