macquarie group 2010 annual report

7/30/2019 Macquarie Group 2010 Annual Report

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Macquarie Group LiMited acN 122 169 279

MACQUARIE GRoUp2010 AnnuAl RepoRt


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2010 Annual General Meeting

Macquari Grou's 2010 Aua

Gra Mig wi b hd a

10.30am o Friday 30 Juy 2010 a

h Shrao o h park(Grad

Baroom), 161 eizabh Sr,

Sydy nSW.

Dais of h busiss of h

mig wi b coaid i h

noic of Aua Gra Mig,

o b s o sharhodrs saray.

this 2010 Macquari Grou Aua

Ror comis wih rorig

rquirms ad coais sauory

fiacia sams. I coais

rors from h Chairma ad

Maagig Dircor o Macquaris

busiss ad oraioa highighs,

Macquaris Corora Govrac

Sam, h Dircors Ror

icudig h Rmuraio Ror

ad fu fiacia sams.

th 2010 Sharhodr Rviw

coais rors from h Chairma

ad Maagig Dircor o Macquaris

busiss ad oraioa highighs.

this docum is o a cocis

ror rard udr scio 314 (2)

of h Cororaios Ac. Macquari

Grou has o rard a cocis

ror for h 2010 fiacia yar.

If you woud ik a coy of h 2010

Sharhodr Rviw as ca us

o +61 2 8232 5006 or visi

macquari.com.au/sharhodrcr.

The Holey Dollar

I 1813 Govror lacha Macquari ovrcam a

acu currcy shorag by urchasig Saish sivr

doars (h worh fiv shiigs), uchig h crs

ou ad craig wo w cois h Hoy Doar

(vaud a fiv shiigs) ad h Dum (vaud a o

shiig ad hr c).

this sig mov o oy doubd h umbr of cois

i circuaio bu icrasd hir worh by 25 r c

ad rvd h cois avig h cooy. Govror

Macquaris craio of h Hoy Doar was a isirdsouio o a difficu robm ad for his raso i

was chos as h symbo for h Macquari Grou.


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Macquarie Group Limited2010 Annual Report

M acquarie G roup Limited and its subsidiaries 2010 Annual R eport macquarie.com.au

Overview 1

Key financial details 2

Chairman and Managing Directors Report 4

About Macquarie 14

Macquarie Group Foundation 31

Corporate Governance 32

Sustainability 42

Risk Management Report 46

Directors Report 62

Directors Report Schedules 131

Financial Report 137

Directors declaration 245

Independent audit report 246

Ten year history 248

Investor Information 249

Glossary 253

Result reflects improved market conditions

Profit of $A1,050 million

Operating income of $A6,638 million

Earnings per share of $A3.20

Total ordinary dividends of $A1.86 per share

Return on equity of 10.0 per cent per annumAssets under management of $A326 billion

Strong funding and balance sheet position

Balance sheet remains solid and conservative

Term assets covered by term funding and equity

Increase in retail deposits from $A13.4 billion to $A15.5 billion

Issued $US2.5 billion of non-government guaranteed term debt

$A4.0 billion of capital in excess of minimum regulatory

requirement

Continued growth and evolution

Organic growth initiatives complemented by strategicacquisitions

Increasing diversity by business and geography

15 per cent increase in staff numbers to over 14,600

43 per cent increase in international income to $A3,351 million(52 per cent of total)

Asia-Pacific region generated 66 per cent of income.

66 per cent of staff located in 26 locations in this region


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2

Key financial details

C onsolidated net profit after tax attributable to ordinary equity

holders increased by 21 per cent to $A1,050 million from

$A871 million

Total operating income increased by 20 per cent to

$A6,638 million from $A5,526 million

International income increased by 43 per cent to $A3,351 million

from $2,347 million, accounting for 52 per cent of total operating

income

Earnings per share increased by 3 per cent to $A3.20 from

$A3.10

Dividends per share of $A1.86 (unfranked), broadly in line with

the prior yearReturn on equity increased to 10.0 per cent per annum from

9.9 per cent

Regulatory capital of $A11.8 billion, $A4.0 billion in excess of

M acquarie G roups minimum regulatory capital requirement

Reported net p rofit after tax attributableto o rdinary equity holders$A million

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Operating income$A million

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Consolidated profitYear ended 31 March

2010$Am

2009$Am

%C hange

Total income 6,638 5,526 20

Total expenses (5,344) (4,537) 18

Profit before income tax 1,294 989 31Income tax expense (201) (15) large

Profit from ordinary activities after income tax 1,093 974 12

M inority interest (43) (103) (58)

Profit after income tax attributable toordinary equity holders

1,050 871 21

Basic earnings per share (EPS)A cents

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Dividends per share (DPS)A cents

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Chairman and Managing Directors Report

Macquaries long-term record of growth and evolutioncontinued in this, the year of our 40th anniversary sinceinception. The strength of our balance sheet, together withour pursuit of opportunities for continued growth, led to arange of successful initiatives.

The diversity of our operations is a key strength. Duringthe year we expanded our global presence throughorganic growth, business development and selective hiring.We also made a number of important strategic acquisitions,particularly in North America and Europe.

Macquarie is a global financial services specialist, withparticular expertise in resources and commodities, energy,financial institutions, infrastructure and real estate. Ourability to take our extensive knowledge of the Asia-Pacificregion to our clients and investors provides a bridge to oneof the worlds key growth regions.


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Result overview

M acquarie G roup (M acquarie) reported a consolidatedafter-tax profit for the year ended 31 M arch 2010 of$A1,050 million, an increase of 21 per cent on theprevious years profit of $A871 million. Earnings pershare were $A3.20, an increase of three per cent from$A3.10 in the prior year. R eturn on equity was 10.0 percent per annum, slightly up on the prior year.

Total operating income for the year was

$A6,638 million, a 20 per cent increase from$A5,526 million in the prior year. The increase waslargely attributable to improving market conditions,growth in existing businesses along with contributionsfrom new businesses, gains from listed fund initiativesand a reduction in the level of write-downs andprovisions compared with the prior year.

All operating groups and divisions reported improvedresults on the prior year. Total international incomeincreased by 43 per cent to $A3,351 million,accounting for 52 per cent of total income. Totalstaff exceeded 14,600 with more than 7,300 staffnow employed in our offices outside Australia. Thisrepresents 50 per cent of total staff compared to

43 per cent in the previous year.

Assets under management increased 34 per cent from$A243 billion at 31 M arch 2009 to $A326 billion at31 M arch 2010. M ost of the increase was attributableto the acquisition of Delaware Investments (Delaware),a US-based diversified asset management firm withmore than $US125 billion in assets under managementat the time of acquisition.

O perating expenses were $A5,344 million, an 18 percent increase from $A4,537 million in the previousyear, largely attributable to the 15 per cent increasein the number of staff. T he expense-to-income ratiodecreased to 80.5 per cent, compared with 82.1per cent in the previous year. The effective tax ratefor the year increased to 16.1 per cent from 1.7 percent in the prior year, largely due to a lower level ofwritedowns and impairment charges.

Operating conditionsO perating conditions continued to trend back tonormal during the year, leading to greater activityacross many of our businesses. Equity markettrading conditions improved across Australia and Asiawhile the US and Europe remained subdued. Thiswas positive for our Asia-Pacific equities and fundsmanagement businesses, including our growing retailfranchise.

The environment for mergers and acquisitions (M &A)across most industry classes remained constrainedcompared to historical standards with global deal flowsubstantially lower than in the prior year. Asia, Australiaand C anada however experienced good equity capital

markets (ECM ) activity.

Energy and commodity market conditions generallyimproved, metal prices continued to rise, while foreignexchange volumes remained depressed. US credittrading markets rallied alongside equity markets. Thedislocation of global credit markets, together with thescale back of lending activities by financial institutions,provided opportunities for our corporate and assetfinancing businesses.

Assets under management$A billion

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Staff numbersInternational Australia

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Chairman and Managing Directors Reportcontinued

Initiatives during the year

M acquarie has a demonstrated record of using marketdownturns to develop opportunities to grow andevolve its businesses. In the year to 31 M arch 2010,we expanded our global presence and product offeringby organically growing existing businesses and madea number of acquisitions, predominantly in NorthAmerica and Europe.

O rganic growth was achieved through the selective

hiring of individuals and teams with extensive industryexperience adding greater regional depth to our keybusinesses. This allowed many of our businesses toexpand their product offerings internationally.

We expanded our energy presence in Asia andcommenced a physical oil trading business inSingapore. O ur Fixed Income, C urrencies andC ommodities Group (FIC C ) also started providingcorporate banking, foreign exchange and other tradingservices to K orean corporate and institutional clients,after M acquarie Bank L imited obtained a licenceto offer banking services in K orea. FIC C recentlyestablished a foreign exchange business alliancewith Sun H ung Kai Forex, an online foreign exchange

service provider in Hong Kong. T he New York-basedcredit trading business experienced strong growthas it extended its services to include client salesand trading.

