Macquarie Bank announces 88 per cent interim profit increase

15 November 2005

• INTERNATIONAL INCOME NOW 46 PER CENT OF TOTAL INCOME 
• OUTSTANDING EQUITY MARKETS AND STOCKBROKING PERFORMANCES

Macquarie Bank today announced a $A482 million profit after tax attributable to ordinary shareholders for the half year ended 30 September 2005, an increase of 88 per cent over the $A256 million profit for the half year ended 30 September 2004.

Earnings per share for the six month period increased 81 per cent to 212.9 cents from 117.8 cents for the prior corresponding period.

Macquarie Bank Chairman David Clarke said the Bank will pay an interim dividend of 90 cents per ordinary share franked to 90 per cent for the half year ended 30 September 2005.  This is a 48 per cent increase on last year’s interim dividend of 61 cents per ordinary share, also franked to 90 per cent.

“We are pleased to report another record result for our shareholders, with international income a standout contributor for the half year. International income was more than double that of the prior corresponding period and accounted for 46 per cent of total income. Outstanding team efforts by Macquarie’s staff in all locations underpinned this interim result,” he said.

Mr Clarke added: “Although it was an outstanding first half result, shareholders should be cautious about extrapolating from that result to the full year because the first half profit benefitted from large performance fees from listed funds which are unlikely to be repeated in the second half.”

He stated that while the Bank has been very active, its key focus is to continue to carefully manage risks to ensure they are appropriate relative to capital and revenues.

“Over the last 20 years the Bank has had a very strong rate of business growth through market cycles and as a consequence we are used to managing growth in a variety of conditions,” Mr Clarke said.

KEY DRIVERS FOR THE HALF

Macquarie Bank Managing Director and Chief Executive Officer, Allan Moss, said a highlight of the half was the outstanding performance of the stockbroking businesses. In the 2005 (Greenwich) Peter Lee Associates Survey of investors in Australian shares, Macquarie was ranked no.1 for overall equity sales and research quality by Australian equity investors.

The interim result also benefited from continued international expansion. International staff numbers increased 32 per cent from September 2004 to 2,037.  “As an indication of the international growth of some of the Bank’s businesses, approximately three quarters of advisory deals for the Investment Banking Group are now sourced outside Australia,” he said.

“Although we have experienced strong international growth, we still have good growth prospects and strong businesses in Australia.”

“A key driver of the half was stronger equity market conditions, which particularly benefited the Asian and Australian businesses of the Equity Markets Group.  These conditions also contributed to strong performances from institutional and retail stockbroking and good specialist fund activity and performance fees. Assets under management grew 16 per cent over the half year to $A112 billion, contributing to associated base fee growth. Market conditions generally also continued to be broadly favourable with good transaction success rates and activity levels,” Mr Moss said.

Mr Moss added that there were some asset realisations during the half – including the transfer of some assets to the Singapore Stock Exchange-listed Macquarie International Infrastructure Fund (MIIF). 

He said the Treasury and Commodities business experienced good market conditions, while products such as Wrap, the Cash Management Trust, mortgages and margin and protected lending experienced a strong growth in volumes.

STRATEGY, ENVIRONMENT AND APPROACH

Mr Moss said the Bank’s strategy over the last four years, since it raised $500 million from investors in September 2001 to pursue its specialised funds and strategic initiatives, had remained essentially unchanged. Macquarie Bank is a diversified financial services institution offering full service in Australia, a broad investment banking service in Asia and a focused approach in other markets.

“Macquarie Bank has chosen to focus on areas where it can add special value. We are committed to growth throughout the business cycle and have embraced globalisation,” he said.

“We encourage an entrepreneurial approach with strong risk management. We foster a sense of partnership and ownership among our high quality staff.”

Mr Moss cautioned that, while Macquarie Bank has outstanding businesses, in the short term their performances are not immune from changes in market conditions, particularly if there were a sustained downturn in equity markets or a large rise in interest rates.

