2013 Annual Report Macquarie Bank MACQUARIE BANK LIMITED ACN 008 583 542 Macquarie Bank Limited and its subsidiaries 2013 Annual Report macquarie.com.au Macquarie Bank Limited 2013 Annual Report Directors’ Report 2 – Remuneration Report 7 – Schedule 1 34 – Schedule 2 39 Financial Report 40 – Income Statements 41 – Statements of comprehensive income 42 – Statements of financial position 43 – Statements of changes in equity 44 – Statements of cash flows 46 – Notes to the financial statements 48 – Directors’ declaration 152 – Independent audit report 153 Investor information 154 Glossary 157 1 Macquarie Bank Limited and its subsidiaries 2013 Annual Report macquarie.com.au Directors’ Report for the financial year ended 31 March 2013 In accordance with a resolution of the Voting Directors (the Directors) of Macquarie Bank Limited (MBL, Macquarie Bank, Company), the Directors submit herewith the income statements and the cash flow statements for the year ended 31 March 2013 and the balance sheets as at 31 March 2013 of the Company and its subsidiaries (the Consolidated Entity) at the end of, and during, the financial year ended on that date and report as follows: Directors At the date of this report, the Directors of Macquarie Bank are: Independent Directors H.K. McCann AM, Chairman M.J. Coleman(1) D.J. Grady AM M.J. Hawker AM P.M. Kirby C.B. Livingstone AO J.R. Niland AC H.M. Nugent AO P.H. Warne Executive Directors G.C. Ward, Managing Director and Chief Executive Officer N.W. Moore Other than Mr Coleman, the Voting Directors listed above each held office as a Director of Macquarie Bank throughout the financial year ended 31 March 2013. Those Directors listed as Independent Directors have been independent throughout the period of their appointment. Details of the qualifications, experience and special responsibilities of the Directors and qualifications and experience of the Company Secretaries at the date of this report are set out in Schedule 1 at the end of this report. (1) Mr Coleman joined the Board on 9 November 2012. 2 Meeting Attendance Directors’ meetings The number of meetings of the Board of Directors (the Board) and meetings of Committees of the Board, and the number of meetings attended by each of the Directors of Macquarie Bank during the financial year is summarised in the tables below: Board meetings Monthly Board meetings (12) Eligible to attend as a member Attended H.K. McCann 12 12 G.C. Ward 12 12 N.W. Moore 12 12 M.J Coleman(1) 5 5 D.J. Grady 12 12 M.J. Hawker 12 12 P.M. Kirby 12 12 C.B. Livingstone 12 11 J.R. Niland 12 12 H.M. Nugent 12 12 P.H. Warne 12 11 Board Committee meetings Board Audit Committee meetings (7)(a) Eligible to attend as a member Attended M.J Coleman(1) 3 3 M.J. Hawker 7 7 P.M. Kirby 7 7 C.B. Livingstone 7 6 P.H. Warne 7 7 (a) The Macquarie Board Audit Committee (BAC) is a joint committee of Macquarie Group Limited (Macquarie) and Macquarie Bank. The Macquarie BAC assists the Boards of Voting Directors of Macquarie and Macquarie Bank in fulfilling the responsibility for oversight of the quality and integrity of the accounting and financial reporting practices of Macquarie Group. There were two Board sub-committee meetings. Both meetings were attended by all of that sub-committee's members, being Mr McCann, Mr Ward, Mr Moore, Ms Livingstone and the Chief Financial Officer, Mr Patrick Upfold. The Chairman of the Board generally attends meetings of Board Committees even where not a member. All Board members are sent Board Committee meeting agendas and may attend any Board Committee meeting. (1) Mr Coleman was appointed to the Board and Board Audit Committee on 9 November 2012. 3 Macquarie BaBanknk Limited and its subsidiaries 2013 Annual Report macquarie.com.au Directors’ Report for the financial year ended 31 March 2013 continued Principal activities The principal activity of the Consolidated Entity during the financial year ended 31 March 2013 was to act as a full service financial services provider offering a range of commercial banking and retail financial services in Australia and selected financial services offshore. The Bank is a subsidiary of Macquarie Group Limited and is regulated by the Australian Prudential Regulation Authority (APRA) as an authorised deposit-taking institution (ADI). In the opinion of the Voting Directors, there were no significant changes to the principal activities of the Consolidated Entity during the financial year under review not otherwise disclosed in this report. Result The financial report for the financial years ended 31 March 2013 and 31 March 2012, and the results herein, have been prepared in accordance with Australian Accounting Standards. The consolidated profit after income tax attributable to ordinary equity holders for the financial