O ur corporate finance and advisory businesscontinued to grow its global presence advising on448 transactions valued at $A 121 billion. G rowth inthis business, particularly internationally, providedan increasing capacity to utilise global networks tofacilitate transactions for our clients.

G rowth in our unlisted alternative asset fundsmanagement business continued with new offeringsin M exico, R ussia and Africa. We are working withgovernments and strong local partners to deliverinfrastructure opportunities.

A number of strategic acquisitions also added newteams of people and expanded our service offeringto our clients. The newly acquired US-based assetmanager, Delaware, combined with M acquarie FundsG roup and began developing new products for theUS market, with its first joint product offering in January2010, the Delaware M acquarie G lobal InfrastructureFund.

M acquarie Energy, FIC C s North American energymarketing and trading business, acquired IntegrysEnergy Services wholesale electric marketing andtrading portfolio and focused on consolidating itsgrowing gas and power franchise in the region.

O ur European and North American equities andresearch capabilities were enhanced with theacquisitions of global financial sector equitiesspecialist, Fox-Pitt K elton Cochran Caronia Waller(FP K ), energy advisoryfirm, Tristone Global Capital

(Tristone) and Sal. O ppenheim jr.& C ie KG aAs (Sal.O ppenheim) cash equities, equity derivatives andstructured products businesses.2 These acquisitionsfurther expanded our global equities platform, takingour research coverage to over 2,700 stocks worldwideand placing M acquarie Securities among the top eightglobal brokers in terms of research coverage.

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AmericasAsiaAustralia

Operating income1 by region

2H08 1H09 2H09 1H10 2H10$A million

1 O perating income excludes earnings on capitaland other corporate items.

2 C ompleted post balance date.


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O ur retail financial services platform was enhancedwith the acquisition of Canadian retail broker,Blackmont C apital Inc. (B lackmont), which wasrenamed M acquarie Private Wealth (Canada). T heBanking and Financial Services G roup also selectivelyrecruited experienced people to support growth in itsEuropean and Asian businesses.

The Corporate and Asset Finance Division acquireda portfolio of approximately $A1.0 billion of Australianauto loans and leases from Ford C redit Australia. Postbalance date, it agreed to acquire a $US1.7 billion1aircraft operating lease portfolio from InternationalLease Finance C orporation (ILFC ), a subsidiary ofAmerican International G roup, Inc. (A IG ).

R efer to R egional Activity and commentary fromoperating groups and divisions for additional detailon initiatives during the year.

Capital

M acquarie has a long-term policy of holding a levelof capital which efficiently supports our business. Wehave consistently grown our capital base ahead ofbusiness requirements. During the year, we raised$A1.2 billion through an institutional placement andretail Share Purchase Plan. T his further enhancedM acquaries strong capital position, providing theflexibility to build on market opportunities.

O ur regulatory capital at 31 M arch 2010 was$A11.8 billion, which was $A4.0 billion in excessof M acquarie Groups minimum regulatory capitalrequirement. O ver 90 per cent of capital is corecapital (ordinary equity plus retained earnings).

Funding

We remain very well funded. Term assets are coveredby term funding and equity. Short-term wholesaleissued paper remains a small portion of overallfunding at seven per cent of the total funding sources.Between 31 M arch 2009 and 31 M arch 2010, retaildeposits increased 16 per cent from $A13.4 billionto $A15.5 billion.

Post balance date, unit holders in the C ash

M anagement Trust (CM T) approved the transferof funds to the C ash M anagement Account (CM A)effective 31 July 2010. T he net balance in the CM Tat 31 M arch 2010 was $A9.5 billion.

During the year, M acquarie issued $US2.5 billion ofnon-government guaranteed term debt in the USmarket to institutional investors. We were the firstAustralian financial institution to issue a benchmarkunguaranteed term debt issue in the US post thedisruption to global financial markets in September2008. The removal of the government guarantee wasanticipated and is not expected to impact M acquariesfunding position.

PerformanceM acquaries share price made a good recovery duringthe year. From 1 A pril 2009 to 31 M arch 2010, theshare price increased by 75 per cent. M acquariesshare price is only 11 per cent below its level at31 M arch 2008, compared with the M SC I WorldDiversified Financials index (M SC I), which is 36 percent lower. T he M SC I comprises a range of financialcompanies offering a wide variety of products andservices including securities and investment products,M &A advisory and equity underwriting, various lendingproducts and insurance products.

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Macquarie share price vs the MSCI World MSCI Diversified Financials Index

M SC I World D iversified Financials Index M acquarie G roup

1 Net of current cash and reserves.and subject toadjustments.


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M acquarie G roup Limited and its subsidiaries 2010 Annual R eport macquarie.com,au

From the date of listing on 29 July 1996 through tothe close of the financial year on 31 M arch 2010,M acquarie has delivered a total return to shareholdersof over 1,170 per cent. O ver the same period, theaverage total shareholder return of the ASX top 50was approximately 315 per cent.

Dividend

The Board has declared a final ordinary dividendof $A1.00 per ordinary share (unfranked), up from

$A0.86 in the first half, making the total ordinarydividend payment for the year $A1.86 per share. Thisis broadly in line with the total dividend of $A1.85 pershare in the prior year. It represents a payout ratioof 60 per cent, in line with our dividend policy ofmaintaining an annual payout ratio in the range of 50to 60 per cent of net earnings attributable to ordinaryshareholders. T he future rate of franking remainssubject to the composition of income but it is likelythat future dividends will remain unfranked for theforeseeable future.

M acquarie has advised that from the final dividendfor the year ended 31 M arch 2010, to be paid in July2010, it will only facilitate the direct credit of dividendsor the participation in the Dividend R einvestment P lan(DR P ) for Australian shareholders. N on-Australianresident shareholders will be able to continue toreceive dividend cheques. Due to our strong capitalposition, a decision has been made to remove the2.5 per cent discount to market value in the pricing ofthe DRP shares effective for the 2010 final dividendand we have announced a change to the DR P Rulesto allow the future on-market purchase of sharesinstead of the issue of new shares to satisfy futureDRP allocations.

The Macquarie model

M acquarie is a global provider of banking, financial,

advisory, investment and funds management servicesto our clients.

While our model has not significantly changed over theyears, M acquarie has continually adapted to variationsin the environment in which we operate. We pursuedgrowth opportunities during the past year whichresulted in the continued evolution of our business. Asthe operating environment improved, our businessestook the opportunity to enter new markets, developnew and expanded product offerings, selectivelyacquire new businesses and, in some cases, exitactivities.

M acquarie G roups strategy is to focus over the

medium term on key fundamentals: the provisionof services to our clients; the alignment of interestswith shareholders, investors and staff; a conservativeapproach to risk management; incremental growth andevolution; maintaining operations that are diversifiedby business and geography; and an ability to adaptto change.

Risk management

M acquaries strong financial position before, duringand after the global financial crisis reflects well onour robust risk management framework. We havealways sought to clearly understand and identifythe consequences of worst case outcomes toensure that these can be tolerated.

C entral to our business is a strong culture of riskmanagement which is embedded across all operating

groups and divisions. As M acquaries operating groupsbuild on global growth and transaction opportunities,our risk management framework adapts to maintaineffective risk oversight. T he R isk M anagement G roupincreased its numbers globally during the year.

Macquarie Group Employee Retained Equity Plan(MEREP)

Following shareholder approval of changes to ourremuneration arrangements on 17 December 2009,M acquarie now invests a significant proportion ofemployees annual retained profit share in the M ER EP.Staff promoted to Director level effective 1 July 2010will also be granted equity awards under the M ER EP.

To date, the M acquarie shares required for the deliveryof M ER EP awards have been issued by M acquarie.For the retained profit share and promotion awards forthe financial year ended 31 M arch 2010, the requiredshares will be bought on-market, except for theproposed M ER EP awards for the M anaging Directorwhich are subject to shareholder approval. Shareholderapproval for the M anaging Directors M ER EP awardswill be sought at the 2010 M acquarie Group AG M inJuly.

Refer to the Remuneration R eport within the DirectorsReport for further information on M acquariesremuneration arrangements.

Our peopleO ur culture and people ensured our successfulnavigation of the events of the past two years andremain the foundation for the continued success ofour business. As a result of a number of acquisitionsand the selective hiring of individuals and teamsduring the year, staff numbers increased by 15 percent from 12,716 at 31 M arch 2009 to over 14,600at 31 M arch 2010. Notable staff increases related tothe acquisitions of Delaware and Blackmont, whichbrought respectively approximately 520 and 410 newstaff to M acquarie.

