Macquarie Bank 2004 Annual Review

Home , Catherine Livingstone, John Niland

MACQUARIE BANK LIMITED ACN 008 583 542

MACQUARIE BANK 2004 ANNUAL REVIEW Review 02 Highlights 08 Chairman’s and Managing Director’s Report 12 Management and organisation 18 Investment Banking Group 20 Treasury and Commodities Group 21 Equity Markets Group 22 Banking and Property Group 23 Financial Services Group Our communities An important part of the Macquarie Bank Foundation’s and is recognising approach cant supporting the signiﬁ community contributions made by our staff. 24 Funds Management Group 25 Other Groups and Divisions 32 Corporate Governance Statement 2004 Concise Report 47 Directors’ report 58 Directors’ report schedule 60 Consolidated statement of financial performance 61 Consolidated statement of financial position 62 Consolidated statement of cash flows Our people our business. People are Our potential for continued is dependent upon growth our ability to attract and quality people. retain 63 Discussion and analysis 64 Notes to and forming part of the concise financial statements 71 Directors’ declaration 72 Independent audit report 73 Financial summary since listing 74 Contact directory Specialist markets With under properties management in Seoul exceeding $450 million, Macquarie is now one of the largest foreign managers of investment grade in Korea. property

2004 Annual General Meeting Macquarie Bank’s 2004 Annual General Meeting will be held at 10.30am on Client commitment of the core Our clients are our business and central to success. Macquarie’s Thursday 29 July 2004 at The Westin Sydney, in the Grand Ballroom, Lower Level, No.1 Martin Place, Sydney. Details of the business of the meeting are contained in the separate Notice of Annual General Meeting sent to securityholders.

The Macquarie Bank Group’s annual

Long-term business focus Macquarie is a leading issuer of in Hong equity linked products Kong and one of the market’s largest issuers of warrants. report consists of two documents – the 2004 Annual Review (incorporating the Concise Report) and the 2004 Financial Report. The Annual Review provides an overview of the Groups’ operations and a summary of the financial statements. If you would like a copy of the 2004 Financial Report, please call us on 61 2 8232 5006 or visit www.macquarie.com.au/

Exporting expertise to approach Macquarie’s nance and fi infrastructure management was developed in a Australia and has provided which the Bank has platform from expanded internationally. shareholdercentre Macquarie Bank Annual Review The Macquarie culture is represented by the way in which we act and work together. The values to which we aspire can be summarised in six principles: – Integrity – Client commitment – Strive for profi tability – Fulfi lment for our people – Teamwork – Highest standards

Macquarie and the Holey Dollar The Bank looked to Australia’s most successful early governor, Lachlan Macquarie, for inspiration in its name and the creation of its logo. In 1813 Governor Macquarie overcame an acute currency shortage by purchasing Spanish silver dollars (then worth five shillings), punching out the centres and creating two new coins – the ‘Holey Dollar’ (valued at five shillings) and the ‘Dump’ (valued at one shilling and three pence). This single move not only doubled the number of coins in circulation but increased their total worth by 25 per cent and prevented the coins from leaving the colony. Governor Macquarie’s creation of the Holey Dollar was an inspired solution to a difficult problem and for this reason it was chosen as the symbol of the Macquarie Bank Group.

01 Highlights

– Proﬁ t after tax from ordinary activities (attributable to ordinary equity holders) increased 48 per cent to $494 million – Operating income increased 30 per cent to $2,380 million* – Earnings per share increased 41 per cent to $2.33 – Return on average ordinary shareholders’ funds was 22.3 per cent – International income contributed 31 per cent of the Bank’s income – Total assets grew by 35 per cent to $44 billion – Ordinary dividends of 122 cents per share for the year (interim dividend and ﬁ nal dividend franked to 90 per cent) – Total capital adequacy ratio 19.9 per cent

Growth in relative Group contribution to proﬁ t** Index of 100 in year ended 31 March 2003

200

150

100

0 2003 2004

Proﬁ t after income tax attributable to Return on average ordinary ordinary equity holders equity holders’ funds $ million year ended 31 March % pa year ended 31 March

500 30

25 400

20 300 15 200 10

100 5

0 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

02 Macquarie Bank Limited 2004 Annual Review Consolidated profi t Year ended 31 March 2004* 2003* % Change Total income 2,380 1,834 30 Total expenses (1,695) (1,374) 23 Profi t before income tax 685 460 49 Income tax expense (161) (96) 68 Profi t after income tax 524 364 44 Outside equity interest (3) (3) – Distribution on Macquarie Income Securities (27) (28) (4) Profi t after income tax attributable to ordinary equity holders 494 333 48

Ratings Short-term Long-term Fitch Ratings F1 A+ Moody’s Investors Service P1 A2 Standard and Poor’s A1 A

Relative Group contribution to proﬁ t** 2004 Corporate Finance (including Infrastructure and Specialised Funds) 27% Financial Products (including cross-border leasing) 6% Other (including Institutional Stockbroking and Macquarie Capital) 11% Total Investment Banking 44% Treasury and Commodities 17% Equity Markets 14% Banking and Property 13% Financial Services 5% Funds Management 1% Direct Investment 6%

Domestic and international total operating income $ million year ended 31 March (excluding earnings on capital) 2500 Domestic International 2000

1500

1000

500

1996 1997 1998 1999 2000 2001 2002 2003 2004 * The results for both the 2003 and 2004 years have been adjusted to reclassify income and expenses related to infrastructure assets held for resale ** Percentage contribution derived from management accounts based on ﬁ gures excluding earnings on capital before proﬁ t share and before income tax 03 Macquarie BankLimited2004 Annual Review 04 Exporting expertise

Macquarie’s approach to infrastructure ﬁ nance and management was developed in Australia and has provided a platform from which the Bank has expanded internationally. The acquisition of leading UK water utility South East Water in October was an important step in growing our European infrastructure business. Supplying 400 million litres of water per day to approximately 1.5 million people, South East Water provides an essential service to a growing community base. Macquarie is now a global leader in the infrastructure sector with a portfolio of world–class infrastructure assets.

E E 05 Long-term business focus largest issuers of in Hong Kong and one of the market’s Macquarie is a leading issuer of equity linked products warrant the business increased of the Hong Kong dollar, cant depreciation warrants. Notwithstanding the signiﬁ cation of its customer distribution diversiﬁ than 200 warrants. Through listing more market volumes during the year, and other structured range, it has become a major issuer of equity-linked products channels and product cementing its position as a market leader in Hong Kong. products,

06 Macquarie Bank Limited 2004 Annual Review L B F 07 Chairman’s and Managing Director’s Report The Bank achieved its twelfth successive record proﬁ t, almost double that achieved two years ago, beneﬁ ting from extremely favourable domestic and favourable international market conditions. We remain committed to our long-term strategy of full service in Australia and focused international operations and will continue to invest in growth through the economic cycle.

Result Corporate Finance again achieved No.1 The Macquarie Bank Group (referred to rankings for project finance and for below as Macquarie or the Bank) merger and acquisition advisory roles, delivered another record result in the and maintained its No.2 ranking for financial year to 31 March 2004. Australian equity raised (Thomson Consolidated after tax profit attributable Financial). to ordinary equity holders increased Growth in specialist funds continues to 48 per cent from $333 million to be an important part of the Bank’s $494 million for the year ended strategy. Macquarie established 31 March 2004. This result is almost infrastructure funds in several markets double that achieved just two years strongly particularly in Australian and around the world including the US – ago. Earnings per share increased Hong Kong markets, with good levels Macquarie/First Trust Global 41 per cent from $1.65 to $2.33. These of broking activity and increased interest Infrastructure/Utilities Dividend and results reflect growth and investment in retail products. Improving corporate Income Fund (MFD), Canada – initiatives undertaken over a number confidence led to an increase in initial Macquarie Essential Assets Partnership of years as well as excellent performance public offerings (IPOs) in the Australian (MEAP) and South Africa – African and commitment from staff throughout market. The property market also Infrastructure Investment Fund (AIIF), the Bank. performed strongly, benefiting from and entered into a joint venture in Total operating income* rose by 30 per continuing generally good credit quality. Australia with AMP Capital Holdings cent from $1.8 billion to $2.4 billion. In the trading areas of the Bank, the Limited to manage the Diversified Trading, fee and commission and appreciation of the Australian dollar Utilities Energy Trust (DUET). against other currencies helped interest income were all up on the Institutional Stockbroking contributed a generate strong customer flows. The previous year. Fee and commission result significantly up on the prior year Bank also benefited from a number of income contributed approximately due to improved market share, strong asset realisations, which were the 55 per cent of income and rose market volumes and increased culmination of investments made in 18 per cent on the prior year. Other revenues from brokerage and issuance prior years. income increased significantly to fees. A major initiative for the year was $196 million from $42 million in the prior The expense to income ratio fell from the announcement of the acquisition of year. Total assets under management 74.9 per cent to 71.2 per cent. While ING Bank N.V.’s (ING’s) Asian equities increased by $11 billion to $63 billion, cost management initiatives continued businesses in March 2004, which will making Macquarie the third largest fund during the year, the improvement in significantly strengthen Macquarie’s manager in Australia. International the expense to income ratio was mainly existing equities distribution capabilities income increased 61 per cent on the due to strong income growth. Investment and support overall investment banking prior year and now represents 31 per continued in staff and systems to activities in the Asia-Pacific region. cent of total operating income support ongoing growth. The Bank has Details of the acquisition are discussed (excluding earnings on capital), despite maintained its strong capitalisation, with later in this Report. weakness in the US dollar. a Tier 1 capital ratio of 16.2 per cent, The overall contribution from Financial providing the ability to support new and During the year, the Bank benefited Products was up on the prior year existing business initiatives and maintain from extremely favourable domestic despite cross-border leasing markets its credit ratings. As previously stated, and favourable international market continuing to be very subdued. capital ratios are expected to decline as conditions. Equity markets performed Macquarie Capital continued to the Bank grows. broaden its global product mix with Review of operations leasing books increasing 30 per cent The year was characterised by strong from $2.3 billion to $3.0 billion. growth with a solid contribution from all our major business Groups as well as Macquarie Direct Investment Division. The Investment Banking Group had another very strong year, 46 per cent up on the prior year and highlighted by improving market conditions which saw increases in market share and generally strong deal flow across the Group.

* The results for both the 2003 and 2004 years have been adjusted to reclassify income and expenses related to infrastructure assets held for resale 08 Macquarie Bank Limited 2004 Annual Review Treasury and Commodities Group The $787 million Macquarie DDR Trust Macquarie Direct Investment Division, achieved a record profit. The Group’s (MDT) was established and listed on the Bank’s private equity division, made contribution increased by 18 per cent the Australian Stock Exchange (ASX) a record contribution this year reflecting on the prior year and was driven by in November 2003. All the Group’s the realisation of a record number of its increased market share in a variety of property trusts have outperformed medium to long-term investments. products, with costs and a risk profile their peer indices since listing and Macquarie Investment Trust III’s consistent with previous years. Macquarie Office Trust (MOF), realisations delivered excellent results, Metals and Mining Division contributed Macquarie CountryWide Trust (MCW) although they were offset to some another record result, as did the Foreign and Macquarie Goodman Industrial extent by a disappointing outcome on Exchange Division. Debt Markets Trust (MGI) have each outperformed Western Metals and the final sale of Division also contributed a record result these indices for the one, three and five Nardell Coal. and received industry recognition with year periods ending 31 March 2004. Long-term performance and strategy awards from many leading publications, The contribution from Financial Macquarie has been able to generate while the new Energy Markets Division Services Group was over four times consistent and growing profits and successfully grew its customer base that of the prior year. The increased dividends for its shareholders. This and provided a positive contribution. contribution was the result of four years record of strong and consistent growth Equity Markets Group achieved a of strategic investment and development, has been reflected in the Bank’s long- record profit, up over four-fold on the continued strong inflows into leading term share price appreciation and prior year. The Group benefited from a products and improved equity markets. returns to shareholders. As illustrated in more diverse business mix and better The successful integration of 46 the graph below, the Bank’s total market conditions in several of the Hartleys Limited brokers and their shareholder return was 640 per cent global equity markets in which it clients considerably increased the from the time its shares were listed in operates. Hong Kong and Australia Group’s market share and consolidated July 1996 until 31 March 2004. This recorded excellent results, with both its position in the top tier of retail return compares to the average total businesses successfully diversifying brokers. The Group also benefited from shareholder return of the companies their product offerings and maintaining the realisation of its one-third interest in which comprised the ASX Top 50 at the leading market shares. Good Innofin, its South African joint venture time of the Bank’s listing of 134 per cent contributions were made by a number with Sanlam. Wrap assets under over the same period. The Bank of new businesses, in particular the administration increased 44 per cent delivered a total shareholder return over South African business alliance with from $6.3 billion to $9.1 billion and the this period better than all of those Nedbank Limited, which was in its first Macquarie Cash Management Trust companies. Total shareholder return year, and the International Trading and grew six per cent from $8.8 billion to measures the change in share value International Structuring businesses. $9.3 billion. over a specified period, assuming that Funds Management Group’s all dividends are reinvested and The Banking and Property Group accounting for all corporate actions. posted its sixth consecutive record contribution was marginally up on the profit, 13 per cent up on the prior year, prior year and assets under This return can be attributed to with solid contributions from the management increased by 18 per cent Macquarie’s business strategy to Property, Securitisation, Banking and from $30.7 billion to $36.2 billion. This remain focused on adding significant Golf and Leisure businesses. Property growth was driven primarily by the value for our clients. In Australia, we Investment Banking participated in Group’s institutional business in have market-leading positions in many transactions totalling more than Australia and the expansion of its Asian of our businesses and provide a full $3 billion and raised equity and debt of joint ventures. Asia Asset Management suite of financial services and products. IMM over $400 million. Property assets magazine named Macquarie- Internationally, we have concentrated under management (including Investment Management the Most on niche product areas with a associates) increased by 51 per cent Improved Institutional Fund House in preference for organic growth 2003 from $7.2 billion to $10.9 billion. Korea for . supplemented by joint ventures and strategic alliances with local market participants and acquisitions in specialised markets. Macquarie total shareholder return versus the All Ordinaries accumulation index to 31 March 2004

800 Macquarie Bank total shareholder return 700 All Ordinaries accumulation index* 600

500

400

300

200

100 Jul 1996 Jul 1997 Jul 1998 Jul 1999 Jul 2000 Jul 2001 Jul 2002 Jul 2003 Mar 1997 Mar 1998 Mar 1999 Mar 2000 Mar 2001 Mar 2002 Mar 2003 Mar 2004 Nov 1996 Nov 1997 Nov 1998 Nov 1999 Nov 2000 Nov 2001 Nov 2002 Nov 2003 Indexed to 100 on 29 July 1996 * Based on the S&P/ASX500 accumulation index from 31 March 2000, prior to this based on the All Ordinaries accumulation index 09 Management approach Our potential for continued growth, We also recognise that the Bank and Our management philosophy provides including successfully building new its staff are members of broader our businesses with a balance between businesses, depends on our ability to communities. The goals and values that operating freedom and encouragement fairly reward our people for their guide the Bank in its daily operations for innovation on the one hand and achievements. As our businesses apply equally to the work we undertake strict controls on risk limits and diversify we are increasingly competing for our clients and the communities in observance of professional standards to attract and retain people in the which we operate. We aspire to be on the other. Our management global market. active contributors to those communities approach is structured to give team Macquarie has maintained a consistent and Macquarie has provided support and business leaders a real sense of approach to remuneration, with minor to community programs for more than ownership. However, breaches of policy adjustments reflecting regular review. 30 years. During the year the Macquarie are taken seriously and without regard The principles of this remuneration Bank Foundation provided grants to to whether the relevant breach resulted structure have been public since the more than 200 community organisations. in a profit or a loss. The advantage of Bank’s listing in 1996. They have An important part of the Foundation’s this approach is that most responsibility contributed to the generation of strong approach is its support of Macquarie for operating decisions lies with the long-term performance and supported staff pursuing their own interests people who are closest to our clients long-term commitment from with respect to community contributions. and senior management is able to management and staff. This provides benefits for both staff and concentrate on major risks. community organisations and Features of the Bank’s remuneration encourages individual involvement at a Other important elements of our are: philosophy are: grass roots level. – Base remuneration determined by Through our specialised funds – Encouraging high ethical and reference to market conditions professional standards business we recognise that Macquarie – A formula-driven profi t share scheme is also increasingly involved with large- – Commitment to our clients, in good (applied since the Bank’s inception), times and bad scale public infrastructure and based on levels of profi tability and property assets. We appreciate the – Focus on continued growth returns above the estimated cost of – Recruiting, retaining and motivating importance of these assets to a range capital, that provides for a signifi cant of stakeholders, including local Chairman’s and Managing Director’s Report continued and Managing Director’s Chairman’s quality staff portion (in the case of senior executives, communities, governments and – Aligning rewards to staff with those to a large portion) of remuneration being shareholders investors, and apply our goals and at risk and tied to performance values to the provision of these – Strong reporting framework, including – Profi t share deferral and restriction fi nancial reporting and risk reporting. services. We aim to deliver the best arrangements that encourage long– outcomes to these stakeholders We identify, encourage and reward term commitment and alignment with with all funds ensuring the achievement everywhere in the shareholders’ interests implementation of appropriate organisation. We believe that all our – Staff equity participation (encouraged standards of corporate governance. staff have the ability to contribute and through an options scheme and be innovative – it is the responsibility of employee share acquisition plans). ING acquisition In March this year, Macquarie entered management to provide an environment Further information on the Bank’s which allows and encourages them to into a sale and purchase agreement remuneration is provided in the with ING to acquire its cash equity do so. We have the approach that if Directors’ Report. businesses succeed, the staff in those sales, sales trading, facilitation trading, businesses, along with shareholders, In essence, our aim is to provide staff execution, research and equity capital should benefit through appropriate with a small business type of work markets businesses across Asia. The reward structures. environment backed by the strength business will be named Macquarie and support of a larger business. Securities Asia.

Macquarie family of listed funds accumulated performance versus the All Ordinaries accumulation index to 31 March 2004 500 Macquarie Funds* accumulated performance All Ordinaries accumulation index** 400

300

200

100 Jun 1996 Jun 1997 Jun 1998 Jun 1999 Jun 2000 Jun 2001 Jun 2002 Jun 2003 Dec 1995 Dec 1996 Dec 1997 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 Dec 2003

Indexed to 100 on 31 December 1995 * Comprises the accumulated performance of Macquarie Airports, Macquarie Communications Infrastructure Group, Macquarie Infrastructure Group, Macquarie CountryWide Trust, Macquarie Goodman Industrial Trust, Macquarie Leisure Trust, Macquarie Ofﬁ ce Trust, Macquarie ProLogis Trust, Macquarie DDR Trust, Southern Cross FLIERS Trust, Hills Motorway Group and Horizon Energy Investment Trust ** Based on the S&P/ASX500 accumulation index from 31 March 2000, prior to this based on the All Ordinaries accumulation index 10 Macquarie Bank Limited 2004 Annual Review This major initiative will provide During the period, shareholders were Macquarie with critical mass in advised that, having regard to current institutional stockbroking in the Asia- market practice and the Bank’s strong Pacific region. It provides a platform capital position, a discount to the to broaden the Bank’s activities, prevailing market price would no longer particularly Macquarie’s existing be offered (previously a discount of infrastructure, equity capital markets, 2.5 per cent applied) under the Bank’s mergers and acquisitions and other Dividend Reinvestment Plan. investment banking capabilities in The Bank also converted the 1.5 million the region. Converting Preference Shares (CPS) The acquisition includes around 450 on issue to ordinary shares on staff operating in 10 Asian locations: 25 September 2003. A final fully-franked Hong Kong, Korea, Japan, Taiwan, dividend on the CPS was paid on the The appointment of Ms Livingstone Thailand, Singapore, China, Indonesia, date of conversion. as an Independent Director brings the Malaysia and the Philippines, as well as Macquarie Bank Board membership to The Bank also undertook an on-market ING’s Asian sales and trading desks in eleven, of which seven are Independent buy-back of the number of ordinary London, New York and other European Directors. shares resulting from conversion of and North American locations. the CPS. As a result, a buy-back In March 2004, Mr Laurie Cox, a Voting The Bank assumed the economic of approximately 4.9 million ordinary Director of the Bank since January benefit and risk of the ING Asian shares commenced after the 1996, became an Executive Director of equities businesses from 1 March 2004. conversion date and was completed the Bank. This appointment replaced Completion of the purchase is subject in December 2003. his consulting arrangements with the to regulatory approvals with formal Bank, as a result of which he was Outlook close expected by 31 July 2004. The already considered a non-independent In 2004 the Bank benefited from very acquisition will not have a material member of the Board. favourable domestic and favourable impact on the Bank’s balance sheet international market conditions and The year ended 31 March 2004 marks and will be funded from internal resources. from significant asset realisations. the Bank’s first year of reporting on Corporate Governance However, the environment over the next compliance with the ASX Corporate The Bank was pleased to announce 12 months may not be as favourable, Governance Council’s Principles the Board appointment of Ms Catherine especially internationally. Repeating the of Good Corporate Governance and Livingstone, who joined the Macquarie 2004 result in 2005 will be challenging. Best Practice Recommendations Bank Board in November last year. (the Principles). Details of the Bank’s Over the medium-term we remain The Board will benefit from the depth compliance with the Principles are positive about continued growth in and breadth of Ms Livingstone’s outlined in the Corporate Governance revenue and earnings across most management expertise in a variety Statement, which appears later in businesses subject to market of roles. this document. conditions not deteriorating materially. From 1994 to 2000, Ms Livingstone We expect that strategic international Shareholders was Managing Director of Cochlear, initiatives will continue to drive growth. The Bank now has 41,500 holders of the successful company specialising in fully paid ordinary shares, an increase of We will maintain our long-term strategy implantable electronic medical nine per cent on last year. Our investor of full service in Australia and focused prostheses for the hearing impaired. relations efforts have seen a international operations, and will She was involved in the successful diversification of the share register over continue to invest in growth through the listing of the company in 1995 and in this time, such that at 31 March 2004 cycle. We believe we are well positioned implementing its impressive global international investors held 18 per cent because the Bank has good businesses, growth strategy. Ms Livingstone is of the Bank’s shares. Further details of is well diversified, has strong prudential Chairman of the CSIRO and the the Bank’s shareholders can be found risk management and committed Australian Business Foundation and on page 76 of the Financial Report. quality staff. holds Board positions with Telstra Corporation and the Sydney Institute. The Bank will pay a final dividend of The outlooks for the individual operating 70 cents per ordinary share for the year Groups are provided at the end of each to 31 March 2004, franked to 90 per Group’s discussion on the following cent. This brings total dividends for the pages. year to 122 cents per ordinary share, compared to 93 cents per ordinary share for the year ended 31 March 2003 (excluding last year’s special dividend of 50 cents per ordinary share). The interim dividend of 52 cents per David Clarke ordinary share was franked to 90 per Executive Chairman cent. The payout ratio for the year was 53 per cent. The Bank’s target payout ratio for each year remains in the range of 50 to 60 Allan Moss per cent of net earnings. It is expected Managing Director and that future dividends will be at least Chief Executive Officer 80 per cent franked.

11 Information Services Division Nigel Smyth

Macquarie Direct Investment Sandy Lockhart

Equity Markets Group Funds Management Group Ottmar Weiss Ben Bruck

Risk Management Division

Executive Chairman David Clarke

Treasury and Banking and Quantitative Commodities Group Managing Director Board of Directors Deputy Managing Property Group Applications Division Andrew Downe and Chief Executive Executive Committee Director Bill Moss John Green Officer Richard Sheppard Allan Moss

Central Executive

Risk Management Division Nick Minogue

Financial Services Group Peter Maher Investment Banking Group Nicholas Moore

Corporate Affairs Group Greg Ward

12 Macquarie Bank Limited 2004 Annual Review Management and Organisation We identify, encourage and reward achievement. We believe that all our staff have the ability to contribute and be innovative – it is the responsibility of management to provide an environment which allows and encourages them to do so. The concentric nature of the organisation chart represents the non-hierarchical nature of Macquarie and the role of central risk management.

The Bank’s activities are organised into six operating Groups: – Investment Banking Group – Treasury and Commodities Group – Equity Markets Group – Banking and Property Group – Financial Services Group – Funds Management Group Each Group focuses on specific products or markets. Outside the major business Groups is a specialised business, Macquarie Direct Investment, which is responsible for managing the Bank’s private equity activities.

