MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au

 
MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au
MACQUARIE BANK 2005 ANNUAL REVIEW
                                                           MACQUARIE BANK
                                                           2005 ANNUAL REVIEW

www.macquarie.com.au                                       MACQUARIE BANK LIMITED ACN 008 583 542
MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au
The Holey Dollar In 1813 Governor         The cover of the Macquarie Bank           commitments now stand at
 Lachlan Macquarie overcame               2005 Annual Review shows the              KRW 1.26 trillion. In the past
 an acute currency shortage by            Incheon Expressway, a 40km tolled         12 months, six investments were
 purchasing Spanish silver dollars        link road between Seoul and Incheon       made with over KRW 800 billion
 (then worth five shillings), punching     International Airport, in which the       invested or firmly committed.
 the centres out and creating two         Korean Road Infrastructure Fund           KRIF is widely considered to be the
 new coins – the ‘Holey Dollar’           (KRIF) has a 24 per cent interest. KRIF
                                                                                    most active private infrastructure
 (valued at five shillings) and the        is a clear example of the success of      player in the Korean market and has
‘Dump’ (valued at one shilling and        the Bank’s infrastructure and             invested or firmly committed more
 three pence).                            specialised funds in global markets.      than 95 per cent of its total capital
This single move not only doubled         Established in 2002 in partnership        commitments.
the number of coins in circulation        with the Shinhan Financial Group          KRIF has also created a platform
but increased their worth by 25 per       (SFG), KRIF has raised capital
                                                                                    for Macquarie to leverage its global
cent and prevented the coins leaving      predominantly from Korean                 experience in project finance,
the colony. Governor Macquarie’s          institutional investors and has           pioneering the use of non-recourse
creation of the Holey Dollar was an       invested into ten Korean infrastructure   funding in the Korean market.
inspired solution to a difficult problem   projects specially designated for
and for this reason it was chosen as      private investment.
the symbol for the Macquarie Group.       The year to 31 March 2005 has seen
                                          the fund move quickly to secure
                                          quality investment opportunities at an
                                          early stage of the Korean market’s
                                          development. The fund’s total capital

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MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au
Macquarie Bank                          Review                                           2005 Concise Report
                                      2 Highlights                                    55 Directors’ Report
2005 Annual Review                    4 Chairman’s and Managing                       74 Directors’ Report Schedules
                                        Director’s Report                             78 Consolidated statement of
                                      8 Management and Organisation                      financial performance
                                    10 Macquarie Bank global locations                79 Consolidated statement of
                                    12 Investment Banking Group                          financial position
                                    18 Banking and Property Group                     80 Consolidated statement of cash flows
                                    22 Treasury and Commodities Group                 81 Discussion and analysis
                                    26 Equity Markets Group                           82 Notes to the concise financial
                                    30 Financial Services Group                          statements
                                       Funds Management Group                         90 Directors’ declaration
                                    34 Other Groups and Divisions                     91 Independent audit report
                                    36 Macquarie and the community                    92 Ten year history
                                    40 Corporate Governance Statement                 93 Contact directory

                                “   The year was characterised by substantial
                                    international growth with the Bank benefiting from:
                                – Increase in employee numbers – staff based outside
                                  Australia grew by 29 per cent to 1,747
                                  (Total staff numbers grew by 15 per cent to 6,556)
                                – Continuation of business expansion and significant
                                  international achievements
                                    This has resulted in growth in international revenue
                                    of 83 per cent to $1.3 billion.

                                                                                      ”
                                    David Clarke, Executive Chairman/Macquarie Bank
2005 Annual General Meeting
Macquarie Bank’s 2005
Annual General Meeting
will be held at 10.30 am
on Thursday, 28 July 2005
at The Westin Sydney,
in the Grand Ballroom,
Lower Level,
No. 1 Martin Place, Sydney.
Details of the business of
the meeting will be contained
in the separate Notice of
Annual General Meeting to
be sent to securityholders.

The Macquarie Bank Group’s
annual report consists of two
documents – the 2005
Annual Review (incorporating
the Concise Report) and the
2005 Financial Report. The
Annual Review provides an
overview of the Groups’
operations and a summary
of the financial statements.
If you would like a copy
of the 2005 Financial
Report, please call us on
+61 2 8232 5006 or visit
www.macquarie.com.au/
shareholdercentre

                                                                                                                           1
MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au
Highlights                                     – Profit after tax from ordinary activities (attributable to ordinary equity
                                                 holders) increased 67 per cent to $823 million
                                               – Operating income increased 54 per cent to $3,655 million
                                               – Earnings per share increased 61 per cent to $3.75 per share
                                               – Ordinary dividends of $1.61 per share for the year
                                                 (interim dividend and final dividend franked to 90 per cent)
                                               – Special dividend of 40 cents per share franked to 90 per cent
                                               – Return on average ordinary shareholders’ funds was 30.2 per cent
                                               – International income contributed 37 per cent of the Bank’s
                                                 operating income (excluding earnings on capital)
                                               – Total assets under management increased 42 per cent to $89 billion
                                               – Total assets grew by 13 per cent to $49 billion
                                               – Total capital adequacy ratio 21.2 per cent

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2                                                                   Macquarie Bank Limited 2005 Annual Review
MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au
Consolidated profit
    Year ended 31 March                                                                20052                           20042                   % Change
                                                                                         $m                              $m
    Total income                                                                       3,655                           2,380                          54
    Total expenses                                                                  (2,494)                           (1,695)                         47
    Profit before income tax                                                            1,161                             685                          69
    Income tax expense                                                                  (280)                            (161)                        74
    Profit after income tax                                                              881                              524                          68
    Macquarie Income Preferred Securities                                                (28)                               –                       large
    Other outside equity interest                                                         (1)                               (3)                       (67)
    Distribution on Macquarie Income Securities                                          (29)                             (27)                         7
    Profit after income tax attributable to ordinary equity holders                      823                              494                          67
2
    The results for both the 2004 and 2005 years have been adjusted to reclassify income and expenses related to businesses held for resale.