As global conditions continue to improve and financialservices firms seek to secure experienced staff, theimportance of attracting and retaining high-qualitypeople is paramount. A key factor in M acquarieslong-term growth has been its ability to attract andretain high-quality staff while aligning the interests ofshareholders and staff through performance-basedremuneration.

Chairman and Managing Directors Reportcontinued


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At a general meeting in December 2009, shareholdersoverwhelmingly approved changes to M acquariesremuneration arrangements, which reflect globalremuneration and regulatory trends, while remainingconsistent with M acquaries long-standing approach.

R efer to the Remuneration R eport within the DirectorsR eport for further information on M acquariesremuneration policies and practices.

Board and management

David C larke resumed full duties as Chairman ofM acquarie on 31 August 2009 after a leave ofabsence, while Acting C hairman K evin M cCannresumed his role as Lead Independent Director ofthe Board.

M ichael Hawker was appointed to the Board as anIndependent Non-Executive Director on 22 M arch2010. M ichael has extensive financial services industryexperience, including senior management roles withC itibank, Westpac and as Chief Executive O fficer andM anaging Director of Insurance Australia Group. Heis also a D irector of Aviva P lc, the largest insuranceservices provider in the UK .

As stated in the interim report, Laurie Cox retired inJuly 2009 after six years as an Executive D irector and13 years as a M acquarie Board member. StephenAllen became Head of R isk M anagement G roup inNovember 2009, following Nick M inogues retirement.

Outlook

While market conditions continue to improve,continuing uncertainty makes forecasting difficult.

Subject to market conditions, for the year to 31 M arch2011 we currently expect improved operating resultson the prior year for all of our businesses.

The income statement for the year to 31 M arch 2011is likely to be characterised by fewer one-off items asseen in the second half of this year; a compensationratio consistent with historical levels, continued highercost of funding reflecting market conditions and highliquidity levels including the recent C M T/CM A initiative.

The balance sheet in the 31 M arch 2011 financial yearis likely to be characterised by high cash balances asa result of the C M T/CM A initiative, which we anticipatewill continue to be deployed across the businesses,and a level of equity investments at or below existinglevels.

In addition to market conditions, the result for the yearto 31 M arch 2011 remains subject to a range of otherchallenges, including: increased competition acrossall markets; the cost of maintaining our continuedconservative approach to funding and capital andproposed regulatory reform which has the potentialto impact flows to capital markets.

O ver the medium term, we remain well placed dueto the global depth and reach of our businesses,

the diversifi

cation of our business mix, our strongcommitted team with interests aligned to shareholders,our strong balance sheet, capital and funding positionand effective risk management.

Subject to the continuation of increasing economicactivity across major markets, we expect continuedgrowth in revenue and earnings across mostbusinesses over time and continued growth in ourbusinesses driven by further expansion of our strongclient franchise.

David S. Clarke, AOC hairman

Nicholas MooreM anaging Director andC hief Executive O fficer

Sydney29 April 2010


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Taking our Asia-Pacific expertise to the rest of the world


10

As the Asia-Pacific region continues to driveglobal economic growth, Macquarie is uniquelyplaced to source opportunities for our globalclients and investors and to assist Asia-Pacificbusinesses looking to expand both within andoutside the region. As a major financial servicesinstitution in the region, we have developedleading positions in equities research, distributionand sales, equity derivatives, advisory andequity capital markets, while building activities

in corporate banking, foreign exchange, tradingservices and private wealth management.With strong relationships across the region,we are using our deep experience and localknowledge of the region to facilitate cross-bordertransactions, providing a bridge between Asia-Pacific and the rest of the world.

M acquaries Asia-Pacific business has been developedover 40 years. Commencing operations in Australiain 1969, we developed full-service capabilities in thismarket before expanding our operations into HongK ong in 1994, C hina in 1995 and India in 2005.We have built a presence of over 9,700 staff across26 Asia-Pacific locations, representing over 65 percent of our total staff. We offer a comprehensiverange of banking, financial, advisory, investment andfunds management services across a broad range of

sectors with a focus on our global specialty areas ofresources and commodities, energy, financial services,infrastructure and real estate. Today, over 65 per centof our operating income comes from the Asia-Pacificregion.

O ur growth in the region reflects the long-termevolution of our business and our ability to captureopportunities as market cycles change. T he 2004acquisition of ING s Asian cash equities businessprovided a solid platform for growth and in the ensuingsix years we have built a significant presence in theregion. O ur research coverage of over 1,200 stocksis one of the largest in the Asia-P acific region. . Wealso have one of the largest dedicated equities salesteams in the region. We are a leading issuer of equityderivative products in the Hong K ong market, whilewe hold the largest market share for listed warrantsin Singapore and K orea and a top three position inHong Kong. In Australia we maintain the numberone position for AS X market share in cash equities.

The expansion of our cash equities capabilities inNorth America and Europe, combined with the recentacquisitions of Fox-Pitt K elton C ochran Caronia Waller,Tristone Capital and Sal. O ppenheim, enables us tofacilitate opportunities and provide products for Asianinvestors outside their local region. In this regard, weare increasingly seen as a global broker with strong

Asia-Pacific foundations.O ur record of transactions in the region reflects ourstrong relationships with Asias most prestigiouscorporations. M acquarie has been bookrunner tosome of the largest initial public offerings (IPO ) in H ongK ong in the last two years, including the $US4.0 billionC hina M insheng Bank and the $US1.3 billion ChinaZhongwang Holdings offerings. We have also led thelargest IP O in Australia every year since 2000.


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In addition to working on some of the regions mostsignificant transactions, M acquarie has advised onnumerous cross-border transactions in and out ofthe region. In the year to 31 M arch 2010, we advisedleading US waste and environmental services companyWaste M anagement Inc on its first investment in China,the $US142 million acquisition of a 40 per cent stakein Shanghai Environment G roup, to pursue waste-to-energy opportunities throughout C hina. M ore recently,M acquarie was joint global coordinator and joint

bookrunner for the 105 million IP O of leading C hineseceramic manufacturer, Joyou AG , on the FrankfurtStock Exchange, demonstrating our ability to bringproduct from Asia to European investors, and ourability to tap the worlds capital markets for our Asianclients.

M acquarie is a recognised leader in the managementof infrastructure assets around the world, buildingon expertise developed in the Australian market overmore than 15 years. In Asia, we are working closelywith governments and institutions to assist in thedevelopment of the infrastructure required to sustainthe regions long-term growth. In the year to 31M arch 2010, we entered a joint venture with ChinaEverbright Limited to establish two funds to investin infrastructure businesses in Greater China, one ofwhich will be open exclusively to foreign investment.A similar infrastructure fund has also been launchedin India with the State Bank of India, Indias largestcommercial bank, and the International FinanceC orporation, a member of the World Bank G roup, withover $US1 billion of committed equity to date.

O ur Fixed Income, C urrencies and C ommoditiesG roup is also expanding services into Asia. D uring theyear, we began providing corporate banking, foreignexchange and other trading services in Korea, afterM acquarie Bank Limited secured a banking licence

to establish a branch in Seoul, and commenced aphysical oil trading business in Singapore. R ecently,we established a foreign exchange business alliancewith Sun H ung Kai Forex, an online foreign exchangeservice provider in Hong K ong.

M acquarie Funds G roup signed a M emorandum ofUnderstanding in January 2010 with China UniversalAsset M anagement, a leading C hinese asset manager,to develop fund products for Chinese and globalinvestors.

O ur institutional and corporate presence in the Asia-Pacific region is well established and to complementthis, more recently, we have focused on developing ourretail profile in the region. O ur Banking and Financial

Services Group has taken its expertise developed inthe Australian private wealth sector to Asia and is nowproviding wealth management products and advice toprivate investors in India, Singapore and Hong K ong,partnering with established and experienced localoperators as appropriate.

The growth of M acquaries Asia-Pacific business isan important feature of our ongoing evolution. It hasprovided a platform for our long-term growth as wehave adapted expertise developed in this region toservice our clients and investors across the globe. Asthe Asia-Pacific region continues to be a significantcontributor to global growth, M acquarie will continueto play an important role in financial services activity

across the region.