Strong independent risk management has been fundamental to the Bank’s All businesses operate within overall success. Given the markets in which guidelines and specific parameters set we operate, risk is an inherent part of by the Board and Executive Committee Macquarie’s businesses. The Bank’s (a central group comprising the policy is not to eliminate all risks but to Chairman, Managing Director, Deputy manage risks appropriately. The main Managing Director, business heads and risks faced by Macquarie are market the Head of Risk Management). risk, credit risk, liquidity risk, operational risk and legal compliance and documentation risk. It is the responsibility of the Risk Management Division to ensure the appropriate assessment and A network of support areas provides management of these risks within the infrastructure and framework which the Bank. enable the Groups to operate. These The principles of Macquarie’s approach include the Information Services Division to risk management are: (systems and communications – Independence – Risk Management technology), the Corporate Affairs Division is independent of the Bank’s Group (comprising Human Resources, operating areas Business Services, Financial – Centralised Bank-wide prudential Operations, Business Improvement, management Settlements, Company Secretarial, – Approval of new business activities Investor Relations and Taxation) and – Continuous assessment the Quantitative Applications Division. – Frequent monitoring – centralised Corporate Communications is part of systems to allow daily monitoring of the Central Executive of the Bank. credit and market risks. Macquarie employs more than 5,700 Further information on the Bank’s risk people in 23 countries worldwide. This management is provided on page 25 of includes staff acquired as part of the this report, pages 42 and 43 of the acquisition of ING’s Asian equities Corporate Governance Statement and businesses, due to be completed by in the Risk Management Report at the 31 July 2004. beginning of the 2004 Financial Report.

Client commitment success. Macquarie illustrated its client of our business and central to Macquarie’s the core Our clients are companies to develop a solution three our teams worked closely with three commitment during the year where complex issues. The solution transformed Australian energy company Alinta into a national industry player – gaining by its Australian energy investments. It also led to the creation exit from $4 billion asset portfolio and facilitated Aquila’s energy and utility rst regulated (DUET) – the ﬁ ed Utilities and Energy Trust AMP Capital Holdings Limited of the Diversiﬁ fund in Australia.

14 Macquarie Bank Limited 2004 Annual Review C C 15 Specialist markets ce Corporate Restructuring – Real Estate Investment Trust This year saw the listing of Macquarie Central Offi rst by a wholly fi estate investment trust and Korea’s real rst Korean fi Stock Exchange – Macquarie’s on the Korean With under management in Seoul exceeding $450 million, Macquarie is now one properties manager. owned foreign cant milestone for Macquarie’s This is a signifi in Korea. managers of investment grade property of the largest foreign markets. position in the Asian property Macquarie’s business and further strengthens Asian property

16 Macquarie Bank Limited 2004 Annual Review S M 17 Investment Banking Group The Investment Banking Group achieved another very strong result, 46 per cent up on the prior year.

Investment Banking Group contribution to proﬁ t* 44% Highlights of the year were buoyant – Macquarie Essential Assets Partnership market conditions, increased market (MEAP) – an unlisted fund focusing on share and expansion into new investments in regulated and utility international markets with deal flow assets in North America across the Group generally strong. – Macquarie/First Trust Global In Corporate Finance, Macquarie Infrastructure/Utilities Dividend and achieved leading market positions, Income Fund (MFD) – a listed US ranking No.1 for mergers and closed-end fund focusing primarily on acquisitions announced and No.2 for listed infrastructure stocks equity raised in Australia (Thomson – African Infrastructure Investment Fund Financial). In project finance advisory, (AIIF) – an unlisted fund focusing Macquarie achieved No.1 rankings in predominantly on South African Asia-Pacific and the Americas and No.2 infrastructure assets, established as a globally (Project Finance International). joint venture between Macquarie Bank and Old Mutual Asset Managers of An increased global presence in the South Africa. Infrastructure sector resulted in significant mandates including advising Other infrastructure initiatives include: Trans-Elect, Inc. on the $287 million – Global Infrastructure Fund II (GIF II) – financing for construction of the Path 15 capital raising has commenced for a Upgrade electric transmission line in new Australian unlisted closed-end fund California, the Bouygues consortium on focusing on smaller investments in the $224 million redevelopment of the infrastructure assets in OECD countries Central Middlesex Hospital Project in – DUET – an existing Australian-based the UK, the $4 billion acquisition of energy utility fund which is proposing to Aquila’s Australian energy assets by list on the ASX and is now jointly Alinta and Diversified Utilities Energy managed by AMP Capital Holdings Trust (DUET) and the $1.85 billion Limited and Macquarie Bank acquisition of Duke Energy’s Australian – Japan Infrastructure Group (JIG) – energy assets by Alinta. established as a joint venture between Growth in the specialist infrastructure Macquarie Bank and Development funds business continues to be an Bank of Japan with a mandate to invest important strategy across domestic and in Japanese infrastructure assets. Its international markets. This growth initial investment was the acquisition of resulted in assets under management, the Hakone Turnpike, a toll road south- including undrawn commitments, west of Tokyo increasing by 13 per cent to – Korean Road Infrastructure Fund KRIF $17.8 billion and the establishment of ( ) – achieved a third close with total three new international funds: commitments of $714 million and announced two new investments in the Baekyang Tunnel and Machang Bridge in Korea.

* The results for both the 2003 and 2004 years have been adjusted to reclassify income and expenses related to infrastructure assets held for resale 18 Macquarie Bank Limited 2004 Annual Review The Resources team continued to Outlook strengthen its global capabilities, Over the next 12 months the Group assisting PT Bumi Resources on the expects to maintain leading market $729 million acquisition of PT Kaltim positions in the advisory, equity capital Prima Coal in Indonesia, advising markets and equities businesses. Fletcher Challenge Forests (now Tenon Infrastructure activities are expected Ltd) on the $485 million divestment of to be strong both domestically its forestry assets to the Kiwi Forests and internationally and the Group will Group in New Zealand and the $329 continue to develop new funds in million acquisition of East African Gold Australia and offshore with existing Mines Limited by Placer Dome Inc. Improved market conditions during funds growing through new acquisitions. in Australia. the year resulted in an increased Post balance date, two new A number of key mandates were contribution from Institutional international funds were launched: Stockbroking, with profit significantly secured in the Industrials sector, – Macquarie European Infrastructure up on the prior year due to improved including the roles of financial adviser, Fund (MEIF) – an unlisted fund focusing market share and increased revenues global coordinator and underwriter on on infrastructure assets located in from brokerage and issuance fees. A the $1.5 billion divestment by Foster’s European OECD countries highlight for the year was the acquisition Group Limited of its Australian Leisure – Macquarie Power Income Fund (MPT) – of ING’s Asian equities businesses, and Hospitality division, advising AWB a listed Canadian fund focusing on which will provide an institutional Limited on the $825 million acquisition power generation assets in North stockbroking platform in the Asia-Pacific of Landmark and Boral Limited on its America. proposed $840 million takeover of region and will be named Macquarie Adelaide Brighton Limited. The team Securities Asia. Also post balance date, the Bank agreed to acquire Executive Air was also successful in securing joint Financial Products achieved an overall Support, an airport services company lead manager roles on the IPOs of contribution that was up on the prior that owns and operates a network of Pacific Brands, JB Hi–Fi, InvoCare and year. New retail and wholesale funds ten fixed based operations businesses SAI Global. launched included the Australian in the US. The Group has also achieved forestry product, the second series of Further consolidation in the property final close on MEAP and been Fusion Funds (a capital protected trust sector resulted in a number of appointed lead manager on the investment product), a second highlights for the Property team, proposed listing of DUET. including its role as adviser to Macquarie Nine Film Fund and, in the Macquarie Goodman Industrial Trust on US, the Four Corners loan management Upon integration, ING’s Asian equities the $452 million takeover of the AMP business secured six new mandates. businesses will provide the Group Industrial Trust and joint lead manager While the cross-border leasing markets with critical mass in institutional and underwriter on the $441 million remained very subdued, a number of stockbroking in Asia-Pacific and Macquarie DDR Trust IPO. leases were successfully completed in considerable effort will be made to the US, Canada, Korea, New Zealand, broaden the Group’s investment Highlights in the Financial Institutions Europe and Japan. banking activities in the Asia-Pacific sector included the roles of joint adviser, region. The Group is also pursuing non- Macquarie Capital, which carries out global coordinator and bookrunner for US leasing opportunities, particularly in the Group’s asset financing activities, the $1.8 billion Promina IPO, adviser to Germany and Japan. BankWest on the $1.1 billion acquisition continued to broaden its global product of minority shareholders by HBOS mix. New product initiatives pursued Profitability in 2005 will depend on plc and joint lead manager on the during the year are showing early signs market conditions, transaction $1.2 billion AMP rights issue. of promise in a challenging market. completion and performance of funds. Leasing books increased by 30 per However, the Group is currently The Telecommunications, Media, cent from $2.3 billion to $3.0 billion. experiencing strong business activity Entertainment and Technology team and a reasonable deal pipeline. was appointed to advise TAB Limited on takeover offers from UNiTAB and TABCORP valued at approximately $2.3 billion.

19 Treasury and Commodities Group Treasury and Commodities Group contribution to proﬁ t* 17% Treasury and Commodities Group achieved a record proﬁ t with an 18 per cent increase on the prior year.

The Group’s strong result was driven by increased market share from a variety of products, with costs and a risk profile consistent with previous years. Significant contributions from Metals and Mining and Foreign Exchange Divisions, a good result from Debt Markets and solid contributions from Treasury and Futures contributed to the record result. Metals and Mining offers price-making, Treasury is responsible for Risk Advisory Services provides derivative trading and financing across a management of the Bank’s balance outsourced management of debt and range of base and precious metals and sheet, liquidity and interest rate asset portfolios to clients in commodity financing to the oil and gas sector. The exposure. Through the Bank’s $US10 and treasury markets and independent Division had its most profitable year, billion funding program, Macquarie advice on risk and financial management. which included a $38 million profit on further consolidated its position in global The Division had a profitable year the realisation of the East African Gold funding markets by undertaking a although the contribution was marginally Mines investment and increased market number of successful public and private down on the prior year due to lower volatility resulting in higher transaction transactions. The Division made a good deal volumes. activity in the base metals sector. The contribution while maintaining Energy Markets provides risk Division’s new Houston-based conservative management of the Bank’s management and financing solutions business, focusing on mezzanine balance sheet and liquidity profile. to the energy sector. In its first full finance opportunities in the oil and gas Futures made a solid contribution and year of operation it developed a broad sector, performed well. maintained its position as the largest customer base across the energy Foreign Exchange provides Australian institutional clearing member and a sector including producers, refiners, and international corporates and leading execution broker of the Sydney airlines and shipping companies. institutions with 24 hour price-making Futures Exchange. The Division has an The Division made a positive contribution services in G7 currency spot, forward established client base comprising to the Group’s result. and option products. It also tailors many of Australia’s leading fund Economic Research provides structured term hedging currency managers, government and public economic and financial trend analysis solutions for clients. The Division enterprises and international banks. for business units and clients of the achieved a record profit driven by higher Agricultural Commodities provides Bank. The Division also provides the market share and turnover, together risk management solutions to the Bank’s views on significant economic with outstanding trading performances. agricultural industry globally, its core policy issues to the media and industry The Internet delivery business, offering business being the provision of tailored, groups. The Division has seen an margined spot trading to offshore over-the-counter hedging transactions. increase in demand for services by clients in various currencies also The Division’s contribution was several of the Bank’s major corporate performed well. significantly down on a very strong prior institutional investment clients. Debt Markets originates, places and year, reflecting lower market volatility Outlook structures debt for its clients in primary and liquidity. The North American The future performance of the Treasury capital markets. It also supports its physical cotton trading business made and Commodities Group depends on clients in secondary and trading a solid contribution and the Division conditions in the markets in which it markets in securities, interest rate and opened an Australian physical cotton operates, which can be variable and credit derivatives. The Division trading business during the year. uncertain. The Group expects moderate contributed a record result to Group growth underpinned by continued profit, significantly up on the previous selective expansion, product innovation year, and was awarded Best and business diversity. Domestic Securitisation House (Finance Asia business is expected to continue to Australian Achievement Awards 2003) produce strong results with and No.1 Lead Manager, Securitised commodities-based businesses the Bond Issues (Thomson Financial and driver of growth offshore. INSTO Magazine 2003).

* The results for both the 2003 and 2004 years have been adjusted to reclassify income and expenses related to infrastructure assets held for resale 20 Macquarie Bank Limited 2004 Annual Review Equity Markets Group contribution to proﬁ t* 14% Equity Markets Group Equity Markets Group achieved a record proﬁ t, over four times that of the prior year.

corporate market segments strengthened and the business was ranked No.1 in equity index swaps and options, single stock options, structured equity products and warrants (2003 Asia Risk Interbank poll). The new South African business alliance with Nedbank Limited had a strong result and exceeded the result in the prior year with the previous The Equity Markets Group benefited business alliance. The business is now The International Trading Desk from a more diverse business mix and operating at full trading capacity and produced a strong result. This business from improved market conditions in has already transacted a significant operates 24 hours a day out of Sydney several of the global equity markets in number of deals. More recently, warrant and conducts both arbitrage-style which it operates. Hong Kong and issuance commenced. trading and equity-linked product sales Australia recorded excellent results and to Asian investors over a number of The Japanese equity derivatives a number of newer businesses markets in Europe, Asia and the US. business conducted locally with Mizuho increased their contributions. Securities increased its contribution as International Structuring made a good The Group’s business in Hong Kong business development accelerated on contribution from structured products markets produced a record result, the back of renewed investor interest such as equity swaps, equity-linked over half the Group’s contribution, in the Japanese market. notes and a number of large one-off notwithstanding the significant structured equity transactions, across a The Group’s equity derivatives business depreciation of the Hong Kong dollar range of geographic markets including in Brazilian markets was profitable, against the Australian dollar. The Germany, UK, Singapore, South Africa taking advantage of the improved business benefited from a rising and New Zealand. market conditions as interest rates stockmarket and associated increased declined and the political and economic Outlook market volumes to become the leading climate stabilised. The business is With its more diverse business mix, the issuer in local warrants and a major negotiating an equity derivatives Group is well placed to benefit if current issuer of unlisted equity-linked products. business alliance with Banco do Brasil, market conditions continue or improve. The business also successfully the largest commercial bank in Brazil. The recent acquisition of ING’s Asian diversified both its product range and This alliance will be based on the same equities businesses, new opportunities customer distribution channels and successful business model used in the in offshore markets and the launch of achieved strong sales in higher-margin Group’s other collaborative ventures. the Bank’s integrated equity hedge structured products. funds business mean that the Group The South Korean equity derivatives The Australian operation also achieved should continue to expand and diversify alliance with Woori Bank, the second a record result. With market volumes over the next 12 months. However, as largest banking and financial group in remaining buoyant, Macquarie was always, geopolitical and economic South Korea, commenced trading on again the leading warrant issuer by uncertainties exist and the Group is not schedule in September 2003. The value and volume in calendar year immune to any sustained downturn in business made a trading profit for the 2003. Additionally, sales of unlisted global equity markets. year ended 31 March 2004 but after equity products to both the retail and allowing for start-up costs, contributed a small loss to the Group’s result. Korean business prospects continue to look promising due to the deregulation of the local equity derivatives market and continuing strong market volumes, especially from retail investors.

* The results for both the 2003 and 2004 years have been adjusted to reclassify income and expenses related to infrastructure assets held for resale 21 Banking and Property Group Banking and Property Group contribution to proﬁ t* 13% Banking and Property Group posted its sixth consecutive record contribution, up 13 per cent on the prior year.

All the Group’s businesses returned and successful listing on the Korean the Division’s margin loan portfolio grew solid profit contributions in a market Stock Exchange of the Macquarie at twice the industry average. In the unsettled by changing interest rate Central Office Corporate Restructuring year ended 31 March 2004 it increased expectations. Property assets under – Real Estate Investment Trust (MCO by 31 per cent to more than $940 million. management (including associates) CR-REIT). Following the establishment Golf and Leisure combines increased by 51 per cent from of MCO CR-REIT, properties under development, finance, funds management $7.2 billion to $10.9 billion. management in Seoul now total over and advisory services focused on the Property Investment Management $450 million. leisure and lifestyle industries. The and Property Investment Management Property Finance made a strong Medallist Developments joint venture North America continued their strong contribution with continued growth in with Greg Norman’s Great White Shark performance and, including associates, development finance. A significant Enterprises continued its strong growth were among the top three Australian portion of this business growth was with new projects totalling $290 million property funds managers (by ASX generated from offices in the US. The approved in retail residential sales market capitalisation) at 31 March 2004. Division continued to focus on during the year. During the year, Macquarie Goodman development loans that now represent The Macquarie Leisure Trust (MLE) Management increased its assets under 60 per cent of commitments, up from gained unitholder approval to restructure management through a number of 49 per cent in the prior year. The the Trust and, together with operational acquisitions, extending its funds Division has a diversified portfolio of efficiencies, has achieved a total management business to include a property loans across a range of average annual return of 40.5 per cent new listed vehicle in New Zealand. geographic sectors and has minimal per annum to unitholders for the two exposure to any downturn in the years ended 31 March 2004 and was The Macquarie DDR Trust (MDT), which Australian residential property markets. invests in high quality retail community the best performing listed property trust 31 2004 centres in the US, was listed on the The Banking Division delivered another in the year ended March . ASX on 26 November 2003. Macquarie strong profit contribution. However, it Macquarie Community Partnerships CountryWide Trust (MCW) and was marginally down on the prior year undertakes property-based public- Macquarie ProLogis Trust (MPR) due to increased investment in new private partnerships with both local continued to diversify their portfolios product development. The Division is and state governments, taking the role with further acquisitions in North America well positioned for further growth of developer and financier to deliver and Macquarie Office Trust (MOF) made following the launch of four new products urban development and community 31 2004 its first US investment. These combined in the year to March and with infrastructure outcomes. further new products to be released in portfolios now contain North American Outlook assets valued in excess of $2.9 billion. the coming year. Client numbers and loan and deposit volumes grew and the The Group is positioned for further Macquarie Capital Partners (MCP) is a Division continued the upgrade of its selective expansion of its domestic and real estate investment banking business core information technology platform international operations. All Divisions are based in the US and Europe which improving services and efficiency. experiencing strong deal flows and are provides capital raising and advisory well placed to take advantage of services to real estate operating Mortgages and Securitisation opportunities as they are identified. MCP experienced a significant increase in companies. During the year Post balance date MDT raised completed 16 transactions totalling new business through both its retail and wholesale channels. The Division’s approximately $281 million through a $4.9 billion on behalf of clients from the public offer of new trust units to partly US, Europe and the Middle East. Australian mortgage portfolio grew by 25 per cent to more than $11.6 billion fund the acquisition of a $722 million Property Investment Banking made from $9.3 billion in the prior year. The portfolio of 12 community shopping a record contribution participating in Division’s US and Chinese mortgage centres across the US and MPR transactions totalling more than businesses continued to grow with the completed an institutional placement $3 billion and raised equity and debt US business closing almost $1 billion in raising $74 million and acquired six of $400 million. loans during the year. further high quality industrial properties for its US portfolio. Domestic highlights included the Margin Lending’s result was up on the Springthorpe development in Victoria, prior year and it achieved significant Strong international growth is expected which won the Urban Development growth in its core products, margin to offset the impact of a possible Institute of Australia 2004 National loans and capital protected loans. During slowdown in some sectors of the Award for Excellence in the Residential the 12 months to 31 December 2003, property development and residential Development Category. International property markets in Australia. highlights included the establishment Conservative credit policies will continue to protect the Group’s businesses. * The results for both the 2003 and 2004 years have been adjusted to reclassify income and expenses related to infrastructure assets held for resale 22 Macquarie Bank Limited 2004 Annual Review Financial Services Group contribution to proﬁ t* 5% Financial Services Group Financial Services Group increased its contribution to over four times that of the prior year.

The increased contribution from the Macquarie Financial Services (MFS) Financial Services Group was the result improved its performance with retail of four years of strategic investment trading activity increasing by 46 per and development, continued strong cent and IPO trading activity increasing inflows into major products and improved by 180 per cent on the prior year. equity markets. The Division made a significant The Group benefited from the contribution to the Group’s overall profit realisation of its one-third interest in by contributing more than $2 billion to Innofin, its South African joint venture the overall Wrap assets under with Sanlam which contributed administration and more than $16 billion $14 million profit before tax to the Group. clients with access to Macquarie’s in assets under advice through Retail financial services were boosted Accumulator Wrap product. This Macquarie and third party investments. by the successful integration of 46 product will be offered under the name MFS was also placed among the top Hartleys Limited brokers and their of Suncorp Easy Invest. The agreement three full service stockbrokers in Australia. is expected to significantly increase clients, which considerably increased The Wealth Management team made Macquarie Wrap Solutions’ client base. the Group’s market share and significant inroads during the year with consolidated its position in the top tier Another major development for its new business, Macquarie Executive of retail brokers in Australia. Macquarie Wrap Solutions was Wealth Management, signing The Group’s provision of services to finalising the outsourcing agreement agreements to provide comprehensive independent financial advisers was with ING Australia to provide the financial planning services to 12 major recognised with Macquarie Adviser systems and administrative functions corporations. associated with ING’s Wrap Service. Services being awarded both the Best Another team that achieved significant The transfer of these functions to MAS Fund Manager and Best Master Trust/ growth was Macquarie Private Portfolio is expected to be completed before Wrap Provider based on service Management, which provides a unique 31 December 2004. performance in the ASSIRT 2003 offering, building balanced portfolios Service Level Survey. The Macquarie CMT maintained its tailored to individual needs. The team The “Forward Thinking” brand leading market position, growing increased client numbers by 70 per advertising campaign continued to steadily by six per cent from $8.8 billion cent, increased assets under raise awareness of Macquarie’s strong to $9.3 billion. The CMT’s distribution management from $180 million to service and product offerings. network continued to grow as more $380 million and exceeded benchmark advisers set up self-arranged Macquarie Adviser Services (MAS) returns for its clients. superannuation funds for clients using experienced significant growth in both Outlook the CMT. Accountant groups increased the Macquarie Cash Management Trust The Group will continue to benefit from their use of the CMT as a base for their (CMT) and Macquarie Wrap Solutions, positive Australian private investor clients’ investments. the Group’s administration platform. sentiment and continued strong inflows This growth has resulted from the The Division’s retail superannuation and is confident of continued growth. capabilities across Wrap, Super Options Division’s continued focus on product Post balance date, the Group launched and the ADF Superannuation Fund enhancements, service excellence and the Australian version of its Generator were again recognised with Investorweb operational efficiency. Bonds product. In the next twelve Research naming Macquarie its Six Star Macquarie Wrap Solutions continued to months the Group expects to increase Superannuation Manager of the Year for be one of the fastest growing platforms its presence internationally with the second year in a row. in Australia with assets under initiatives under way in New Zealand administration growing 44 per cent Another focus for MAS has been the already producing positive results and a from $6.3 billion to $9.1 billion. During manufacture of alternative assets with number of proposed joint ventures the year, Queensland financial services the successful issue in New Zealand of under investigation. company, Suncorp Metway, signed Generator Bonds, a collateralised an agreement with MAS to provide its debt obligation product which raised $112.8 million over four weeks. These types of products will continue to be developed for the Australian and New Zealand markets.

* The results for both the 2003 and 2004 years have been adjusted to reclassify income and expenses related to infrastructure assets held for resale 23 Funds Management Group The contribution from the Funds Management Group was marginally up on the prior year and assets under management increased by 18 per cent from $30.7 billion to $36.2 billion.

Funds Management Group contribution to proﬁ t* 1%

The Group continued its growth and consolidated its position as a major competitor in the Australian funds management industry. Growth was driven primarily by the Group’s institutional business in Australia and the expansion of its Asian joint ventures. In Australia, funds managed for retail investors increased four per cent from $11.4 billion to $11.8 billion and funds managed for institutional investors With its existing private equity fund-of- increased 21 per cent from $17.3 billion funds delivering healthy returns for to $21 billion. investors through participation in floats such as Pacific Brands and JB Hi-Fi The Group’s reputation in cash, fixed and trade sales such as Tasman interest and property securities Building Products, the Group opened attracted good inflows from investors a third fund, the Macquarie Alternative continuing to seek competitive returns Investment Trust III. The fund offers from defensive assets. Its innovative risk-controlled access to a diversified credit-enhanced cash funds were portfolio of high quality private equity popular with cash investors seeking investments. above bank bill returns, while the Macquarie Global Bond Solution, The Group’s Asian joint ventures providing diversification across global delivered significant growth despite the fixed interest markets and managers, considerable appreciation in the led the market in its returns for the year. Australian dollar. Macquarie’s share of assets under management in these The Group moved all its equities funds ventures increased by 63 per cent from into its proven Style Neutral approach, $2.1 billion to $3.4 billion. The Malaysian with broad support from consultants and Korean businesses performed well and researchers. Two new equities with Macquarie-IMM Investment funds offering higher risk investments Management named Most Improved with rewarding returns – the Macquarie Institutional Fund House for Korea in Australian Market Neutral Fund and the 2003 by Asia Asset Management Macquarie Long-Short Equitised Fund – magazine, based on growth in assets attracted significant interest. The under management. The Group Macquarie Small Companies Fund had expanded its Asian presence through an outstanding year, returning over 56 the acquisition of a 40 per cent stake in per cent to exceed benchmark returns United Securities Investment Trust by over 17 per cent (before fees). Corporation in Taiwan. This joint venture International activities progressed with has made good progress to date. the Group securing its first UK mandate. Outlook Active foreign exchange markets The Group expects benign market provided opportunities for currency conditions to continue and anticipates products. Based on its track record, continued inflows across diverse asset the Group gained new mandates for its classes to support stronger growth. The currency services and launched the Group expects expansion opportunities Macquarie Global Active Currency Fund. in the Australian retail market and in the development of alternative asset products, and will continue to research new joint venture opportunities in Asia.