year ended 31 March 2013 was $A650 million (2012: $A609 million). Dividends and distributions MBL paid dividends and paid or provided distributions during the financial year as set out in the table below: Payment Payment In respect of financial Security date type $A year ended/period Ordinary shares 6 June 2012 Special Dividend 500,000,000 31 March 2012 Paid 2 July 2012 Final Dividend 455,000,000 31 March 2012 Paid 12 December 2012 Interim Dividend 307,000,000 31 March 2013 Paid Macquarie Income 16 April 2012 Periodic 6,073,316 15 January 2012 to 14 April 2012 Paid (1) Securities 16 July 2012 Periodic 5,893,808 15 April 2012 to 14 July 2012 Paid 15 October 2012 Periodic 5,252,822 15 July 2012 to 14 October 2012 Paid 15 January 2013 Periodic 4,920,110 15 October 2012 to 14 January 2013 Paid 15 April 2013 Periodic 3,964,493 15 January 2013 to 31 March 2013 Provided Macquarie Income 16 April 2012 Periodic 1,990,949 16 October 2011 to 15 April 2012 Paid Preferred 15 October 2012 Periodic 2,029,232 16 April 2012 to 15 October 2012 Paid Securities(2) 15 April 2013 Periodic 1,826,570 16 October 2012 to 31 March 2013 Provided (1) Macquarie Income Securities (MIS) are stapled securities comprising an interest in a note, being an unsecured debt obligation of Macquarie Finance Limited (MFL), issued to a trustee on behalf of the holders of the MIS (MFL note), and a preference share in Macquarie Bank. The MIS are quoted on the Australian Securities Exchange (ASX). The MIS distributions set out above represent payments made, or to be made, by MFL to MIS holders, in respect of the MFL note component of the MIS. The payments are not dividends or distributions paid or provided by Macquarie Bank to its members. The MIS are classified as equity under Australian Accounting Standards – see notes 28 and 29 to the financial report for further information on the MIS and MIS distributions. (2) Macquarie Income Preferred Securities (MIPS) are limited partnership interests in Macquarie Capital Funding LP (Partnership), a partnership established in Jersey as a limited partnership, which are traded on the Luxembourg Stock Exchange. In certain circumstances, preference shares issued by Macquarie Bank and held by the general partner of the Partnership may be substituted for the MIPS. The assets of the Partnership include convertible debentures issued by Macquarie Bank (acting through its London Branch) which are listed on the Channel Islands Stock Exchange. The MIPS distributions set out above represent payments made, or to be made, by the Partnership to the MIPS holders. The payments are not dividends or distributions paid or provided by MBL to its members. The MIPS are classified as equity under Australian Accounting Standards – see notes 28 and 29 to the financial report for further information on the MIPS and MIPS distributions. No other dividends or distributions were declared or paid during the financial year. State of affairs There were no other significant changes in the state of the affairs of the Consolidated Entity that occurred during the financial year under review not otherwise disclosed in this report. 4 Directors’ Report – Remuneration Report for the financial year ended 31 March 2013 Introduction .................................................................................................................................................................................. 8 1 Macquarie's remuneration framework and approach appropriately supports the overarching objective of delivering superior value for shareholders over the long-term while prudently managing risk ........................................... 9 1.1 Macquarie’s overall remuneration objectives remain appropriate ....................................................................................... 9 1.2 The remuneration framework is appropriate ...................................................................................................................... 9 1.3 The way the remuneration framework operates is appropriate ......................................................................................... 11 1.3.1 Features operate together to provide shareholder alignment ............................................................................... 11 1.3.2 Profit share retention levels ................................................................................................................................. 12 1.3.3 Investment of retained profit share ...................................................................................................................... 13 1.3.4 Forfeiture of retained profit share for employees (Malus) ...................................................................................... 14 1.3.5 Early vesting and