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Regional activity

Australia:Sponsor, adviser, debt provider and equityunderwriter for the $A5.7 billion (net present cost)Victorian D esalination P roject, the largest P ublicPrivate P artnership undertaken globally since thedisruption to global financial markets in 2008

C ontinued to be at the forefront of Australian IP O s,leading the largest IP O every year since 2000 andleading all the major IP O s of 2009/10 includingcarsales.com, M yer, K athmandu and M iclynExpress Offshore

A range of listed fund initiatives designed tomaximise shareholder value resulted in theinternalised management of M acquarie Airports,M acquarie Leisure Trust G roup and M acquarieM edia G roup; the restructure of M acquarieInfrastructure Group into two separate listedinfrastructure entities; the takeover of M acquarieC ommunications Infrastructure G roup; and the saleof the majority of the Australian core real estatefunds management platform

M aintained number one position for ASX marketshare in cash equities1

M acquarie Securities G roups (M SG ) derivativesbusiness was the leading provider of listed warrantsin the Australian market for the year

The strong performance of many of M acquarieFunds G roups (M FG ) managed fund asset classesresulted in good inflows from both institutionaland retail investors, particularly in the FixedIncome, C urrencies and Commodities and ListedEquities funds

M FG launched the M acquarie Lifetime IncomeG uarantee, a longevity risk protection product

The Banking and Financial Services G roup (B FS)launched a new online trading platform, M acquarie

Edge, in Australia, winning three major industryawards in the first six months of operation

M acquarie Agricultural Funds M anagement wasawarded Real Asset M anager of the Year

C orporate and Asset Finance Division (CAF)originated or acquired in excess of $A7.5 billionof corporate debt and lease assets.

Asia-Pacific:Joint lead manager roles for the listing of numerousC hinese companies on the Stock Exchange ofHong K ong, including China Zhongwang, B BM G ,Powerlong Real Estate, Shenguan and C hinaM insheng Bank

Adviser and debt arranger to Lion P ower Holdingsfor the $S2.35 billion refinancing of Senoko Powersacquisition debt, one of the largest infrastructurefinancings in Asia Pacific in 2009

Adviser on numerous cross-border transactionsincluding Koreas K EP C O on its $C75.4 millionacquisition of C anadian uranium producerDenison and Australias PaperlinX on the sale of its$A760 million paper business to Japans NipponPaper Industries

M SG s cash equities business continued to growits market share in Hong K ong, Japan, Taiwanand Korea

M SG s derivatives business was the leadingprovider of listed warrants in Singapore and K oreafor the year and held the number three marketshare position in Hong Kong

Fixed Income, C urrencies and Commodities (FIC C )Energy M arkets Division commenced a physical oiltrading business in Singapore, operated by a newlyhired team with a range of proven trading strategiesbased on low risk intermediation and client servicewithin the global oil trading value chain

M acquarie Bank L imited Seoul Branch wasestablished, providing corporate banking, foreignexchange and other trading services to corporateand institutional clients

M FG signed a M emorandum of Understanding withleading C hinese asset manager, C hina UniversalAsset M anagement, in January 2010 to develop

fund products for Chinese and global investorsBFS launched a G lobal Franchise Service in Indiain conjunction with joint venture partner, R eligare.This discretionary investment management serviceprovides investors with access to three investmentstrategies, covering absolute return, cash andco-investment opportunities

Religare M acquarie Private Wealth was named theIndian Private Banking International G lobal WealthAssociations M ost Exciting Wealth M anagementM odel

M acquarie C entral O ffice C orporate R estructure-Real Estate Investment Trust Co. sold its singlemanaged asset, the K ukdong building in Seoul for$A300 million to GE NP S R EIT

C ity Apartments, a residential complex in Shanghai,was sold to a H ong K ong-based investor forRM B270 million.

1 C ombined institutional and retail.


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Americas:Lead manager roles in numerous financings forC anadian resources companies on the TorontoStock Exchange, including Consolidated ThompsonIron M ines, R esult Energy (and its predecessorTriStar O il & G as), G leichen Resources, IvanhoeEnergy and Colossus M inerals

First close of M acquarie M exican Infrastructure Fund(M M IF) with initial commitments of M XN 5.2 billion($A455 million). M M IF is M acquaries firstmanaged fund in Latin America and the first peso-denominated fund solely focused on investmentopportunities in M exican infrastructure projects

Acquisition and integration of Tristone G lobal CapitalInc, an independent energy advisory firm providingfully integrated corporate finance, acquisitionsand divestitures, equity capital markets and sales,trading and research services

Acquisition and integration of Fox-P itt K eltonC ochran Caronia Waller (FPK ), a leading equity salesand trading, research, advisory and capital marketsteam focused on the financial services sector

The US cash equities business experienced strong

growth in secondary market commissions. It wasawarded a lead manager role on Broadwinds$US100 million US public offering in January 2010

The Canadian cash equities business experiencedstrong growth in market share and increasedEC M activity

FIC C s C redit Trading Division expanded its servicesto include client sales and trading, while broadeningthe product mix in high yield and distressedcorporate and securitised debt securities

Acquisition of substantially all of the wholesaleelectric marketing and trading portfolio of IntegrysEnergy G roups non-regulated subsidiary, Integrys

Energy ServicesFIC C s M etals and Energy Capital Divisionestablished a presence in Toronto, C anada

Acquisition of Delaware Investments, a US-baseddiversified asset manager, completed in January2010 and launch of first fund post acquisition, theDelaware M acquarie G lobal Infrastructure Fund

M FG expanded its structured fund solutionscapability with the hire of senior executives in theUS to lead the global expansion of the business

Acquisition of Blackmont Capital, a Canadian fullservice wealth management and investment dealer

Record origination volumes for the C anadian

M ortgages businessC AF acquired the Technology Services Division ofRelational Technology Services and integrated itinto its existing US IT leasing business.

Europe, Middle East and Africa:Joint bookrunner for the IP O of Chinese ceramicproducer, Joyou, on the Frankfurt Stock Exchange,the first Chinese company to float in G ermany in2010

Adviser to Singapore Technologies Telemediaon the privatisation of Eircom Holdings, ownerof a 57.1 per cent stake in Irelands incumbenttelecommunications provider, Eircom

First close of M acquarie R enaissance Infrastructure Fund (M R IF), with initial commitments of$US530 million. M R IF is the first major privatefund dedicated to investing directly in infrastructurein Russia and other key C IS markets

First close of African Infrastructure InvestmentFund 2 (AIIF2) with initial commitments ofapproximately $US320 million. The fund will focuson making equity investments into a diversifiedportfolio of infrastructure assets located in Africa

FPK acquisition (for detail refer to Americas)

M SG s European and South African cash equitiesbusinesses experienced strong growth in secondarymarket commissions

Acquisition of Sal. O ppenheims cash equities andequity derivatives businesses (completed April2010), broadening M SG s pan-European equitiesoperations

FIC C s Emerging M arkets Division establishedemerging market operations in London, expandingits operations to provide a full suite of services toEuropean institutional and local market participants

FICC s Credit Trading D ivision expanded itsoperations into Europe by establishing a presencein London

M FG launched three funds focused on emergingmarkets, emerging markets infrastructure and

agricultural commodities that meet UC IT S1requirements for Europe and Asia

BFS launched a premium platform service in theUK to support professional financial planners inproviding services to their clients. T he first fundshave been lodged on the platform

C AF funded approximately $A1.8 billion ofcorporate debt and leasing opportunities.

1 Undertaking for Collective Investment in TransferableSecurities


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About Macquarie

M acquarie is a global provider of banking, financial,advisory, investment and funds managementservices. M acquaries main business focus ismaking returns by providing a diversified rangeof services to clients. M acquarie acts on behalfof institutional, corporate and retail clients andcounterparties around the world.

M acquarie has five operating groups and twodivisions within which individual businesses

operate. Businesses specialise in defi

ned productor market sectors and work in close co-operation.G reat emphasis is placed on a clients relationshipwith M acquarie as a whole.

Three service groups provide the framework,infrastructure and support which enable theoperating groups to function.

Management approach

M acquaries strength lies in its unique structureand management style which enables businessesto exercise significant operating freedom balancedby limits on risk and the adherence to professionalstandards. M acquaries management approach fostersan entrepreneurial culture among staff.

Strong prudential management is fundamental to thisapproach. C entral management focuses on risks to

M acquarie which may arise from market and industryinfluences and on issues of medium and long-termsignificance.

O ther core elements of M acquaries approach are:

the encouragement of high ethical and professionalstandards

commitment to clients

commitment to growth

the recruitment, retention and motivationof quality staff

the alignment of staff rewards with thoseof shareholders

transparent and comprehensive reporting

including financial reporting and risk reporting.

