2013 Annual Financial Report Macquarie Group MACQUARIE GROUP LIMITED ACN 122 169 279 THE HOLEY DOLLAR In 1813 Governor Lachlan Macquarie overcame an acute currency shortage by purchasing Spanish silver dollars (then worth five shillings), punching the centres out 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 worth by 25 per cent and prevented the coins 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 for Macquarie Group. This year celebrates the Bicentenary of the Holey Dollar. MACQUARIE GROUP 2013 ANNUAL REPORT Macquarie Group Limited’s 2013 Annual Report consists of two documents – the 2013 Annual Review and the 2013 Annual Financial Report. This 2013 Macquarie Group Annual Financial Report complies with reporting requirements and contains the statutory financial report. It includes Macquarie’s Corporate Governance Statement, the Directors’ Report including the Remuneration Report and the full financial statements. The 2013 Annual Review contains a report from the Chairman and Managing Director on Macquarie’s business and operational highlights. It is not a concise report prepared under section 314 (2) of the Corporations Act. Macquarie Group has not prepared a concise report for the 2013 financial year. If you would like a copy of the 2013 Annual Review please call us on +61 2 8232 5006 or visit macquarie.com.au/investorrelations. 2013 ANNUAL GENERAL MEETING Macquarie Group’s 2013 Annual General Meeting will be held at 10:30am on Thursday 25 July 2013 at the Grand Hyatt Melbourne (Savoy Ballroom), 123 Collins Street, Melbourne, VIC. THE MACQUARIE NAME AND HOLEY DOLLAR DEVICE ARE Details of the business of the meeting will be contained in the Notice of REGISTERED TRADE MARKS OF MACQUARIE GROUP LIMITED. Annual General Meeting, to be sent to shareholders separately. Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com.au Macquarie Group Limited 2013 Annual Financial Report Corporate Governance Statement 2 Diversity Report 9 Sustainability Report 11 Risk Management Report 20 Directors’ Report 36 – Remuneration Report 41 – Schedule 1 83 – Schedule 2 87 Financial Report 88 – Income Statements 89 – Statements of comprehensive income 90 – Statements of financial position 91 – Statements of changes in equity 92 – Statements of cash flows 94 – Notes to the financial statements 96 – Directors’ declaration 202 – Independent audit report 203 Ten year history 205 Additional investor information 206 Sustainability Appendix 211 Glossary 215 1 Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com.au Corporate Governance Statement Macquarie’s approach to Corporate company has followed the governance recommendations Governance set by the ASX Corporate Governance Council (ASX Recommendations) during the reporting period. Macquarie's Macquarie’s approach to governance, which has remained corporate governance framework, which was unchanged largely consistent over time, is to: during the year, remains consistent with the governance – promote the long term profitability of Macquarie while arrangements set out in the ASX Recommendations. A prudently managing risk summary of the ASX Recommendations and reference to the – drive superior and sustainable shareholder value over applicable Macquarie governance practice is available on the long term through the alignment of the interests of Macquarie’s website at macquarie.com.au. shareholders and staff Macquarie is regulated by the Australian prudential regulator, – meet stakeholder expectations of sound corporate APRA, as a non-operating holding company of a licensed governance as part of Macquarie’s broader Australian bank, Macquarie Bank Limited (Macquarie Bank). responsibility to clients, shareholders, investors and APRA’s prudential standards include governance the communities in which it operates. requirements. Macquarie also has subsidiaries that are Macquarie recognises that a key factor in delivering long supervised by regulators in the overseas jurisdictions in term shareholder returns is providing superior services to which they operate. The notes to Macquarie’s financial clients. Macquarie recruits high quality staff and expects statements include a list of material subsidiaries of the staff to uphold the company’s Goals and Values. company. Macquarie Group Limited (Macquarie) is a global financial During the year, Macquarie continued to monitor regulatory services provider and its shares are listed on the Australian and corporate governance developments and their impact Securities Exchange (ASX). As an ASX-listed company, on Macquarie’s businesses. Macquarie is required to report on the extent to which the Corporate Governance framework Macquarie Board Board Board Governance Board Risk Board Nominating Remuneration and Compliance Committee Committee Committee Committee Financial reporting Risk management Remuneration Corporate Board and Board and Internal Audit framework and policies, practices governance Committee risk profile and related framework, membership disclosure compliance, WHS and environment Macquarie Managing Director Powers of the Macquarie Group Board within delegated limits for all matters except those reserved for the Board in the Board Charter or delegated to the Board Committees Macquarie Executive Committee and Operations Review Committee Head of IAD Chief Risk Officer 2 Board oversight Committees operate as management committees pursuant to the Managing Director’s delegated authority. The Macquarie Board consists of ten Voting Directors, nine of whom are independent. Kevin McCann, an The Board Charter, which is available on Macquarie’s Independent Director, is Chairman. Nicholas Moore, website, details the Board’s role and responsibilities and its Macquarie’s Managing Director and Chief Executive Officer relationship with management. (CEO), is the only executive Board member. On 9 November Board Committees 2012, Michael Coleman was appointed to the Board. The table below sets out the current composition of the Board Macquarie’s five standing Board Committees assist the and the membership of each Board Committee. Details of Board in its oversight role. Each Board Committee has an each Voting Director’s experience are summarised in independent Chairman who is also not the Chairman of any Schedule 1 of the Directors’ Report contained in the Annual other Board Committee. All Board members are sent Board Financial Report. Schedule 1 also includes the date of each Committee meeting agendas and may attend any Board Voting Director’s appointment to the Board. Committee meetings. Subsequent to each Board Committee meeting, the minutes are included in the Board papers and Macquarie’s Constitution sets out requirements concerning presented to the Board by the respective Board Committee the setting of board size, meetings, election of directors Chairmen. and the powers and duties of directors. In accordance with the Constitution, the Board has resolved that the maximum The Audit, Governance and Compliance, Nominating and number of Voting Directors is currently ten. Remuneration Committees comprise members who are independent directors. The Board Risk Committee includes A copy of the Constitution is available on Macquarie’s all members of the Board and the Managing Director of website. Macquarie Bank to focus appropriate attention on the The Board has reserved certain matters for its approval oversight of risk. Members’ attendance at Board and Board and has delegated specific authorities to its various Committee meetings during the past year is set out at the Board Committees. The Managing Director, who is also beginning of the Directors’ Report. Macquarie’s CEO, has been granted general authority for The Board Committee Charters, detailing the responsibilities those matters not reserved for the Board or Board of each Committee and how they exercise their authority, Committees. Macquarie’s Executive and Operations Review are available on Macquarie’s website. Board and Committee membership Governance Macquarie and Board Audit Compliance Nominating Remuneration Risk Macquarie Independent Directors Kevin McCann AM Chairman Chairman Member Member Michael Coleman Member Member Member Michael Hawker AM Member Member Member Member Peter Kirby Member Member Member Member Catherine Livingstone AO Member Chairman Member Member Member John Niland AC Member Chairman Member Member Helen Nugent AO Member Member Chairman Member Peter Warne Member Member Member Member Chairman Diane Grady AM Member Member Member Macquarie Managing Director and Chief Executive Officer Nicholas Moore Member Member Macquarie Bank Managing Director and Chief Executive Officer Greg Ward Member 3 Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com.au Corporate Governance Statement continued Allocation of responsibilities between Independent Directors Board Committees Macquarie recognises that independent directors are Primary responsibility for ensuring an appropriate risk important in assuring shareholders that the Board is management framework, including the establishment of able to act in the best interests of Macquarie and policies for the control of risk, lies with the Board Risk independently of management. Nine of the