    Ratings                                                                    Short-term                        Long-term                      Outlook
    Fitch Ratings                                                                         F1                              A+                      Stable
    Moody’s Investors Service                                                            P1                               A2                     Positive
    Standard & Poors                                                                     A1                                 A                     Stable

    Relative Group contribution to profit 1                                                                              2005                       2004
         Corporate Finance (including Infrastructure and Specialised Funds and IBG Principle)                           38%                         33%
         Macquarie Securities                                                                                             7%                         8%
         Financial Products                                                                                               4%                         6%
         Macquarie Capital                                                                                                2%                         3%
    Total Investment Banking                                                                                            51%                         50%
         Banking and Property 3                                                                                         22%                         13%
         Treasury and Commodities                                                                                       13%                         17%
         Equity Markets                                                                                                  9%                         14%
         Financial Services                                                                                              4%                          5%
         Funds Management                                                                                                1%                          1%
Including the one-off profit from the formation of Macquarie Goodman Group.
3

    400                                                                            210

    350                                                                            180
    300
                                                                                   150
    250
                                                                                   120
    200
                                                                                   90
    150

    100                                                                            60

    50                                                                             30

    0                                                                              0

                                                                                                                                                             3
MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au
Chairman’s and Managing    Result                                          and all of the Bank’s operating
                           The Macquarie Bank Group (the                   Groups reported record results.
Director’s Report          Bank or Macquarie) delivered another            Assets under management grew
                           record result in the financial year to          42 per cent to $89 billion over the
                           31 March 2005. As a result, the Bank            period, with growth in specialist
                           is pleased to announce a special                property and infrastructure funds
                           dividend of 40 cents per ordinary               increasing from $26 billion to $46 billion
                           share in addition to a final dividend of        over the period. The specialist funds
                           $1.00 per ordinary share. The special           continued their strong returns to
                           dividend was declared because of the            investors. Total shareholder returns
                           significant one-off profit recognised           for investors in Macquarie specialist
                           from the formation of Macquarie                 funds, both in Australia and
                           Goodman Group (MGQ), reflecting                 internationally, has been over
                           12 years of business building by the            400 per cent since December 1995.1
                           property funds management team.                 Asset realisations also formed a
                           The final and special dividends are             significant part of the Bank’s revenue.
                           franked to 90 per cent.                         In particular, the formation of MGQ,
                           Consolidated after-tax profit                   discussed later, led to a $91 million
                           attributable to ordinary equity holders         contribution to net profit after tax and
                           increased 67 per cent from                      profit share.
                           $494 million to $823 million for the            Pleasingly, the Bank was the
                           year ended 31 March 2005. Earnings              successful bidder in a larger number
                           per share increased 61 per cent from            of investment banking and
                           $2.33 to $3.75.                                 fund-related transactions over the
                           Total operating income rose by 54 per           course of the year. Responding to
                           cent from $2.4 billion to $3.7 billion.         the lower volatility and interest rate
                           Trading, fee and commission, and                environment, the Bank’s equity
                           interest income were all up on the              derivatives businesses produced a
                           previous year. Fee and commission               result slightly ahead of the prior year,
                           income contributed approximately                largely due to geographic and
                           52 per cent of income and rose                  product diversification. The treasury
                           45 per cent on the prior year.                  and commodities area saw broad
                           The year was characterised by                   growth in its businesses. Retail
                           substantial international growth with           financial services benefited from
                           the Bank benefiting from:                       favourable market conditions with
                                                                           continuing focus on cost
                          – Increase in employee numbers –                 management. The Bank’s institutional
                            staff based outside Australia grew by          stockbroking businesses, both in
                            29 per cent to 1,747 (total staff              Australian and Asian securities, made
                            numbers grew by 15 per cent to 6,556)          a meaningful contribution in good
                          – Continuation of business expansion             market conditions. Performance fees
                            and significant international                   from the Bank’s specialist funds
                            achievements                                   contributed $312 million, up 39 per
                           This resulted in international revenue          cent on the prior year.
                           growth of 83 per cent to $1,273 million.        The expense to income ratio fell from
                           Market conditions continued to be               71.2 per cent to 68.2 per cent despite
                           broadly favourable across most of the           the addition of 447 staff from the
                           markets in which the Bank operates              acquisition of the ING cash equities
                                                                           sales business in Asia. While cost
                                                                           management initiatives continued
                                                                           during the year, the improvement in
                                                                           the expense to income ratio was
                                                                           mainly due to strong income growth.
                                                                           Investment continued in staff and
                                                                           systems to support ongoing growth.
                                                                           The Bank maintains its strong
                                                                           capitalisation, with a Tier 1 capital
                                                                           ratio of 14.4 per cent, providing the
                                                                           ability to support new and existing
                                                                           business initiatives and maintain its
                                                                           credit ratings.

                                                                       1
                                                                           Total shareholder return measures the change in
                                                                           share value over a specified period, assuming
                                                                           that all dividends are reinvested and accounting
                                                                           for all corporate actions.

4                          Macquarie Bank Limited 2005 Annual Review
MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au
A year of major strategic               – Margin lending products reported                                                                                 – Joint venture with the Thai Military
  achievements                              rapid growth with the total loan                                                                                   Bank focusing on stockbroking and
  The year was marked by a number of        portfolio growing by 47 per cent to                                                                                investment banking
  notable achievements not only in          over $2.6 billion                                                         Europe and the Middle East
  Australia but also in the international – Acquired 49 per cent of Brook Asset                                     – Established Macquarie European
  markets in which we operate. Some         Management in New Zealand                                                 Infrastructure Fund (MEIF), an unlisted
  of these are highlighted below:         – No. 2 stockbroker by ASX market                                           pan-European fund focusing on
  Australia/New Zealand                     share for the 2004 calendar year and                                      infrastructure investments in Europe.
– ConnectEast Group, supported by           the No. 1 for the first quarter of 2005                                    During the year, MEIF invested in
  Macquarie Bank, Thiess Pty Limited                                        Post balance date:                        assets such as South East Water, the
  and John Holland Pty Limited, was                                       – $1 billion IPO of Macquarie Capital       Wales and the West gas distribution
  awarded the 39-year concession for                                        Alliance Group, a fund focusing on        business and Energy Power
  the Mitcham-Frankston project.                                            co-investing with Macquarie Bank          Resources in the United Kingdom,
  Macquarie was also the arranger and                                       and/or with Macquarie managed             Arlanda Express in Sweden and
  joint lead manager of the $1.1 billion                                    funds in any sector, excluding property Brussels International Airport
  Initial Public Offering (IPO) of                                          Asia                                      Company in Belgium
  ConnectEast                                                             – Macquarie Securities Asia (previously – Acquisition of 70 per cent of Brussels
– Merger of Macquarie Goodman                                               ING’s Asian cash equities business) is
                                                                                                                      International Airport Company by a
  Industrial Trust and Macquarie                                            already profitable and growing             Macquarie Airports-led consortium for
  Goodman Management Limited to                                           – Completed the $US530 million IPO for      €735 million
  form MGQ, Australia’s largest                                             SM Investments Corporation, the
                                                                                                                    – Acquisition of NTL:Broadcast UK
  industrial property group                                                 largest IPO in Philippines’ history,      by a Macquarie Communications
– $266 million IPO and subsequent                                           demonstrating the Bank’s increasing       Infrastructure Group-led consortium
  $398 million raising by Diversified                                        Asia-wide investment banking capability   for £1.3 billion
  Utility and Energy Trusts (DUET), a                                     – Awarded a Malaysian stockbroking        – Established Macquarie Global
  fund principally investing in Australian                                  licence, one of only five conferred        Property Advisers that now manages
  and New Zealand utility and energy                                        upon non-Malaysian firms                   $US1.9 billion of assets in Europe
  assets, and managed by a joint                                          – Expanded structured equity                and Asia
  venture with AMP Capital                                                  offerings to include products over
– Acquired 92 radio stations in 45                                          Korean, Taiwanese, Singaporean
  Australian regional markets with the                                      and Japanese markets
  intention that these will become part                                   – Korean securities funds management
  of a specialist fund                                                      joint venture increased assets under
– IPO of Macquarie Private Capital                                          management (Macquarie’s share)
  Group, a $107 million private equity                                      62 per cent to $3.5 billion
  fund
– Launch of an integrated hedge                                             Post balance date:
  fund business                                                           – Proposed listing on the Singapore
– Macquarie Cash Management Trust                                           Stock Exchange of Macquarie
  exceeded $10 billion in funds under                                       International Infrastructure Fund, a
  management and Macquarie Wrap                                             fund focusing on the direct and
  Solutions exceeded $14 billion in                                         indirect investment in infrastructure
  funds under administration                                                assets and infrastructure-focused
                                                                            securities