MacquarieFunds Group

ShemaraWikramanayake

Corporateand AssetFinanceDivision

G arry Farrell

Real EstateBankingDivision

M atthewBanks

MacquarieCapital

M ichael Carapiet

MacquarieSecurities

Group

R oy Laidlaw

Fixed Income,Currencies andCommodities

Group

Andrew Downe

Non-Operating Holding Company (NOHC) Non-Banking Group business Banking Group businessCentral functions

Macquarie Bank LimitedBoard of Directors

Macquarie Bank LimitedManaging Director and CEO

Macquarie Group LimitedDeputy Managing Director

R ichard Sheppard

Macquarie Group LimitedBoard of Directors

Macquarie Group LimitedManaging Director and CEO

Nicholas M oore

Banking andFinancialServicesGroup

Peter M aher

Risk Management GroupStephen Allen, CRO

Information Technology GroupNigel Smyth, C IO

Corporate Affairs Group

G reg Ward, C FO


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Key services offered by operating groupsand divisions

Macquarie Securities Group

Institutional cash equities

Derivatives DeltaO ne Trading

Institutional and retail derivatives

C orporate Action trading

Arbitrage trading

Synthetic products

G lobal Securities Finance

C apital management, collateral managementand securities borrowing and lending.

Macquarie Capital

C orporate finance, including advisory

Equity capital markets

Debt structuring and distribution

Alternative asset funds management

Private equity placements

Principal products.

Macquarie Funds Group

M anagement of funds in: Equities

Fixed income, currency and commodities

Infrastructure securities

Real estate securities

Private equity and hedge fund of funds

Affiliated managers

Investment solutions and sales.

Fixed Income, Currencies and Commodities Group

Energy markets

M etals and energy capital

C redit markets

Agricultural commodities

Foreign exchange

Debt markets

Emerging markets

Futures.

Banking and Financial Services Group

Financial advice

C ash management services

Wealth management and private banking

Full-service broking

M ortgages

Life insurance

Business banking

Investment products

Administrative and portfolio services.

Corporate and Asset Finance Division

Structured corporate debt financing

Acquisition of secondary market corporate debt

Equipment leasing

Specialised asset finance

Asset lifecycle services

Equipment trading and remarketing.

Real Estate Banking Division

Real estate funds management

Real estate investment

Real estate development and asset management

Real estate project and development financing.

Operating group and division contribution to profit

2010 2009

Net profitcontribution

($Am)

Contributionto profit

(%)

Net profitcontribution

($Am)

C ontributionto profit

(% )

M acquarie Securities G roup 580 23 275 40

M acquarie C apital 657 26 257 36

M acquarie Funds G roup 95 4 45 6

Fixed Income, C urrencies andC ommodities G roup

827 33 509 74

Banking and Financial Services

G roup

261 10 (99) (14)

C orporate and Asset FinanceDivision

264 10 66 10

Real Estate Banking D ivision (152) (6) (362) (52)


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Operating groups and divisionsMacquarie Securities Group

Macquarie Securities Group (M SG ) contributed$A580 million to M acquaries total profit from operatinggroups for the year to 31 M arch 2010. This was anincrease of 111 per cent on the prior year. It generatedoperating income of $A1,480 million, an increase of10 per cent on the prior year.

The contribution from the Cash Division was90 per cent up on the prior year. Secondary marketcommissions were up on the prior year with increased

contributions from the US and European platformsfrom organic growth as well as the acquisitions of Fox-P itt K elton Cochran Caronia Waller (FPK ) and TristoneC apital offset by the stronger Australian dollar. Thebusiness maintained its number one ranking1 in marketshare in Australia and continued to grow market sharein other regions. Equity capital market (EC M ) fees wereup on the prior year given the significant increase in thenumber of capital raisings, particularly in Asia, Australiaand Canada.

The Derivatives DeltaOne Trading Division resultwas 483 per cent up on the prior year due to improvedtrading conditions and an increase in product volumes,albeit from a low base.

During the year, M SG continued to grow its globalplatform both organically and via a number ofacquisitions. T he business took the opportunity tohire individuals and teams of people, particularlyin the US and Europe, bringing both expertise andimportant regional relationships to M acquariesgrowing equities franchise.

1 C ombined institutional and retail market share


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O n 1 December 2009, M SG completed the acquisitionof FPK . T he acquisition has enhanced M acquariesglobal financial institutions (FIG ) specialist groupcapability and boosted M acquaries standing withfinancial institutions and corporates around the world,adding deep sector expertise in the US and Europeto complement M acquaries well-established FIGposition in the Asia-Pacific region. The acquisition hasincreased the access and reach of our equity offeringto institutional clients, growing our FIG research

coverage to approximately 765 stocks globally.

O n 6 April 2010, post balance date, M SG completedthe acquisition of two separate businesses of G ermanprivate bank Sal. O ppenheim jr. & C ie. K G aA that wereannounced during the year:

The cash equities business which comprisesequities research, sales, trading and executionfunctions focused on C ontinental Europe, withparticular strength in G ermany. T he acquisitionbroadens our pan-European business, bolsteringour presence in key European markets andcomplementing existing operations.

The equity derivatives and structured products

business which complements M acquaries existingAsian derivatives operation and adds a wider setof products to its growing European business.The acquisition brings more than 90 new staff toM acquarie, based in Switzerland and G ermany.The business has market making and issuanceoperations on exchanges in G ermany, S witzerland,Austria and Italy.

These acquisitions take M acquaries research coverageto around 2,7001 stocks globally. It also placesM acquarie in eighth position in terms of global researchcoverage.

Outlook

Subject to market conditions, M SG currently expectsits result for the year to 31 M arch 2011 to be up onthe prior year.

We expect improved market conditions to providegood growth opportunities for the C ash Division,although we expect a lower level of Australian EC Mactivity.

O verall the group sees good growth opportunitiesin the medium to long term. O ur vision is to be seenincreasingly as a global broker with strong Asia-Pacificfoundations. We will seek to maintain our number oneranking in market share for cash equities in Australiaand continue to grow market share in other markets.

We expect volumes for the Derivatives DeltaO neTrading Division to increase and for trading conditionsto continue to improve. The business is lookingto maintain its leading positions and market shareranking for its warrants products in Australia, HongK ong, K orea and Singapore. T he business will pursuenew opportunities including the development of anIndian derivatives business. It will continue to grow

the derivatives business in South Africa and maintaina focus on providing its global institutional derivativesplatform to clients across the globe.

The group will also continue to consider strategicacquisition opportunities in each region.

About Macquarie Securities Group

The Cash Division operates as a full-serviceinstitutional cash equities broker in the Asia-P acificregion. In the rest of the world it operates as aspecialised institutional cash equities broker. It providesequity capital markets products and services througha joint venture with M acquarie Capital Advisers.

The Derivatives DeltaOne Trading Divisioncombines the groups institutional and retail derivatives,structured equity finance, arbitrage trading, syntheticproduct businesses and global securities finance.G lobal securities finance includes capital management(cash and liquidity management and interest rate andforeign exchange hedging), collateral managementand securities borrowing and lending.

1 Includes stocks to be initiated under M acquariefollowing Sal. O ppenheim acquisition


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Operating groups and divisionsMacquarie Capital

Macquarie Capital contributed $A 657 million toM acquaries total profit from operating groups forthe year to 31 M arch 2010. This was an increase of156 per cent on the result achieved in the prior year.It generated operating income of $A1,689 million, anincrease of 11 per cent on the prior year. The improvedresult was largely attributable to the completion of anumber of listed fund initiatives partially offset by loweradvisory revenue.

Despite market conditions, we advised on448 transactions valued at $A121 billion. Equityunder management (EU M ) declined 28 per cent from$A53.3 billion at 31 M arch 2009 to $A38.6 billionat 31 M arch 2010 and assets under management(AUM ) decreased 40 per cent from $A 159.5 billion to$A96.5 billion. The declines in AUM and EUM wereprimarily driven by the implementation of strategicinitiatives in M acquarie C apital managed ASX-listedfunds and the strengthening in the Australian dollar.