* The results for both the 2003 and 2004 years have been adjusted to reclassify income and expenses related to infrastructure assets held for resale 24 Macquarie Bank Limited 2004 Annual Review Other Groups and Divisions

loss. Notwithstanding these losses, MIT III achieved a very satisfactory performance overall and fund investors made substantial returns from realisation proceeds. Post balance date, the Division has been working on three further realisations with the IPO of CH4, a coal seam methane gas company, occurring during the first week of April, the IPO of Macquarie Direct Investment The Reject Shop, a chain of discount Finance reviews market risk taken in Division retail stores, expected in the June the trading and banking books across Macquarie Direct Investment Division quarter, and ongoing discussions in the Bank. It sets trading limits and manages the Bank’s private equity relation to the possible trade sale of monitors exposures against those limits activities and has operated in private Financial Network Services. daily. Finance is responsible for liaison equity and venture capital since 1972. with the Australian Prudential Regulation While the year to 31 March 2004 was During this time, the business has Authority (APRA) and for ensuring marked by realisations, the Division’s moved from investing by using the compliance with APRA’s prudential focus will now shift to fund raising. Bank’s own funds to raising and standards. In addition, Finance is Macquarie Investment Trust IV (MIT IV), investing funds from institutional investors. responsible for the Group’s funding and which made its first investment in May liquidity policies and monitoring The Division reported a very substantial 2003, expects to have a second close compliance with them. increase in earnings for the year ended in the September quarter and a further 31 March 2004, driven by a record close is targeted in early 2005. ORR has two broad functions. In its number of investment realisations assurance review role, ORR provides The Division expects to report a during the period. It contributed independent assurance, primarily to the satisfactory profit in 2005. However, the approximately six per cent of the Bank’s Board Audit and Compliance 2004 level of profit is not expected to net income compared to one per cent Committee and senior management, be repeated next year. the previous year. An improvement in that significant operational risks are public equity markets and strong Risk Management Division being identified and adequately economic conditions during the second The Risk Management Division is an managed. Its second function is to half of the year facilitated the divestment independent, centralised unit responsible facilitate the continued improvement in of 10 medium to long-term investments. for assessing and monitoring risks operational risk awareness and culture across the Bank. Its functions are Macquarie Investment Trust (MIT) through the development of the Credit, Finance, Operational Risk realised its holdings in Sabco and operational risk management Review (ORR), Compliance and the Tower Technology through trade sales. framework, including setting of policies Data Policy Unit. A more detailed Macquarie Investment Trust III (MIT III) and standards, and education. Risk Management Report is contained saw realisations from holdings in Compliance oversees measures to in the 2004 Financial Report. JB Hi-Fi, Repco and InvoCare (formerly ensure compliance with applicable SCIA) which were exited by way of IPO Credit assesses the credit risk on regulations and laws in Australia and and Staging Connections which was lending and trading transactions. It overseas and with obligations of fidelity sold by private treaty. MIT III’s allocates credit limits for counterparties and confidence to clients and realisations delivered excellent results and countries, develops procedures counterparties. for measuring credit exposures although offset to some extent by a The Data Policy Unit ensures that and reviews the adequacy of legal disappointing outcome on Western uniform data standards are adopted documentation. Metals, which went into liquidation, by business Groups so that accurate and the final sale of Nardell Coal at a and reliable information is provided to the Division for credit monitoring and for regulatory and statistical reporting purposes.

25 Other Groups and Divisions continued employee equity schemes and professional risk insurances. Responding to changes to the Corporations Act and the end of the transition period of the Financial Services Reform Act (FSRA) occupied the Division during the year. The Division includes the Investor Relations function which oversees the Bank’s communications with the investment community and actively works to foster relationships with the Bank’s institutional and retail shareholders. Corporate Affairs Group During the year Investor Relations has The Financial Operations Division focused on targeting new shareholders, supports the Bank’s operating areas particularly in offshore markets. and management through the provision of financial control, management The Human Resources Division is reporting and budgeting, divisional organised into specialist service areas accounting services, international which provide operational and business support, financial planning consulting services across the Bank. and capital management. The Division is responsible for the provision of remuneration operational The Division was focused on the support, advisory and consulting increasing reporting requirements The Business Improvement Division is services, recruitment services and emerging from our expanding businesses a skilled team of consultants providing strategies to attract, reward and retain and regulatory changes. The Division tailored services to the Bank’s the best staff, and training programs continued to manage the Bank’s businesses and support areas. Services designed to develop staff’s management adoption of International Financial offered range from the provision of and leadership skills. During the year Reporting Standards, which will result in advice on broad strategic matters, such the Division transformed the recruitment significant accounting and operational as growth, organisation design and function, resulting in significant changes for the Group and played a new product development through to efficiencies and expanding the range major role in implementing the requirements re-engineering operational processes of services. of the APRA conglomerates regime. and management of change programs. The Business Services Division The Settlements Division is responsible During the year the team assisted with provides the Bank with a range of for the independent confirmation and the integration of the Hartleys Limited business support functions including settlement of a variety of currencies and brokers into the Financial Services space and lease management, products for the Bank. Its primary Group, the due diligence and transition business continuity and security, guest responsibility is providing support to planning for the acquisition of ING’s relations, procurement and business the Treasury and Commodities Group, Asian equities businesses and the research. A number of key projects however it provides confirmation development of new loan, deposit and have been completed during the year, facilities for all operating Groups, ensuring equity derivative products. including the due diligence for the appropriate operational risk standards The Taxation Division provides taxation integration of ING’s Asian equities and prudential controls are maintained. support to all areas of the Bank and businesses and refurbishments for both Settlements had a busy year with manages the Bank’s relationships with the London and Hong Kong offices. transaction numbers at record levels. revenue authorities worldwide. The With the increased threat of terrorism Its key focus was on large-scale Division also reviews existing and and increasing regulatory requirements, changes to compliance requirements proposed transactions and structures the need for the Bank to continually and the continued evolution of market to maintain compliance with legislative improve its business continuity plans conventions and protocols. requirements. has been a key objective and successful The Division will continue to focus tests were completed for a number of on developing its support to the Bank’s locations during the year. businesses and ensuring taxation compliance in all jurisdictions. The Company Secretarial and Investor Relations Division has responsibility for compliance with certain ASX and Australian Securities and Investments Commission requirements, the Bank’s share registry,

26 Macquarie Bank Limited 2004 Annual Review Corporate Communications Division Corporate Communications Division manages and co-ordinates the Bank’s media, government, international and community relations in conjunction with business Groups. It is responsible for the protection of the Bank’s brand and reputation in all the markets in which it operates. The Division works closely with businesses on advertising and sponsorship programs, web site development, internal communications and media relations. Information Services Division In the arts, the Foundation and During the year, additional resources The Information Services Division is Macquarie’s Melbourne businesses were committed internationally to responsible for the management of the support the Contemporary Projects support the Bank’s increasing presence Bank’s technology infrastructure, the Gallery in the National Gallery of in selected offshore markets. Domestically, support and development of existing Victoria. the Division has continued its work business systems, and the delivery and on brand management programs and The Lizard Island Research Station, a deployment of new systems, technologies media activities. global leader in coral reef research, is and services. being upgraded with funding from the Macquarie in the Community Throughout the year the Infrastructure Foundation for the construction of an The Macquarie Bank Foundation Services Team has delivered a number education centre. contributes almost $3 million a year to of upgrades to the Bank’s core more than 200 community organisations The Foundation and several Macquarie infrastructure that have provided in the areas of health care and research, businesses also established Macquarie increased capacity for growth, greater welfare, education, the environment and Bank Sports, formalising the children’s resilience and improved business the arts. The Foundation aims to build sports camps program the Bank has continuity capability. The teams aligned long-term partnerships with community been running for the past six years. with the businesses have delivered new organisations, providing hands-on systems and improvements to support The Foundation significantly expanded assistance as well as financial support. business growth and cost reduction, its international activities during the year, such as rolling out a new global In 2003, the Foundation entered a in line with the Bank’s continued risk management system for the Equity major partnership with Mission Australia growth. One project that received Markets Group and enhancing the to fund research into key social issues support was the Prince’s Trust in the Bank’s applications to comply with affecting disadvantaged Australians. UK, providing low-interest start-up the FSRA. The research is aimed at ensuring that business loans to unemployed young Mission Australia’s programs continue people denied bank funding. Quantitative Applications Division to deliver to those most in need. The The Quantitative Applications Division As these partnerships demonstrate, the partnership also means that funds that provides critical analytic expertise to Foundation actively supports staff in Mission Australia previously allocated to businesses in the Bank. During the year their community activities. Macquarie research can now be directed to the Division introduced financial courses staff raise more than $500,000 a year improved service delivery. In addition, under the title “Macquarie Bank Financial for community organisations, with the Macquarie’s Financial Services Group Intelligence Series”. These courses Foundation supplementing these staff will provide volunteer and reflect both the financial skills and donations. The Foundation also fundraising services at Mission Australia practical experience of the staff in the presents two annual Volunteer of the facilities across Australia. Division and for the first time were Year awards to staff who have made made available to companies and The Foundation has committed funding outstanding community contributions. individuals outside the Bank. to the expansion of the Mirabel During the year, Macquarie introduced Foundation, which helps children The Division continues to achieve workplace giving, enabling staff to make abandoned or orphaned through the recognition internationally for its regular donations to charities directly illicit drug use of their parents. research and among its publications from their pre-tax pay. The scheme was this year was a leading article on An urban classroom, giving vocational also made available to staff in the UK. credit risk. training to Melbourne’s homeless and unemployed under the Urban Seed program, was established with funding from the Foundation and the Bank’s Melbourne staff, who also volunteer at Urban Seed facilities. In the vital area of cancer research, the Macquarie Bank Foundation supports Cure Cancer Australia’s Young Researcher of the Year Award, encouraging cancer researchers in the early stages of their careers.

27 Our people quality is dependent upon our ability to attract and retain our business. Our potential for continued growth People are its people for the opportunities they people. Macquarie encourages long-term commitment to the Bank by rewarding of their service to the Bank, in last year In recognition and the value generated for clients shareholders. create ve and 10 years’ service. for ﬁ awards 425 people received

28 Macquarie Bank Limited 2004 Annual Review O 29 Our communities cant and supporting the signiﬁ is recognising approach An important part of The Macquarie Bank Foundation’s and the globe commit time, effort right across Each year many staff community contributions made by our staff. and passions. In turn, expertise in support of their own community interests the Macquarie Bank Foundation involved in are Staff donation support programme. its staff through additional funding to these groups provides the arts health, education, welfare, of the areas the world across community endeavours in Australia and around and the environment.

30 Macquarie Bank Limited 2004 Annual Review O C 31 Corporate Governance Statement The Board of Voting Directors (the Board) is committed to the Bank achieving superior fi nancial performance and long-term prosperity, while meeting stakeholders’ expectations of sound corporate governance practices. This Statement outlines the Bank’s main corporate governance practices as at 31 March 2004. Unless otherwise stated they refl ect the practices in place throughout the fi nancial year ending on that date.

The Board, in conjunction with the 1 The Board The current membership of the Board is Board Corporate Governance 1a Membership set out below. Details of each individual Committee, determines the corporate The Board believes that its membership Voting Director’s background are set governance arrangements for the Bank should comprise directors with an out in the schedule to the Directors’ and regularly reviews Australian and appropriate mix of skills, experience Report, which immediately follows this international developments in corporate and personal attributes that allow the Corporate Governance Statement. governance to confirm that those directors individually, and the Board (ASX Recommendation 2.5) arrangements are the most appropriate collectively, to: The Board has a majority of for the Bank and its stakeholders. As – discharge their duties and independent directors and the roles of detailed in this Statement, the Bank responsibilities under the law efﬁ ciently chairman and managing director are considers that its governance practices and effectively not exercised by the same individual. ASX comply with all of the Corporate – understand the business of the Bank (ASX Recommendations 2.1 and 2.3) Governance Council’s best practice and the environment within which the recommendations, other than The Bank’s constitution further provides Bank operates so as to be able to that the maximum number of Voting recommendations 2.2 and 9.4. An agree with management, the objectives, explanation for departure from these Directors shall be ten unless amended goals and strategic direction to by a resolution of the Voting Directors. recommendations is provided on pages maximise shareholder value and 33 and 38, respectively. A table In July 2003, the Board resolved to – assess the performance of management increase the maximum number of summarising the Bank’s compliance in meeting those objectives. with the ASX Corporate Governance Voting Directors to eleven. The number Council’s recommendations is available of Voting Directors necessary to on the Bank’s website at constitute a quorum is: www.macquarie.com.au – not less than one-third of the Voting In addition, the Bank has posted copies Directors currently in ofﬁ ce of its corporate governance practices – the number of Non-Executive Directors to its website in accordance with the present at a meeting must be greater ASX Corporate Governance Council’s than the number of Executive Voting recommendations. Directors present.

Current Board composition

Voting Director Board Membership Date of Appointment David Clarke Executive Chairman 8 March 1984 Allan Moss Managing Director and Chief Executive Ofﬁ cer 18 January 1985 Mark Johnson Executive and Deputy Chairman 23 February 1987 John Allpass Independent 1 January 1994 Laurie Cox* Executive 2 January 1996 Peter Kirby Independent 28 June 2003 Catherine Livingstone Independent 19 November 2003 Barrie Martin Independent 23 August 1993 Kevin McCann Lead Independent 23 December 1996 John Niland Independent 21 February 2003 Helen Nugent Independent 1 June 1999

* Became an Executive Voting Director on 25 March 2004. Prior to 25 March 2004, Mr Cox was a Non-Executive Director. 32 Macquarie Bank Limited 2004 Annual Review A list of the matters delegated to management is disclosed on the Bank’s website. The matters delegated to management were disclosed in last year’s Annual Review and have been disclosed on the Bank’s website since 28 July 2003. The Bank currently also has approximately 150 Non-Voting Executive Directors. Pursuant to the Bank’s constitution, they have no right to attend or vote at any Board meeting. However, they do have the power to 1b Role and Responsibilities exercise management powers The primary role of the Board is to delegated by the Board including to promote the long-term health and sign and countersign the Bank’s prosperity of the Bank. To accomplish common seal. this, the Board: 1c Chairman – approves objectives and goals and The Bank has noted the ASX Corporate agrees strategic direction for Governance Council’s best practice management with a view to maximising recommendation that listed companies shareholder value have an independent director as – adopts an annual budget and monitors chairman. However, for the reasons set fi nancial performance The Bank’s dependence on the out below, the Board believes that – monitors the adequacy, appropriateness performance of its staff is a further David Clarke, an Executive Director, is and operation of internal controls reason why, like most global investment the most appropriate person to be – identifi es signifi cant business risks and banks, the Bank believes it to be in Chairman and believes other measures reviews how they are managed shareholders’ interests to have a adopted by the Bank provide an – selects, appoints and reviews the number of Board members with appropriate check on management performance of the Managing Director operating experience of the businesses. power. (ASX Recommendation 2.2) and the Executive Chairman It is noted that the Executive Chairman – selects and appoints new Voting Mr Clarke has been Executive Chairman role has worked well for a long time at Directors and of Macquarie Bank Limited since its the Bank and continues to work well. formation and before that was Executive – sets business standards and the code The Bank has also adopted a number Chairman of Hill Samuel Australia for ethical behaviour. of practices to regulate the division of Limited, the business predecessor to The Board has delegated specific responsibilities between the Board and Macquarie Bank Limited, having been authorities to the Executive Chairman management, and the accountability of so appointed in 1984. He was Joint and to its various Board Committees. management to the Board, including: Managing Director from 1971 to 1977 Subject to these delegated matters, the and Managing Director from 1977 to – the separation of the role of Executive Managing Director is authorised to 1984. Accordingly, Mr Clarke has an Chairman from that of the Managing exercise all the powers of the Voting extensive knowledge of the activities of Director Directors to manage the business of the Bank and its businesses, gained at – the appointment of Mr McCann as the Company, except with respect to the most senior management level. Lead Independent Director on the following: Given the Bank’s diverse, complex and 26 June 2003 – approvals above delegated levels of highly specialised activities, it is – having a majority of Independent credit limits, country risk exposures, important that the Board is chaired by Directors on the Board equity risk limits, market risk limits, loans someone with a deep understanding of – the Independent Directors meeting at and equity investments, underwriting the Bank’s operations. least once annually as a group and in risk and new managed funds the absence of any executives Mr Clarke’s experience in investment – capital expenditure or expenditure – the delegation of certain responsibilities banking, and as a Chairman of major outside the ordinary course of business to Board Committees, a number of listed companies, is also important in in excess of delegated levels which the Chairman is not a member ensuring that the Board is provided by – approval of major elements of strategy – all Voting Directors having access to management adequate information to initiated by management including any other members of management in facilitate effective decision making. His signifi cant change in the direction of relation to the Board Committees of wide experience enables him to provide that strategy which they are members support and advice to the Managing – adoption of the Company’s annual – the ability of Voting Directors to seek Director while respecting executive budget independent professional advice for responsibility. – approval of the interim and fi nal company related matters at the accounts and related reports to ASX Bank’s expense – any proposal to issue securities of the – appropriate induction procedures for Bank (except under a program new Voting Directors so that they can previously approved by the Board) fully contribute to Board discussions at – institution or defence of major litigation the earliest possible time which may materially affect the – an annual assessment of the Executive reputation or fi nances of the Bank Chairman and Managing Director by – certain risk and management policies as the Independent Directors. prescribed by APRA. (ASX Recommendation 1.1) 33 Corporate Governance Statement continued The Bank adopted its definition of an Independent Director in October 2002, prior to the release of the ASX Corporate Governance Council’s recommendations. The materiality of thresholds are reviewed from time to time and were reviewed after the release of the ASX Corporate Governance Council’s recommendations. The Board has adopted a different materiality threshold from the ASX Corporate Governance Council to assess independence where a director 1d Independent Directors A Voting Director who is a principal or is associated with a company which The Bank recognises that independent employee of a professional adviser has a substantial shareholding in the directors are important in assuring will not participate in any consideration Bank, namely a ten per cent holding shareholders that the Board is properly of the possible appointment of the instead of a five per cent holding. Given fulfilling its role and is diligent in holding professional adviser and will not the small nature of the Australian senior management accountable for its participate in the provision of any service market, many institutional shareholders performance. In October 2002, the to the Bank by the professional adviser regularly hold five per cent or more of Board resolved that its composition – is not a signifi cant supplier or customer companies in their portfolio which could should continue to have a majority of of the Bank or its entities or an offi cer of inappropriately result in a director Non-Executive Directors (NEDs) and, by or otherwise associated directly or associated with that shareholder no 1 July 2003, a majority of independent indirectly with a signifi cant supplier or longer satisfying the definition of an directors, as determined by the Board customer. A signifi cant supplier is independent director. A shareholder Corporate Governance Committee defi ned as one whose revenues from holding less than 10 per cent of the (Independent Directors). As at 1 July the Bank exceed fi ve per cent of the issued shares has a very limited ability 2003, six of the 10 Voting Directors supplier’s total revenue. A signifi cant to independently influence decisions. were independent. Currently, seven of customer is one whose amounts payable Currently no Independent Director the 11 Board members are Independent to the Bank exceed fi ve per cent of the directly or indirectly holds, nor is a Directors. customer’s total operating costs director of a company holding, greater – has no material contractual relationship The Board believes that independence than five per cent of the issued shares with the Bank or any of its associates is a state of mind evidenced by an of the Bank. ability to constructively challenge and other than as a director of the Bank The Bank’s definition of an Independent independently contribute to the work of – is not a director of any of Macquarie Director also does not include a the Board. In addition, the technical Bank’s subsidiaries or responsible entities specified length of service as a director independence of directors is assessed – has no other interest or relationship that as recommended by the ASX annually by the Board Corporate could interfere with the Voting Director’s Corporate Governance Council. Governance Committee and, to assist ability to act in the best interests of the However, the Board has adopted a limit that Committee, the Board has adopted Bank and independently of management. on the length of service of its NEDs as the following definition of an (ASX Recommendations 2.1 and 2.5) discussed in section 3b. Independent Director: a Voting Director The Board Corporate Governance will be considered independent if not Committee may at its discretion As indicated above, the independence a member of management and if determine that a Voting Director is of each Independent Director is he/she meets the following criteria: independent notwithstanding that not monitored by the Board Corporate Governance Committee and Voting – is not a substantial shareholder of the all of the above criteria are satisfied. Directors may be required to provide Bank or of a company holding more Correspondingly, the Board Corporate information from time to time to that than ten per cent of the Bank’s voting Governance Committee can in Committee to enable it to assess the stock or an offi cer of or otherwise appropriate circumstances, determine associated directly or indirectly with a that a Board member has lost their shareholder holding more than ten per independence notwithstanding that cent of the Bank’s voting stock they continue to satisfy all of the – has not within the last three years been above criteria. employed in an executive capacity by The Board Corporate Governance the company or another group member Committee has determined that each or been a director after ceasing to hold of the seven Voting Directors any such employment designated as Independent Directors in – is not a principal or employee of a this statement satisfy all of the above professional adviser to the Bank and its criteria and bring an independent mind entities whose billings exceed fi ve per to their duties as a director. cent of the adviser’s total revenues.

34 Macquarie Bank Limited 2004 Annual Review aware that potential conflict of interest may arise in relation to a Voting Director, the Voting Director concerned does not receive a copy of the relevant Board paper and withdraws from the Board meeting while the matter is being considered. Senior management present significant matters to the Board. The Board may seek further information on any issue, including requesting that a particular Division or Group Head present to it on the performance, strategy or outlook for directors’ ongoing independence. 2 Board Committees that Division or Group. The Board also Each year, the Independent Directors Five standing Board Committees have has a policy of enabling Voting Directors are requested to confirm in writing their been established to assist in the to seek independent professional continuing status as an Independent execution of the Board’s responsibilities. advice for company-related matters at Director and they have each undertaken All Board members are free to attend the Bank’s expense, subject to the to inform the Board as soon as practical any meeting of any Board Committee. estimated costs being approved by the if they think that their status as an The membership of each Committee is Chairman in advance as being Independent Director has or may have outlined in the table below. reasonable. changed. It is the policy of the Board that a The Independent Directors meet at (ASX Recommendation 2.5) majority of the members of each Board least once per year in the absence of 1e Board Practices Committee should be Independent management and at other times as The Board of the Bank meets monthly Directors, that the Board Audit and they determine. During the financial year and at other times as needed. Two Compliance Committee will comprise ended 31 March 2004, the Independent special additional meetings are held only Independent Directors and that the Directors met on two occasions. The each year to consider the interim and Board Remuneration Committee and convenor of these meetings is the Lead final accounts. An annual Board the Board Corporate Governance Independent Director (ex-officio the strategy meeting is held in conjunction Committee be chaired by Independent Chairman of the Corporate Governance with senior management at which the Directors. Committee). strategic direction for the Bank in the The number of times each Board short and longer term is discussed. Committee met and the number of The monthly Board papers, normally those meetings attended by the distributed a week prior to the relevant members of each Committee is set meeting, make the Board aware of out in the Directors’ Report. Each current and forthcoming issues relevant Committee has a charter, a copy of to the Bank’s operations and which has been available on the Bank’s performance. These contain the website at www.macquarie.com.au monthly and year-to-date performance since August 2003. of all Divisions compared with budget, (ASX Recommendations 2.5, 4.5 a prudential report from the Risk and 9.5) Management Division and papers relating to particular issues. Where the Chairman or the Company Secretary is

Committee Membership Audit and Corporate Compliance Governance Nominating Remuneration Risk Executive Voting Directors David Clarke Chairman Member Chairman Allan Moss Member Mark Johnson Member Member Laurie Cox Member Independent Directors John Allpass Chairman Member Member Peter Kirby Member Member Catherine Livingstone Member Member Kevin McCann Member Chairman Member Barrie Martin Member Member Member John Niland Member Member Helen Nugent Member Chairman Member 35 Corporate Governance Statement continued