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MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au
Chairman’s and Managing                                                          – Entered into a renewable energy joint                                        – No. 1 ranking for overall research/
                                                                                   venture which has one of the largest                                           sales quality in Australian equities,
Director’s Report                                                                  portfolios in the UK with a total value                                        by Greenwich Associates
continued                                                                          of £121 million                                                              – Strong growth in commodities
                                                                                 – Global Energy Markets team                                                     including cotton and oil and gas
                                                                                   headquartered in London increased                                              financing businesses. Energy
                                                                                   contribution significantly                                                      derivatives teams were also
                                                                                 – Agricultural Commodities’ structured                                           established in New York and Houston
                                                                                   products team established in London                                               Review of operations
                                                                                   Post balance date:                                                                The year was characterised by strong
                                                                                 – Treasury and Commodities joint venture                                            growth with record contributions from
                                                                                   with Abu Dhabi Commercial Bank                                                    all our major business Groups.
                                                                                   The Americas                                                                      The Investment Banking Group
                                                                                 – $US535 million New York Stock                                                     achieved an excellent result,
                                                                                   Exchange IPO of the Macquarie                                                     73 per cent up over the prior year,
                                                                                   Infrastructure Company Trust (MIC).                                               in a very favourable operating
                                                                                   MIC invests in a diversified group of                                              environment. Strong equity market
                                                                                   infrastructure businesses in the US                                               conditions during the year resulted
                                                                                   and other developed countries                                                     in significant deal flow, asset
                                                                                 – Chicago Skyway acquired by                                                        realisations and increased market
                                                                                   Macquarie Infrastructure Group (MIG)                                              shares. Expansion into international
                                                                                   and Cintra Concesiones de                                                         markets continued with the
                                                                                   Infraestructuras de Transporte, S.A.                                              contribution from international
                                                                                   for $US1.8 billion                                                                businesses growing significantly,
                                                                                 – Macquarie Property and its joint                                                  including from specialist funds.
                                                                                   venture partners acquired                                                         Banking and Property Group
                                                                                   $US5.5 billion of property including
                                                                                                                                                                     posted its seventh consecutive record
                                                                                   Macquarie CountryWide with Regency                                                contribution, which was 200 per cent
                                                                                   Centres ($US2.8 billion portfolio of                                              up on the prior year (including the profit
                                                                                   US shopping centres) and Macquarie
                                                                                                                                                                     realised on the formation of MGQ). All
                                                                                   Office Trust (takeover of $1.3 billion                                             of the Group’s businesses increased
                                                                                   Principal America Office Trust)                                                    contributions on the prior year despite
                                                                                 – $C212 million Toronto Stock                                                       some challenges to the operating
                                                                                   Exchange IPO of Macquarie Power                                                   environment including the domestic
                                                                                   Income Fund (MPT), a fund focusing                                                interest rate increase. Property assets
                                                                                   primarily on power generation assets                                              under management (including
                                                                                   in North America                                                                  associates) increased by 90 per cent
                                                                                 – $C528 million acquisition of                                                      from $10.9 billion to $20.7 billion. As
                                                                                   Leisureworld, a Canadian aged care                                                briefly mentioned above, through its
                                                                                   provider, intended to be transferred to                                           37.1 per cent stake in Macquarie
                                                                                   a Macquarie managed fund                                                          Goodman Management Limited
                                                                                                                                                                     (MGM), the Group also benefited from
                                                                                                                                                                     the merger of MGM and Macquarie
                                                                                                                                                                     Goodman Industrial Trust, bringing to