Macquarie Capital Advisers

As outlined in the Regional Activity section of thisreport, M acquarie C apital Advisers advised on anumber of significant transactions. O ther significantroles included:

Adviser to Goodman Group on its recapitalisationincluding $A4.1 billion debt restructuring,$A1.3 billion equity raising and $A500 millionhybrid securities issued to C hina Investment

C orporationJoint global coordinator and joint underwriter forR io T intos global $US15.2 billion renounceablerights issue

Financial adviser to Cintra and M eridiamInfrastructure on the $US2 billion North TarrantExpress managed lanes project in Texas, US

C o-financial adviser to Bouygues C onstruction andM eridiam Infrastructure, arranging $US723 millionof debt on the Port of M iami Tunnel and AccessImprovement Project in M iami, U S

Adviser to Bak wena P latinum C orridorC oncessionaire on its ZAR 3.5 billion toll road

refi

nancing in South AfricaAdviser to Inexus, a UK gas and electricitydistribution business, on the restructuring of itsdebt facilities

Adviser to Bord Gis ireann, a leading Irishenergy provider, on the 500 million acquisition ofSWS Natural Resources, one of the largest windgenerators in Ireland

Adviser to Viterra on its $A1.6 billion acquisitionof AB B G rain and underwriter for its $A511 millionequity raising

Adviser to Transpacific Industries Group on its$A801 million recapitalisation and $A2.3 billion debtrefinancing

Joint structuring adviser and joint lead manager forthe $A2 billion PER LS V hybrid issue by C BA

Joint financial adviser, lead manager andunderwriter for the $A8.9 billion recapitalisationand restructure of P rime Infrastructure


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Adviser to Younghwa Engineering on the sale ofYounghwa Engineering to M BK Partners in K orea

Joint lead manager for ANZs $A2 billion CPS2capital raising

Adviser to Eldorado G old Corporation on its$C 2.4 billion cross-border acquisition of SinoG old M ining Limited

Joint global coordinator and lead arranger on the$US1.6 billion takeover and IDX-listing of BU M A,

Indonesias second largest mining contractorAdviser to TriStar O il & G as on its $C 2.7 billionstrategic combination with Petrobank Energy &Resources

Joint lead manager and underwriter to M irvac Groupon its $A1.1 billion capital raising, and joint financialadviser on its acquisition of the $A814 million M irvacREIT

Adviser to Central Pattana Public Company,a leading developer and manager of retailand commercial properties in Thailand, on aTHB5.7 billion real estate investment

Adviser to R io T into on the proposed Western

Australian iron ore joint venture with BHP Billiton.The acquisitions of specialist firms, Tristone andFPK , have enabled M acquarie Capital to deepen itsexpertise in resources and financial institutions advisoryrespectively.

Macquarie Capital Funds

M acquarie Capital Funds has continued to grow itsunlisted funds management business, launching newfunds in Russia, M exico and Africa. During the year,M acquarie Capital Funds raised $A3 billion of fundand consortia equity, bringing the equity available forinvestment to $A7 billion.

Several ASX-listed fund initiatives aimed at closingthe gap between listed market prices and directorsvaluations were completed. These initiatives resultedin the internalised management of M acquarie Airports,M acquarie Leisure Trust G roup and M acquarie M ediaG roup, the restructure of M acquarie InfrastructureG roup into two separate listed entities, the takeover ofM acquarie Communications Infrastructure G roup bythe Canadian Pension P lan Investment Board and thesale of the majority of our Australian core real estatefunds management platform to C harter Hall.

Outlook

Subject to market conditions, M acquarie Capitalexpects its result for the year to 31 M arch 2011to exceed the prior year, with reasonable activityexpected in the Asian, US, C anadian and Australianmarkets, albeit a likely lower level of Australian ECM .G rowth prospects for our Europe, M iddle East andAfrican businesses are promising as economic activityin this region is expected to improve. O ur alternativeasset funds strategy will be to focus on unlistedfund raisings and continued expansion into newgeographies and sectors.

About Macquarie Capital

M acquarie C apital includes M acquaries corporateadvisory, equity underwriting and alternative assetfunds management businesses.

Macquarie Capital Advisers provides advisory andcapital raising services to corporate and governmentclients involved in public mergers and acquisitions,private treaty acquisitions and divestments, debt andequity fund raising and corporate restructuring.

Advisory activities are aligned into industry groups,

reflecting key areas of expertise in infrastructureand utilities, resources, telecommunications, media,entertainment and technology (TM ET ), real estate,industrials and financial institutions.

M acquarie Capital Advisers also encompassesMacquarie Capital Funds which manages a rangeof alternative asset funds, including infrastructure andreal estate funds.


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Operating groups and divisionsMacquarie Funds Group

Macquarie Funds Group (M FG ) contributed$A95 million to M acquaries total profit fromoperating groups for the full year to 31 M arch 2010.This was an increase of 111 per cent on the prioryear. It generated operating income of $A427 million,an increase of 27 per cent on the prior year. Theresult was driven by ongoing base managementfee revenue, gains on seed capital positions due tostrong investment performance, a lower cost base,and the three month contribution from Delaware

Investments (Delaware). The acquisition of Delaware,a US-based diversified asset manager, was completedin January 2010.

Total assets under management (AUM ) increased from$A49.7 billion at 31 M arch 2009 to $A209.9 billionat 31 M arch 2010.T he increase was largely a resultof the Delaware acquisition, which contributed$A151.1 billion of AUM at 31 M arch 2010. The groupalso experienced inflows into institutional cash, fixedincome and equities products combined with risingasset values contributing $A9.1 billion to the increasein AUM .

The strong performance of many of M FG s managed

fund asset classes resulted in inflows from bothinstitutional and retail investors. In particular, goodinflows were experienced into the Fixed Income,C urrency and C ommodities and Listed Equities funds.


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The addition of Delaware enhances M FG s globalproduct development and distribution capabilities. Inthe short period since acquisition, M FG has launchedthe Delaware M acquarie G lobal Infrastructure Fundwhich combines Delawares US distribution platformwith M FG s infrastructure investment expertise.Further, the US asset management distributionteams of the two businesses have now been broughttogether under the stewardship of Delawares Headof Distribution. Delawares capabilities have also been

added to M FG s offering to investors in Australia, Asiaand Europe.

M FG s Investment Solutions and Sales Division (ISS)continued to develop and offer fund-based structuredproducts for retail and institutional investors. TheDivision capitalised on market conditions during theyear, augmenting its structured product offering andenhanced its capabilities in the US market with the hireof a number of experienced senior executives. Duringthe period, ISS successfully launched a new generationof capital protected investment products, with capitalprotection annually rather than only at maturity, andlaunched the M acquarie Lifetime Income G uaranteePolicy, a longevity risk protection product.

Outlook

The recovery in investor sentiment has resulted inincreased fund flows from both retail and institutionalinvestors. We expect strong performance acrossM FG s various products to provide continued growthin AUM . We also expect a substantially greatercontribution from Delaware in its first full year ofoperation within M FG . Subject to market conditions,the group expects the result for the year ending31 M arch 2011 to be well up on the prior year.

The group will also continue to consider strategicacquisition opportunities, particularly in the larger

capital markets.

About Macquarie Funds Group

The Equities Division operates in Australia, Asia andthe US and manages assets across the full spectrumof domestic and international funds. Its investmentprocess has evolved to become a fusion of quantitativeand fundamental strategies. T he division offers arange of products including High Conviction, G lobalThematic, A sian & Emerging M arkets and a wide rangeof hedge funds.

The Fixed Income, Currency and CommoditiesAsset Management Division operates in Australia,the US and the UK and is one of Australias largestcash and fixed income managers. This divisionmanages a range of fixed income products, along withcurrency products spanning from passive to dynamic,commodities and an active hedge fund.

The Infrastructure Securities Division operates inSydney and New York and is a market leader in themanagement of global and emerging market listedinfrastructure securities.

The Real Estate Securities Division offers investmentsolutions managed by a dedicated and experienced

global real estate securities team with operations in theUS, Europe, A sia and Australia.

The Fund of Funds Division provides innovativefund of private equity funds and fund of hedge fundsproducts using a disciplined and extensive investmentprocess designed to provide a risk-controlled,professionally managed portfolio with diversifiedexposure to high quality funds.

The Investment Solutions and Sales Divisionspecialises in providing a range of market-leadinginvestment solutions to clients. T he divisionstructures and distributes M acquarie Funds productsindependently and through joint ventures globally. The

division also provides leverage solutions to clientsacross a range of underlying asset classes includingfunds of hedge funds.

M acquarie Affiliated Managers specialises in growingthe asset management business through acquisitionsof, and partnerships with, external asset managers.It pursues strategic acquisitions which can extendthe footprint of M acquaries broader securities assetmanagement capabilities, as well as the purchaseof controlling stakes in specialist managers that itbelieves can benefit from an affiliation with M acquarie.Delaware, which was acquired in January, is part ofthis business. Additionally, Affiliated M anagers has aninterest in a specialist energy asset manager in K orea.


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Operating groups and divisionsFixed Income, Currencies and Commodities Group

Fixed Income Currencies and Commodities Group(FIC C ) contributed $A827 million to M acquaries totalprofit from operating groups for the year to 31 M arch2010. T his was an increase of 62 per cent on the prioryear, with all operating divisions profitable. It generatedoperating income of $A1,480 million, an increase of43 per cent on the prior year.

Metals and Energy Capital was a strong contributorfor the year experiencing continued improvement

in trading conditions, successful asset realisationsand the benefits of a return to more normal marketconditions in the project finance sector.

Energy Market Divisions result was driven by strongperformance of the US and UK energy operations,including the European utilities offering and growth ofthe global coal business. D uring the year the businessexperienced generally low volatility and mixed marketliquidity. However, more recently energy marketconditions have shown signs of improvement.

Debt Markets (which post balance date has mergedwith the Foreign Exchange Division to become FixedIncome and C urrencies Division) made a strong

contribution. Improving Australian debt marketconditions supported increased debt market activity.