The functions of the Audit and 3 Nomination and Performance of Compliance, Nominating, Remuneration Voting Directors and Risk Committees are discussed 3a Nomination of Directors later in this Statement. The Board established the Nominating The Corporate Governance Committee, Committee in September 1992. The Committee comprises the Executive established in October 2002, is responsible for oversight of corporate Chairman and two Independent governance at the Bank. The Directors. responsibilities of the Corporate (ASX Recommendation 2.4) Governance Committee include: The Nominating Committee charter recommend candidates with the – to undertake an annual review of the was approved by the Board in appropriate expertise and experience. alignment of the Board’s operations June 2003 and the Committee’s role The Nominating Committee has also with best corporate governance is to review and consider the structure identified the following fundamental practice and balance of the Board and make factors as relevant to the selection and – to undertake an annual review of the recommendations regarding appointment of new directors: effectiveness with which the Board appointments, retirements and terms of Committees have discharged their office. In particular, the Committee is to – outstanding in capability with extensive function – identify and recommend to the Board, and senior commercial experience, – to oversee the process for the annual candidates for the Board after preferably with a listed company review of the Managing Director and considering the necessary and desirable – cultural fi t with existing Board members Executive Chairman competencies of new Board members and empathy to the Bank’s culture – to approve the corporate governance – review induction procedures for new – high level of personal integrity statements of the Bank and to monitor appointees to the Board to assist them – a team player the corporate governance statements to effectively discharge their responsibilities – independent states of mind of the Bank’s subsidiaries and funds – assess and consider the time required – free of confl icts as identifi ed by the that the Macquarie Bank Group to be committed by a Voting Director to Bank and by APRA manages properly fulfi l their duty to the Bank and – time available to meet the commitment – to determine the independence of the advise the Board required. Voting Directors and monitor the – review succession plans for the Board The Nominating Committee has ongoing status of those Directors with a view to maintaining an unlimited access to the senior – to review existing behaviour and ethical appropriate balance of skills and management of the Macquarie Bank guidelines for Voting Directors and experience on the Board Group and is able to consult independent consider questions of possible confl icts – review measures for keeping Voting experts where it considers it necessary of interest arising for Voting Directors. Directors up to date with the Bank’s to carry out its duties and responsibilities, activities and relevant external with all costs borne by the Bank. developments. 3b Tenure The Board has adopted a policy to All NEDs appointed after November govern the selection and appointment 2002 are appointed for terms that will of Voting Directors, a copy of which has not exceed a maximum of twelve years. been available on the Bank’s website Transitional arrangements which since 29 July 2003. broadly weight past time on the Board (ASX Recommendation 2.5) at 50 per cent apply to NEDs who were When a vacancy exists or whenever on the Board in November 2002. This it is considered that the Board would will provide the Board with the benefit benefit from the services of a new of regular new input. Voting Director, the Nominating Committee will seek to identify the competencies required to enable the Board to fulfil its responsibilities and

36 Macquarie Bank Limited 2004 Annual Review 3c Performance of Directors and Key Executives In November 2002, the Board agreed to a formal annual performance self- assessment, including assessment of the Board’s Committees and individual assessment of those Voting Directors required to stand for re-election at the next AGM. The processes adopted by the Board to review the performance of the Board and the Bank’s most senior executives has been disclosed on the Bank’s website since September 2003. Where a Voting Director is appointed to (ASX Recommendation 8.1) The Independent Directors report on fill a casual vacancy on the Board, they this to the Board. An assessment of the Board’s are required to submit to election at the performance was conducted during The Managing Director and the next general meeting. In addition, the financial year ended 31 March 2004. Executive Chairman evaluate at least currently one-third of Voting Directors The process for conducting the Board’s annually the performance of the (excluding the Managing Director and performance review was agreed by the following key executives: rounded down) must retire from office Board and consisted of the Chairman at the Annual General Meeting (AGM) – Deputy Managing Director conducting individual interviews with each year; such retiring directors are – Group Heads each of the Voting Directors to complete eligible for re-election. Directors – Chief Financial Officer a questionnaire and to elicit other standing for election in these – Chief Information Officer comments or issues that the Voting circumstances are subject to a formal – Head of RMD. Director may have or wish to raise. performance appraisal prior to the As described on the Bank’s website, Board determining whether to The questionnaire agreed by the Board quantitative measures are used, recommend their re-election. covered matters such as: consistent with the dimensions for All new NEDs receive a letter of – the Board’s contribution to developing reviewing the Managing Director and appointment from the Chairman strategy and policy the Executive Chairman. outlining matters relevant to the Board’s – interaction between the Board and (ASX Recommendation 8.1) operations and policies and to their management and between Board 4 Remuneration appointment. Such matters include: members 4a Remuneration Policy – the Board’s processes to monitor – terms of appointment, subject to As a diversified financial services business performance and compliance, shareholder approval provider and investment bank, the control risk and evaluate management – expectation of the Board in relation to Bank’s performance is critically – Board composition and structure attending and preparing for all Board dependent on the skill, experience and – the operation of the Board, including meetings calibre of its staff. Hence, the Bank has the conduct of Board meetings, Board – procedures for dealing with conﬂ icts designed its remuneration practices to Committee meetings and group of interest be sufficiently competitive to attract and behaviours. – remuneration retain the quality of staff that it seeks – indemniﬁ cation and director’s liability The Chairman compiled the results of and also to encourage long-term insurance the questionnaire and interviews and commitment and superior performance – disclosure obligations a written report discussing the results, from its employees. The Bank believes – availability of independent professional including both a quantitative and this will lead to it achieving above advice. qualitative analysis, issues for discussion average returns and creating long-term and recommendations for initiatives, value for its shareholders. The letter of appointment also outlines was presented to the Board. the induction process for new NEDs. In addition to various written and The Managing Director and Executive electronic information, new NEDs meet Chairman also annually present a self- with the Managing Director, the Deputy assessment to the Independent Managing Director, each Group Head, Directors, who formally review their the Head of Risk Management Division performance. The presentation includes (RMD), the Company Secretary and financial performance, the business other relevant executives to familiarise environment, prudential performance, themselves with the Bank, Bank staff and human relations and other procedures and prudential requirements, achievements. and Board practices and procedures.

37 Corporate Governance Statement continued The number of options on issue has always been within the limits established by the Option Plan rules, which have been lodged with ASX. In the years that options have been granted to Executive Voting Directors, the approval of shareholders has been obtained to permit those Executive Voting Directors to participate in the Option Plan up to maximum amounts specified in the shareholder resolutions. However, shareholder approval of the Option Plan itself was not required nor In setting its remuneration Key elements of the arrangements are sought under the Corporations Act or arrangements, reference is made to reviewed annually by the Board the ASX Listing Rules when the plan current employment market conditions Remuneration Committee (discussed was introduced in 1995 nor is in the markets in which the Bank below) and revised where appropriate, shareholder approval currently required. operates. The growing international having regard to prevailing market Hence, the Bank does not comply with nature of the Bank’s operations means conditions. Flexibility is retained to vary ASX best practice recommendation 9.4 that the Bank must compete for staff in or make exceptions to the profit share in respect of the Option Plan. A the world’s major financial centres and other employment arrangements description of the Option Plan has been (currently 24 per cent of staff reside where special circumstances arise. provided in the Bank’s Financial Report outside Australia). To further encourage long-term each year and the number of options The Bank’s remuneration practices are commitment, restriction arrangements on issue, including details of expiry considered confidential for competitive apply to performance pay. The dates and exercise prices, has been reasons. However, the major features of arrangements applying to the Bank’s lodged with ASX for public viewing the Bank’s remuneration are: Executive Directors (the 150 most senior monthly since the Bank’s shares were executives), including the Executive listed on ASX in 1996. – base remuneration determined by (ASX Recommendation 9.4) reference to market conditions Voting Directors and Executive Officers, – a formula-driven profi t share scheme are separately discussed in section 4b. The Bank also offers all Australian- (applied since the Bank’s inception) For most other staff, 25 per cent of based staff the opportunity to acquire based on levels of profi tability and performance pay above a certain Bank shares via the Macquarie Bank returns above the estimated cost of amount is withheld for two years and Employee Share Plan and the capital, that provides for a signifi cant only payable if the employee remains Macquarie Bank Staff Share Acquisition portion (in the case of senior executives, with the Bank. However, performance Plan. Contributions to these plans are a large portion) of remuneration being pay in some instances is withheld for taken into account when determining at risk and tied to individual and Bank periods of up to four years depending individual’s performance pay each year. performance on the employee’s length of service and Bank shares acquired under these – profi t share deferral and restriction the size of the performance pay. two plans are subject to restrictions on arrangements that encourage long-term The Macquarie Bank Employee Share disposal and forfeiture in certain commitment Option Plan (Option Plan) was circumstances. The number of shares – signifi cant staff equity participation introduced by the Bank in 1995. It is issued or acquired via these plans has (encouraged through an options described in some detail in Note 33 of always been within the limits established scheme and employee share the Bank’s 2004 Financial Report. by the plans’ rules as described to acquisition plans). Options granted under the Option Plan shareholders when shareholder are exercisable at prevailing market approvals were obtained. Further prices for the Bank’s shares at the time information on the Bank’s employee of grant and vest as to one-third of share plans is available in Note 33 of each grant after two, three and four the 2004 Financial Report. years. Options granted to Executive Directors are also subject to performance hurdles (see section 4b). Staff only benefit from the Option Plan if the Bank’s share price increases over time, they remain with the Bank until the options have vested, and in the case of Executive Directors, the performance hurdles are met. The Bank believes that the Option Plan has been successful in helping to align senior executive interests with those of shareholders.

38 Macquarie Bank Limited 2004 Annual Review above the 50th percentile for companies in the then S&P/ASX 300 All Industrials Index (Benchmark Index) after vesting. Recognising the greater influence they have over the Bank’s overall profitability, options granted under the Option Plan to members of the Bank’s Executive Committee and to Executive Voting Directors may only be exercised once vested and if the Bank’s three-year average ROE has been at or above the 65th percentile for companies in the Benchmark Index 4b Executive Director and Executive after vesting. Bank was formed, have been Officer Remuneration successful in meeting the Bank’s Executive Voting Directors do not The Bank’s remuneration policy for remuneration objectives and delivering receive any fees for being Voting Executive Voting Directors and long-term value to shareholders. The Directors of the Bank or for attending Executive Officers is discussed in the Bank has consistently rated well in Board and Board Committee meetings. Directors’ Report. The amount of employer surveys. Compared to remuneration paid to Executive Voting The employment contracts with the industry norms, staff turnover has been Directors and the five highest paid Executive Chairman and the Managing relatively low and there has been Executive Officers is also set out in the Director provide for termination of minimal turnover at senior management Directors’ Report. employment by the Bank giving four levels. The average length of service for (ASX Recommendation 9.1) weeks’ notice. Under relevant members of the Bank’s Executive legislation both the Executive Chairman Executive Directors, including Executive Committee is currently 19 years. and the Managing Director would also Voting Directors and Executive Officers, The Bank has also been consistently be entitled to an additional week’s receive base remuneration, which profitable with significant growth in notice as they are over 45 years of age. is determined by reference to market profits over time. Since its formation as conditions, performance-based The Bank’s total employment expense Macquarie Bank, annual net profits remuneration as described above, and is shown in note 2 on page 14 of the attributable to ordinary shareholders are eligible to participate in the Bank’s 2004 Financial Report. have grown from $13 million in 1986, Option Plan. In 2003, the Board commissioned an its first full-year as a bank, to $93 million The remuneration policy is designed independent review of its remuneration. in 1996, when the Bank’s shares were to encourage superior and long-term That review concluded that: listed on ASX, to $494 million in the year just ended. For the period from commitment to the Bank by having – total remuneration expense as a a large part of these executives’ listing in July 1996 to 31 March 2004, percentage of revenue was in line with, the Bank’s total shareholder return was remuneration each year based on their or more conservative than, competitors own individual, and the Bank’s, better than that of all companies which – options remained the primary long-term were in the ASX Top 50 at the time of performances. An amount equal to incentive vehicles used by global peers a portion of each year’s annual profit the Bank listing its shares on ASX. of the Bank (ASX Recommendation 9.1) share received by these executives – delivery of some of the annual long- must be held subject to restrictions term incentive vehicles in the form 4c Setting Remuneration Arrangements designed to align their interests with of equity was appropriate to align the The Board established the those of shareholders. These interests of senior executives to Compensation Committee in February restrictions include the forfeiture of shareholders. 1985 and it was renamed the some or all of the restricted profit share Remuneration Committee in November upon the occurrence of a disqualifying The Bank believes that its remuneration 2001. The current composition of the event, vesting arrangements for up policies and practices, which have to a Remuneration Committee conforms to 10 years and, from 2004 onwards, a large extent been in place since the with that suggested by the ASX requirement to invest at least one-third Corporate Governance Council. of annual restricted amounts in the (ASX Recommendation 9.2) Bank’s shares. See page 49 of the The objectives of the Remuneration Directors’ Report for details. Committee are to assist the Board in Options vest over a four-year period. developing remuneration policies and Options granted under the Option practices that: Plan to Executive Directors who are not – are appropriate from the shareholders’ members of the Bank’s Executive perspective and are consistent with the Committee or Executive Voting Directors, close alignment of the interests of staff may only be exercised once vested and and shareholders, that has been a key if the Bank’s three-year average return element of the Bank’s success on ordinary equity (ROE) has been at or – are consistent with agreed Bank policies

39 Corporate Governance Statement continued

– are applied, and seen to be These arrangements have applied applied, fairly with effect from 1 July 2003. The – comply with relevant legal arrangements that applied immediately requirements. prior to this date are discussed in the The responsibilities of the Directors’ Report. Remuneration Committee are set out There are no termination payments to in a formal Charter and include to: NEDs on their retirement from office – review and approve, on behalf of other than payments accruing as a the Board, recommendations for result of superannuation contributions annual staff remuneration made by comprising part of their remuneration. – review and recommend to the Board: the Remuneration and Promotions (ASX Recommendation 9.5) – proposals for material changes to Committee and the Directors’ In order to encourage long-term remuneration policies Remuneration Committee commitment and more closely align – proposals relating to the (management committees of the the interests of the Board with those of remuneration of the Chairman, Bank), including allocations of proﬁ t shareholders, the Board has a Managing Director and other share and options minimum shareholding requirement for Executive Ofﬁ cers of the Bank. – review remuneration arrangements NEDs. They are required to compile relating to individuals or groups of The Remuneration Committee has and maintain a minimum shareholding individuals. Such arrangements may access to the senior management of in the Bank, currently set at 4,000 fully include but are not limited to: the Macquarie Bank Group and is able paid ordinary shares. This minimum to consult independent experts where it – management recommendations holding may be accumulated over considers it necessary to carry out its relating to the commencement, three years and may be contributed to duties and responsibilities, with all costs retention and cessation of via participation in the NEDSAP. borne by the Bank. employment of senior management Under the plan, NEDs may contribute a except where Board approval is 4d Non-Executive Director Remuneration portion of their remuneration from specifically required The remuneration policy for the Bank’s the Macquarie Bank Group to acquire – management recommendations NEDs and the amount of remuneration Bank shares at prevailing market prices. involving significant exceptions paid to NEDs, is discussed in detail in At the Bank’s 2000 AGM, shareholders to policy. the Directors’ Report (see page 49). approved the Macquarie Bank Non- The Committee may approve such (ASX Recommendation 9.3) Executive Director Option Plan but in arrangements unless they are significant The remuneration policy for NEDs is 2002 the Board agreed to suspend because of their sensitivity, precedent designed to remunerate NEDs at further grants under this plan. or disclosure implications in which case market levels for their time, commitment 5 Financial Reporting the Committee will make a and responsibilities. NEDs are The Bank’s Board has the ultimate recommendation to the Board. remunerated for their services from the responsibility for the integrity of the maximum aggregate amount (currently company’s financial reporting. To assist $1.6 million per annum) approved by the Board in fulfilling this responsibility it shareholders for that purpose. They has adopted the processes discussed receive a base fee and a fee for their below aimed at ensuring that the Committee and other duties. The financial statements and notes of the annual base fee for NEDs is reduced by Bank are complete, in accordance with one-sixth if the Bank’s average annual applicable accounting standards and return on ordinary equity for the provide a true and fair view. previous three financial years is not at or above the 65th percentile of the corresponding figures for all companies in the then S&P/ASX 300 Industrials Index. If the base fee is not reduced, one-sixth of the base fee must be contributed towards acquiring fully paid Bank shares on market via the shareholder approved Non-Executive Director Share Acquisition Plan (NEDSAP).

40 Macquarie Bank Limited 2004 Annual Review 5a Financial Assurance – any instances of signifi cant internal The Board has maintained an Audit fraudulent activity identifi ed and Committee since before the Bank was responses thereto listed. In September 1996, the Audit – the actioning of legal and regulatory Committee was renamed the Board developments that may have a Audit and Compliance Committee and material impact on the Group its functions expanded to encompass – ensure the Head of Operational Risk compliance matters. The current Review is independent from the external composition of the Board Audit auditor and Compliance Committee conforms – review and concur on the appointment, with that suggested by the ASX – review the signifi cant fi nancial reporting replacement, reassignment, or dismissal Corporate Governance Council. issues and judgments made in connection of the Head of Operational Risk Review. (ASX Recommendations 4.2 and 4.3) with the preparation of the company’s (ASX Recommendation 4.4) The main objective of the Board Audit fi nancial statements, interim reports, The Board Audit and Compliance and Compliance Committee is to assist preliminary announcements and related Committee also has responsibilities in the Board in reviewing any matters of formal statements, and review the relation to the external auditor disclosed significance affecting financial reporting disclosures in the fi nancial statements below under “Auditor Independence”. and compliance within the Macquarie – consider and review with the external Bank Group including: auditor: The Board Audit and Compliance Committee meetings are held – exercising oversight of the accuracy – the adequacy of the company’s periodically throughout the year and and completeness of the fi nancial internal controls including the Committee meets privately with statements computerised information system the following parties at least annually – making informed decisions regarding controls and security in separate sessions to discuss any accounting and compliance policies, – any related signifi cant fi ndings and matters that the Committee or these practices and disclosure recommendations of the external parties believe should be discussed – reviewing the scope and results of auditor and management’s response privately with the Committee: operational risk reviews, compliance thereto – Head of Operational Risk Review reviews and external audits – monitor and review the effectiveness of – Head of RMD – assessing the adequacy of the Group’s the Operational Risk Review function in – Head of RMD Compliance internal control framework to ensure ensuring compliance with policies – the external auditors. compliance with policies approved by approved by the Board Risk Committee the Board Risk Committee. – monitor and review the effectiveness of At least annually, the Committee The responsibilities of the Board Audit the Compliance function in ensuring members also meet privately to discuss and Compliance Committee are set out adherence to applicable laws and the operation and effectiveness of in its Charter and include to: regulations the Committee. – consider and review with management – review with management and the The Board Audit and Compliance and the Heads of Operational Risk external auditor at the completion of the Committee has unlimited access to Review and RMD Compliance: half-yearly audit review and the annual Operational Risk Review, the external audit and advise the Board as to: – the adequacy of the process for auditors, the Group’s compliance reporting and responding to officers and to senior management – the company’s fi nancial statements signifi cant control and regulatory of the Group. The Committee also and related notes breaches has the power to conduct or authorise – the external auditor’s audit of the – the adequacy of the Bank’s internal investigations into, or consult independent fi nancial statements and the report controls including computerised experts on, any matters within the thereon information system controls and Committee’s scope of responsibility. – any signifi cant changes required in security In accordance with current Bank policy, the external auditor’s audit plan – any diffi culties encountered in the Committee members may seek – any serious diffi culties or disputes course of reviews, including any independent professional advice for with management encountered restrictions on the scope of the work company-related matters at the Bank’s during the course of the audit or access to required information expense, subject to the estimated – other matters related to the conduct costs being approved by the Chairman, of the audit which are communicated in advance, as being reasonable. to the Committee

41 To assist it in monitoring the independence of the external auditors, the Committee has adopted the following policy: – the external auditor must remain independent of the Bank at all times and comply with Professional Statement F.1 ‘Professional Independence’ – the external auditor must monitor its independence and report to the Board every six months that it has remained independent 5b Certification by the Managing Director The Board Audit and Compliance – the audit fi rm must comply with and Chief Financial Officer Committee has also determined, and Professional Statement F.1 and with the The Managing Director and the Chief the Board has endorsed, that from Ramsay Report recommendations Financial Officer provide the Board 1 April 2003, the external audit pertaining to employment relationships. with written confirmation that the Bank’s engagement partner and review partner In particular, a former audit partner or financial reports present a true and must be rotated every five years. employee on the audit of the fair view, in all material respects, of The audit engagement partner was Macquarie Bank Group or legal the Bank’s financial condition and rotated after the audit of the financial vehicles managed by the Macquarie operational results and are in accordance statements for the year ended Bank Group is prohibited from with relevant accounting standards. 31 March 2003. becoming a director or offi cer in a Corporate Governance Statement continued (ASX Recommendation 4.1) senior audit facing role at the The auditor has been invited to attend 5c Auditor Independence Macquarie Bank Group or legal this year’s AGM and be available to The Board Audit and Compliance vehicles managed by the Macquarie answer questions about the conduct Committee is also responsible for Bank Group, until the lapse of a of the audit and the preparation overseeing the external audit of the “cooling-off” period of at least fi ve and content of the auditor’s report. Bank. Its duties and responsibilities years, and after the fi ve years “cooling- (ASX Recommendation 6.2) include to: off” period can have no continuing 6 Identifying Signifi cant Business Risks – recommend to the Board the fi nancial relationship with the audit fi rm There are many risks in the markets in appointment and removal of the – the audit fi rm must adhere to the which the Bank operates. A range of external auditors. This may include Ramsay Report recommendations and factors, some of which are beyond the periodic reviews of the external auditor the requirements of Professional Bank’s control, can influence and tenders may be called to assist in Statement F.1 pertaining to fi nancial performance. In many of its businesses deciding which external auditor should independence and business the Bank constantly and deliberately be recommended relationships assumes financial risk in a calculated – review, consider and advise the – the external auditor is not to provide and controlled manner. The Bank has in Board on: non-audit services under which the place limits and a range of procedures auditor assumes the role of – the external auditor’s annual plan to monitor the risk in its activities, and management, becomes an advocate these are periodically reviewed by the – the fees proposed by the external for the Bank, or audits its own auditor Board and, since its formation, the Risk professional expertise Committee of the Board. – the qualifi cation, expertise and – signifi cant permissible non-audit resources of the external auditor assignments awarded to external Further information on the Bank’s annually and auditors must be approved in advance system of risk oversight and management – whether an effective, comprehensive by the Committee or, between is set out below and also in the Risk and complete audit can be Committee meetings, the Committee Management Report at the beginning conducted for the fee Chairman of the Bank’s 2004 Financial Report. – monitor the effectiveness, objectivity – any fee arrangement between 6a Board Oversight and independence of the external Macquarie Bank Group and the The Board established a Board Risk auditors external auditor must not contain any Committee in February 2003 to focus – develop and recommend to the Board contingent or success fees element and appropriate attention on the risk the Bank’s policy in relation to the – all non-audit assignments are to be management framework of the Bank provision of non-audit services by reported to the Committee every and the particular significance of risk the auditor in order that the provision six months. to the Bank’s performance. These of such services does not impair This policy on auditor independence matters were previously considered the external auditor’s independence applies to services supplied by the by the Board. or objectivity. external auditors and their related firms (ASX Recommendation 7.1). to the Bank and its related entities. A copy of the Bank’s external auditor policy has been available on the Bank’s website since 28 July 2003. (ASX Recommendation 4.5)

42 Macquarie Bank Limited 2004 Annual Review 6b Risk Management Framework 7 Commitment to Shareholders and The Bank’s approach to risk Informed Market management is described earlier in this The Bank believes that shareholders Review and also in some detail in the and the investment community Risk Management Report in the Bank’s generally should be informed of all 2004 Financial Report. major business events that influence In brief, the principles followed by the Bank in a factual, timely and widely Macquarie Bank in risk management available manner and shareholders are are: encouraged to participate in general meetings. In 1994 the Board instituted a – Independence – RMD, which is Continuous Disclosure Policy, which in responsible for assessing and March 2001 was widened into a Policy monitoring risks across the Group, is on Disclosure of Bank Matters and in The Board Risk Committee has the independent of the operating areas 2003 widened into a Policy on External following duties and responsibilities: of the Group, reporting directly to the Communications. Managing Director and the Board. – review and endorse the Bank’s risk (ASX Recommendations 5.1 and 6.1) RMD authority is required for risk management framework and any acceptance decisions. A copy of the Bank’s external variations to it – Centralised Prudential Management – communications policy has been – review and endorse the Bank’s risk available on the Bank’s website since RMD’s responsibility covers the whole profi le in each risk area of market, of the Macquarie Bank Group. 28 July 2003. liquidity, equity, credit, regulatory and Therefore it can assess risks from a (ASX Recommendation 5.2) operational risk. There should also be Group-wide perspective and ensure a 7a Communications a review of: consistent approach across all It is the Bank’s policy that all external – developments in markets in which operating areas. communications by the Bank will be: the Macquarie Bank Group operates – Approval of all new business activities – – factual and subject to internal vetting – experience of losses in each risk Operating areas cannot undertake new and authorisation before issue category to provide confi dence that businesses or activities, offer new – not omit material information and the Bank’s policy refl ects experience products, or enter new markets without – be timely and expressed in a clear – review and endorse the Macquarie fi rst consulting RMD. The Division and objective manner. Bank Group’s capital management plan identifi es, quantifi es and assesses all The Bank’s External Communications including information on the Macquarie risks and sets prudential limits. Where policy includes a formal procedure for Bank Group’s capital adequacy and appropriate, these limits are approved dealing with potentially price-sensitive economic capital model by the Executive Committee and information designed to meet the – review and approve matters requiring the Board. Bank’s continuous disclosure Board approval including: – Continuous assessment – RMD continually reviews risks to account for obligations. This procedure involves – signifi cant variations to policies, limits changes in market circumstances and referrals to a Continuous Disclosure and delegations of authority the Group’s operating policies. Committee, including senior management, – individual transactions beyond the – Frequent monitoring – Centralised in certain circumstances. The Company authority delegated to management systems exist to allow Risk Management Secretary is responsible for coordinating where these have not been reviewed Division to monitor credit and market disclosure of information to ASX, by the Board risks daily. RMD staff liaise closely with shareholders, analysts and brokers, and – review limit and policy breaches above operating and support Divisions. for educating Voting Directors and staff on the Bank’s disclosure policies and certain thresholds 6c Managing Director and Chief – assess the risk management procedures. The policy also deals with Financial Officer Certification the type of information that needs to be framework against the expectations The Managing Director and the Chief of APRA and other regulators. addressed, safeguarding confidentiality, Financial Officer provide the Board with dealing with the media and protocols The Board Risk Committee has the written confirmation that: for analyst briefings. power to consult independent experts – the statement given to the Board on It is the Bank’s policy that any price- on any matters within the Committee’s the integrity of the Bank’s fi nancial scope of responsibility. Committee sensitive material for public statements is founded on a sound announcement, including annual and members may seek independent system of risk management and professional advice for company-related interim profit announcements, release internal compliance and control which of financial reports, presentations to matters at the Bank’s expense subject implements the policies adopted by to the estimated cost being approved investors and analysts and other the Board and prepared investor briefings, will be: by the Chairman of the Board, in – the company’s risk management and advance, as being reasonable. internal compliance and control system – lodged with ASX as soon as practical is operating effi ciently and effectively in and before external disclosure elsewhere all material respects. – posted on the Bank’s website as soon (ASX Recommendation 7.2) as practical after lodgement with ASX.