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6                                                                                  Macquarie Bank Limited 2005 Annual Review
MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au
account a $91 million profit after tax     markets where its particular skills and    Dividends and capital management
and profit share. The Bank now holds       expertise deliver real advantage to        The Bank will pay a final dividend of
approximately 8.6 per cent of MGQ.         clients. This approach allows the          $1.00 per ordinary share for the year
Increased contributions across most        flexibility to enter new markets as        to 31 March 2005, franked to 90 per
operating divisions, including             opportunities arise and the ability to     cent. This brings total ordinary
particularly strong increases from         respond to the specialist requirements     dividends for the year to $1.61 per
Agricultural Commodities and Energy        of individual markets in the region and    share, compared to $1.22 per share
Markets, led to Treasury and               around the world. As a result,             for the year ended 31 March 2004. In
Commodities Group’s contribution           Macquarie has established leading          addition, a special dividend of 40 cents
being 30 per cent up on the prior year.    positions in a diverse range of            per ordinary share has been declared,
                                           international markets.                     also franked to 90 per cent, taking
Equity Markets Group achieved a                                                       total dividends for the year to $2.01
good result, slightly ahead of the prior   The Bank also seeks to identify,
                                           encourage and reward achievement           per ordinary share. The special
year. Increased contributions were                                                    dividend broadly represents the after-
made by a number of relatively new         everywhere in the organisation. We
                                           believe that all our staff have the        tax gain realised by the Bank on the
businesses, demonstrating the                                                         formation of MGQ. The special
benefits of diversifying the Group’s       ability to contribute and be innovative,
                                           and it is the responsibility of            dividend takes the dividend payout
geographic and product mix.                                                           ratio for the year to 54 per cent.
                                           management to provide an
Financial Services Group’s                 environment which allows and               The Bank’s target payout ratio each
contribution was 20 per cent up            encourages them to do so. We have          year remains in the range of 50 to
on the prior year. The increased           the approach that if businesses            60 per cent of net earnings. It is
contribution was the result of strong      succeed, the staff in those                expected that future dividends will
inflows into the Group’s major             businesses, along with shareholders,       be at least 80 per cent franked.
products, the continued strength of        should benefit through appropriate
equity markets and four years of                                                      In September 2004, a Macquarie
                                           reward structures.                         Group entity issued £350 million of
investment and business
diversification.                           Our potential for continued growth,        Macquarie Income Preferred
                                           including successfully building new        Securities (MIPS). MIPS are Tier 1
Funds Management Group’s                   businesses, depends on our ability to      eligible hybrid securities and have
contribution was 66 per cent up on         reward our people fairly for their         been used initially to augment the
the prior year. The Group enjoyed          achievements. As our businesses            Macquarie Bank Group’s US activities
strong inflows into fixed interest,        diversify, we are increasingly             and for general corporate purposes.
currency, alternative investments and      competing to attract and retain
listed property. Total funds managed                                                  Outlook
                                           people in the global market.               The Bank is aiming to repeat the full
by the Group increased by 16 per
cent to $42 billion over the year.         Macquarie has maintained a                 year 2005 result for the year ending
                                           consistent approach to remuneration,       31 March 2006, excluding the one-off
Long-term performance and                  with minor adjustments reflecting          profit realisation on the formation of
strategy                                   regular review. The principles of this     MGQ and the impact of the introduction
This year, Macquarie continued to          remuneration structure have been           of International Financial Reporting
generate substantial profits and           public since the Bank’s listing in 1996.   Standards. These standards will
dividends for its shareholders. This       They have contributed to the               come into effect in 2006 and are
record of consistently strong growth       generation of strong long-term             discussed on pages 11-19 of the
has been reflected in the Bank’s long-     performance and supported long-            Bank’s Financial Report.
term share price appreciation and          term commitment from management
returns to shareholders. As illustrated                                               Achieving that result will, however,
                                           and staff. These principles also serve     be subject to swing factors including
in the graph opposite, the Bank’s total    to align staff interests with those of
shareholder return was 929 per cent                                                   the quantum of performance fees on
                                           shareholders (both net profit after tax    specialist funds, market conditions
from the time its shares were listed in    and return on equity).
July 1996 until 31 March 2005. This                                                   and asset realisations.
return compares to the average total       Details of the Bank’s remuneration         We note that equity market conditions
shareholder return of the companies        policies and practices are contained       have recently softened and we
which comprised the ASX Top 50             in the Remuneration Approach               may not achieve this outcome if this
at the time of the Bank’s listing of       section of the Directors’ Report later     softening is sustained.
164 per cent over the same period.
                                           in this document. This consolidates
                                           the remuneration information               Over the medium term the Bank
The Bank delivered a total                                                            continues to be well placed due to
shareholder return over this period        included last year in the Directors’
                                           Report and in the Corporate                good businesses, diversification,
better than all of those companies.                                                   benefits of major strategic growth
                                           Governance Statement.
This return reflects Macquarie’s                                                      initiatives, committed quality staff and
business strategy to remain focused                                                   effective prudential controls. Subject
on adding significant value for our                                                   to market conditions not deteriorating
clients. In Australia, Macquarie                                                      materially, the Bank expects
provides a full suite of financial                                                    continued good growth in revenue
services and products. Internationally,                                               and earnings across most businesses
Macquarie’s strategy is to expand                                                     and continued good growth in
selectively, seeking only to enter                                                    international businesses.

                                                                                                                                 7
MACQUARIE BANK 2005 ANNUAL REVIEW - www.macquarie.com.au
Management and Organisation

8                             Macquarie Bank Limited 2005 Annual Review
We identify, encourage and reward achievement. We believe that all our staff have
 the ability to contribute and be innovative – it is the responsibility of management
 to provide an environment which allows and encourages them to do so. The
 concentric nature of the organisation chart represents the non-hierarchical nature
 of Macquarie and the role of central risk management.

 The Bank’s activities are organised into six                 Each Group focuses on specific products
 operating Groups:                                            or markets.
– Banking and Property Group
– Equity Markets Group
– Financial Services Group
– Funds Management Group
– Investment Banking Group
– Treasury and Commodities Group

 Strong independent risk management has been                  The principles of Macquarie’s approach to risk
 fundamental to the Bank’s success. Given the                 management are:
 markets in which we operate, risk is an inherent part       – Independence – Risk Management Division is
 of Macquarie’s businesses. The Bank’s policy is not           independent of the Bank’s operating areas
 to eliminate all risks but to manage risks appropriately.   – Centralised Bank-wide prudential management
 The main risks faced by Macquarie are market risk,          – Approval of new business activities
 credit risk, liquidity risk, operational risk and legal     – Continuous assessment
 compliance and documentation risk. It is the                – Frequent monitoring – centralised systems to allow
 responsibility of the Risk Management Division to             daily monitoring of credit and market risks.
 ensure the appropriate assessment and management
 of these risks within the Bank.                              Further information on the Bank’s risk management
                                                              is provided on page 34 of this report, pages 50 and
                                                              51 of the Corporate Governance Statement and in
                                                              the Risk Management Report at the beginning of
                                                              the 2005 Financial Report.

 A network of support areas provides the infrastructure       Macquarie employs more than 6,500 people in
 and framework which enable the Groups to operate.            23 countries worldwide. This includes staff acquired
 These include the Information Services Division (systems     as part of the acquisition of ING’s Asian equities
 and communications technology), the Corporate Affairs        businesses, completed in mid 2004.
 Group (comprising Human Resources, Business
 Services, Financial Operations, Business Improvement,
 Settlements, Company Secretarial, Investor Relations
 and Taxation) and the Quantitative Applications Division.
 Corporate Communications is part of the Central
 Executive of the Bank.

 All businesses operate within overall guidelines and
 specific parameters set by the Board and the Executive
 Committee (a central group comprising the Chairman,
 Managing Director, Deputy Managing Director, Deputy
 Chairman, six business heads and the Heads of Risk
 Management Division and Corporate Affairs Group).