The contribution from Foreign Exchange (FX) waswell down on the record result achieved in the prioryear. A significant reduction in both volatility andturnover in global foreign exchange markets during theyear impacted all FX market participants. The strongAustralian dollar placed additional downward pressureon the divisions result.


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The Credit Trading Division achieved an outstandingresult in its first full year as an operating division withinFIC C . T his result was driven by selective productexpansion, the extension into client sales and trading,and the rally in credit markets.

The Emerging Markets Division made a strongcontribution for the year, its first as a full operatingdivision. Its performance was underpinned byincreased client activity, expansion of emerging market

products and services and its geographical expansioninto the US and Europe.

The result from Agricultural Commodities was upon the prior year, reflecting a strong contribution fromagricultural over-the-counter products, particularly inthe Americas, and the freight business made a solidcontribution.

The contribution from Futures was broadly in linewith the prior year, with exchange volumes recovering,albeit in an inconsistent manner.

Notable activity during the year included:

extension of the US credit trading business toinclude client sales and trading and expansioninto the UK

the acquisition of substantially all of the wholesaleelectric marketing and trading portfolio of IntegrysEnergy G roup

selective expansion of energy markets and regionstraded including European and UK power markets

broadening emerging markets services to Europeanmarket participants

growth in physical shipping and freight capabilities

expansion into K orea and early stage build out ofFIC C s strategy for Asia.

Outlook

FIC C will continue to focus on growth across its keymarkets in core geographic regions and protecting themarket share of its more mature, domestic businesses.FIC C expects continued improvement in marketconditions with a strong return of competitors acrossmany market segments accompanying the improvedconfidence in markets generally.

The group expects its result for the year to 31 M arch2011 to be moderately up on the prior year as itcontinues to invest in organic growth initiatives.

About Fixed Income, Currencies andCommodities Group

The Energy Markets Division provides riskmanagement solutions to energy producers,consumers and investors across a broad range ofproducts and acts as a trading intermediary in gasand power in the US and Europe.

The Credit Trading Division facilitates clienttransactions with institutional investors and makes

markets in secondary trading of and investing incorporate debt securities, credit default swaps,syndicated bank loans, collateralised debt obligations,asset-backed/mortgage-based securities andderivatives of these products.

The Foreign Exchange Division provides24-hour interbank FX services in all currency pairsto institutional clients in Australia and globally andaccesses retail FX volumes through service provisionto retail platforms.

The Metals and Energy Capital Division providesequity and debt finance globally to the metals andenergy sector as well as providing trading and hedging

services to the base and precious metals sectors.The Agricultural Commodities Division providesrisk management, structured financing and physicalcommodity solutions across agricultural commoditiesglobally and selected dry and wet freight routes.

The Emerging Markets Division provides a full suiteof services to institutional and local market participantsin emerging markets globally.

The Futures Division provides a full range of brokingand clearing services on all major futures exchanges.The division is a leading provider of these services inthe Australian market and is pursuing opportunities inoffshore markets.

The Debt Markets Division (to merge with ForeignExchange Division and be renamed Fixed Income andCurrenc ies Division) arranges and places primary debtfor clients and provides secondary market liquidityin government, inflation linked, corporate, global,mortgage and asset-backed securities and providesinterest rate derivative structuring and hedgingsolutions for clients.

The Central Division is an incubator for variousnon-division specific, early-stage or cross-divisionalinitiatives including Environmental Financial Products,Structured C ommodity Finance, new jurisdiction andbranch initiatives and joint ventures and alliances.


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Operating groups and divisionsBanking and Financial Services Group

Banking and Financial Services Group (BFS)contributed $A261 million to M acquaries total profitfrom operating groups for the year to 31 M arch 2010.It generated operating income of $A1,251 million, anincrease of 55 per cent on the prior year, as a result ofimproving market conditions, growth in client numbersand increased inflows into core products such as cashand wrap.

BFS continued its international expansion with the

acquisition of Canadianfi

nancial services company,Blackmont C apital Inc (Blackmont). B lackmont isa C anadian full service wealth management andinvestment dealer with 410 full-time staff membersin 12 offices in five provinces across Canada. Thisacquisition increased B FS staff numbers in NorthAmerica, making it the second largest BFS operationglobally with almost 20 per cent of the groups staffnow working there. Integration of the business intoM acquarie is well advanced and we are ahead ofschedule in terms of recruitment of advisers, increasein client assets under management and growth inrevenue.

The Business Banking D ivision launched a Premium

Funding venture with the AO N G roup of C ompanies inC anada, U K and Ireland in September. T his agreementhas significantly extended Business Bankings PremiumFunding footprint in these markets and reinforcedM acquaries commitment to the Canadian premiumfinance market.

The group also launched a premium platform servicein the UK to support professional financial planners inproviding services to their clients.

The cash businesses continued to perform stronglywith retail cash deposits increasing from $A13.4 billionat 31 M arch 2009 to $A15.5 billion at 31 M arch 2010.O ver the same period, the C ash M anagement Account

(C M A) increased from $A 170 million to $A3.6 billion,driven by tailored offerings with competitive interestrates.


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Funds under administration in M acquarie Wrapreached $22.5 billion at 31 M arch 2010, up from$17.5 billion at 31 M arch 2009.

M acquarie Life Inforce risk insurance premiumsincreased 103 per cent on the prior year and, for thesecond consecutive year, M acquarie Life was awardedFive Star status in the 2009 WA Taylor IntermediaryStudy which surveys 1,000 advisers satisfaction levelsin the life insurance market.

O verall, BFS client numbers increased nine per cent to863,000 with good growth in M acquarie Cards clientnumbers. International client numbers reached 70,000post the acquisition of Blackmont.

Based on market share and trading volumes,M acquarie Private Wealth again held the number oneposition for full-service retail stockbroking1.

In A ugust, BFS launched its new online tradingplatform, M acquarie Edge, a web-based servicetailored for the increasing number of Australianswho self-manage their share market trading activity.The site includes a wide range of news and analystcommentary, company profiles and access to

M acquarie research.

M acquarie Professional Series was named ProductDistributor of the Year in the 2009 Standard & Poors(S& P ) Fund Awards. S& P also named M acquarieProfessional Series manager, Walter Scott & PartnersLimited, as the top International Equities DevelopedM arkets fund for the third consecutive year.

Post balance date, unit holders in the C ashM anagement Trust (CM T) approved the transfer offunds to the CM A effective 31 July 2010. T he balancein the CM T at 31 M arch 2010 was $A9.5 billion2.

Outlook

Subject to market conditions, BFS expects its resultfor the year ending 31 M arch 2011 to be up on theprior year.

The group will continue to consolidate its businesses tohelp maintain its leading market position in the adviceand intermediary markets. BFS will continue to look forappropriate acquisition and partnership opportunitieswhich offer differentiated wealth managementsolutions.

C ontinued international expansion will be a priority forthe group with efforts concentrated in North America,Asia and Europe.

BFS will continue to use its acknowledged riskmanagement strengths to respond to impendingregulatory changes.

About Banking and Financial Services Group

BFS is the primary relationship manager for

M acquaries retail client base. T he group bringstogether M acquaries retail banking and financialservices businesses, providing a diverse range ofwealth management products and services to financialadvisers, stockbrokers, mortgage brokers, professionalservice industries and the end client.

Macquarie Adviser Services manages relationshipswith external financial intermediaries and provides salesservices and product management of in-house andexternal products.

Macquarie Direct provides a range of consumer andfinancial products for 154,000 non-advised clients inAustralia. T his includes self-directed stock brok ingthrough the Edge online trading platform, M acquariecredit cards and cash products.

Macquarie Global Investments provides investmentproducts for retail and wholesale investors globally.The division includes the M acquarie ProfessionalSeries, M acquarie Private Portfolio M anagement andthe M acquarie Pastoral Fund.

Macquarie Private Wealth maintains directrelationships with more than 197,000 clients offeringa diverse range of services including full-servicebroking, strategic financial planning, executive wealthmanagement and private banking.

Macquarie Relationship Banking provides innovative

banking services to successful small to mediumsized businesses, professionals and high net-worthindividuals.

BFS North America is responsible for expanding thegroups mortgages, banking and premium fundingbusinesses along with the new M acquarie P rivateWealth C anada into the North American market.

BFS Europe and Asia is responsible for expandingthe groups wealth management business into theAsian, UK and European markets. It has a joint ventureagreement with the Indian company, R eligare.

1 IR ESS, consideration traded.2 Excluding existing amounts held on deposit with M BL

at 31 M arch 2010 of $A0.5 billion.


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Operating groups and divisionsCorporate and Asset Finance Division

Corporate and Asset Finance Division (CAF)contributed $A264 million to M acquaries total profitfrom operating groups for the year to 31 M arch2010, an increase of 300 per cent on the prior year.It generated operating income of $A456 million, anincrease of 116 per cent on the prior year.

