Treasury and Commodities Group
Chairman's and Managing Director's Report

Treasury and Commodities Group's profit growth was driven by increased contributions from all operating Divisions. Key drivers included very strong increases from Metals and Energy Capital, Debt Markets and Commodity Markets.

The Group expects to maintain good domestic market positions and will continue to expand international operations as opportunities are identified.

Treasury and Commodities Group's (TCG) profit contribution was 36 per cent higher than the strong  2005 result.

Metals and Energy Capital

This Division offers price-making, derivative trading and financing in base and precious metals and other selected commodities as well as financing to the oil and gas sector. Its contribution was very strongly up on 2005.

Significant growth continued in the oil and gas financing business and a number of energy and mining investments were realised during the year. Base metals trading and project finance were again strong contributors to the result.

Foreign Exchange

This Division provides services across all currency pairs and structured term hedging currency solutions for Australian and international clients. The profit contribution was well up on a strong 2005 result, reflecting good volatility across most currency pairs, significantly higher turnover and strong growth in the internet delivery businesses.

Commodity Markets Division

During the year, Agricultural Commodities and Energy Markets merged to form the Commodity Markets Division (CMD). CMD provides a broad range of price risk management, structured financing, commodity investor products and selected physical commodity solutions across the global agricultural and energy industries.

The contribution from CMD significantly increased from 2005, reflecting higher volatility and increased client hedging. Additionally, the US physical gas business acquired during the year, Macquarie Cook Energy, performed well and the commodity investor products business grew strongly, assisted by increased investor interest.

Debt Markets

This Division originates, arranges and places debt for clients and is active in primary and secondary trading markets for government, inflation-linked, corporate, global and asset-backed securities. It provides credit and interest rate risk management solutions through structured securities and derivatives.

This Division's profit was significantly up on 2005. Increased levels of local and international client corporate activity, project based debt arrangement, increased domestic issuance of Australian based asset-backed securities and successful trading activities all contributed.

Treasury

This Division is responsible for management of the Macquarie Bank Group's balance sheet, liquidity and interest rate exposure. Treasury's result was a strong increase on 2005, reflecting successful management of the multi-currency interest rate risk of the Bank's balance sheet.

Treasury continued to successfully diversify the Bank's funding sources, including an increased focus on the  US market.

Futures

The Division provides a full range of broking and clearing services for Australian and international exchange traded derivatives markets. The profit contribution from Futures was up on the prior year due to increased turnover.

Outlook

The future performance of TCG is dependent on the operating environment, particularly market conditions. Satisfactory volumes are expected to continue and most markets are expected to remain volatile.

Further oil and gas realisations are expected, with size and timing dependent upon market conditions.

The Group expects to maintain strong market positions in Australia and will continue to selectively expand international operations as opportunities are identified. Subject to market conditions continuing, the Group expects a similar performance for the 2007 financial year as achieved in the 2006 financial year.