                                                                                                                     9
Macquarie Bank global locations   Europe/Middle East/Africa:                  Asia:
                                  In Europe, Macquarie provides               In Asia, Macquarie provides a broad
                                  specialist services in a range of chosen    range of investment banking services
                                  market segments. Our regional base          and has successfully pursued
                                  is London, where we have more than          selective expansion, entering markets
                                  300 people, with additional offices in      and businesses where there is a
                                  Dublin, Frankfurt, Geneva, Milan,           genuine opportunity to add real value
                                  Munich, Paris and Vienna.                   to stakeholders.
                                  Our European activities include             Our regional base is in Hong Kong,
                                  infrastructure funds management,            with rapidly growing businesses in
                                  corporate finance and advisory              China, Indonesia, Japan, Korea,
                                  services, financial products, lending       Malaysia, the Philippines, Singapore,
                                  and asset financing, institutional          Taiwan and Thailand. We continue to
                                  stockbroking and research, treasury         grow our Asian activities, expanding
                                  and commodities activities, real estate     existing businesses, forming joint
                                  investment banking and equity               ventures with local partners and
                                  structured finance and derivatives.         making acquisitions.
                                  In Africa and the Middle East,
                                  Macquarie successfully focuses on
                                  selected businesses where our
                                  expertise provides particular value
                                  to clients.

10                                Macquarie Bank Limited 2005 Annual Review
Australia/New Zealand:                     The Americas:                            Macquarie in the Americas undertakes
Macquarie is a diversified international   Macquarie provides a range of            a range of activities including mergers
provider of financial and investment       specialist investment, advisory and      and acquisitions and corporate
banking services. In Australia,            financial services to clients in the     restructuring advice, capital raising in
Macquarie is a leading full service        United States. Our regional base is in   private and public equity and debt
investment bank providing financial        New York, with teams located in          markets, project and infrastructure
market trading, advisory products          Boston, Charleston, Chicago,             finance and structured finance. We
and debt and equity capital.               Houston, Jupiter, Los Angeles,           have also developed specialist
Macquarie continues to hold leading        Memphis, Palm Springs, San Diego,        expertise in the areas of oil and gas,
positions in most businesses, and is       San Francisco, San Jose, Sao Paulo,      infrastructure, telecommunications
committed to achieving outstanding         Seattle, Toronto and Vancouver.          and a significant presence in real
results. Technical expertise, strong                                                estate funds management, real estate
risk management and an enterprising                                                 investment banking, real estate
approach underlie all activities.                                                   finance, residential mortgages and
                                                                                    lifestyle and resort community
                                                                                    development.

                                                                                                                               Not to scale

                                                                                                                                       11
Investment Banking Group
Focus: Brussels Airport/Belgium

12                                Macquarie Bank Limited 2005 Annual Review
13
Investment Banking Group            In late 2004, a Macquarie Airports (MAp)-led consortium completed the
                                    purchase of 70 per cent of the Brussels International Airport Company (BIAC)
Focus: Brussels Airport/Belgium     for ¤735 million.
                                    MAp secured a 52 per cent beneficial interest in Brussels Airport through
The Investment Banking Group        its 74.3 per cent holding in the consortium. Remaining consortium equity
achieved an excellent result,       interests are held by Macquarie European Infrastructure Fund (14.2%),
73 per cent up on the prior year.   Global Infrastructure Fund II (4.3%) and Macquarie Bank (7.2%). The
                                    Belgian Government retained its 30 per cent holding of BIAC.
                                    The acquisition, which provides geographic and investment diversity to
Investment Banking Group            MA  p’s portfolio,
                                    Treasury           was financed
                                             and Commodities Group through a combination of equity,
                                                                                             Equity convertible
                                                                                                    Markets Group
contribution to profit              contribution to profit                                        contribution to profit
                                    loans  and shareholder loans from consortium members and         through a
                                    bridge facility. An innovative hybrid capital instrument called TICkETS
            51%                     (Tradeable Interest-bearing
                                                  13%             Convertible to Equity Trust Securities) raised9%
                                    $525 million and was awarded FinanceAsia magazine’s Best Equity-Linked
                                    Deal of the Year. An equity placement of $400 million was also executed.
                                    Brussels Airport was recognised by Airport Council International as one of
                                    the world’s top ten best-performing airports in 2004, with traffic growth
                                    averaging 5.3 per cent per annum in the period from 1988. As Belgium’s
                                    only major airport, it serves a dense and relatively high-income-per-capita
                                    population of over 10 million people. Brussels is home to the European
                                    Commission, NATO, 120 international government and 1,400 international
                                    non-government organisations.
                                    BIAC holds an indefinite licence to operate Brussels Airport and also owns
                                    the 1,245 hectares of land it occupies, a space comparable to that of
                                    London’s Heathrow Airport. Following its expansion and facilities upgrade
                                    in 2002, the airport has significant capacity for growth in passenger
                                    volumes in terminals and runway movements per hour.
                                    Many of the world’s top infrastructure investors bid for BIAC. However, the
                                    Belgian Government awarded the transaction to the MAp-led consortium
                                    due to high quality business planning and the consortium’s superior track
                                    record in airport management.

                                    Macquarie Airports

14                                  Macquarie Bank Limited 2005 Annual Review
The Investment Banking Group                   position as a leading provider of            power generation assets in North
achieved another record result,                project finance advisory services was        America (listed April 2004)
73 per cent up on the prior year (95           confirmed with a No. 1 ranking           – Diversified Utility and Energy Trusts
per cent excluding Macquarie Direct            globally for completed mandates            (DUET) – an Australian Stock
Investment, which was boosted by               (Project Finance International).           Exchange (ASX) listed fund principally
asset realisations in the prior year), in a    Notable transactions are contained in      investing in Australian and New
very favourable operating environment.         the table overleaf.                        Zealand utility and energy assets,
Strong equity market conditions                Growth in the infrastructure and           managed by a joint venture between
during the year resulted in significant        specialised funds (ISF) business           Macquarie Bank and AMP Capital
deal flow and increased market                 continues to be an important global        (listed August 2004)
shares. Expansion into international           focus. Macquarie has achieved a          1
                                                                                            Annualised return based on all capital raised,
markets continued with contributions           compound annual return of 22.5 per           distributions paid and valuations (market
                                                                                            capitalisations) for ISF’s funds since inception
from international businesses growing          cent1 for investors in listed                to 31 March 2005.
significantly.                                 infrastructure funds since inception.    2
                                                                                            For listed funds – market capitalisation as at
Corporate Finance, which includes              Equity under management 2 grew by            31 March 2005 plus fully underwritten or
                                               101 per cent from $13.5 billion to           committed future capital raisings. Invested and
the Group’s advisory, equity capital                                                        committed capital for unlisted funds. Invested
                                               $27.1 billion for the year to 31 March       capital for mandated assets (including third
markets (ECM) and infrastructure and
                                               2005. This was due to additional             party investors in consortia which are led by
specialised funds businesses,                                                               Macquarie managed funds), MBL direct
continued to perform strongly across           raisings by most funds and the               holdings and other funds. Jointly managed
most industry sectors. It also benefited       establishment of several new funds,          funds (SAIF, AIIF, DUET, KRIF) included at 50% of

from asset realisations such as part of        including:                                   invested capital. Invested capital comprises
                                                                                            actual capital drawn from investors, net of asset
the stake in Macquarie Communications – Macquarie European Infrastructure                   realisations returned to investors, plus firm
                                                                                            investment commitments which will require a
Infrastructure Group (MCG).              Fund (MEIF) – an unlisted pan-                     future call on investors. Exchange rates as at
Leading market positions were            European   fund focusing on                        31 March 2005.