43 Corporate Governance Statement continued – ensuring the Bank’s assets are used only for authorised and legitimate business purposes – maintaining the confi dentiality of information and the privacy of personal information entrusted to the Bank by its clients, employees and others with whom it deals except where disclosure is authorised – ensuring high standards of disclosure and audit integrity in relation to the Bank’s activities and fi nancial performance The Bank’s website (www.macquarie. Unless specifically stated in the Notice – ensuring dealings between the Bank com.au/shareholdercentre) contains of the AGM, all holders of fully paid and a client, competitor or supplier are recent announcements, presentations, ordinary shares are eligible to vote on conducted in a lawful and fair manner past and current reports to shareholders, all resolutions. Holders of Macquarie – supporting the charitable, sponsorship answers to frequently asked questions Income Securities have limited voting and volunteer work of the Macquarie and a five-year summary of key rights as set out in the terms of issue. Bank Foundation and the Bank’s staff financial data. Investors may also register The Bank will webcast the formal in the communities in which Macquarie here to receive copies of significant addresses at its AGM and any other operates announcements by email as soon as general meetings which may be held – conducting all of the Bank’s business in practical after they have been lodged for the benefit of those shareholders accordance with applicable laws and with ASX. unable to be personally present. regulations in the jurisdictions in which the Bank operates, and in a way that The Bank has a Corporate 8 Ethical Standards Communications Division whose enhances its reputation in those markets 8a Code of Ethics and Conduct – appropriate responsibility and responsibilities include overseeing The Bank’s Voting Directors and staff media relations in Australia and accountability of individuals for reporting are required to maintain high ethical and investigating unethical practices overseas. The Bank also has a standards of conduct. specialist Investor Relations function and protecting a person who in good whose primary responsibilities are to The Group’s code of ethics, Macquarie faith makes, or assists someone to prepare, facilitate and coordinate Bank – What We Stand For, covers the make, a report concerning violations communications, and foster relations, Bank’s dealing with external parties of the Code. with the Bank’s shareholders and and how the Bank operates internally. The Code of Conduct is intended to the wider investment market about It is periodically reviewed and fully help Voting Directors and staff to the Bank and its listed securities endorsed by the Board. What We understand their responsibilities to as investments. Stand For is distributed to all staff and uphold the goals and values to which its standards communicated and Macquarie aspires and to conduct 7b General Meetings reinforced at Bankwide induction The Bank usually holds its AGM of business in accordance with applicable programs, presentations to workgroups laws and regulations. The content and members of the Bank in late July and annual staff meetings. of each year. The Bank will choose a effectiveness of the Code is reviewed at date, venue and time considered In July 2003 the Bank also adopted a least biennially. convenient to the greatest number Code of Conduct which incorporates The Code is reflected in, and supported of its shareholders. the Group’s code of ethics and also by, a broad range of Macquarie’s commits the Bank to: The Notice of AGM will be accompanied internal policies and procedures. A copy by explanatory notes on the items of – avoiding or appropriately managing of the Code has been available on the business and together they will seek to any confl ict of interest between the Bank’s website since 6 August 2003. clearly and accurately explain the personal interests of a Voting Director (ASX Recommendations 3.1 and 10.1) nature of business of the meeting. In or staff members and their responsibility that regard, the Bank will be cognisant to serve the interests of the Bank and of best practice, including the its clients Guidelines for Notices of Meetings – ensuring property, information and produced by the ASX Corporate position are not misused for personal Governance Council. A full copy of the benefi t or to compete with the Bank Notice of AGM will be placed on the Bank’s website. Shareholders are encouraged to attend the meeting or, if unable to attend, to vote on the motions proposed by appointing a proxy. The proxy form included with the Notice of AGM will seek to clearly explain how the proxy form is to be completed and submitted.

44 Macquarie Bank Limited 2004 Annual Review In March 2003, the Board also resolved that the Bank’s Executive Directors will not be permitted to undertake any action that is designed to minimise the equity risk in relation to their holdings of Bank shares which are part of their profit share allocations held subject to restrictions, or their unvested employee option holdings. A NED may not enter into a transaction that operates to limit the economic risk of their Macquarie Bank shareholding below their minimum shareholding 8b Integrity Officer – only independent directors make requirement. Since 1998, the Bank has had an decisions about transactions which Integrity Officer, who: A copy of the Bank’s trading policy has involve Macquarie or its affi liates as been available on the Bank’s website – provides education, advice and counterparties. Macquarie directors since 6 August 2003. counselling to management and do not vote on related party matters (ASX Recommendation 3.3) staff regarding integrity issues – all related party transactions are tested – ensures that claims of integrity 9 Corporate Governance in Macquarie by reference to whether they meet breaches are dealt with impartially, Managed Funds market standards. In particular, fee promptly and confi dentially An integral part of the success of schedules and mandate terms and – sees that staff who bring forward Macquarie’s infrastructure funds conditions are subject to third party complaints of this nature are not management business has been its expert review victimised. ability to draw upon the resources of – there is a separate Infrastructure and the broader Macquarie group, Specialised Funds Division and staff in The Integrity Officer serves as an particularly the global advisory team in this area are dedicated to the funds independent point of contact if Voting the Investment Banking Group which management business. They serve the Directors or staff have a concern about contributes strongly in establishing interests of unitholders and the boards an integrity related issue and reports funds, assets sourcing and execution of the funds directly to the Executive Chairman or of acquisitions and financings. To – all recommendations to fund boards the Managing Director. safeguard the interests of investors, are prepared by funds management 8c Staff and Director Trading in the Macquarie has applied a governance staff and all information and analysis Bank’s Securities framework to its specialist funds supporting the recommendations to The Bank has a formal policy dealing activities. In November 2002, the Board the boards are reviewed or prepared with trading in a Macquarie Bank reviewed and enhanced this framework by funds management staff security which is applicable to all Voting for the infrastructure funds management – each listed fund has its own Managing Directors, employees, contractors and business. The key elements of the Director a person over whom an employee or framework are: – there is a “Chinese Wall” operating contractor has or is deemed to have between the infrastructure funds – the boards of both the corporate investment control or influence. management business and other parts vehicles and the management company/ (ASX Recommendation 3.2) of the Bank. responsible entity of the trusts of listed Bank employees and Board members Macquarie-managed funds comprise a Similar principles apply to property may only trade in the Bank’s securities majority of independent directors. The trusts managed by wholly-owned during nominated trading ‘windows’ defi nition of independence is consistent Macquarie entities. which are typically of three to five weeks with the Bank’s defi nition duration and follow the Bank’s – related party transactions with announcements of its interim and full Macquarie entities are clearly identifi ed year profits and after the AGM. Bank and governed by rules requiring they be approval is occasionally given for undertaken on arm’s length terms exceptions in cases of financial hardship. However, at any time, if an individual possesses material non-public price-sensitive information about the Bank, that person is prohibited from trading. The Bank’s trading policy also contains dealing protocols regulating Voting Director and staff trading. In June 2001, the Board also agreed that Board members will generally not sell Bank shares while the shares are subject to an on market buy-back, not undertake short-term trading in any Bank-related security and not trade in a derivative of a Macquarie security without the prior approval of the Chairman (or the Managing Director in the case of the Chairman). 45 Concise Report

This concise financial report has been derived from the full consolidated financial report for the financial year ended 31 March 2004. The full consolidated financial report and independent audit report will be sent to members on request, free of charge. Please call (02) 8232 3333 and a copy will be forwarded to you. Alternatively, you may access the full consolidated financial report, the independent audit report and the concise financial report via the internet at: www.macquarie.com.au. The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of Macquarie Bank Limited and its controlled entities as the full consolidated financial report.

47 Directors’ report 58 Directors’ report schedule 60 Consolidated statement of financial performance 61 Consolidated statement of financial position 62 Consolidated statement of cash flows 63 Discussion and analysis 64 Notes to and forming part of the concise financial statements 71 Directors’ declaration 72 Independent audit report 73 Financial summary since listing 74 Contact directory

46 Macquarie Bank Limited 2004 Annual Review Directors’ Report for the ﬁnancial year ended 31 March 2004

In accordance with a resolution of the The aforementioned Directors each State of affairs Voting Directors (the Directors) of held office as a Director of the Bank On 21 August 2003, the Bank resolved Macquarie Bank Limited (the Bank), throughout the financial year ended that a tax consolidated group would the Directors submit herewith the 31 March 2004, with the exception of be formed between the Bank and its statement of financial position as at Mr P.M. Kirby and Ms C.B. Livingstone. wholly-owned Australian controlled 31 March 2004 and the statement of Mr Kirby was appointed as an entities effective from 1 October 2002. financial performance and the Independent Director of the Bank Under the terms and conditions of a tax statement of cash flows of the Bank effective 28 June 2003 and contribution agreement, the Bank, as and the entities it controlled at the end Ms Livingstone was appointed as an the head entity of the tax consolidated of, and during, the financial year ended Independent Director of the Bank group, will charge or reimburse its on that date and report as follows: effective 19 November 2003. eligible wholly-owned subsidiaries for Directors Those Directors listed as Independent tax liabilities or assets it incurs in At the date of this report, the Directors Directors have been independent connection with their activities. As a of the Bank are: throughout the financial year ended consequence, the Bank will recognise Executive Directors 31 March 2004, or if appointed during the deferred tax balances of its wholly- owned subsidiaries as if those were its D.S. Clarke, AO, Executive Chairman the year, since the date of their own in addition to the current and A.E. Moss, Managing Director and appointment as a Director. Chief Executive Officer Details of qualifications, experience deferred tax amounts arising in relation to its own transactions, events and M.R.G. Johnson, Deputy Chairman and special responsibilities of the balances. Amounts receivable or payable L.G. Cox, AO* Directors at the date of this report under the tax contribution agreement Independent Directors** are set out in the Directors’ Report Schedule following. with the tax consolidated entities are J.G. Allpass recognised separately as tax-related P.M. Kirby Principal Activities amounts receivable or payable. C.B. Livingstone The principal activities of the Bank In the opinion of the Directors there H.K. McCann and its controlled entities during the were no other significant changes in B.R. Martin financial year ended 31 March 2004 the state of affairs of the Bank and its J.R. Niland, AC were those of a full service financial controlled entities that occurred during H.M. Nugent services provider offering a complete the financial year under review not * Mr L.G. Cox was appointed an range of investment banking, commercial banking and retail financial otherwise disclosed in this report or Executive Director on 25 March 2004. the concise financial report. Prior to this date, Mr Cox was a Non- services in Australia and selected Executive Director. financial services offshore. Dividends and distributions The Bank paid or provided dividends ** In accordance with the Bank’s definition Result The consolidated profit from ordinary and distributions during the financial of independence (as set out in the year as set out in the table below: Corporate Governance Statement activities after income tax attributable to contained in the 2004 Annual Review). ordinary equity holders for the financial year ended 31 March 2004 was $494 million (2003: $333 million).

Security Payment date Payment type $ In respect of ﬁnancial year ended / period Ordinary shares 2 July 2003 Final 106,339,035 31 March 2003 Paid 2 July 2003 Special 102,249,072 31 March 2003 Paid 19 December 2003 Interim 112,379,341 31 March 2004 Paid

Macquarie Income Securities 15 April 2003 Periodic 6,440,548 15 January to 14 April 2003 Paid 15 July 2003 Periodic 6,502,136 15 April to 14 July 2003 Paid 15 October 2003 Periodic 6,482,849 15 July to 14 October 2003 Paid 15 January 2003 Periodic 6,744,980 15 October 2002 to 14 January 2003 Paid 15 April 2004 Periodic 6,109,366 15 January to 31 March 2004 Provided

Converting Preference Shares 16 June 2003 Periodic 5,519,851 16 December 2002 to 15 June 2003 Paid 25 September 2003 Final (a) 3,093,600 16 June to 25 September 2003 Paid

No other dividends or distributions have been declared or paid during the ﬁnancial year. (a) The Converting Preference Shares were converted to ordinary shares on 25 September 2003. In accordance with the terms of issue, a dividend was paid on that date. 47 Directors’ Report for the ﬁnancial year ended 31 March 2004 continued

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 the Bank during the financial year is summarised in the tables below.

Board meetings Regular Board meetings Special Board meetings Eligible to attend Attended Eligible to attend Attended D.S. Clarke 12 12 3 3 A.E. Moss 12 12 3 3 M.R.G. Johnson 12 12 3 3 L.G. Cox 12 12 3 3 J.G. Allpass 12 12 3 3 P.M. Kirby 9 8 2 2 C.B. Livingstone 5 5 1 – H.K. McCann 12 12 3 3 B.R. Martin 12 12 3 3 J.R. Niland 12 12 3 3 H.M. Nugent 12 12 3 3

Board committee meetings Board Board Audit Corporate Board Board and Compliance Governance Nominating Remuneration Board Risk Committee Committee Committee Committee Committee Eligible Eligible Eligible Eligible Eligible to attend Attended to attend Attended to attend Attended to attend Attended to attend Attended D.S. Clarke – – – – 3 3 8 8 4 4 A.E. Moss – – – – – – – – 4 4 M.R.G. Johnson – – 5 4 – – – – 4 4 L.G. Cox – – – – – – – – 4 4 J.G. Allpass 8 8 – – – – 8 8 4 4 P.M. Kirby – – – – – – 4 4 3 3 C.B. Livingstone 3 3 – – – – – – 2 2 H.K. McCann 8 8 5 5 – – – – 4 4 B.R. Martin 8 8 3 3 3 3 – – 4 4 J.R. Niland – – 2 2 – – – – 4 4 H.M. Nugent – – – – 3 3 8 8 4 4

In addition, a Board committee was establilshed in August 2003 with full authorisation to deal with all aspects of the Bank’s participation in the ConnectEast Consortium bid for the Mitcham Frankston Freeway Project. The committee consists of all members of the Board from time to time, with the exception of Mr Cox. The committee met five times during the financial year, and all members attended all five meetings other than Mr Kirby who attended four meetings.

Review of operations Likely developments for annual staff remuneration made to it A review of the operations of the Disclosure of information relating to the by the Bank’s management. The review Bank and its controlled entities and future developments in the operations includes allocations made to Executive the results of those operations for the of the Bank and its controlled entities Voting Directors and other staff under financial year under review are which would not, in the opinion of the the profit share arrangements and the contained in the Chairman’s and Directors, be prejudicial to the interests Macquarie Bank Employee Share Managing Director’s Report. of the Bank and its controlled entities Option Plan (ESOP). The Committee Events subsequent to balance date is contained in the Chairman’s and approves remuneration recommendations At the date of this report, the Directors Managing Director’s Report. for all staff except Executive Officers of are not aware of any matter or Remuneration policy for Directors the Bank and Executive Voting circumstance which has arisen that has and Executive Officers Directors (which includes the Managing significantly affected or may significantly The Board of Directors maintains a Director and Chairman) which are affect the operations of the Bank and Remuneration Committee (the reviewed by the Committee and its controlled entities, the results of Committee) which currently comprises referred to the Board for approval. The those operations or the state of affairs Dr H.M. Nugent (Chairman), Mr J.G. Committee can obtain the advice of of the Bank and its controlled entities in Allpass, Mr D.S. Clarke and Mr P.M. external consultants on the the financial years subsequent to Kirby. The Committee has a regular appropriateness of remuneration 31 March 2004 not otherwise disclosed meeting cycle and meets more often packages and other employment in this Report. as needed. The Committee reviews conditions if required. compensation arrangements for all Directors and reviews recommendations 48 Macquarie Bank Limited 2004 Annual Review Non-Executive Directors earlier, as well as the committee fees The restrictions lapse six months after Non-Executive Directors (NEDs), noted above. The contingent departure as an ED/EO from the Bank, including all of the Bank’s independent remuneration was also in the form of except where a disqualifying event Directors, are remunerated for their fully paid ordinary shares in the Bank has occurred. A disqualifying event will services from the maximum aggregate acquired for the NED under the arise if an ED/EO leaves the Bank amount (currently $1,600,000 p.a.) NEDSAP. under circumstances of dishonesty or approved by shareholders for that NEDs receive no additional that may otherwise cause significant purpose. Executive Directors are not remuneration for their membership of damage to the Bank. Examples of remunerated for acting as Directors. the Board Risk Committee. these circumstances include: The Board’s policy is to remunerate misappropriation of funds, deliberate NEDs at market rates for comparable NEDs may elect to receive their concealment of a transaction or taking companies for the time commitment remuneration, in part, in the form of a team of the Bank’s staff to a and responsibilities involved. An external superannuation contributions and by competitor (or being instrumental in or review was undertaken in 2003 to way of the Bank’s fully paid ordinary causing a team to go to a competitor). shares issued via the NEDSAP. ensure that the NEDs were being To further align the interests of EDs and remunerated at market rates. Current Executive Directors and Executive EOs with shareholders, from 2004 rates are: Officers onwards EDs and EOs are required to – Base fee for NED $162,000 p.a. The Bank’s remuneration policy for compulsorily invest a minimum of (subject to note below) Executive Directors (EDs) and Executive one-third of their annual DPS restricted – Chairman of the Board Audit and Officers (EOs) is designed to align their amounts in the Bank’s shares. No Compliance Committee $50,000 p.a. interests with shareholders by shares are issued by the Bank to satisfy – Member of the Board Audit and promoting superior performance and this requirement. long-term commitment to the Bank. Compliance Committee $25,000 p.a. Following shareholder approval at the – Chairman of the Board Remuneration EDs and EOs receive base Bank’s 1999 Annual General Meeting, Committee $25,000 p.a. remuneration, which is determined by EDs and EOs are able to request that – Member of the Board Remuneration reference to market conditions, and part of their profit sharing allocation be Board Committee $12,500 p.a. participate in a Directors’ Profit Share applied to the on-market acquisition of Board Audit Corporate Board Board – Chairman of the Board Corporate (DPS) Scheme under which the Bank shares in the Bank under the Macquarie and Compliance Governance Nominating Remuneration Board Risk Governance Committee $25,000 p.a. Committee Committee Committee Committee Committee makes provision for performance-based Bank Staff Share Acquisition Plan. – Member of the Board Corporate remuneration. All staff, including EDs 1995 ED EO Eligible Eligible Eligible Eligible Eligible Governance Committee $12,500 p.a. and EOs, are eligible to participate in a From , s and s have to attend Attended to attend Attended to attend Attended to attend Attended to attend Attended – Member of the Board Nominating profit sharing pool whose size is participated in the ESOP. Refer to D.S. Clarke – – – – 3 3 8 8 4 4 Committee $4,400 p.a. determined annually by reference to the Note 33 to the full financial statements – A.E. Moss – – – – – – – – 4 4 Employee equity participation, The base fee and committee fees are economic entity’s after tax profits and M.R.G. Johnson – – 5 4 – – – – 4 4 for further information on the ESOP. paid quarterly except for one-sixth of its earnings over and above the L.G. Cox – – – – – – – – 4 4 the base fee which is deferred until after estimated cost of capital. The effect of The Bank’s remuneration policies, J.G. Allpass 8 8 – – – – 8 8 4 4 year-end. The annual base fee for NEDs this is to provide substantial incentives including the amount of the provision P.M. Kirby – – – – – – 4 4 3 3 is reduced by one-sixth if the Bank’s in relation to superior profitability and for performance related remuneration, C.B. Livingstone 3 3 – – – – – – 2 2 average annual return on ordinary return on equity but low participation for are subject to the discretion of the H.K. McCann 8 8 5 5 – – – – 4 4 equity for the previous three financial less satisfactory performance. For EDs Board and can be changed to reflect B.R. Martin 8 8 3 3 3 3 – – 4 4 years is not at or above the 65th and EOs, this means that a large part of external factors. J.R. Niland – – 2 2 – – – – 4 4 percentile of the corresponding figures their remuneration each year is ‘at risk’ H.M. Nugent – – – – 3 3 8 8 4 4 The Bank commissioned an independent for all companies in the then S&P/ASX and performance based, providing review of its remuneration in 2003, 300 Industrials Index. If the base fee significant alignment of their interests which concluded that the Bank’s is not reduced, the one-sixth of the with those of shareholders. remuneration expense is in line with, or base fee which has been deferred is The proportion of after-tax profit and more conservative than, competitors, paid and must be contributed towards proportion of earnings in excess of options remain the primary long-term acquiring Bank shares via the the Bank’s cost of capital in the profit incentive vehicle used by global peers Macquarie Bank Non-Executive Director share formula is reviewed regularly. of the Bank and delivery of some of Share Acquisition Plan (NEDSAP). Where appropriate, changes are the annual long-term incentive in the The NEDSAP was approved at the recommended by the Board Remuneration form of equity is appropriate. Bank’s 1999 Annual General Meeting Committee to the full Board. Following this review, it was concluded and shares under the NEDSAP are The whole of the profit sharing provision that no major changes to the Bank’s acquired on-market at prevailing market for each financial year is charged remuneration policies were necessary, prices. The Bank has been granted against earnings in that year. To that the emphasis on performance an ASX listing rule waiver to allow NED encourage a longer term perspective based arrangements had worked well remuneration to be structured in on the part of EDs and EOs, it is a and should continue and that 30 per this manner. fundamental condition of the DPS cent of EDs’ and EOs’ profit share These remuneration arrangements Scheme that 30 per cent of the annual would continue to be subject to long- applied from 1 July 2003. Prior to this DPS allocations (unless the individual’s term restriction arrangements. date, NEDs received a base fee of maximum allocation has been met, in The Bank’s long-term incentive $100,000 per annum and a contingent which case a lesser amount) are held schemes continue to be reviewed additional payment equal in value to subject to restrictions whilst the ED/EO regularly to ensure that it meets 20 per cent of the annual base NED remains employed as an ED/EO of the the Bank’s remuneration objectives. fee, conditional on the Bank meeting Bank. These restricted amounts begin the same benchmark as described to vest after five years of service as an ED/EO and fully vest after ten-years of service as an ED/EO, subject to any disqualifying events. 49 Directors’ Report for the financial year ended 31 March 2004 continued

Directors’ and Executive Ofﬁcers’ remuneration

Performance Total Base related Other remuneration Total remuneration (a) remuneration (b) beneﬁts (c) expense Options (d) remuneration Name and position $ $ $ $ $ $

Executive Directors D.S. Clarke 329,575 4,045,319 – 4,374,894 168,726 4,543,620 M.R.G. Johnson 229,314 1,073,719 – 1,303,033 99,001 1,402,034 A.E. Moss 665,336 8,072,930 – 8,738,266 351,005 9,089,271 L.G. Cox 154,460 397,829 250,881 803,170 – 803,170

Independent Directors J.G. Allpass 214,000 – 50,188 264,188 – 264,188 P.M. Kirby 130,913 – – 130,913 – 130,913 C.B. Livingstone 68,534 – – 68,534 – 68,534 H.K. McCann 201,500 – – 201,500 – 201,500 B.R. Martin 185,067 – 28,125 213,192 – 213,192 J.R. Niland 159,834 – – 159,834 – 159,834 H.M. Nugent 180,900 – – 180,900 – 180,900

Executive Ofﬁcers (e) A.J. Downe 470,821 4,305,141 – 4,775,962 266,243 5,042,205 N. Moore 508,487 7,110,465 – 7,618,952 439,111 8,058,063 W.J. Moss 470,821 2,974,026 – 3,444,847 322,151 3,766,998 W.R. Sheppard 508,487 2,405,601 – 2,914,088 200,468 3,114,556 O. Weiss 470,821 6,577,105 – 7,047,926 166,012 7,213,938

(a) Base remuneration includes the Bank’s contributions to superannuation schemes. Effective from 1 July 2003, the base remuneration for Non-Executive Directors is reduced by one-sixth if the Bank’s average annual return on ordinary equity for the previous three financial years is not at or above the 65th percentile of the corresponding figures for all companies in the then S&P/ASX 300 Industrials Index. This benchmark was achieved. (b) Performance related remuneration for Executive Directors and Executive Officers comprises the annual profit share allocation that is not subject to restrictions. As discussed on page 51, 30 per cent of the annual profit share allocations are held subject to restrictions while the Executive Director/Executive Officer remains employed as an Executive Director/Executive Officer of the Bank. (c) Other benefits are consulting fees paid to Mr Cox of $250,881, Due Diligence Committee fees to Mr Allpass of $8,000 and fees paid to Mr Allpass and Mr Martin for Board and Committee duties for certain of the Bank’s subsidiaries. Until 15 May 2003, Mr Allpass was the Chairman of the Board of Macquarie Life Limited (MLL), a member of the Board Audit and Compliance Committee of MLL and Mr Martin was a member of the Board of MLL and Chairman of the Board Audit and Compliance Committee of MLL. Fees paid in respect of these positions were at the rate of: – Mr Allpass $37,500 p.a. – Mr Martin $25,000 p.a. Mr Allpass is also Chairman of the Macquarie Investment Management Limited (MIML), the Macquarie Investment Services Limited (MISL) and the MIML IDPS Compliance Committees and Mr Martin is a member of these three Compliance Committees. Effective from 1 April 2003, the fees paid in respect of these positions were at the rate of: – Mr Allpass $37,500 p.a. – Mr Martin $25,000 p.a. These amounts were paid by the subsidiaries.

