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Treasury and Commodities Group |
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The Treasury and Commodities Group again performed well. It achieved a record result in the year to 31 March 2001, significantly up on the prior corresponding year. Of note is the success achieved by the Group’s expanding international activities – now in Australia, Hong Kong, Korea, Japan, the United Kingdom, the United States and Brazil. Also noteworthy is the resilience of the Group’s performance despite generally depressed, but occasionally volatile, commodities markets. |
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The Metals and Mining Division offers 24-hour price-making facilities for base and precious metals as well as financing and structured hedging facilities for metals projects. The Division’s base metals business services a wide variety of producers, consumers and traders. Macquarie is a principal liquidity provider in the Asian time zone, making prices to customers as principal in the London Metal Exchange market and providing over-the-counter transactions around the clock. |
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The Division maintained its long record of strong profitability with a very pleasing second-half result. The full year was slightly down on last year’s record result in difficult market conditions. It has continued to grow its international activities, adding a London presence to operations in Sydney, Perth and New York. |
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The Division retained its position as a leading banker to the Australian gold-mining industry and is now actively involved in financing projects around the world. A large part of the Division’s business came from structured hedging transactions, an area where Macquarie continued to be at the forefront of product development.
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The Foreign Exchange Division provides 24-hour interbank price-making services in Australian Dollar spot, forwards and options and provides interbank pricing in Yen during the Sydney time zone. |
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The Division enjoyed a very profitable year with significant contributions from the spot, derivative trading and derivative structuring areas. The year was marked by a decline in the Australian Dollar against the US Dollar from .6100 in April 2000 to a new historical low of .4775 in March 2001. This volatility provided trading opportunities but also imposed restraints on certain counterparty credit limits. |
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Foreign Exchange continued to pursue offshore opportunities. It increased its business with international corporates and institutions and introduced an internet delivery business into a new customer base in Asia. These developments diversified the business’ income streams and will help secure stable performance into the future. |
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The Money Market Division is responsible for the Bank’s balance sheet, liquidity and interest rate management. In line with growing funding requirements, the Bank’s debt instrument programme was increased from US$3.0 billion to US$5.0 billion during the year. The funding programme included a number of successful placements in the Eurobond market and reactivation of the US$1.0 billion commercial paper programme. |
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Despite significant interest rate changes during the period the Division delivered a solid result in line with expectations, reinforcing its ability to prudentially manage the balance sheet while also taking advantage of market movements. |
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The Futures Division had another strong year of growth despite widely varying financial market conditions. There was increasing interest in offshore markets from both trading and funds management clients. |
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The change to electronic trading on the Sydney Futures Exchange was fairly smooth as the trend towards screen trading proceeds globally. During the year the Division utilised electronic trading as an entry point to international markets, enhancing the Sydney and London offices’ non-Australian market capabilities. |
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The Listed Derivatives Clearing unit had a successful year, also harnessing the benefits of electronic trading for straight-through processing. The clearing of exchange-traded equity options on the same platform as futures has been a growing part of the business. |
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The Division’s key focus in the coming year will continue to be growth opportunities in electronic trading. |
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Risk Advisory Services (RAS) had a profitable year despite a subdued market. RAS’s specialised teams focus on servicing commodity markets (energy, agricultural and resources) and the treasury sector. There is also a specialised team responsible for the outsourced management of over $2.5 billion of debt and asset portfolios for clients. This team has generated average interest savings for its clients of 0.5 per cent per annum over the last four years. |
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RAS’s range of services now includes capital structure and debt structure reviews, fund raising and hedging advice, financial policy development, asset allocation advice, debt and asset benchmarks, establishing new treasury/trading operations and developing industry price management techniques. |
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The Debt Markets Division had a successful year, providing: |
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financing and capital management solutions |
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trading and sales capabilities |
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derivatives and structuring-based risk management solutions |
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investment products for governments, corporations and institutions. |
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Performance improved in the Division’s first full year of operation as part of the Bank, having been acquired with the other investment banking businesses of Bankers Trust Australia in July 1999. |
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The Division holds a market-leading position in asset-backed securitisation – spanning mortgage, equipment and motor vehicle securities as well as the tailored structured variety. This dovetails into more basic debt markets, such as fixed-income and short-term securities, to provide the full spectrum of debt services for clients. Securities trading mainly covers investment-grade government and non-government sector credits, as well as those associated with structured and project finance. |
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The Division is now a full service, broad-based debt markets participant in Australasia and is looking to selectively export niche debt capabilities into Asia, Europe and North America. |
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The Agricultural Commodities Division enjoyed an outstanding year across its commodity range. |
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Sugar grew strongly through the year. Volatile market conditions generated both increased customer transactions and good trading opportunities. |
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Cotton continued to grow well, again aided by a volatile market. |
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Grain again contributed to the Division’s result, with continued broadening of the customer base. |
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The Division commenced transactions based on canola, completing a number of canola-based structures. |
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Wool completed a record year in volumes and profitability. The outlook for the wool business is positive due to diminishing wool stockpiles and a strong but increasingly volatile wool market. |
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Growth in the Agricultural business continued to be dominated by offshore activities. The Division’s presence was increased across the board in Chicago, New York, Sao Paulo and London. Agricultural Commodities now has its own staff on the floor of the New York Board of Trade and an expanding presence on the Chicago Board of Trade. |
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The Trading Funds Division achieved a modest trading result. Trading conditions changed little from the prior corresponding year and started improving mid-year as equity markets began to reverse. Unexpectedly rapid reductions in global short-term interest rates have created a favourable trading environment for the new year. |
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In November 2000 the Division launched the Macquarie Diversified Trading Fund. This wholesale investment product encapsulates the performance of the Division’s discretionary and systematic traders with Macquarie as the seed investor. The Fund was created to meet growing demand for investments with low correlations to traditional asset markets such as equities and fixed income. The Fund structure enables investors to participate in the returns of a diversified trading portfolio. |
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Outlook |
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The Group is a niche participant in markets driven by global consolidation. Its focus on adding value for clients through innovative products and superior service continues to provide opportunities for selective expansion as the Bank grows. The outlook for the Group is positive as it expands its product range and client base but is dependent on market conditions, particularly in the commodities markets. |
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