maintained with Macquarie ranking        infrastructure investments in Europe
No. 1 in ECM for Australian equity       (first close April 2004)
raised (Bloomberg) and No. 2 for              – Macquarie Power Income Fund
announced mergers and acquisitions              (MPT) – a Toronto Stock Exchange
(Thomson Financial). Macquarie’s                listed fund focusing primarily on

continues to diversify its portfolio

                                                                                                                                                15
Investment Banking Group   – Macquarie Infrastructure Company           – New seed asset acquisitions – regional
                             Trust (MIC) – a New York Stock               radio businesses in Australia and a
continued                    Exchange listed fund investing in            renewable energy business in the UK
                             a diversified group of infrastructure        Macquarie also restructured its private
                             businesses in the US and other              equity division, Macquarie Direct
                             developed countries (listed                 Investment, during the year, resulting
                             December 2004)                              in the consolidation of various private
                             Other initiatives included:                 equity businesses and their
                           – Asset acquisitions by existing funds –      integration into the specialist funds
                             gas and electricity distribution            business. This restructure is expected
                             networks in Australia by DUET, a            to capitalise on the investment
                             district heating business and airport       origination capabilities of the Group.
                             service companies in the US by MIC,         The table below highlights key
                             a power generation plant in Canada          transactions during the year.
                             by Macquarie Essential Assets
                             Partnership (MEAP), a broadcast             Macquarie Securities, the Australian
                             transmission provider in the UK by          and Asian institutional stockbroking
                             MCG, toll roads in the US by MIG and        business, achieved an excellent
                             in Korea by KRIF and, subject to            overall result. In Australia, strong
                             financial close, a UK gas distribution       secondary market revenues and an
                             network by MEIF                             overall increase in Australian market
                                                                         share contributed to the outstanding
                                                                         result. A highlight of the year was the
                                                                         No. 1 ranking in Australia, Asia and

                                                                         Sector
                                                                         Infrastructure

                                                                         Industrials

                                                                         Property

                                                                         Telecommunications, Media, Entertainment
                                                                         and Technology (TMeT)

                                                                         Resources

                                                                         Financial Institutions

16                          Macquarie Bank Limited 2005 Annual Review
the US and No. 2 in Europe for overall           Macquarie Capital, which carries out           are expected with continued high
research and sales quality for                   the Group’s asset financing activities,        levels of business activity in Europe,
Australian equities (Peter Lee                   continued to experience strong                 Asia and the US.
Associates/Greenwich Associates).                growth in asset-based leasing                  Increased domestic and international
Following the successful acquisition             volumes, up 20 per cent to $3.6 billion        infrastructure activity is anticipated
and integration of Macquarie                     from $3.0 billion. New product                 with existing funds growing through
Securities Asia (previously ING’s Asian          initiatives continue to increase deal          new acquisitions and the continued
cash equities business), the business            flows and further opportunities are            development of various new funds in
is operating better than expected with           being actively explored.                       the resources and media sectors.
improved market conditions and                   Outlook
market shares and a good                                                                        Since 31 March 2005, two new
                                                 If recent softening in equity markets          specialist funds were launched:
contribution from ECM transactions,              is sustained, the Group may find it
particularly from the Philippines.               challenging to repeat last year’s            – Macquarie Capital Alliance Group
In Financial Products, increased                 excellent result in 2006. However,             (MCQ) – ASX listed fund focusing on
levels of domestic and international             the Group anticipates an increase in           co-investment with the Bank and/or
activity were experienced with                   revenue and profit over the medium             Macquarie managed funds in any
continued growth in the size and                 term, providing there is no material           sector excluding property; and
range of retail products.                        change in market conditions.                 – Macquarie International Infrastructure
Internationally, retail product offerings        A particular focus will be on the              Fund Limited (MIIF) – a prospectus
were launched in Europe, while                   expansion of the Asian investment              has been lodged with the Monetary
development of retail infrastructure             banking business including strong              Authority of Singapore for a proposed
and collateralised debt obligation               growth in stockbroking activities,             listed Singaporean fund, focusing on
products in the US continued.                    expansion of the ECM business and              the direct and indirect investment in
The US cross border leasing market               the pursuit of M&A opportunities in            infrastructure assets and
remains on hold.                                 the property and resources sectors.            infrastructure-focused securities.
                                                 New retail financial product offerings

Description
Co-sponsor and financial adviser to the ConnectEast consortium’s bid for the $3.8 billion Mitcham-Frankston tollroad project in Victoria.
Arranger and joint lead manager of the $1.1 billion IPO of ConnectEast.
Adviser to the Macquarie Airports led consortium on the $1.26 billion (€735 million) acquisition of a 70 per cent stake in Brussels
International Airport and subsequent $1.96 billion (€1.13 billion) refinancing.
Adviser to Macquarie Infrastructure Group (MIG) and Cintra Concesiones de Infraestructuras de Transporte, S.A. (Cintra) on the
$2.4 billion ($US1.8 billion) acquisition of the Chicago Skyway toll bridge in the US.
Senior co-lead manager to the international offer for the $2.6 billion IPO of Cintra.
Adviser, equity arranger and lead manager on the $1.9 billion acquisition by DUET, Alinta Limited and Alcoa of Australia Limited of the
Dampier to Bunbury Natural Gas Pipeline and associated assets.
Adviser to Sydney Airports Corporation on the $3.1 billion refinancing of Sydney Airport.
Adviser, sole lead manager and underwriter to Alinta on the $1.86 billion acquisition of Duke Energy’s Australian and
New Zealand interests.
Defence adviser to SPC Ardmona on the $700 million takeover by Coca Cola Amatil.
Adviser to PT Tanjungenim Lestari Pulp and Paper (Singapore) on its $1.0 billion debt refinancing.
Sole lead manager and bookrunner on the $81 million IPO of Super Cheap Auto.
Sole global coordinator, bookrunner and international lead manager on the $687 million ($US530 million) IPO of SM Investments
Corporation (Philippines).
Financial adviser to Mirvac Group on its $498 million takeover of James Fielding Group.
Financial adviser to Macquarie Goodman Management on the $5.1 billion merger with Macquarie Goodman Industrial Trust.
Joint lead manager and bookrunner on the $311 million Ascendas Real Estate Investment Trust (Singapore) preferential
offer and placement.
Financial adviser to General Property Trust on the proposed merger with Lend Lease Corporation, defence from Stockland’s unsolicited
bid as well as the internalisation and joint venture proposal with Babcock & Brown.
Adviser to Macquarie Communications Infrastructure Group led consortium on the $3.1 billion (£1.3 billion) acquisition of NTL:Broadcast
in the UK.
Adviser to Telstra Corporation on its $333 million acquisition of KAZ Group.
Adviser to Publishing and Broadcasting Limited on its $716 million acquisition of the remaining stake in Burswood Limited.
Adviser, debt arranger and underwriter to Centennial Coal’s $615 million debt refinancing.
Adviser to Lundin Mining Corporation on its $148 million acquisition of Zinkgruvan Mine in Sweden.
Sole global coordinator and bookrunner on a $90 million placement by Semirara Mining Corporation (Philippines).
Adviser to the independent directors of AXA Asia Pacific in relation to AXA SA’s proposal to acquire the remaining 48.3 per cent minority
interests in AXA Asia Pacific.
Adviser to Macquarie Bank on its acquisition of ING’s Asian cash equities business.