At 31 M arch 2010, C AF managed a lease and loanportfolio of $A13.6 billion, an increase of 61 per centfrom 31 M arch 2009. T he growth in the portfolio was

mainly due to the expansion of corporate lendingactivities and the acquisition of a $A1.0 billion portfolioof Australian auto loans and leases from Ford C reditAustralia in O ctober 2009.

The expansion of C AFs corporate lending activitiesduring the year was a response to the dislocationof global credit markets. The scale back of lendingactivities by other domestic and international financialinstitutions provided M acquarie with the opportunity toacquire or originate quality corporate loans at attractivenet interest margins.

During the year, C AF acquired the TechnologyServices Division of Relational Technology Solutions(R elational). T his business provides IT related servicesthat are complementary to C AFs existing US ITleasing business and expands and further strengthensM acquaries US IT leasing platform. A s part of theagreement, C AF will also manage R elationals existing$US500 million IT lease portfolio.

Post balance date, C AF agreed to acquire an aircraft

operating lease portfolio from International LeaseFinance C orporation for $US1.7 billion (net of currentcash reserves and subject to adjustments). Theportfolio consists of 47 modern aircraft on leaseto 35 airlines in 27 countries. C ompletion of thetransaction is expected to occur over the remainder ofcalendar 2010.

Outlook

The CAF Division expects its result for the year ending31 M arch 2011 to be significantly up on the prioryear. The division will continue to actively seek furtheracquisition opportunities. It expects continued growthin its existing businesses and further expansion intonew geographies and asset classes.

About Corporate and Asset Finance Division

C AF provides innovative and traditional capital, financeand related services to clients operating in selectedinternational markets specialising in leasing and assetfinance, offering tailored debt and finance solutions andasset remarketing, sourcing and trading.


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Operating groups and divisionsReal Estate Banking Division

Real Estate Banking Divisions (REB ) result for theyear to 31 M arch 2010 was a net loss of $A152 millionwhich was 58 per cent below the loss reportedin the prior year. It generated an operating loss of$A100 million, 63 per cent below the operating lossin the prior year. The negative result was largely drivenby the recognition of asset impairment losses.

Assets under management decreased by 66 percent during the year from $A14.8 billion at 31 M arch

2009 to $A5.0 billion. This was largely due to thestrengthening Australian dollar, resulting in loweroffshore asset values, as well as write-downs anddisposals by some funds.

Outlook

The division will maintain its focus on increasing assetrealisations through sales of development projects,and the refinancing of near-term debt maturities. REBexpects its result for the year to 31 M arch 2011 to beimproved on the prior year.

About Real Estate Banking Division

R EB manages real estate balance sheet positionsacross a number of locations and products.Its operations include real estate developmentmanagement and funds management, deal sourcing,advisory, structuring and financing, with activities inAustralia, A sia, North America, the UK and Africa.

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Other groups and divisions

The Corporate Affairs Group (CAG ) providesessential and professional services across all areas ofM acquarie. T here are ten divisions in CAG which worktogether to provide seamless multi-disciplinary supportinfrastructure tailored to business requirements, whilemaintaining appropriate levels of risk management,compliance and corporate governance.

The Finance Division supports M acquaries operatinggroups by providing financial control, financial and

capital management, management reporting andbudgeting and divisional accounting services. TheDivision is structured along business lines with adedicated team co-located with, and providing supportto, each operating area. In addition, there are centralfunctions such as Group Finance and Global FinancialServices that provide services across the wholeof M acquarie. G lobal Financial Services (G FS) hasbeen formed to create a more efficient and scaleableoperating model for the service delivery of the division.G FS currently provides a range of services fromSydney and N ew Delhi.

The Group Financial Management Division isresponsible for the management of M acquaries capital

position and more generally providing strategic adviceand expertise to management in relation to the balancesheet.

The Settlements Division is structured to provideindependent specialist verification, confirmationand settlement facilities for a variety of productsand currencies for many of M acquaries businessesglobally. T he Division provides a key segregated controlfunction built on strong operational risk managementand a control culture that is consistent and resilient.

The Business Improvement and Strategy Divisionoffers strategic advice and expertise to all M acquarieand related entities. T he Division helps businesses

to deliver programs for business unit growth andoperational effectiveness. It is also responsible forfacilitating M acquaries annual corporate strategyprocess.

The Taxation Division provides taxation support toall areas of M acquarie, managing relationships withrevenue authorities worldwide and compliance withtaxation legislation.

Group Treasury is responsible for the funding, liquidityand interest rate risk management of M acquariesbalance sheet. In addition, G roup Treasury managesM acquaries liquid asset portfolio and is responsible formanaging banking and rating agency relationships.

The Corporate Communications and InvestorRelations Division (C C IR ) actively engages withshareholders, debt investors, investment analysts,governments, media, staff and the wider communityto maximise their understanding of M acquarie andto enable M acquarie to understand the expectationsof our key stakeholders.

C C IR is responsible for overseeing management ofM acquaries brand and reputation. it also includesthe activities of the M acquarie Group Foundation.M acquarie Sports and the Sustainability andEnvironment O ffice.

M acquarie aspires to be recognised as the leading

employer of the best people in the market. The HumanResources Division supports business strategy byseeking to attract, recruit, reward and retain the bestemployees. To achieve this the Division works closelywith business groups providing operational andconsulting services globally.

The Business Services Division comprises C orporateReal Estate, C orporate Risk, C orporate Services, EventM arketing and Strategic Sourcing. T he teams have theresponsibility for the strategic direction, implementationand ongoing management of M acquaries workplaces,physical risks and corporate services whilst thestrategic sourcing team leverages the M acquariebrand, global presence and spend on goods andservices to unlock value from its suppliers and vendors.

The Company Secretarial Division providesgovernance and company secretarial services toM acquarie, including the main Boards of M acquarie,the Board Committees, M acquaries subsidiarycompanies and M acquaries Executive C ommittee.The Division is also responsible for the coordinationand administration of M acquaries share registryarrangements, employee equity plans and M acquariesglobal professional risk and general liability insurances.


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Information Technology Group (IT G ) is responsiblefor the management of M acquaries technologyinfrastructure, the support and development of existingbusiness systems and the delivery and deploymentof new systems, technologies and services. Itincorporates business-aligned teams which providededicated and specialist services to businesses as wellas central teams which provide shared services, suchas infrastructure, to multiple businesses. T he business-aligned teams are often co-located with the business.

IT G supported the integration of businesses includingSal. O ppenheim, FPK and Tristone C apital as well asthe merger of M acquarie C ook Energy in Los Angeleswith Macquarie Power to form M acquarie Energybased in Houston.

O ther integration programs are part-way throughincluding those for Delaware Investments andBlackmont C apital. ITG also supported five transitionswith respect to listed infrastructure funds in Australia.

The transitions involved restructure, internalisationor management transfer, with ITG working to ensuretransition was smooth and timely for the customers,new management, staff and third parties.

The business-aligned teams implemented a numberof significant applications including:

C alypso: the second phase of the global cashmanagement system implementation deliveredmajor enhancements to support Treasury foreigncurrency loans and deposits

Anti-M oney Laundering: transaction monitoring andcase management capabilities were implementedas part of M acquaries compliance program.

During the year, IT G was involved in a number ofrelocations to support the continuing growth ofM acquarie:

a second purpose-built, state of the art, data centrewas opened in S ydney. This also enabled thedecommissioning of a legacy data centre

many new technologies, particularly those relatingto mobility, were introduced to support Activity-Based Working in Shelley Street and have sincebeen implemented in other global locations

IT G s offshore centre in the Philippines wasrelocated to a larger building to accommodate forthe growth in staff that provide additional around-

the-clock support for M acquaries informationtechnology systems.


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Other groups and divisionscontinued

Risk Management Group (R M G ) is an independent,central unit responsible for ensuring all risks areappropriately assessed and managed acrossM acquarie. Its functions include C redit, P rudential,C apital and M arkets, M arket R isk, O perational Risk,C ompliance and Data Policy. T he Head of RM Ghas oversight of Internal Audit jointly with the BoardAudit and Compliance Committee (BAC C ). A full riskmanagement report is contained in the M acquarieG roup 2010 Annual Report.

Credit minimises the risk of loss arising from failureby counterparties to repay loans or honour contracts.It ensures that the identification and assessment ofequity exposure risks is complete.

Prudential, Capital and Markets (PC M ) is responsiblefor ensuring that M acquarie discharges its obligationsto the A ustralian P rudential Regulation A uthority(APR A), including compliance with prudentialstandards and maintaining a constructive relationshipwith the reg

macquarie group 2010 annual report

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