50 Macquarie Bank Limited 2004 Annual Review The table below summarises the relevant meetings held and attended:

MLL Board MIML IDPS MLL regular Audit and Compliance MIML Compliance Compliance MISL Compliance board meetings Committee meetings Committee meetings Committee meetings Committee meetings Eligible Eligible Eligible Eligible Eligible to attend Attended to attend Attended to attend Attended to attend Attended to attend Attended J.G. Allpass 2 2 1 1 4 4 4 4 4 4 B.R. Martin 2 2 1 1 4 4 4 4 4 4

(d) The Bank has applied the requirements of ASIC Guideline 03-202 to the measurement of options granted to Directors and relevant Executives. Remuneration includes a proportion of the fair value of options which have fully vested as at the commencement of the financial year. These amounts represent the amortised cost of the fair value of options as determined at grant date and progressively allocated on a straight-line basis over the vesting period. In prior years the Bank included the fair value of option grants with remuneration in the year of grant. As a result of this change the current year remuneration includes amounts in relation to options that had been granted in prior years and included within remuneration in those financial years. (e) Executive Officers shown above are the five highest paid current members of the Executive Committee who are not members of the Board.

Executive Directors’ restricted proﬁt share As discussed in the Remuneration Policy section of this report, to encourage a longer term perspective on the part of EDs, it is a fundamental condition of the DPS Scheme that 30 per cent of the annual DPS allocations (unless the individual’s maximum allocation has been met, in which case a lesser amount) are held subject to restrictions whilst the ED remains employed as an ED by the Bank. The restricted amounts begin to vest after five years of service as an ED/EO and fully vest after ten years of service as an ED/EO, subject to disqualifying events. The restrictions lapse six months after departure as an ED/EO from the Bank, except where a disqualifying event has occurred. A disqualifying event will arise if an ED/EO leaves the Bank under circumstances of dishonesty or that may otherwise cause significant damage to the Bank. The amount of DPS allocations of the EDs that are held subject to restrictions is shown in the table below. The whole of the profit sharing provision, including amounts held subject to restrictions, for each financial year is charged against earnings in that year.

Balance Balance credited to of restricted restricted profit Balance of restricted Date of entry to profit share at share during the profit share at Directors’ Years 31 March 2003 financial year (a) 31 March 2004 Profit Share entitlements Name and position $ $ $ Scheme accrued over

Executive Directors D.S. Clarke 6,092,943 1,800,826 7,893,769 1 February 1985 19 M.R.G. Johnson 4,707,602 450,000 5,157,602 1 March 1987 17 A.E. Moss 12,982,811 3,601,653 16,584,464 1 February 1985 19 L.G. Cox – 180,000 180,000 25 March 2004 1

(a) This amount is excluded from the definition of remuneration for the current financial year because it is subject to the restrictions noted in the discussion of the remuneration policy for EDs. There are no other amounts that are contingently payable to the persons named above upon their departure from the Bank as a result of the terms and conditions of their employment.

51 Directors’ Report for the ﬁnancial year ended 31 March 2004 continued

Share options granted to Executive Directors and Executive Ofﬁcers This table represents options granted to Executive Directors and Executive Officers in the current financial year.

Option exercise Number of price Date ﬁrst option Name and position Date options granted options granted $ tranche exercisable (a)

Executive Ofﬁcers A.J. Downe 28 August 2003 80,000 28.74 1 July 2005 N.W. Moore 28 August 2003 100,000 28.74 1 July 2005 W.J. Moss 28 August 2003 82,000 28.74 1 July 2005 W.R. Sheppard 28 August 2003 60,000 28.74 1 July 2005 O. Weiss 28 August 2003 35,000 28.74 1 July 2005

(a) Options are issued subject to the exercise conditions referred to in Note 33 to the full consolidated financial statements – Employee Equity Participation and are only exercisable in three equal tranches on or after 1 July 2005, 1 July 2006 and 1 July 2007 and if the Bank’s average annual return on ordinary equity for the three previous financial years is at or above the 65th percentile of the corresponding figures for all companies in the then S&P/ASX 300 Industrials Index. Allocations of these options were in respect of performance for the Bank’s 2003 financial year. The fair value of each option is estimated at the grant date using a combination of Monte Carlo and trinomial option pricing frameworks adjusted to take account of option trading period restrictions, vesting timeframes, and where appropriate, performance hurdles. The following range of key assumptions have been adopted in valuing options included within the current year remuneration: risk free interest rate: 5.9–6.95%, expected life of options: four years, volatility of share price: 18–30% and dividend yield: 3.1–3.5% p.a. The full details of the options issued appear in the Annual Report of the year in which they are granted. The exercise price of the above options granted was based on the weighted average market price of the Bank’s shares during the calendar month of June 2003. There were no options issued to Voting Executive Directors and Non-Executive Directors during the financial year.

52 Macquarie Bank Limited 2004 Annual Review Share options sold by Executive Directors and Executive Ofﬁcers During the year, Ord Minnett Limited offered the Bank a Sale of Options Facility. A number of Executive Directors and Executive Officers have consequently sold a portion of their vested options outstanding during the financial year. The proceeds received on sale of these options are equivalent to the difference between the market value of the shares at the date of sale and the exercise price of the option.

Market value Exercise price per share at Number of per share date of sale Name and position Date options sold options sold $ $

Executive Directors A.E. Moss 11 August 2003 40,000 18.51 30.66 24 November 2003 50,000 18.51 33.81

Executive Ofﬁcers A.J. Downe 13 August 2003 38,334 18.51 30.49 13 August 2003 21,664 23.94 30.49 W.R. Sheppard 25 November 2003 26,500 23.94 33.74 25 November 2003 15,789 18.51 33.74

Shares issued to Directors and Executive Ofﬁcers The only Bank shares issued to Directors and Executive Officers during the financial year were pursuant to the exercise of share options granted in previous years, participation in the Dividend Reinvestment Plan and the conversion of the converting preference shares. Ms Livingstone was issued 28 shares due to her participation in the Dividend Reinvestment Plan. Shares issued pursuant to the exercise of share options are shown in the table below:

Market value Number of shares Amount paid per share at date provided as a result per share of exercise Name and position Date of exercise of the exercise $ $

Executive Directors D.S. Clarke 20 May 2003 106,250 14.29 26.50

Executive Ofﬁcers N.W. Moore 28 August 2003 40,168 14.29 31.05 O. Weiss 29 August 2003 61,667 18.51 31.66 26 February 2004 21,832 23.94 33.22

53 Directors’ Report for the ﬁnancial year ended 31 March 2004 continued

Director and Executive Ofﬁcer loans outstanding (other than those on commercial terms) All loans provided by the Bank to Directors and Executive Officers are made in the ordinary course of business and entered into under normal terms and conditions consistent with other customers and employees. Directors’ equity participation At 17 May 2004 the following Directors or entities related to them have relevant interests in the following shares and share options of the Bank:

Fully paid ordinary shares Share options held at 17 May 2004 held at 17 May 2004 D.S. Clarke 795,498 166,400* M.R.G. Johnson 746,584 88,200* A.E. Moss 336,228 357,800* L.G. Cox 378,090 4,200** J.G. Allpass 10,281 4,200** P.M. Kirby 1,811 – C.B. Livingstone 5,902 – H.K. McCann 5,877 4,200** B.R. Martin 7,018 4,200** J.R. Niland 1,435 – H.M. Nugent 5,383 3,783**

*These share options were issued pursuant to the Employee Option Plan and are subject to the exercise conditions applying to grants of options to Executive Directors, as described in Note 33 to the full financial statements – Employee equity participation. **These share options were issued pursuant to the Non-Executive Director Share Option Plan (NEDSOP).They were issued following shareholder approval at the Bank’s 2000 Annual General Meeting. Mr J.G. Allpass, Mr L.G. Cox, Mr H.K. McCann and Mr B.R. Martin each were granted 2,500 options in 2000 and 1,700 options in 2001. Dr H.M. Nugent was granted 2,083 options in 2000 and 1,700 options in 2001. The Board suspended further grants under the NEDSOP in 2002. During the financial year Directors received dividends relating to their shareholdings in the Bank at the same rate as other shareholders. The relevant interests of Directors as at 31 March 2004 in managed investment schemes made available by subsidiaries of the Bank and contracts that confer a right to call for or deliver shares in the Bank are listed on page 56.

54 Macquarie Bank Limited 2004 Annual Review Directors’ and officers’ (b) take out and maintain a company Directors’ interests and benefits indemnification and insurance reimbursement insurance policy and A number of Directors have given Under the Bank’s Constitution, the make available to Directors a Directors’ written notices stating that they Bank indemnifies all past and present and Officers’ insurance policy (each hold office in specified companies Directors and Secretaries of the Bank policy to be in an amount and on terms and accordingly are regarded (including at this time the Directors and conditions appropriate for a as having a relevant interest in any named in this report and the reasonably prudent company in the contract or proposed contract Secretaries), and its wholly-owned Bank’s position) for seven years after that may be made between the subsidiaries, against every liability and the Director ceases to be a Director Bank and any of these companies. all legal costs in connection with of the Bank Transactions between the Bank proceedings incurred by them in their (c) loan funds to a Director to cover the and any of these companies respective capacities unless: Director’s legal costs in defending a are on normal commercial terms – the liability is owed to the Bank or to a claim, repayable when the outcome of and conditions. related body corporate the proceedings is determined (where Other than any benefit that may have – the liability did not arise out of conduct the outcome results in the Director been derived from loans and other in good faith having an indemnity for such legal financial instrument transactions – the liability is for a pecuniary penalty costs, the loan will be repayable from provided by and to the Bank or a order or a compensation order under the amount paid by the Bank to the related entity and any amounts received the Corporations Act 2001 Director under the indemnity) in respect of previously accrued – in the case of legal costs, the costs (d) grant access to Directors to all remuneration, no Director has, during are incurred in relation to a liability Board papers for at least seven years the financial year and the period to the excluded above, proceedings in which after the Director ceases to be a date of this report, become entitled to the person is found guilty, proceedings Director of the Bank, and access receive any benefit (other than a benefit by the Australian Securities and to other documents if the documents included in the aggregate amount of Investments Commission or a liquidator were in the Bank’s possession emoluments received or due and where grounds for a class order are at the time the Director was a Director receivable by Directors shown in this established (but excluding costs relating and where it is not contrary to the Report, or the fixed salary of a full-time to investigations before commencement Bank’s interest for the documents employee of the Bank or of a related of proceedings), or proceedings for to be provided. entity) by reason of a contract made by relief to the person in which the court the Bank or a related entity with the denies relief. In addition, following the approval of Director, or with a firm of which he/she shareholders at the 1999 Annual Following approval by shareholders at is a member, or with an entity in which General Meeting, the Bank made an he/she has a substantial financial the 1998 Annual General Meeting, the Indemnity and Insurance Deed Poll on Bank entered into a Deed of Access, interest, with the exception of consulting 30 July 1999 (Deed Poll). The benefit of Indemnity and Insurance dated fees paid, in the normal course of the undertakings made by the Bank $4,065,000 2003: 4 August 1998 (Deed), which protects business totalling ( under the Deed Poll have been given to $1,291,000) to the legal firm of Allens Directors acting as Directors during their each of the Directors and Secretaries of term of office and after their resignation Arthur Robinson of which Mr H.K. the Bank, its wholly-owned subsidiaries McCann is a partner. These fees are (except where an individual engages in and certain officers of other companies conduct involving a lack of good faith). not significant compared to the Bank’s where the director or secretary is acting total legal expenses for the financial year. Under the Deed, the Bank agrees to: as such at the specific request of the (a) indemnify a current or past Voting Bank or of a wholly-owned subsidiary Share options Director to the full extent of the of the Bank. The Deed Poll provides for Information on the Bank’s share option indemnity given in relation to officers the same indemnity and insurance scheme and options granted during of the Bank under its Constitution in arrangements for those persons with or since the end of the financial year force from time to time the benefit of the Deed Poll as for the is contained in Note 33 to the full Deed of Indemnity, Access and financial statements – Employee Insurance described above. However, equity participation. the Deed Poll does not provide for No person holding an option has or access to documents of the Bank. had, by virtue of the option, a right to Following the approval of shareholders participate in a share issue of any other corporation. No unissued shares, other at the 2000 Annual General Meeting, both the Deed and the Deed Poll were than those referred to above, are under amended in a minor way to clarify the option as at the date of this report. operation of the deeds with respect Directors’ other relevant interests to the provision of loans to indemnified The relevant interests of Directors as at persons for legal costs and the 17 May 2004 in managed investment requirement to repay such loans. schemes made available by controlled The Bank maintains a Directors’ and entities of the Bank and other relevant Officers’ insurance policy that provides interests are listed on page 56. cover for each person in favour of whom such insurance is required to be taken out under the Deed and the Deed Poll. The Directors’ and Officers’ insurance policy prohibits disclosure of the premium payable under the policy and the nature of the liabilities insured. 55 Name and position Direct Interests Indirect Interests Executive Directors D.S. Clarke – Cash Settled Put Option1 – 421,200 Macquarie Balanced Growth Fund units continued – 2 Zero Cost Collars2 – 156,643 Macquarie CountryWide Trust units 2004 rs’ Report rs’ – 500,000 Macquarie Investment Trust III A units – 500,000 Macquarie Investment Trust IV A units – 2,000,000 Macquarie Office Trusts units March March

1 – 200,000 Macquarie Airports Stapled Securities 3 Directo – 2 Cash Settled Put Options1 – Zero Cost Collar3

M.R.G. Johnson – 20 Macquarie Apollo Trust units – 116,502.35 Macquarie Balanced Growth Fund units – 251,800 Macquarie Martin Place Trust units – 245,042.31 Macquarie Active Plus Equities Fund units – 157,804 Macquarie Infrastructure Group – 150,000 Hills Motorway Trust units

ncial year ended ended year ncial Stapled Securities – 649,923 Macquarie Infrastructure Group Stapled – 241,835 partly paid Macquarie Global Infrastructure Securities Fund A (GIF A) units – 227,706.04 Macquarie Property Securities Fund units – 241,835 partly paid Macquarie Global Infrastructure – 271,089.01 Macquarie Small Companies Fund units or the fina the or f Fund B (GIF B) units – 185,670.36 Macquarie Lazard Master Global – 38,837 Macquarie Global Infrastructure Fund C Equities Fund (GIF C) units – 40,543 Macquarie Communications Infrastructure – 38,832 Macquarie Global Infrastructure Fund D Group Stapled Securities (GIF D) units – Cash Settled Put Option1 – 4 Zero Cost Collars4 A.E. Moss – 51,250 Macquarie Private Equity Trust units – 1,992,074.42 Macquarie Master Gilt Edge Bond – 25,000 Macquarie Global Infrastructure Trust units Fund units – 500,000 Macquarie Communications Infrastructure – 1,092,503.24 Macquarie Balanced Growth Fund units Group Stapled Securities – 178,371 Macquarie Office Trust units – 2 Macquarie Apollo Trust units – 390,500 Hills Motorway Trust units – 162,000 Macquarie Infrastructure Group – 10,000 Macquarie CountryWide Trust units Stapled Securities – 993,649.66 Macquarie Australian Market Neutral – 100,000 Macquarie Technology Fund 1A units Fund units – 11,429 Macquarie Office Trust units – 10,000 Macquarie Leisure Trust units – 11,000 Hills Motorway Trust units – 713,078 Macquarie Airports Stapled Securities – 101,875 Macquarie Investment Management Limited Cash Management Trust units L.G. Cox – Zero Cost Collar5 – 189,793 Macquarie Airports Stapled Securities Independent Directors J.G. Allpass – 68,330 Macquarie CountryWide Trust units – 4,000 Macquarie Bank Limited Endowment Warrants – 70,000 Macquarie Private Equity Trust units – 90,000 Macquarie Global Infrastructure Trust units – 5 Macquarie Apollo Trust units – 78,790 Macquarie Infrastructure Group Stapled Securities – 146,000 Macquarie Airports Stapled Securities – 6,000 Macquarie Airport (MAP) Self Funding Instalments – 60,000 partly paid Macquarie Private Equity Trust II units – 14,000 Macquarie Communications Infrastructure Group Stapled Securities P.M. Kirby – 25,000 Macquarie Infrastructure Group – 13,500 Macquarie Infrastructure Group Stapled Securities Stapled Securities

C.B. Livingstone – 174,960.86 Macquarie Cash Management Trust units – joint interest in 11,674 Macquarie CountryWide Trust units – 25,000 Macquarie Communications Infrastructure H.K. McCann Group Stapled Securities – 500 Southern Cross FLIERS Trust units – 103,000 Macquarie Martin Place Trust units

B.R. Martin –12,212 Macquarie Airports Stapled Securities –100 Southern Cross FLIERS Trust units J.R. Niland, AC – 500 Macquarie Park Street Trust reset preference units H.M. Nugent – 20,353 Macquarie Airports Stapled Securities

56 Macquarie Bank Limited 2004 Annual Review (1) Cash-settled put options are (4) On 5 June 2003, Mr M.R.G. Johnson Environmental regulations exercisable against the Bank in relation entered into two Zero Cost Collar To the best of their knowledge and to Bank shares pursuant to a Shared transactions with the Bank in respect of belief, after making appropriate Appreciation Loan with the Bank. In 100,000 fully paid ordinary Bank shares, enquiries, the Directors have determined relation to Mr D.S. Clarke, the cash- which had the effect of acquiring cash- that, where there are environmental settled put option in which he has a settled put options against movements regulations that apply to the Bank and direct interest is exercisable against in the Bank share price below its controlled entities, these have been 212,500 fully paid ordinary Bank shares; nominated levels, which were below complied with at all times during the the two cash settled put options in the then share price, and disposing of financial year. which Mr Clarke has an indirect interest the benefit of any share price Risk and control compliance are exercisable against 58,000 and movements above nominated levels, statement 150,000, respectively, fully paid ordinary which were above the then share price, Under ASX Listing Rules and the Bank shares. In relation to Mr Johnson, over the period to 10 August 2004 in ASX Corporate Governance Council’s the cash settled put option is respect of 50,000 shares and over the “Principles of Good Corporate exercisable against 150,000 fully paid period to 10 August 2005 in respect of Governance and Best Practice ordinary Bank shares. the other 50,000 shares. On 5 August Recommendations” (the Principles), the (2) Mr Clarke has entered into a Zero Cost 2003, Mr Johnson also entered into Bank is required to disclose in its annual Collar transaction with the Bank in two Zero Cost Collar transactions with report the extent of its compliance with 100,000 respect of 100,000 fully paid ordinary the Bank in respect of fully the Principles. Bank shares, which had the effect of paid ordinary Bank shares, which had the effect of acquiring cash-settled put The Directors have implemented acquiring cash-settled put options internal control processes for identifying, against movements in the Bank share options against movements in the Bank share price below nominated levels, evaluating and managing significant price below levels at the time the risks to the achievement of the Bank’s contract was entered into and disposing which were below the then share price, and disposing of the benefit of any objectives. These internal control of the benefit of any share price processes cover financial, operational movements above a nominated level share price movements above nominated levels, which were above and compliance risks. The Bank’s over the five years from 16 May 2003, corporate governance practices are in respect of those shares. Mr Clarke the then share price, over the period to 17 August 2004 in respect of the first set out in the Corporate Governance also entered into a Zero Cost Collar Statement contained in the 2004 transaction with the Bank in respect 50,000 shares and over the period 17 2005 Annual Review. of 106,250 fully paid ordinary Bank to August in respect of the shares, which had the effect of second 50,000 shares. The Directors have received and acquiring cash-settled put options (5) On 6 June 2003, Mr L.G. Cox entered considered the annual control against movements in the Bank share into a Zero Cost Collar transaction certification from the Chief Executive price below levels at the time the with Macquarie Bank Limited in respect Officer and the Chief Financial Officer in contract was entered into and disposing of 112,478 fully paid ordinary Bank accordance with the Principles relating of the benefit of any share price shares, which had the effect of acquiring to the financial risks. movements above a nominated level cash-settled put options against Material associates and joint ventures, over the five years from 20 May 2003, movements in the Bank share price which the Bank does not control, are in respect of those shares. below a nominated level, which was not dealt with for the purpose of this (3) A company in which Mr Clarke below the then share price, and statement. disposing of the benefit of any share has a relevant interest entered into a Throughout the reporting period, and as price movements above a nominated Zero Cost Collar transaction with the at the date of signing this annual report, level, which was above the then share Bank in respect of 152,104 fully paid the Bank was in compliance with the price over the period to 10 August 2005. ordinary Bank shares, which had the Principles in all material respects. effect of acquiring cash-settled put Rounding of amounts options against movements in the Bank In accordance with Australian Securities share price below levels at the time the and Investments Commission Class contract was entered into and disposing Order 98/0100 amounts in the full of the benefit of any share price consolidated Financial Report and movements above a nominated level Concise Report have been rounded off over the five years from 16 May 2003, to the nearest million dollars unless in respect of those shares. otherwise indicated.

