Macquarie Bank says first quarter profit up and expects full year profit to be also up on prior year

20 July 2006

• Very good first quarter – up on the prior corresponding period
• Expect full year result to be up on the prior year, subject to market conditions
• However, equity market sentiment has recently deteriorated globally, making forecasting difficult

Macquarie Bank Managing Director and Chief Executive Officer, Allan Moss, today said the Bank had experienced a very good first quarter for the three months ended 30 June 2006. Profit was up on the prior corresponding period, despite no material contribution from performance fees on listed specialist funds.

Speaking ahead of the Bank’s 2006 Annual General Meeting at the Westin Hotel in Sydney, Mr Moss said: “We expect the full year result to be up on the prior year, subject to market conditions. We also expect to benefit from recent staff growth and to continue to gain market share.”

Mr Moss cautioned, however, that equity market sentiment has recently deteriorated globally and has the potential to negatively impact many of the Bank’s businesses if sustained, making forecasting difficult.

Recent market concerns about the price of oil, inflation, global interest rates and geopolitical instability, have made investors cautious,” Mr Moss added.

Mr Moss said that subject to market conditions the Bank expects:

• An increase in transaction levels
• Most trading businesses to benefit from geographic and product expansion, but Asian market conditions may continue to impact negatively on equity derivatives
• Substantial unlisted international specialist fund raisings
• Performance fees from specialist listed funds not to be material if current relative prices persist
• Asset disposals may be a swing factor

Mr Moss said that the Bank retains approximately $A1.7 billion of seed assets, which have all been bought well and are operating well. While demand for unlisted funds continues to be strong, disposals of these assets are likely to be slower than anticipated due to unsettled global equity markets and the corresponding softness in demand for listed funds. The Bank has disposed of approximately $A250 million of seed assets since March 2006 and the current best estimate is for the Bank to dispose of a further $A550-$A850 million of assets by 30 September 2006.

“We expect that all seed assets will be disposed of on satisfactory terms,” Mr Moss said.

Comments on the  first quarter

Mr Moss said other key factors in the first quarter which contributed to the result included successful asset realisations, particularly Dyno Nobel, Hong Kong properties and oil and gas assets, while assets under management grew to $A150 billion, up 7% from March 2006.

“During the first quarter, the Bank experienced generally favourable equity market conditions until recently, while other markets were generally favourable,” Mr Moss said.

Speaking specifically on the Bank’s operating Groups for the first quarter, Mr Moss commented:

Investment Banking Group was well up on prior corresponding period. This was driven by:

• Equity capital market activity, which was very good in Australia, but down on the prior corresponding period in Asia
• Outstanding Mergers & Acquisitions activity
• Institutional stockbroking, which was excellent in Australia and outstanding in Asia
• No material contribution from specialist funds performance fees
• Successful asset realisations (Dyno Nobel)

Treasury and Commodities Group was very strongly up on the prior corresponding period with strong performances across all divisions, particularly interest rate and commodity businesses. Favourable realisations of some US oil and gas mezzanine financing positions took place during the quarter, with a further realisation of a significant US gas interest in early July.

Equity Markets Group was significantly up on the prior corresponding period. There was strong client demand in Australia and Europe. However, cyclical first quarter revenues are unlikely to be maintained.  A very competitive environment in Asia has lead to lower revenues.

Banking and Property Group was slightly down on the prior corresponding period due to investment in offshore businesses and the timing of larger international real estate transactions. However, Australian mortgage and margin lending volumes remained strong.

Financial Services Group was significantly up on the prior corresponding period, with continued growth in volumes and market share.

Funds Management Group was up on the prior corresponding period, with growth in volumes across all asset classes.

Highlights from the Address of the Chairman, Mr David Clarke, include:

• 2005/06 marks the 14^th consecutive year of record profit for Macquarie Bank
• International growth has been a key feature of the Bank’s success, enabling it to deliver consistent double digit profit growth
• The Bank’s diverse international businesses are growing at a much faster rate than its domestic banking businesses and the Bank is outgrowing the conventional banking regulatory model
• The Bank is discussing solutions with the Australian Prudential Regulation Authority (APRA), in particular the establishment of a non-operating holding company which would own both banking and non-banking businesses

Medium term outlook

Mr Moss said that over the medium term the Bank expects to benefit from major growth and strategic initiatives, good businesses, diversification, committed quality staff, effective prudential controls, and the continued market demand for quality assets.

He added that the Bank will continue to roll out existing business models and does not envisage any material changes in strategy.

“We expect continued growth in revenue and earnings across most businesses over time, subject to market conditions not deteriorating materially. We also expect continued good growth in international businesses,” Mr Moss said.

Long term performance

Mr Clarke said that since listing on the Australian Stock Exchange in 1996, the Bank had delivered a total shareholder return of 1,343 per cent, a better return than any of the stocks in the ASX Top 50 index at that time.

In general, the specialist listed funds have continued to outperform the relevant benchmark indices over the past decade. Admittedly, the last 18 months have been disappointing, as investors have turned their attention to other asset categories. The listed Macquarie funds’ assets, however, have continued to perform well and we remain confident of their long term performance, said Mr Clarke.

Retirement of Board Member, Mr Barrie Martin

“The Bank acknowledges and thanks the efforts of Board member, Mr Barrie Martin – who over his 13 years on the Board has contributed exemplary service to the Bank. Mr Martin retires after the meeting.  The Bank now pays out almost as much in annual dividends as the share price was when Mr Martin joined the Board,” Mr Clarke said.

For further information, please contact:

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