Commenting on the longer term strategic position of the Bank, Mr Moss said the specialised funds businesses are one of the Bank’s key growth platforms and are operating in a very favourable long term global environment.  

Mr Moss noted that the funds have  grown strongly, supported by their attractive investment characteristics (reliable cash flows, privileged business positions and strong investment fundamentals); the availability of quality assets and businesses; global investor demand; and an increasingly supportive regulatory environment.

Mr Moss said that Macquarie Bank is well positioned to continue to benefit from increasing global demand for quality investment products over the long term due to its good management and operational experience; its track record; scale and international network;  and focussed and committed staff around the world. “There are still many opportunities to pursue in a variety of different markets and geographies”, Mr Moss said.

FINANCIAL HIGHLIGHTS AND CAPITAL MANAGEMENT

Macquarie Bank Chief Financial Officer, Greg Ward, said total operating income from ordinary activities for the half year was $A2,160 million, up 57 per cent from $A1,380 million for the prior corresponding period, with growth across all income categories over the same period. Net fee and commission income increased 78 per cent to $A1,244 million from the prior corresponding period of $A700 million, with significant contributions from mergers and acquisitions, advisory and underwriting income and funds management fees. 

The contribution from trading income rose by 41 per cent to $A479 million from $A339 million in the prior corresponding period, with a significantly increased contribution from equities trading income. Net interest income rose by 17 per cent to $A295 million, from $A252 million for the prior corresponding period mainly due to a 31 per cent increase in average loan assets offset by a 23 basis points fall in net margin on average loan assets. Other income increased 60 per cent to $A142 million from $89 million for the prior corresponding period, with the main contributor being profits from the sale of investments and increased equity accounting income from investments in associates.

Mr Ward said: “The Bank’s capital management policy is to be conservatively capitalised and to maintain diversified funding sources in order to support business initiatives, particularly specialised funds and offshore expansion, whilst maintaining counterparty and client confidence. Capital initiatives undertaken by Macquarie represent a fine-tuning of the Bank’s capital management position, rather than a major shift in capital management strategy.”

Mr Ward added that the Bank’s Tier 1 Capital ratio of 12.9 per cent at 30 September 2005 remains very strong and, whilst down from the 31 March 2005 ratio of 14.4 per cent, remains comfortably in excess of the Group’s minimum ratios. Tier 1 Capital before deductions increased by $A572 million from 31 March 2005, due to organic growth through retained earnings and shares created through the exercise of employee options.

OPERATING HIGHLIGHTS

Mr Moss said all six major business Groups made excellent contributions to the record result. 

• The contribution from the Investment Banking Group was outstanding in a strong environment and was substantially up on the prior corresponding period.
• The Equity Markets Group contribution was outstanding and more than double the prior corresponding period with extremely favourable market conditions in all relevant markets.
• The Treasury and Commodities result was excellent and significantly up on a strong prior corresponding period.
• Banking and Property Group’s contribution was down on the prior corresponding period due to investment in new businesses and the timing of major transactions. There was good growth in the Group’s mortgage and margin lending volumes.
• The Financial Services Group’s contribution was well up on the prior corresponding period, with broking income up strongly on pcp, and strong growth in both CMT and WRAP volumes. 
• The Funds Management Group’s contribution was well up on the prior corresponding period, with total assets under management up 13 per cent to $A47.3 billion.

MAJOR ACHIEVEMENTS BY REGION DURING THE HALF YEAR

ASIA

• Macquarie International Infrastructure Fund’s $S803 million Initial Public Offering on the Singapore Stock Exchange
• Chinese property investments – the acquisition of nine retail shopping malls and residential apartments in Shanghai
• Korean asset acquisitions
  • 50 per cent of KIECO (with a consortium) for $US276 million. KIECO is a LNG power facility servicing Seoul
  • CJ Cablenet (with consortium) for KRW150 billion ($A195 million) – digital cable operator
  • 41 per cent of Incheon Grand Bridge Project concessionaire for KRW67.5 billion ($A86 million)
  • 49 per cent of SK Enron (with consortium) for $US294 million – LNG gas distributor
• Prime REIT’s $S990 million listing on the Singapore stock exchange and subsequent acquisition of 50 per cent of the REIT manager
• TMB joint venture – stockbroking and investment banking in Thailand
• The establishment of a securities brokerage and corporate finance business in India.