David Clarke Allan Moss Executive Chairman Managing Director and Chief Executive Officer Sydney 17 May 2004

57 Directors’ report schedule Directors’ experience and special responsibilities

David S Clarke, AO, nine years until 1993. He was also a BEc (Hons), Hon DScEcon (Syd), member of the KPMG Peat Marwick MBA (Harv) (62) National Board. He currently holds a – Executive Chairman of Board since number of other appointments including the Bank’s inception in February 1985 Chairman of Envestra Limited and – Chairman of Board Nominating directorships of Queensland Investment Committee London until 1980. Mark was founding Corporation and MBF Australia Limited, – Member of Board Remuneration Director of the Australian Bank in 1981 member of the Brisbane Advisory Committee and resigned from that position in 1986 Board of the Salvation Army, Councillor David Clarke has been Executive before rejoining Macquarie Bank. He of St John’s College and Chairman of Chairman of Macquarie Bank Limited is Chairman of the Australian Gas Light the National Trust St John’s Cathedral since its formation in 1985. From 1971 Company Limited, Chairman of Fund Raising Board. He has also held a to 1977 he was Joint Managing Director Macquarie Infrastructure Group and a number of other corporate of Hill Samuel Australia Limited director of the Victor Chang Cardiac appointments. (predecessor to Macquarie Bank Research Institute Limited. He is one of Laurence G Cox, AO, Limited), from 1977 to 1984 Managing the Prime Minister’s three personal BCom (Melb), FCPA, FSIA (65) Director, and from 1984, Executive representatives to the APEC Business – Member of Board since January 1996 Chairman. He is also Chairman Advisory Council. – Executive Voting Director since of McGuigan Simeon Wines Limited, Allan E Moss, March 2004 Macquarie ProLogis Management BA LLB (Hons) (Syd), MBA (Harv) (54) Laurie Cox joined the Board as a Non- Limited, Macquarie Goodman – Managing Director and Chief Executive Director and also became Management Limited, Macquarie Executive Officer since August 1993 Joint Chairman of Macquarie Corporate Goodman Funds Management Limited, – Executive Voting Director since Finance Limited in January 1996. the Wine Committee of the Royal June 1989 He was previously Executive Chairman Agricultural Society of New South Allan Moss joined Hill Samuel Australia of the Potter Warburg Group of Wales, the Opera Australia Capital Fund Limited (predecessor to Macquarie Companies and a Director of S G and the Sydney Advisory Board of the Bank Limited) in the Corporate Services Warburg Securities of London. Mr Cox Salvation Army. He is an associate of Group in 1977 and in 1982 became a is the immediate past Chairman of the Australian Stock Exchange and a Director of Hill Samuel Australia Limited. Australian Stock Exchange Limited member of the Investment Advisory In 1983, he led the team responsible for (1989 to 1994). He was a Director of Committee of the Australian Olympic preparing the submission to the the ASX from its inception in 1987, a Foundation and the Harvard Business Australian Government for the formation Director of Securities Exchanges School Asia Advisory Committee. of Macquarie Bank. The following Guarantee Corporation from 1987 to Mark RG Johnson, year, he founded the Risk Management 1995 and a member of the Executive LLB (Hons) (Melb), MBA (Harv) (63) Division which is responsible for the Committee of the Internationale – Deputy Chairman since September Bank’s credit and other prudential Bourses des Valeurs from 1990 to 1992. 2000 controls. In 1986, Mr Moss was made He is also a former member of the – Executive Voting Director since responsible for the Corporate Banking International Markets Advisory Board of February 1987 Group. He was appointed Head of the NASD, the regulator of the NASDAQ – Member of the Board Corporate Financial Markets Group in 1988 and Stock Market (USA). He is currently an Governance Committee Deputy Managing Director the following associate of the ASX and on the Mark Johnson joined Macquarie Bank year. Mr Moss became Managing Executive Committee of the Australia in February 1987 as an Executive Director in 1993. Japan Business Co-operation Director of the Bank and Chairman of John G Allpass, Committee. He is Chairman of its Corporate Services Division. He was FCA, FCPA, FAICD (63) Transurban Group, SMS Management joint Managing Director of Hill Samuel – Independent Voting Director – & Technology Limited and the Murdoch Childrens’ Research Institute and is a Australia Limited (predecessor to joined the Board in January 1994 Macquarie Bank Limited) with David – Chairman of Board Audit and Director of Smorgon Steel Group Limited. He was appointed an Clarke from 1971 to 1977 and an Compliance Committee Executive Director of Hill Samuel & Co. – Member of Board Remuneration Executive Director of the Bank in Committee March 2004. John Allpass is a Chartered Accountant and has 32 years experience in the accounting profession. He was Managing Partner of KPMG Peat Marwick’s Queensland practice for 58 Macquarie Bank Limited 2004 Annual Review Barrie R Martin, BEc, ANZIIF (Fellow) (68) – Independent Voting Director – joined the Board in August 1993 – Member of Board Nominating Committee – Member of Board Audit and Compliance Committee Barrie Martin is a former Non-Executive Chairman of Prudential Corporation Australia Limited and was Managing Director for the Prudential Group in Australia and New Zealand from July Peter M Kirby, Limited and the Centennial Park Trust. 1984 to December 1994. He was BEc (Rhodes), BEc (Hons) (Natal), He is a member of the University Grants Chairman of the Life Insurance MA (Manch), MBA (Wits) (56) Committee of Hong Kong and a Federation of Australia from May 1990 – Independent Voting Director – member of the Board of Trustees of to May 1992 and was Chairman of the joined the Board in June 2003 Singapore Management University. Insurance Employers Industrial – Member of the Board Remuneration Professor Niland is a former Chief Association from 1990 to 1992. He Committee Executive of the State Pollution Control stepped down from the position of Commission and Executive Chairman Peter Kirby was the Managing Director Deputy President of the State Chamber of the Environment Protection Authority. and Chief Executive Officer of CSR of Commerce (NSW) in 1991 and was He has served on the Australian Limited from 1998 to March 2003. He President of the Council of the Universities Council, the Technical and was a member of the Board of the Australian Insurance Institute in Further Education Council of Australia, Business Council of Australia from 2001 1994/1995. Mr Martin is Chairman of the Boards of realestate.com.au to 2003. Mr Kirby received the Centenary the Barkworth Group and Brazin Limited, St Vincent’s Hospital and the Medal in 2003. Prior to joining CSR, Mr Limited and is a Director of BHP SVC Sydney Symphony Orchestra Kirby was with the Imperial Chemical Pty Limited and SciGen Limited. Industries PLC group (“ICI”) for 25 years Foundation, and the successful Sydney H Kevin McCann, in a variety of senior management Olympic bid’s Building Commission. BA LLB (Hons) (Syd), LLM (Harv), positions around the world, including Helen M Nugent, FAICD (63) CEO of ICI Paints, responsible for the BA (Hons), PhD (Qld), MBA (Harv) (55) – Independent Voting Director – group’s coatings businesses worldwide, – Independent Voting Director – joined the Board in December 1996 and a member of the Executive Board joined the Board in June 1999 – Lead Independent Director of ICI, with responsibility for ICI – Chairman of Board Remuneration – Chairman of Board Corporate Americas and the western hemisphere. Committee Governance Committee He is Chairman of Medibank Private – Member of Board Nominating – Member of Board Audit and Limited and a Director of Orica Limited Committee Compliance Committee and the Beacon Foundation. Helen Nugent has held a number of Kevin McCann is Chairman of Partners, Catherine B Livingstone, roles in the finance sector. She is Allens Arthur Robinson, a leading firm of BA (Hons) (Macquarie) FCA FTSE (48) currently Chairman of Funds SA and Australian lawyers, having been – Independent Voting Director – joined Swiss Re Australia Limited and admitted as a Partner in 1970. He has the Board in November 2003 previously was Director of Strategy, practised as a commercial lawyer – Member of the Board Audit and Westpac Banking Corporation (1994 to specialising in Mergers and Acquisitions, Compliance Committee 1999); Non-Executive Director of the Mineral and Resources Law and Capital State Bank of New South Wales (1993 Catherine Livingstone was the Markets Transactions. He is Chairman to 1994) and Non-Executive Director of Managing Director of Cochlear Limited of Healthscope Limited, Origin Energy Mercantile Mutual (1992 to 1994). from 1994 to 2000. Prior to that she Limited, Triako Resources Limited and Currently she is also a Director of was the Chief Executive Finance at the Sydney Harbour Federation Trust, UNiTAB Limited, Origin Energy Limited Nucleus Limited and before that held a a director of Bluescope Steel Limited and Carter Holt Harvey Limited and is a variety of finance and accounting roles and a Member of the Takeovers Panel member of the Board of Freehills and including having been with chartered and the Defence Procurement the Australian Institute of Company accountants, Price Waterhouse, for Advisory Board. several years. Ms Livingstone was Directors. She is a former Deputy John R Niland, AC, awarded the Centenary Medal in 2003 Chairman of the Australia Council and BCom, MCom, HonDSc (UNSW), PhD for service to Australian Society in former Chairman of the Major (Illinois), DUniv (SCU), FAICD (63) Business Leadership and was elected Performing Arts Board of the Australia – Independent Voting Director – a Fellow of the Australian Academy Council. In 1999 she chaired the joined the Board in February 2003 of Technological Sciences and Ministerial Inquiry into the Major – Member of the Board Corporate Engineering in 2002. She is currently Performing Arts. Prior to joining Governance Committee Chairman of the CSIRO and the Westpac, Dr Nugent was a Professor in Australian Business Foundation and is John Niland is a Professor Emeritus of Management and Director of the MBA a Director of Telstra Corporation and the University of New South Wales Program at the Australian Graduate the Sydney Institute. She is also a (UNSW) and was Vice-Chancellor and School of Management and a partner member of the Advisory Board for the President of UNSW from 1992 to 2002. at McKinsey and Company. Department of Accounting & Finance at Before that he was the Dean of the Macquarie University. Faculty of Commerce and Economics. He is currently Chairman of the UNSW Foundation Limited, Research Australia 59 Consolidated statement of financial performance for the financial year ended 31 March 2004

Consolidated Consolidated 2004 2003 Notes $M $M

Interest income 1,235 1,074 Interest expense (965) (827) Net interest income 270 247

Fee and commission income 1,649 1,370 Fee and commission expense (331) (254) Net fee and commission income 1,318 1,116

Trading income 562 402

Other income 393 194 Other expenses (78) (69) Total income from ordinary activities 2,465 1,890

Employment expenses (1,257) (970) Occupancy expenses (102) (92) Non-salary technology expenses (106) (84) Professional fees, travel and communication expenses (162) (129) Other operating expenses (153) (155) Total expenses from ordinary activities (1,780) (1,430)

Proﬁt from ordinary activities before income tax 685 460 Income tax (expense) (161) (96)

Proﬁt from ordinary activities after income tax 524 364 (Proﬁt) from ordinary activities after income tax attributable to outside equity interest (3) (3)

Proﬁt from ordinary activities after income tax attributable to equity holders of 521 361 Macquarie Bank Limited*

Distributions paid or provided on Macquarie Income Securities 5 (27) (28)

Proﬁt from ordinary activities after income tax attributable to ordinary equity holders of Macquarie Bank Limited 494 333 Cents per share Basic earnings per share 6 233.0 164.8 Diluted earnings per share 6 229.3 163.1

* There were no valuation adjustments recognised directly in equity. The statement of ﬁnancial performance should be read in conjunction with the accompanying notes and discussion and analysis

60 Macquarie Bank Limited 2004 Annual Review Consolidated statement of ﬁnancial position as at 31 March 2004

Consolidated Consolidated 2004 2003 Notes $M $M

Assets Cash and liquid assets 647 311 Securities purchased under resale agreements 8,598 5,155 Trading assets 6,891 4,780 Other securities 1,847 2,181 Loan assets 10,777 9,839 Other ﬁnancial market assets 6,694 5,309 Other ﬁnancial assets 3,531 1,828 Life insurance investment assets 2,350 2,516 Equity investments 138 130 Investments in associates and incorporated joint ventures 169 142 Fixed assets 1,945 125 Tax assets 184 146 Total assets 43,771 32,462

Liabilities Due to other financial institutions 1,935 517 Securities sold under repurchase agreements 2,597 2,221 Securities borrowed 5,750 2,381 Deposits 4,215 3,966 Notes payable 12,608 10,069 Other financial market liabilities 5,821 4,718 Tax liabilities 53 18 Other financial liabilities 4,215 2,665 Life insurance policy liabilities 2,291 2,456 Provisions for dividends and distributions 6 213 Deferred tax liabilities 413 30 Other provisions 74 67 Total liabilities excluding loan capital 39,978 29,321

Loan capital Subordinated debt 960 406 Converting Preference Shares – 150 Total liabilities 40,938 29,877 Net assets 2,833 2,585

Equity Contributed equity Ordinary share capital 1,382 1,137 Macquarie Income Securities 391 391 Retained earnings 2 1,040 659 Total equity attributable to equity holders of Macquarie Bank Limited 2,813 2,187 Outside equity interests in controlled entities 20 398 Total equity 2,833 2,585

The statement of ﬁnancial position should be read in conjunction with the accompanying notes and discussion and analysis.

61 Consolidated statement of cash ﬂows for the ﬁnancial year ended 31 March 2004

Consolidated Consolidated 2004 2003 Notes $M $M

Cash flows from operating activities Interest received 1,231 1,083 Interest and other costs of finance (paid) (927) (856) Dividends and distributions received 120 90 Fees and other non-interest income received 1,612 1,294 Fees and commissions (paid) (320) (257) Net (payments)/receipts from trading securities and other financial instruments (2,063) 1,113 (Payments) to suppliers (639) (441) Employment expenses (paid) (919) (866) Income taxes (paid) (138) (197) Life insurance investment income 101 105 Life insurance premiums received 1,279 1,710 Life insurance (policy payments) (1,618) (1,750) Infrastructure assets and businesses purchased for resale – net receipts from operations 47 17 Net cash flows from operating activities (2,234) 1,045

Cash flows from investing activities Loan assets (granted) (5,828) (4,674) Proceeds from securitisation of loan assets 4,928 4,407 Recovery of loans previously written-off 2 1 (Payments) for other securities (1,349) (737) Proceeds from the realisation of other securities 1,381 298 (Payments) for life insurance investments (5,561) (5,881) Proceeds from the sale of life insurance investments 5,881 5,847 (Payments) for equity investments (166) (109) Proceeds from the sale of equity investments 85 13 (Payments) for fixed assets (108) (40) Proceeds from the sale of fixed assets 23 2 (Payments) for infrastructure assets and businesses purchased for resale, net of cash acquired 7 (950) – Payment for acquisition of controlled entities, net of cash acquired 7 250 (296) Proceeds from the sale of controlled entities 7 41 – Cash deconsolidated 7 (4) (17) Net cash flows from investing activities (1,375) (1,186)

Cash flows from financing activities Net (decrease)/increase in money market and other deposit accounts 2,826 (32) (Repayment) of subordinated debt (70) (50) Issue of subordinated debt 672 225 Dividends and distributions (paid) (208) (141) Proceeds from the issue of ordinary share capital 121 47 Payment for buy back of ordinary shares (167) – (Payments to)/proceeds from outside equity interest (382) 1 Proceeds from borrowing for purchase of infrastructure assets and businesses purchased for resale 1,062 137 Net cash flows from financing activities 3,854 187

Net increase in cash 245 46 Cash at the beginning of the ﬁnancial year 289 243 Cash at the end of the ﬁnancial year 534 289

The statement of cash ﬂows should be read in conjunction with the accompanying notes and discussion and analysis. 62 Macquarie Bank Limited 2004 Annual Review Discussion and analysis for the ﬁnancial year ended 31 March 2004

Discussion and analysis of statement Net other income increased by Discussion and analysis of statement of financial performance $190 million to $315 million. This of financial position The economic entity achieved a profit balance includes sales revenue earned Equity attributable to ordinary equity from ordinary activities after income tax from infrastructure assets (principally holders of the Bank increased by attributable to ordinary equity holders South East Water plc) held for resale $626 million (35%) to $2.4 billion. The of $494 million, a 48% increase from and profits earned on the realisation of increase is due to growth in both last financial year. The return on average other securities and equity investments. retained earnings and ordinary share ordinary shareholders’ funds was Operating expenses increased by capital partly attributable to shares 22.3%, which was an increase on the issued through the exercise of options $350 million (24%) to $1.8 billion. previous financial year (18.7%). This balance includes the operating and the Dividend Reinvestment Plan. The growth in earnings outweighed expenses incurred by infrastructure The total capital adequacy ratio the increase in average ordinary assets during the holding period and decreased from 21.4% to 19.9% at shareholders funds. the increase is also attributable to the 31 March 2004 and the Tier 1 ratio also Income from ordinary activities costs incurred to support the overall decreased from 19.0% to 16.2% as at Income from ordinary activities growth in the Bank’s business. 31 March 2004. These decreases were increased by $575 million (30%) to Income tax primarily the result of an increase in risk- $2.5 billion. This growth is attributable Income tax attributable to profits from weighted assets which was in line with to increases in all major categories of ordinary activities attributable to ordinary the balance sheet increase over the operating income. equity holders has increased from year. These ratios remain comfortably in excess of the Bank’s minimum ratios. Net interest income increased by 22.2% of profit from ordinary activities $23 million (9%) to $270 million. Interest for the previous financial year to 24.5% Total assets increased by $11.3 billion income has increased by $161 million for the current financial year. The (35%) to $43.8 billion. This increase (15%) to $1.2 billion. This was driven effective tax rate remains stable in the is largely attributable to growth by growth in average interest bearing mid 20% range. in securities purchased under resale assets of $2.0 billion (11%) and an Earnings per share agreements, trading assets and increase in average interest rates due to Basic earnings per share increased loan assets. the mix of assets employed. There was from 164.8 cents per share for 2003 to The Bank’s credit ratings continue to also an increase in interest expense of 233.0 cents per share, largely reflecting reflect strong prudential controls and $138 million (17%) to $965 million. This the strong growth in earnings. diversified earnings. During the financial was due to the growth in average Dividends on ordinary share capital year, the Bank maintained all its external interest bearing liabilities of $2.4 billion credit ratings. (12%) and the mix of liabilities. The interim ordinary dividend paid during the financial year ended Discussion and analysis of statement Net fee and commission income 31 March 2004 was 52 cents per fully of cash flows increased by $202 million (18%) to paid ordinary share, 90% franked at Cash flows from operating activities for $1.3 billion. Fee income increased 30% (2003: 41 cents per fully paid the financial year was a net outflow of across the majority of businesses, largely ordinary share, 85% franked at 30%). $2.3 billion. This was principally as a attributable to the growth in management There is no provision for final dividend in result of an increase in trading assets of and performance fees, particularly in $2.1 billion. the Investment Banking Group. respect of the financial year ended 31 March 2004 as a result of a change Cash flows from investing activities Net trading income increased by in accounting policy. A provision for remained stable in comparison with the $160 million (40%) to $562 million. This dividends is now recognised at the time last financial year. The net outflow was was largely driven by increases in equity the dividends are declared, determined $1.4 billion, a decrease of $0.2 billion. markets trading however the majority of or publicly recommended. Since year businesses experienced growth. Cash flows from financing activities was end, the Directors have recommended a net inflow of $3.9 billion, an increase the payment of a final dividend of from the last financial year, which was 70 cents per fully paid ordinary share an inflow of $0.2 billion. This was mainly 90% franked based on tax paid at 30% due to an increase in notes payable of (2003: 52 cents per fully paid ordinary $2.5 billion. share, 100% franked at 30%).

63 Notes to and forming part of the concise ﬁnancial statements as at 31 March 2004

Note 1 Basis of accounting The concise financial report is derived from the full financial report of Macquarie Bank Limited and the entities that it controlled (together “the economic entity”) at the end of and during the financial year ended 31 March 2004, which is prepared in accordance with Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus Views, the Corporations Act 2001 and the Banking Act 1959. The concise financial report has been prepared in accordance with Australian Accounting Standard AASB 1039 “Concise Financial Reports” and the relevant provisions of the Corporations Act 2001. The accounting policies adopted are consistent with those of the previous financial year with the exception of the policy for the provision for dividends as noted below. A full description of the accounting policies adopted by the economic entity is provided in the full financial report. Where necessary, comparative information has been reclassified to achieve consistency in disclosure with the current financial year. (i) Change in accounting policy – provision for dividends From 1 April 2003, Accounting Standard AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets” (AASB 1044) became operative for the economic entity. AASB 1044 requires that a provision for dividends is not recognised until the dividend has been declared or publicly recommended by the Directors. In previous financial years a provision was recorded as at balance date for dividends that were not declared until the completion of the financial report. An adjustment of $208 million has been made against the economic entity’s retained profits as at 1 April 2003 to reverse the amount provided as at 31 March 2003 for the Bank’s 2003 final and special dividends. These provisions were reinstated in May 2003 when the dividends were declared by the Directors. No provision has been recognised as at 31 March 2004 for the Bank’s 2004 final dividend. This provision will be recorded at the time that the dividend is declared. The restatements of the provision for dividends and retained earnings below show the information that would have been disclosed had the new accounting policy always been applied:

Consolidated 2003 $M

Provision for ordinary dividends Previously reported balance at the end of the ﬁnancial year 208 Adjustment for change in accounting policy (208) Restated balance at the end of the ﬁnancial year –

Retained earnings Previously reported balance at the end of the ﬁnancial year 659 Adjustment for change in accounting policy 208 Restated balance at the end of the ﬁnancial year 867

64 Macquarie Bank Limited 2004 Annual Review Notes to and forming part of the concise ﬁnancial statements as at 31 March 2004

Consolidated Consolidated 2004 2003 $M $M

Note 2 Retained earnings Balance at the beginning of the ﬁnancial year 659 617 Change in accounting policy (refer to Note 1(i)) Reinstatement of prior year declared dividend 208 – Prior year declared dividend paid (208) – Proﬁt from ordinary activities after income tax attributable to equity holders 521 361 Distributions paid or provided on Macquarie Income Securities (27) (28) Dividends paid or provided on ordinary share capital (refer to Note 5) (113) (291) Total retained earnings 1,040 659

Note 3 Revenue Interest income 1,235 1,074 Fee and commission income 1,620 1,342 Investment revenue and management fees from life insurance business (refer Note 14 to the full ﬁnancial statements) 260 26 Trading income 562 402 Proceeds from the sale of other securities and equity investments 302 311 Other income (excluding proﬁt on the sale of other securities and equity investments) 265 163 Total revenue 4,244 3,318

65 Notes to and forming part of the concise ﬁnancial statements as at 31 March 2004 continued

Note 4 Segment reporting Primary segment – business Asset and Wealth Financial Investment Management Markets Banking Lending Total $M $M $M $M $M

Consolidated 31 March 2004 Revenue from external customers 1,129 1,195 1,041 844 4,209 Intersegmental revenue/ (expense) 8 (71) (53) 116 – Proﬁt from ordinary activities after income tax 146 161 163 54 524 Total assets 3,092 24,215 6,475 9,989 43,771

Consolidated 31 March 2003 Revenue from external customers 669 1,039 1,035 575 3,318 Intersegmental revenue/ (expense) 3 (157) (37) 191 – Proﬁt from ordinary activities after income tax 82 97 118 67 364 Total assets 3,052 16,969 3,679 8,762 32,462

Secondary segment – geographical Asia North Australia Paciﬁc* Europe America Other Total $M $M $M $M $M $M

Consolidated 31 March 2004 Revenue from external customers 3,270 329 350 176 84 4,209 Total assets 24,662 4,863 9,193 4,389 664 43,771

Consolidated 31 March 2003 Revenue from external customers 2,732 266 160 136 24 3,318 Total assets 21,701 3,317 5,308 1,888 248 32,462

*Excludes Australia as it is disclosed as a separate segment.

66 Macquarie Bank Limited 2004 Annual Review Consolidated Consolidated 2004 2003 $M $M

Note 5 Dividends and distributions paid or provided Ordinary share capital Dividends paid – interim (52 (2003: 41) cents per share) 113 83 Dividends provided – ﬁnal (Nil (2003: 52) cents per share) – 106 – special (Nil (2003: 50) cents per share) – 102 Total dividends paid or provided 113 291

There is no provision for final dividend in respect of the financial year ended 31 March 2004 as a result of a change in accounting policy. The economic entity has adopted the new Australian Accounting Standard AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets” for the first time from 1 April 2003. A provision for dividends is now recognised at the time the dividends are declared, determined or publicly recommended. Previously the Bank recognised a provision for dividend in the reporting period to which the dividend related even though the dividend was declared or announced after the end of the reporting period. The interim ordinary dividend paid during the financial year ended 31 March 2004 was 90% franked at 30% (2003: 85% franked at 30%). In addition to the above dividend, since year end the Directors have recommended the payment of a final dividend of 70 cents per fully paid ordinary share, 90% franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 2 July 2004 out of retained profits at 31 March 2004, but not recognised as a liability at year end as a result of the change in accounting policy for providing for dividends (refer to Note 1(ii)), is $151 million. This amount has been estimated based on the number of shares eligible to participate as at 31 March 2004. The Dividend Reinvestment Plan (DRP) was approved by ordinary shareholders at the 2001 Annual General Meeting. The DRP is optional and offers ordinary shareholders in Australia and New Zealand the opportunity to acquire fully paid ordinary shares, without transaction costs, at the prevailing market value. On 30 October 2003, the 2.5% discount which had been provided on the DRP was reduced to nil. A shareholder can elect to participate in or terminate their involvement in the DRP at any time. Details of fully paid ordinary shares issued pursuant to the DRP are included in Note 27 – Contributed equity to the full financial statements. Cents per share Cash dividends per share (including ﬁnal dividend not provided for) 122 143

Converting Preference Shares Dividends on these shares of $5 million (2003: $11 million) have been charged to the Statement of Financial Performance as interest expense in accordance with AASB 1033 “Presentation and Disclosure of Financial Instruments”. The dividend paid on 25 September 2003 was fully franked at 30%. The dividend paid on 16 June 2003 was fully franked at 30% and the dividend paid on 16 December 2002 was 85% franked at 30%. There will be no further preference dividends paid in respect of these shares following their conversion to fully paid ordinary shares on 25 September 2003.

Franking credits available for the subsequent ﬁnancial year at a corporate tax rate of 30% (2003: 30%) 43 40

Upon entering the tax consolidated group, the economic entity’s franking credits available were transferred to Macquarie Bank Limited. The franked portion of dividends proposed as at 31 March 2004 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax payable at the end of the financial year. The above amounts represent the balances of the franking accounts as at the end of the financial year, adjusted for: a) franking credits that will arise from the payment of income tax payable as at the end of the financial year b) franking credits that may be prevented from being distributed in subsequent financial years c) franking debits that will arise from the payment of dividends proposed as at the end of the financial year d) franking debits that will arise from the receipt of tax receivables as at the end of the financial year. Macquarie Income Securities Distributions paid (net of distributions previously provided) 21 23 Distributions provided 6 5 Total distributions paid or provided 27 28 The distributions paid/payable in respect of the Macquarie Income Securities are classified as distributions on an equity instrument in accordance with AASB 1033 “Presentation and Disclosure of Financial Instruments”. 67 Notes to and forming part of the concise ﬁnancial statements as at 31 March 2004 continued

Consolidated Consolidated 2004 2003 $M $M

Note 6 Earnings per share Cents per share

Basic earnings per share 233.0 164.8

Diluted earnings per share 229.3 163.1

Reconciliation of earnings used in the calculation of basic earnings per share Proﬁt from ordinary activities after income tax 524 364 Proﬁt from ordinary activities after income tax attributable to outside equity interests (3) (3) Distributions paid or provided on Macquarie Income Securities (27) (28) Total earnings used in the calculation of basic earnings per share 494 333

Reconciliation of earnings used in the calculation of diluted earnings per share Earnings used in calculating basic earnings per share 494 333 Interest savings from conversion of Converting Preference Shares 5 11 Other non-discretionary changes in earnings arising from dilutive potential ordinary shares – 1 Total earnings used in the calculation of diluted earnings per share 499 345

Number of shares Total weighted average number of ordinary shares used in the calculation of basic earnings per share 212,000,285 202,014,367

Weighted average number of shares used in the calculation of diluted earnings per share Weighted average fully paid ordinary shares 212,000,285 202,014,367 Potential ordinary shares Weighted average Converting Preference Shares 2,349,029 6,500,512 Weighted average options 3,263,375 3,063,783 Total weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share 217,612,689 211,578,662

Information concerning the classiﬁcation of securities Converting Preference Shares These converted to fully paid ordinary shares on 25 September 2003 and were considered to be potential ordinary shares up to the date of conversion and have therefore been included in the calculation of diluted earnings per share. Options Options granted to employees under the Employee Option Plan are considered to be potential ordinary shares and have been included in the calculation of diluted earnings per share. Included in the balance of weighted average options are 1,139,469 (2003: 486,175) options that were converted, lapsed or cancelled during the financial year. There are a further 6,408,950 (2003: 14,240,580) options that have not been included in the balance of weighted average options on the basis that their strike price was greater than the average market price of the Bank’s fully paid ordinary shares for the financial year ended 31 March 2004 and consequently, they are not considered to be dilutive.