                                                                                                                                            17
Banking and Property Group
Focus: Macquarie Goodman/Hong Kong

18                             Macquarie Bank Limited 2005 Annual Review
19
Banking and Property Group                    The year to 31 March 2005 saw the merger of Macquarie Goodman
                                              Management Limited and Macquarie Goodman Industrial Trust to form the
Focus: Macquarie Goodman/                     Macquarie Goodman Group. The new Group began trading on the ASX on
Hong Kong                                     2 February 2005.
The Banking and Property Group achieved       The Macquarie Goodman Group’s business comprises industrial property
another very strong result, 200 per cent      ownership, funds management, property development, project and
up on the prior year (24 per cent excluding   development management and property services. Macquarie Bank’s 37.1 per
profit on MGQ formation).                      cent stake in Macquarie Goodman Management Limited has become an
                                              8.6 per cent stake in Macquarie Goodman Group.
Banking and Property Group                    The Macquarie
                                              Financial            Goodman
                                                        Services Group        Group has a market capitalisation of Management
                                                                                                             Funds approximately
                                                                                                                              Group
contribution to profit                        contribution to profit                                         contribution to profit
                                              $5 billion, making it the largest industrial property group listed on the ASX, and
                                              one of the largest listed industrial property groups in the world. It has funds
            22%                               under management
                                                           4%       of $6.4 billion in Australia, New Zealand and Singapore,
                                                                                                                      1%
                                              and a direct property investment portfolio valued at around $4.3 billion.
                                              The creation of the Macquarie Goodman Group saw Macquarie Bank bring
                                              to account a net profit of $91 million (after tax and profit share) in 2004/2005,
                                              reflecting the strategic positioning of the Group in building a leading, listed
                                              industrial and business property fund.
                                              The Macquarie Goodman Group and Macquarie Bank have begun to expand
                                              in Asia by securing a well-known industrial property in Hong Kong, the lower
                                              portion of Global Gateway (pictured) in Tsuen Wan, for $HK750 million. It is
                                              proposed that this first acquisition will seed the Group’s funds management
                                              business in Asia which is expected to attract local and international investors.
                                              Macquarie Bank is confident the expansion of the logistics industry in Asia,
                                              the growth and recovery of Asia’s economy and the increased demand for
                                              securitised real estate in Asia augurs well for the Asian expansion of the
                                              joint venture.
                                              From the outset, Macquarie Goodman Group will be transporting its unique
                                              customer service model to Asia with the objective of targeting quality properties
                                              in established industrial and business space property markets and sourcing
                                              opportunities to provide solutions for existing and prospective customers.

Macquarie Goodman Group
takes its first steps in Asia

20                                            Macquarie Bank Limited 2005 Annual Review
Banking and Property Group posted            Macquarie Capital Partners (MCP)                Mortgages and Securitisation
 its seventh consecutive record               is a real estate investment banking             continued to grow both domestically
 contribution, 200 per cent up on the         business based in the United States             and internationally. The Australian
 prior year, or 24 per cent not including     and Europe which specialises in raising         mortgage portfolio grew by 25 per
 the profit on formation of Macquarie         private equity for real estate operating        cent to more than $14.5 billion from
 Goodman Group (MGQ) (discussed               companies and funds, and providing              $11.6 billion in the prior year. The US
 below).                                      financial and strategic advisory services       mortgage operations closed over
 All sectors increased their                  to its clients. During the year, MCP            $US1 billion in loans during the year.
 contributions on the prior year.             completed 33 transactions totalling             The Division has also established an
                                              $US5.7 billion on behalf of clients.            Italian mortgage business which is
 Property assets under management
 (including associates)1 increased            During the year, Property opened                expected to commence operations in
 90 per cent from $10.9 billion to            new offices in Tokyo and London to              May 2005. The Division made a
 $20.7 billion.                               develop real estate investment trust            decision to sell its China mortgage
                                              (REIT) management opportunities                 business and an agreement was
 Property contributed approximately                                                           reached during the year.
 60 per cent of the Banking and
                                              and provide development finance
 Property Group’s result, excluding the       solutions leveraging Australian market          Margin Lending’s result was up
 MGQ impact. As at 31 March 2005,
                                              experience.                                     strongly on the prior year, achieving
 Macquarie (including associates) was         Property Investment Banking                     significant growth in its core products,
 the second largest Australian listed         participated in transactions totalling          margin loans and capital protected
 property funds manager (by ASX               more than $2 billion and raised equity          loans. During the year to
                                                                                              31 December 2004, the Division’s
 market capitalisation).                      and debt of over $350 million.
                                                                                              margin loan portfolio grew at three
 Property Investment Management               Macquarie Global Property Advisers              times the industry average, increasing
 (Australia and North America)                (MGPA) was established and                      by 80 per cent. The total loan portfolio
 together with joint venture partners,        manages $US1.9 billion of assets                grew by 47 per cent to over $2.6 billion
 acquired $US5.5 billion of property in       across Europe and Asia. MGPA                    in the year ended 31 March 2005.
 North America during the year. Key           recently launched Macquarie Global
 achievements included:                       Property Fund II, a private investment          Outlook
                                              fund that is pursuing real estate related       The Group is examining various
– Macquarie CountryWide Trust’s                                                               opportunities for international
  acquisition of a $US2.8 billion portfolio   assets across Europe and Asia.
                                                                                              expansion in Asia, the Middle East,
  of US shopping centres with joint           Property Finance continued the                  Europe and North America. All
  venture partner, Regency Centers            growth and diversification of its               Divisions are experiencing strong deal
– Macquarie Office Trust’s takeover of         international portfolio. Offshore loan          flows and are well placed to take
  the $1.3 billion Principal America          commitments increased by 37 per                 advantage of both international and
  Office Trust                                 cent during the year, with deals                domestic opportunities as capital
                                              sourced from offices in Seattle and             markets mature. The greater
 In February 2005, Macquarie                  Los Angeles. A new office was also              international acceptance of REIT
 Goodman Management Limited and               opened in London in December 2004.              structures is expected to provide
 Macquarie Goodman Industrial Trust
                                              During the year, Golf and Leisure and           significant property funds
 merged to create Australia’s largest
                                              Macquarie Community Partnerships                management opportunities,
 industrial property group, MGQ. As a
                                              became part of the Property Division.           particularly in Asia.
 result of the merger, Macquarie Bank
 brought to account a net profit (after       The Banking Division’s record result            Strengthening international growth is
 tax and profit share) of $91 million.        was generated by increased loan,                expected to offset the impact of a
                                              deposit and client volumes. The                 possible slowdown in the listed
                                              Division’s expanded product offering            property trust market and in some
                                              achieved strong client interest. It             sectors of the property development
                                              successfully implemented its                    and residential property markets in
                                              enhanced internet banking offering,             Australia. The Group’s strong risk
                                              delivering competitive advantages to            management and conservative credit
                                              clients and improved internal                   policies will continue to protect the
                                              productivity. In response to growing            Group’s businesses.
                                              customer demand, the Division               1
                                                                                              Represents total assets under management of
                                              opened offices in Parramatta and                funds where Macquarie controls or significantly
                                                                                              influences the fund manager, including 100 per
                                              Newcastle during the year.                      cent of MGQ.