EUROPE AND THE MIDDLE EAST

• Macquarie European Infrastructure Fund achieved final close with investor commitments of €1.5 billion. The Fund also acquired the ferry service to the Isle of Wight – Wightlink and 49 per cent of NRE – the Netherlands gas and electricity distribution network (not yet completed).
• UK office property joint venture – with office park developer Akeler commenced with two acquisitions with a total value of £150 million (85 per cent acquired by Macquarie).
• Dyno-Nobel - $US1.7 billion acquisition by MBL-led consortium with portion of international assets to be onsold to Orica.
• Macquarie Global Property Advisors - $US1.3 billion capital raise of its 2^nd real estate private equity fund.
• Macquarie Mortgages Italy – commenced licensed mortgage operations in Milan and Rome.
• Treasury and Commodities and Investment Banking JVs with Abu Dhabi Commercial Bank.
  • Post balance date
    • Acquisition of £225 million Isle of Man ferry service
    • MAp offer for majority shareholding in Copenhagen Airports

AMERICAS

• Macquarie Global Infrastructure Total Return Fund’s (MGU) $US425 million IPO listed on the NYSE
• MIG’s investment in the Dulles Greenway – a $US618 million toll road in Virginia
• MIC announced its intention to acquire a $US238 million Hawaiian gas and LPG distribution company.
  • Post balance date
    • Cook Inlet acquisition – physical gas trading business in California with 59 staff
    • Macquarie Office Trust – a $A1.6 billion joint venture with US property group Maguire Properties and a $A248 million capital raising

AUSTRALIA AND NEW ZEALAND

• The $A1 billion IPO of the Macquarie Capital Alliance Group (MCAG), which subsequently acquired the European directories business Yellow Brick Road and TDC Directories*; Red Bee Media (formerly BBC Broadcast);  Retirement Care Australia (includes assets acquired from Salvation Army and Moran Health Care Group*) and Zig Inge Retirement Villages Group for a combined $A860 million.
• The Cash Management Trust reached $A11.8 billion while WRAP reached $A16.6 billion
• Retail client numbers exceeded 634,000
  • Post balance date
    • Announcement of the proposed $A1 billion IPO of the Macquarie Media Group
    • Virgin Money alliance announced to distribute retail financial products
    • RVNZ, a joint venture between MBL and FKP Property Group, acquired 60 per cent of NZ’s Metlifecare

OUTLOOK

Mr Moss said: “Subject to the continuation of current market conditions we expect that we will at least match the record FY05 result of $A823 million, despite the fact that FY05 included a one off gain from the formation of the Macquarie Goodman Group”.

Mr Moss noted that: “The deal pipeline is satisfactory overall, including investment banking and equity capital markets. However, more subdued global equity markets may impact businesses leveraged to these markets, notably the Equity Markets Group.”

He said it was unlikely that the Bank will receive substantial performance fees from existing listed specialist funds in the second half.

“However, there is possible upside from specialist fund initiatives and asset realisations,” Mr Moss said.

“Over the medium term, Macquarie is well placed due to good businesses, diversification, the benefits of strategic initiatives, committed quality staff and effective prudential controls.  Subject to market conditions not deteriorating materially, Macquarie expects continued growth in revenue and earnings across most businesses over time and continued good growth in international businesses” he said.

Erica Sibree
Investor Relations
Macquarie Bank Limited
Tel: (612) 8232 5008
Mobile: (614) 1302 6309

Matthew Russell
Public Relations
Macquarie Bank Limited
Tel: (612) 8232 4102
Mobile: (614) 1069 9532