Macquarie Bank expects record half year result

14 September 2007

Key points

• Record half year profit expected
• Continued growth in specialist funds
• No unusual trading exposures
• Formal APRA approval received for establishment of Macquarie Group Limited

Macquarie Bank Limited (Macquarie) Managing Director and Chief Executive Officer Allan Moss said today Macquarie’s half year profit for the period ending 30 September 2007 is expected to be up strongly on the profit of $A730 million for the prior corresponding six-month period. This would be a record half year result.

Mr Moss noted that Macquarie’s second quarter is also expected to be up on the previous corresponding quarter and, as in most years, down on a very strong first quarter to 30 June 2007.

Speaking at Macquarie’s Operational Briefing to investors and analysts in Sydney today, Mr Moss said: "We are conservatively capitalised with a Tier 1 capital ratio in excess of 15% and we are well-funded. All Groups are operating profitably, there are no unusual provisions or write-downs, the businesses are diversified by product and geography and we are continuing to grow staff numbers, which total approximately 11,000." Mr Moss added that Macquarie has slowed risk-weighted asset growth and that Group-level management and a central strategy unit has been tasked to identify opportunities in the current environment.

In commenting on Macquarie’s trading exposures, Mr Moss said: "Our main business focus is making returns by providing services to clients rather than by principal trading."

Mr Moss said that Macquarie has:

• no material exposures not already known to investors;
• no problem trading exposures;
• no material problem credit exposures;
• no exposure to Structured Investment Vehicles (SIVs);
• only modest holdings of AAA and AA rated CLOs and CDOs;
• no material problems with debt underwritings;
• no underwriting of leveraged loans;
• very little underwriting of corporate loans;
• only modest credit exposures to the hedge fund industry; and
• a long-standing policy of granting very few standbys.

Mr Moss said that Macquarie's recent levels of held-for-sale assets on balance sheet are at their lowest since late 2005.

Mr Moss noted that all business Groups are operating profitably and made the following comments on the Groups’ operations:

• In the Investment Banking Group, mergers and acquisitions (M&A) and equity capital markets (ECM) pipelines are reasonable. There was very strong M&A completion in the first quarter to June. ECM activity was lower than the first quarter partly due to seasonal factors and there is a solid pipeline in Asia. It was also noted that:
  • the cash equities business achieved excellent volumes in Australia and Asia;
  • profitable asset sales are in progress; and
  • there is continued growth in Investment Banking Funds and assets are performing well.
• The Equity Markets Group is benefiting from the current volatility and recorded generally high trading volumes in Australia and Asia.
• The Treasury and Commodities Group is benefiting from current volatility and recorded increased volumes across most of its businesses except in Debt Markets.
• In the Real Estate Group, all major businesses continue to perform well, with some profitable asset disposals completed. There was continued growth in Real Estate Funds and assets are performing well. The Group is well positioned to capitalise on counter-cyclical opportunities associated with stress in some market sectors.
• The Financial Services Group experienced record retail broking volumes and large first quarter inflows into its Macquarie Adviser Services products (Wrap and Cash Management Trust) due to the superannuation reforms. There were some seasonal outflows post 30 June as expected.
• The Funds Management Group achieved good fund performance relative to benchmarks and its credit funds performed especially well relative to the market.
• The Banking and Securitisation Group achieved record volumes in margin lending but is expecting more subdued growth for the remainder of the year. The credit card business was launched in April. Deposit volumes were well up. Funding markets for mortgages are challenging but the mortgage business has high quality assets.

Continued growth of specialist funds
Mr Moss said growth of the specialist funds continued: "The Investment Banking, Real Estate and other specialist funds have undertaken successful capital raisings from investors totalling $A12.4 billion from April to August this year and are currently progressing further fund raisings. The funds have significant capital for investment, including $A9.6 billion in the Investment Banking Funds and $A3.7 billion in the Real Estate Funds and we are working to establish new funds across existing and new markets."

Establishment of Macquarie Group Limited (MGL)
Macquarie Bank Deputy Managing Director Richard Sheppard also told the briefing that the establishment of MGL as the Group’s non-operating holding company (NOHC) is on track. Mr Sheppard said that:

• Formal approval has been received from the Australian Prudential Regulation Authority for Macquarie Group Limited to be authorised as a NOHC.
• All necessary private tax rulings and draft class rulings have been received.
• Provisional ratings have been received for the NOHC from Standard & Poor’s (A-), Moody’s (A2) and Fitch (A). The ratings for Macquarie Bank Limited following the restructure are expected to remain unchanged for S&P (A) and Fitch (A+). Moody’s has advised that Macquarie Bank Limited is expected to be rated A1 with a positive ratings outlook following the restructure.
• Definitive ratings will be applied upon establishment of the restructured Macquarie Group.
• As previously disclosed, commitments have been obtained for a term bank facility of $A8 billion from a syndicate of major international and Australian banks.

Macquarie today released to Australian Securities Exchange (ASX) the Explanatory Memorandum detailing the proposal for the establishment of MGL following an Australian Federal Court hearing. The proposal remains subject to the approval of the Federal Treasurer.

As previously advised, Mr Sheppard noted that meetings of shareholders and optionholders of Macquarie are planned for 25 October.

Macquarie expects to announce its half year results on 13 November 2007.

Contacts:

Richard Nelson
Investor Relations
Macquarie Bank
Tel: (612) 8232 5008
Email: richard.nelson@macquarie.com

Paula Hannaford
Public Relations
Macquarie Bank
Tel: (61 2) 8232 4102
Mobile: (+61 4) 1394 0180
Email: paula.hannaford@macquarie.com