                                                                                                                                               21
Treasury and Commodities Group
Focus: Macquarie Cotton/Brazil

22                               Macquarie Bank Limited 2005 Annual Review
23
Treasury and Commodities Group          Macquarie’s existing Brazilian soft commodities business has expanded into
                                        cotton financing, hedging and exports, which complements our Australian and
Focus: Macquarie Cotton/Brazil          US-based cotton businesses.
                                        The cotton business works primarily with producers from Australia, the United
Treasury and Commodities Group          States and Brazil and with importing processors throughout the world. A large
achieved a strong result, 30 per cent   Brazilian cotton producer – part of Macquarie’s existing soft commodities
up on the prior year.                   network – approached us for assistance in financing the season’s crop.
                                        Macquarie provided pre-export financing secured by the crop and over-the-
                                        counter hedging solutions. The pre-export finance is repaid via the delivery of
Treasury and Commodities Group          cottonMarkets
                                        Equity  to Macquarie,
                                                      Group   which in turn sells the cotton in keyBanking
                                                                                                   global and
                                                                                                           markets.
                                                                                                              Property Group
contribution to profit                  contribution to profit                                     contribution to profit
                                        Using our understanding of the Brazilian agricultural market, Macquarie has
                                        been able to assist cotton producers with international financing and with
            13%                         managing the9% price risks associated with cotton production and sale.  22%
                                                                                                                  Strong
                                        relationships with textile processing clients, particularly in China and greater
                                        Asia, have allowed Macquarie to successfully market this cotton internationally.
                                        Macquarie’s entry into this business comes at a time of strong growth in
                                        Brazilian cotton production. Industry focus has moved from domestic to
                                        international export markets. In recent years, the use of scale and new
                                        technology has seen Brazil emerge as a world leader in cost-efficient cotton
                                        production. By working with leading producers, and using our international
                                        expertise, Macquarie has been able to take an active role in the emergence of
                                        Brazil as an important global exporter of cotton.
                                        Macquarie is confident the combination of continued growth of the Brazilian
                                        cotton industry, increased end-consumer demand in Asia and Macquarie’s
                                        unique approach to risk management will mean this business is well placed to
                                        take advantage of future opportunities to provide innovative finance and
                                        hedging solutions to commodities clients.

Macquarie enters Brazilian
cotton market

24                                      Macquarie Bank Limited 2005 Annual Review
The contribution from Treasury and         credit and interest rate risk            building its presence in physical
Commodities Group was 30 per cent          management solutions through             cotton. Higher volatility in commodity
up on the strong prior year and reflects   structured securities and derivatives.   markets with increased client hedging
increased contributions across most        The Debt Markets’ result was broadly     and trading opportunities, in addition
operating divisions, including strong      in line with the prior year. The         to a broader product mix, resulted in
increases from Agricultural                business experienced good client         a significantly stronger contribution
Commodities and Energy Markets.            deal flow and trading and a positive     from Agricultural Commodities.
Metals and Energy Capital offers           contribution from the South African      Energy Markets provides risk
price-making, derivative trading and       joint venture with ABSA Bank Limited.    management and financing solutions
financing in base and precious metals      Futures provides a full range of         to the energy sector globally, and has
as well as financing to the oil and gas    broking and clearing services for        a presence in London, Sydney,
sector. The contribution from Metals       Australian and international exchange    Houston and New York. Energy
and Energy Capital was down slightly       traded derivatives markets. The          Markets made an increased
on the strong result of the prior year,    contribution from Futures was            contribution due to good customer
which included the $38 million profit      strongly up on the prior year due to     business flows and a solid trading
upon realisation of the East African       increased turnover.                      desk performance.
Gold Mines investment. Good                Treasury is responsible for              Outlook
growth was experienced in the oil          management of the Bank’s balance         The future performance of the Group
and gas financing business and a           sheet, liquidity and interest rate       is dependent on the operating
number of investments were realised        exposure. Treasury’s result was well     environment and, in particular, market
during the year.                           up on the prior year, reflecting         conditions. High volatility across most
Foreign Exchange provides services         successful management of the multi-      markets is expected to continue,
across all currency pairs and              currency interest risk of the balance    while volumes are expected to
structured term hedging currency           sheet. The Division successfully         remain at a satisfactory level. The
solutions for Australian and               undertook an increased number of         Group expects to maintain strong
international clients. Foreign Exchange    private and public transactions in       domestic market positions and will
continued to perform well as high          global funding markets during the        continue to expand its offshore
volatility and volumes provided good       year, including the Bank’s hybrid        operations as appropriate
opportunities for client deals and         capital raising.                         opportunities are identified. Repeating
trading. The Division’s contribution       Agricultural Commodities provides        the strong 2004/2005 result may be
increased on the strong prior year.        risk management solutions to the         challenging given dependence on the
Debt Markets originates, arranges          agricultural industry globally. During   operating environment.
and places debt for clients and is         the year, the Division continued to
active in primary and secondary            broaden its scope by establishing a
markets for government inflation-          structured products team to
linked, corporate, global and asset-       capitalise on strong investor interest
backed securities. It also provides        in commodities and by further

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