68 Macquarie Bank Limited 2004 Annual Review Note 7 Acquisition and disposal of controlled entities Entities acquired or consolidated due to change in control: a) South East Water plc On 1 October 2003, a controlled entity of the Bank acquired 100% of the issued capital of Saur Water Services plc and Pipeway Limited, the chief entities of South East Water plc and its affiliated businesses (collectively “SEW”) for a cost of $948 million excluding transaction costs. b) Arlanda Express On 15 January 2004, a controlled entity of the Bank acquired 100% of the shares in A-Train AB and A-Train Invest AB (together “A-Train”) which operates the Arlanda Express, for a total consideration of $71 million. The operating results of SEW and Arlanda have been included in the Statement of Financial Performance from their respective dates of acquisition. c) Acquisition of ING Asian Equities Business On 8 March 2004, the Bank signed a sale and purchase agreement (SPA) with ING Bank N.V. to acquire 100% of the ING Asian cash equity sales, sales trading, facilitation trading, execution, research and equity capital markets businesses including some corporate vehicles (ING Asian equities businesses). Under the terms of the SPA, the Bank obtained an economic interest in the ING Asian equities businesses that required the consolidation of the business from the SPA signing date. Therefore, the operating results of the ING Asian equities businesses have been included in the Statement of Financial Performance from that date. The completion date of the transaction will not be earlier than 31 May 2004. ING International Holdings Limited was purchased for an estimated cost of $145 million excluding transaction costs. The purchase consideration has been recorded as a payable in the Statement of Financial Position at 31 March 2004. Aggregate details of the acquisitions are as follows:

2004 2003 $M $M

Fair value of net assets acquired Cash and other ﬁnancial assets 1,484 63 Fixed assets 1,823 527 Intangible assets 4 405 Payables and provisions (1,949) (145) Borrowings (198) (517) Total fair value of net assets acquired 1,164 333

Purchase consideration Cash consideration 1,019 313 Deferred consideration 145 20 Total purchase consideration 1,164 333

Reconciliation of cash movement Cash consideration (1,019) (313) Less: cash acquired 319 17 Total cash outﬂow (700) (296) The prior year comparatives relate to the acquisition of Broadcast Australia Pty Ltd.

69 Notes to and forming part of the concise ﬁnancial statements as at 31 March 2004 continued

Note 7 Acquisition and disposal of controlled entities (cont.) Entities disposed of or deconsolidated due to change in control: (a) Macquarie Transmission Alberta Limited and Macquarie Essential Assets Partnership On 16 May 2003, Macquarie Transmission Alberta Limited (MTAL) and Macquarie Essential Assets Partnership (MEAP) ceased to be controlled entities of the Bank following the issue of new units in MEAP to non-related entities. The Bank has retained a holding of 5 million units in MEAP, which represents 20.03% of the units on issue. (b) ntl Telecommunications Pty Limited On 8 September 2003, a subsidiary of the Bank sold its 51% interest in ntl Telecommunications Pty Limited for a cash consideration of $16.5 million. The operating results of these entities have been deconsolidated from the Statement of Financial Performance from their respective dates of lost control. Aggregate details of the disposal are as follows:

2004 2003 $M $M

Carrying value of assets and liabilities deconsolidated Cash and other ﬁnancial assets 35 61 Fixed assets 12 492 Intangible assets – 418 Payables and provisions (21) (104) Borrowings (24) (921) Total carrying value of assets and liabilities deconsolidated 2 (54)

Reconciliation of cash movement Cash received* 41 – Less: Investment retained (5) – Cash deconsolidated (4) (17) Total cash inﬂow/(outﬂow) 32 (17)

* Cash received includes the repayment of intercompany debt. The prior year comparatives relate to the deconsolidation of Broadcast Australia Pty Ltd

Note 8 Events occurring after reporting date On 8 April 2004, the Bank announced that the Macquarie European Infrastructure Fund (MEIF), its first pan-European dedicated infrastructure fund, had achieved first closing with total initial commitments of $670 million from leading institutional investors. An interest in the UK water utility, SEW and Arlanda Express, will comprise the seed assets of MEIF. MEIF has acquired the Bank’s 100% interest in Arlanda Express. The Bank also sold 50.1% of its interest in SEW to MEIF. As a result of these transactions, the Bank ceased to control SEW and Arlanda Express subsequent to reporting date. There will be no significant impact on the financial performance of the Bank as a result of the loss of sales revenue generated by these entities.

Note 9 Full ﬁnancial report Further financial information can be obtained from the full financial report which is available, free of charge, on request from the Bank. A copy may be requested by calling (02) 8232 3333. Alternatively, both the full financial report and the concise financial report can be accessed via the internet at: www.macquarie.com.au

70 Macquarie Bank Limited 2004 Annual Review Directors’ declaration

The Directors declare that in their opinion, the concise financial report of the economic entity for the financial year ended 31 March 2004 as set out on pages 60 to 70 complies with Australian Accounting Standard AASB 1039 “Concise Finance Reports”. The financial statements and specific disclosures included in this concise financial report have been derived from the full consolidated financial report for the financial year ended 31 March 2004. The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the economic entity as the full financial report, which as indicated in Note 9, is available on request. This declaration is made in accordance with a resolution of the Directors.

David Clarke Executive Chairman

Allan Moss Managing Director and Chief Executive Officer Sydney 17 May 2004

71 Independent audit report to the members of Macquarie Bank Limited

Audit opinion Audit approach When this audit report is included in an In our opinion, the concise financial We conducted an independent audit of Annual Report, our procedures include report of Macquarie Bank Limited for the concise financial report in order to reading the other information in the the year ended 31 March 2004 express an opinion on it to the Annual Report to determine whether it complies with Australian Accounting members of the company. Our audit contains any material inconsistencies Standard AASB 1039: Concise was conducted in accordance with with the concise financial report. Financial Reports. Australian Auditing Standards, in order Independence This opinion must be read in conjunction to provide reasonable assurance as to In conducting our audit, we followed with the rest of our audit report. whether the concise financial report is applicable independence requirements free of material misstatement. The of Australian professional ethical Scope nature of an audit is influenced by The concise financial report and pronouncements and the Corporations factors such as the use of professional Act 2001. Directors’ responsibility judgement, selective testing, the The concise financial report comprises inherent limitations of internal control, the consolidated statement of financial and the availability of persuasive rather position, consolidated statement of than conclusive evidence. Therefore, an financial performance, consolidated audit cannot guarantee that all material statement of cash flows, discussion misstatements have been detected. PricewaterhouseCoopers and analysis of and notes to the Chartered Accountants financial statements, and the directors’ We also performed an independent declaration for Macquarie Bank Limited audit of the full financial report of the (the company) for the year ended company for the financial year ended 31 March 2004. 31 March 2004. Our audit report on the full financial report was signed on The Directors of the company are 17 May 2004, and was not subject to I.L. Hammond responsible for the preparation and any qualification. Partner presentation of the financial report in accordance with Australian Accounting In conducting our audit of the concise Sydney 17 May 2004 financial report, we performed Standard AASB 1039: Concise Financial Reports. procedures to assess whether in all material respects the concise financial report is presented fairly in accordance with Australian Accounting Standard AASB 1039: Concise Financial Reports. We formed our audit opinion on the basis of these procedures, which included: – testing that the information included in the concise financial report is consistent with the information in the full financial report; and – examining, on a test basis, information to provide evidence supporting the amounts, discussion and analysis, and other disclosures in the concise financial report which were not directly derived from the full financial report.

72 Macquarie Bank Limited 2004 Annual Review Financial summary since listing

Financial year ended 31 March 1996 1997 1998 1999 2000 2001 2002 2003 2004

Financial performance ($ million) Total income from ordinary activities 435 530 665 815 1,186 1,472 1,600 1,890 2,465 Total expenses from ordinary activities 336 392 498 597 885 1,147 1,245 1,430 1,780 Profit from ordinary activities before income tax 99 138 167 218 301 325 355 460 685 Income tax expense 6 21 26 53 79 53 76 96 161 Profit from ordinary activities 93 117 141 165 222 272 279 364 524 Outside equity interest – – – – – (1) – 3 3 Macquarie Income Securities distributions – – – – 12 31 29 28 27 Profit from ordinary activities after income tax attributable to ordinary equity holders 93 117 141 165 210 242 250 333 494

Financial position ($ million) Total assets 5,174 6,142 7,929 9,456 23,389 27,848 30,234 32,462 43,771 Total liabilities 4,746 5,642 7,348 8,805 22,154 26,510 27,817 29,877 40,938 Net assets 428 500 581 651 1,235 1,338 2,417 2,585 2,833 Risk weighted assets 4,030 4,686 4,967 4,987 8,511 9,860 10,651 10,030 13,361 Total loan assets 2,688 2,682 3,158 4,002 6,518 7,785 9,209 9,839 10,777 Impaired assets (net of provisions) 57 46 12 44 23 31 49 16 61

Share information Cash dividends per share (cents per share) Interim – 18 21 30 34 41 41 41 52 Final (a) 34.7 (b) 25 30 38 52 52 52 52 70 Special – – – – – – – 50 – Total 34.7 (b) 43 51 68 86 93 93 143 122 Basic earnings per share (cents per share) 61.0 (b) 74.89 88.09 101.33 124.33 138.88 132.83 164.84 233.02 Share price at 31 March ($) 5.78 (b) 8.50 14.35 19.10 26.40 27.63 33.26 24.70 35.80 Ordinary share capital (million shares) (c) 138.7 151.4 157.6 161.1 171.2 175.9 198.5 204.5 215.9 Market capitalisation at 31 March (fully paid ordinary shares) ($ million) 832 (d) 1,287 2,262 3,077 4,520 4,860 6,602 5,051 7,729

Ratios Return on average ordinary shareholders’ funds 23.1% 25.2% 26.1% 26.8% 28.1% 27.1% 18.7% 18.7% 22.3% Payout ratio (excluding special dividend) 61.0% 60.5% 57.9% 67.2% 70.0% 67.5% 73.6% 56.8% 53.2% Tier 1 ratio 11.8% 12.9% 11.7% 13.0% 14.5% 12.9% 17.8% 19.0% 16.2% Capital adequacy ratio 15.4% 13.2% 16.4% 17.3% 18.4% 16.0% 19.4% 21.4% 19.9% Impaired assets as % of loan assets 2.3% 1.7% 0.4% 1.1% 0.3% 0.4% 0.5% 0.2% 0.6% Net loan losses as % of loan assets 0.0% 0.0% 0.0% 0.1% 0.1% 0.1% 0.2% 0.0% 0.3%

Assets under management ($ billion) (e) Listed 0.6 1.1 1.6 3.0 4.2 6.9 11.8 18.0 21.5 Unlisted Retail 5.6 7.2 9.0 9.8 9.6 10.6 11.7 12.4 13.4 Wholesale 7.6 8.6 10.8 10.0 12.5 13.4 17.8 21.9 27.7 Total 13.8 16.9 21.4 22.8 26.3 30.9 41.3 52.3 62.6

Staff numbers (f) 1,732 1,965 2,474 3,119 4,070 4,467 4,726 4,802 5,716

*The Bank’s ordinary shares were quoted on the Australian Stock Exchange on 29 July 1996.

(a) The 31 March 2004 final dividend is not included in the financial report in accordance with AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets”. This accounting standard requires that provisions for dividends not be recognised until the dividend has been declared or publicly recommended by the Directors. (b) Adjusted for June 1996 issue. (c) Number of fully paid ordinary shares at 31 March, excluding options and partly paid shares. (d) Based on unadjusted share price of $6.00. (e) This reflects the closing consolidated total assets of all Macquarie managed funds. (f) Includes both permanent staff (full time, part time and fixed term) and contractors (including consultants and secondees). 73 Contact directory

Australia Adelaide Melbourne Austria Sydney Macquarie Adviser Services Level 23 Vienna No. 1 Martin Place Level 2, West Wing 101 Collins Street Wienerbergstrasse 11 Sydney NSW 2000 50 Grenfell Street Melbourne VIC 3000 Tower East, 31 Floor Tel: 612 8232 3333 Adelaide SA 5000 Tel: 613 9635 8000 1100 Vienna Austria Fax: 612 8232 7780 Tel: 1800 808 508 Fax: 613 9635 8080 Tel: 431 205 300 20 Fax: 1800 550 140 Fax: 431 205 300 30 20 Bond Street Macquarie Adviser Services Sydney NSW 2000 Macquarie Financial Services Level 22 Brazil Tel: 612 8232 3333 Levels 1 & 2, West Wing 101 Collins Street Sao Paulo Fax: 612 8232 3350 50 Grenfell Street Melbourne VIC 3000 Rua Jeronimo da Veiga Adelaide SA 5000 Tel: 1800 808 508 45-14 andar cj. 142 9 Hunter Street Tel: 618 8203 0200 Fax: 1800 550 140 Sao Paulo SP 04536-000 Brazil Sydney NSW 2000 Fax: 618 8212 4829 Tel: 5511 3066 2600 Tel: 612 8232 3333 Moree Fax: 5511 3167 3807 Fax: 612 8232 7780 Brisbane Macquarie Cotton Australia Level 1, 300 Queen Street 2/37 Greenbah Road Canada 363 George Street Brisbane QLD 4000 Moree NSW 2400 Toronto Sydney NSW 2000 Tel: 617 3233 5333 Tel: 612 6757 2000 8th Floor, 121 King Street West Tel: 612 8297 0604 Fax: 617 3233 5370 Fax: 612 6752 5281 Toronto, Ontario Fax: 612 8297 4603 MH5 3T9 Canada Macquarie Adviser Services Perth Tel: 1416 594 0200 Level 8, 12 Creek Street Macquarie Adviser Services Fax: 1416 594 0020 Brisbane QLD 4000 Level 27, Allendale Square Tel: 1800 808 508 77 St Georges Terrace Vancouver Fax: 1800 550 140 Perth WA 6000 Suite 2664, Bentall Centre Tel: 1800 808 508 1055 Dunsmuir Street Macquarie Financial Services Fax: 1800 550 140 PO Box 49183 Level 2, Waterfront Place Vancouver BC 1 Eagle Street Macquarie Financial Services V7X 1KB Canada Brisbane QLD 4000 Level 28, Allendale Square Tel: 1604 605 3944 Tel: 617 3233 5888 77 St George’s Terrace Fax: 1604 605 1634 Fax: 617 3229 5999 Perth WA 6000 Tel: 618 9224 0888 Gold Coast Fax: 618 9224 0895 Macquarie Financial Services Ground Floor, 12 Short Street Sunshine Coast Southport QLD 4215 Macquarie Financial Services Tel: 617 5532 8955 69 Mary Street Fax: 617 5532 8731 Noosaville QLD 4566 Tel: 617 5474 1608 Fax: 617 5474 2359

74 Macquarie Bank Limited 2004 Annual Review China Germany Korea Beijing Frankfurt Seoul Macquarie International Asset Suite 902, Block E2 Beethovenstrasse 18 Macquarie International Limited, Management Co., Ltd. The Towers, Oriental Plaza D-60325 Frankfurt/Main Seoul Branch 7th Floor, Hanwha Building No. 1 East Chang An Avenue Germany 4th Floor, Hanwha Building 110 Sokong-Dong, Chung-Ku Dong Cheng District Tel: 4969 7474 9710 110 Sokong-Dong, Chung-Ku Seoul 100-755, Korea Beijing 100738 PRC Fax: 4969 7474 9797 Seoul 100-755, Korea Tel: 822 3705 2800 Tel: 86 10 8518 8938 Tel: 822 3782 2200 Munich Fax: 822 3705 2888 Fax: 86 10 8518 9716 Fax: 822 3782 2298 Stollbergstrasse 22 Macquarie Shinhan Infrastructure First China Property Group 80539 Munich Kookmin Macquarie Treasury Management Co., Ltd. Room 1010A-1011, Level 10 Germany Derivatives Business 8th Floor, Hanwha Building Ruoy Chai International Building Tel: 4989 290 530 Cooperation 110 Sokong-Dong, Chung-Ku 8 Yong An Dong Li Fax: 4989 290 5320 11th Floor, 36-3 Yoido-Dong, Seoul 100-755, Korea Jian Guo Men Wai Avenue Youngdeungpo-Ku Hong Kong Tel: 822 3705 8500 Chaoyang District Seoul 150-758, Korea 17/F Citic Tower Fax: 822 3705 8596 Beijing 100022 PRC Tel: 822 2073 8905 1 Tim Mei Avenue Tel: 8610 8528 8986 Fax: 822 2073 8948 Shinhan Macquarie Financial Central, Hong Kong Fax: 8610 8528 8788 Advisory Co., Ltd. Tel: 852 2823 3700 Macquarie Capital Korea Co., Ltd 8th Floor, Hanwha Building Shanghai Fax: 852 2823 3790 8th Foor, Hanwha Building 110 Sokong-Dong, Chung-Ku Suite 5C, Level 5 110 Sokong-Dong, Chung-Ku Indonesia Seoul 100-755, Korea Dong Yi Building Seoul 100-755, Korea Jakarta Tel: 822 3705 8500 88-90 Chang Shu Road Tel: 822 3705 8500 Jakarta Stock Exchange Building Fax: 822 3705 8555 Shanghai PRC 200040 Fax: 822 3705 8585 Tower 2, 17th Floor Tel: 8621 6249 2212 Woori Macquarie Equity Jalan Jend, Sudirman Kav. 52-53 Macquarie Korea Co., Ltd Fax: 8621 6249 2810 Derivatives Business Jakarta 12190 4th Floor, Hanwha Building Cooperation First China Property Group Indonesia 110 Sokong-Dong, Chung-Ku 10th Floor, Wooribank Building 2587-2588, Level 25 Tel: 21 515 7615 Seoul 100-755, Korea 203 Hoehyon-Dong 1-Ga, Chung-Ku City Center Tower B Fax: 21 515 7799 Tel: 822 3782 2200 Seoul 100-792, Korea 100 Zun Yi Road Fax: 822 3782 2299 Ireland Tel: 822 2002 5434 Hong Qiao Dublin Macquarie-IMM Investment Fax: 822 2002 5925 Shanghai 200051 PRC Suite 220, Alexandra House Management Co., Ltd. Tel: 8621 6237 1112 The Sweepstakes 4th Floor, Hanwha Building Fax: 8621 6237 1387 Ballsbridge, Dublin 4 110 Sokong-Dong, Chung-Ku Tianjin Ireland Seoul 100-755, Korea 145 Mu Nan Dao Tel: 3531 631 9351 Tel: 822 3782 2300 Heping District Fax: 3531 631 9434 Fax: 822 3782 2400 Tianjin 300050 PRC Japan Tel: 8622 2313 4528 Tokyo Fax: 8622 2313 4529 Taisho Seimei Hibiya Building 10F 9-1 Yurakucho 1-Chome Chiyoda-ku Tokyo 100-0006 Japan Tel: 813 5220 2727 Fax: 813 5220 2726

c/- Mizuho Securities Level 6, Otemachi First Square 1-5-1 Otemachi Chiyodo-ku Tokyo 100-0004 Japan Tel: 813 5208 3119 Fax: 813 3516 7224

75 Contact directory

Malaysia South Africa Kuala Lumpur Cape Town Level 12, Menara Dion Ground Floor, Kildare House 27 Jalan Sultan Ismail The Oval, 1 Oakdale Road 50250 Kuala Lumpur Newlands 7700 Cape Town Malaysia South Africa Tel: 603 2381 3081 Tel: 2721 670 1240 Fax: 603 2381 3082 Fax: 2721 670 1220 Labuan Johannesburg Macquarie Bank Limited 17th Floor, The Forum (Labuan Branch) 2 Maude Street Unit Level 3 (A) Main Ofﬁce Tower Sandton 2146 Financial Park Labuan South Africa Jalan Merdeka Tel: 2711 666 0360 87000 Federal Territory Labuan Fax: 2711 784 6251 Malaysia c/- ABSA Corporate and Tel: 6087 583 080 Merchant Bank Fax: 6087 583 088 ABSA Towers, 3rd Floor New Zealand 180 Commissioner Street Auckland Johannesburg 2001 Level 14, Phillips Fox Tower South Africa 209 Queen Street Tel: 2711 350 8392 Auckland 1 New Zealand Fax: 2711 350 2519 Tel: 649 357 6931 c/- Nedbank Corporate Fax: 649 309 6220 6th Floor Corporate Place Christchurch Nedcor Sandton Level 17, Forsyth Barr House 135 Rivonia Road 764 Colombo Street Sandown 2196 South Africa Christchurch New Zealand Tel: 2711 535 4029 Tel: 643 366 8851 Fax: 2711 625 7081 Fax: 643 366 8852 United Kingdom Wellington London Ground Floor, Todd Building Level 31, CityPoint 95 Customhouse Quay 1 Ropemaker Street Wellington New Zealand London EC2Y 9HD Tel: 644 462 4999 United Kingdom Fax: 644 462 4900 Tel: 4420 7065 2000 Fax: 4420 7065 2017 Singapore 23 Church Street #11-05 Capital Square Singapore 049481 Tel: 65 6536 3875 Fax: 65 6536 3926

76 Macquarie Bank Limited 2004 Annual Review USA Memphis Investor Relations Charleston 5125 Elmore Road Tel: 612 8232 5006 550 Long Point Road Suite 6, Memphis TN 38134 Fax: 612 8232 4330 Suite B USA Email: [email protected] Mount Pleasant, SC 29464 Tel: 1901 322 7400 Registered Ofﬁce USA Fax: 1901 322 7402 Level 3, 25 National Circuit Tel: 1843 824 0330 New York Forrest Fax: 1843 849 0288 Rockefeller Center ACT 2603 Chicago 600 Fifth Avenue, 21st Floor Tel: 612 6225 3000 One North Wacker Drive, 9th Floor New York, NY 10020 Share Registry Chicago IL 60606 USA Computershare Investor Services Pty Ltd USA Tel 1212 548 6555 GPO Box 242 Tel: 1312 499 8600 Fax 1212 399 8930 Melbourne VIC 8060 Fax: 1312 499 8686 San Diego Toll free: 1300 855 080 Houston 11440 W Bernard Ct Tel: 613 9415 4000 Two Allen Center Suite 366 Fax: 612 8235 8220 1200 Smith Street San Diego, CA 92127 Suite 1140, Houston, Texas 77002 USA USA Tel: 1858 207 1096 Tel: 1312 986 3600 Fax: 1858 207 1097 Fax: 1713 986 3610 San Jose Jupiter 19925 Stevens Creek Blvd Medallist Developments Suite 162 1070 East Indiantown Road Cupertino, CA 9501 Suite 208, Jupiter, Florida 33477 USA USA Tel: 1408 973 7842 Tel: 1561 743 9062 Fax: 1408 973 7277 Fax: 1561 743 2406 Seattle Los Angeles City Center Building 11601 Wilshire Boulevard 1420 Fifth Avenue, Suite 2975 5th Floor, Suite 509 Seattle, WA 98101 Los Angeles CA 90025 USA USA Tel: 1206 674 3380 Tel: 1310 575 4855 Fax: 1206 674 3394 Fax: 1310 575 1837 Four Corners Capital Management 515 South Flower Street Suite 4310 Los Angeles, CA 90071 USA Tel: 213 233 4444 Fax: 213 233 4470

Designed by emeryfrost eTree Photography by Karl Schwerdtfeger (pp 32-35 ) Macquarie Bank is proud to be a Foundation Member of eTree. eTree is a Computershare Film by Kolorart Graphics Limited initiative with Landcare Australia which provides an environmental incentive to Printing by Mailing and Print Services shareholders of Australian companies to elect to receive shareholder communications electronically. For every shareholder who registers an email address Macquarie will donate $2 to Landcare Australia to support reforestation projects in the state or territory where the registered shareholder resides. Macquarie Bank shareholders can register to receive their shareholder communications, such as the Annual Report, electronically, by visiting www.etree.com.au/macquarie and registering their email address.

77 www.macquarie.com.au