Shares in Macquarie Group Ltd (ASX: MQG) edged lower today after the company updated the market that it expects its full year profit to be “roughly in line” with the record $2.06 billion profit delivered for the year ending 31 March 2016.

The guidance effectively remained unchanged with the group suggesting its short-term outlook remains leveraged to the strength of the Australian dollar, capital markets, and potential regulatory changes related to capital adequacy requirements.

Macquarie has now shifted its focus towards asset management and leasing to such an extent that 71 percent of group earnings now come from what it describes as annuity style earnings. For investors this means in theory that the earnings outlook should be more predictable as fees from asset management and the leasing of assets are predictable compared to those leveraged to the large cyclical swings in capital markets.

It’s the softer performance from its capital markets facing businesses in recent quarters that is dragging down overall performance as its sell side broking and research business Macquarie Securities suffers from a lack of investor confidence and activity. Macquarie Capital, the M&A, investment banking, advisory, and deal making business also suffered from “subdued” market conditions during Q1 2017.

Overall though Macquarie could be a net beneficiary of rising US interest rates in the six months ahead, as this is likely to weaken the Aussie dollar and potentially lead to a surge in the kind of capital market activity the group thrives on.

It delivered $6.19 in earnings per share in FY16 which means it trades on less than 13x trailing earnings with a 5% dividend yield when shares sell for $80. That looks an attractive valuation given its medium-term shift into the asset management space, exposure to a weaker Aussie dollar and a not unreasonable expectation that it will beat FY16’s full year profit result.

One fly in the ointment is the Basel Banking Supervisory Committee’s proposed changes to the calculation of risk-weighted assets in terms of how much capital banks should hold in reserve on their balance sheets. The proposals under the “Basel IV” umbrella remain under consultation before any potential new rules are interpreted and enforced by APRA.

However, given the desperate state of many major European banks, including Deutsche Bank and several leading Italian banks, I expect another politically-driven toughening of the regulatory cycle for global banks is only a matter of time.

This is likely to impact more vanilla operators like National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) more than Macquarie, but remains a key risk for all bank investors to watch.

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Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.