Banking and Property Group
Chairman's and Managing Director's Report

Assets under management by Banking and Property Group increased by 36 per cent, as the Group entered the European real estate market and achieved good growth from existing businesses in the UK, US and Asia . Selected international expansion has been achieved through joint ventures, acquisition of assets and organic growth.

With all Divisions experiencing strong deal flows, the Group is well placed to take advantage of international and domestic opportunities.

Banking and Property Group (BPG) achieved an 11 per cent increase in profit contribution on 2005, excluding the $A91 million net profit on formation of Macquarie Goodman Group. The newly restructured Divisions of Real Estate and Banking and Securitisation increased their contributions over 2005.

We continue to focus internationally with businesses in Italy, the United Kingdom, the US, Japan, Korea and Hong Kong all generating good growth during the year.

Real Estate (formerly the Property Divisions)

The assets under management (including associates)¹, managed by our Real Estate business, increased 36 per cent to $A28.1 billion from $A20.7 billion.

The year saw the listing of a real estate investment trust (REIT) in Singapore, the formation of a joint venture with Macquarie Goodman in Hong Kong, a number of acquisitions by existing funds in the US and a strategic move into UK/Europe by the Group's real estate finance and investment banking businesses.

Macquarie Real Estate is focused on potential opportunities arising as a result of foreshadowed regulatory changes in Europe .

Macquarie Leisure and the Macquarie Goodman Group were respectively the number two and number five best performing Australian ASX300 listed property trusts for the year. Continued strong gains have also been achieved from Macquarie 's investment in Macquarie Goodman.

Banking and Securitisation (merger of Banking with Mortgages and Securitisation Divisions)

An excellent result was driven by a strong domestic lending environment and growing market share in key segments.

The Mortgages business now operates in three countries; Australia, Italy and the US .

In Australia, the loan book experienced strong growth, increasing 26 per cent to $A18.2 billion from $A14.5 billion. This Division was appointed exclusive funder for Virgin Money Home Loans and primary funder for the Aussie Home Loans business. In Italy, our mortgage business, which started in July 2005, achieved loan origination volume in line with business expectations. In the US, loan volumes were subdued in a challenging interest rate environment. Our business continues to expand across the US and we are exploring new products and distribution channels.

We increased our share of the margin lending market to 16 per cent. The total loan portfolio now exceeds $A3.3 billion and is growing at more than double the industry average.

We continued the development of consumer lending products, leveraging existing client relationships and distribution channels.

Business Banking's property–backed lending products increased market share with loans up 64 per cent over the year. There was strong growth in deposits, up 21 per cent, and a new office was opened in the Gold Coast.

Outlook

The Group is examining various opportunities for expansion. We expect continued growth both in Australia and internationally, especially in the area of international real estate securitisation, subject to reasonable market conditions.

Our strong risk management and conservative credit policies continue to protect the businesses and profitability.

¹ Represents total assets under management of funds where Macquarie controls or significantly influences the fund manager, including 100 per cent of MGQ.