MACQUARIE GROUP 2012 ANNUAL FINANCIAL REPORT MACQUARIE GROUP LIMITED ACN 122 169 279 Macquarie Group Limited’s 2012 Annual General Meeting The Holey Dollar 2012 Annual Report consists of Macquarie Group’s 2012 Annual In 1813 Governor Lachlan Macquarie overcame two documents – the 2012 General Meeting will be held at an acute currency shortage by purchasing Spanish Annual Review and the 2012 10:30am on Wednesday 25 July silver dollars (then worth five shillings), punching Annual Financial Report. 2012 at the Four Seasons Hotel the centres out and creating two new coins – the This 2012 Macquarie Group (Grand Ballroom), 199 George ‘Holey Dollar’ (valued at five shillings) and the ‘Dump’ Annual Financial Report complies Street, Sydney NSW. (valued at one shilling and three pence). with reporting requirements and Details of the business of the This single move not only doubled the number of contains the statutory financial meeting will be contained in the coins in circulation but increased their worth by report. It includes Macquarie’s Notice of Annual General Meeting, 25 per cent and prevented the coins leaving the Corporate Governance Statement, to be sent to shareholders colony. Governor Macquarie’s creation of the Holey the Directors’ Report including the separately. Dollar was an inspired solution to a difficult problem Remuneration Report and the full and for this reason it was chosen as the symbol for financial statements. Macquarie Group. The 2012 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 2012 financial year. If you would like a copy of the 2012 Annual Review please call us on +61 2 8232 5006 or visit macquarie.com.au/investorrelations. The Macquarie name and Holey Dollar device are registered trade marks of Macquarie Group Limited. Macquarie Group Limited and its subsidiaries 2012 Annual Financial Report macquarie.com.au Macquarie Group Limited 2012 Annual Financial Report Corporate Governance Statement 2 Diversity Report 10 Sustainability Report 12 Risk Management Report 20 Directors’ Report 36 – Remuneration Report 40 – Schedule 1 91 – Schedule 2 94 Financial Report 95 – Income statements 96 – Statements of comprehensive income 97 – Statements of financial position 98 – Statements of changes in equity 100 – Statements of cash flows 102 – Notes to the financial statements 104 – Directors’ declaration 208 – Independent audit report 209 Ten year history 211 Additional investor information 212 Sustainability Appendix 216 Glossary 222 1 Macquarie Group Limited and its subsidiaries 2012 Annual Financial Report macquarie.com.au Corporate Governance Statement Macquarie’s approach to Corporate Governance Macquarie governance practice is available on Macquarie’s Macquarie’s approach to governance, which has remained website at macquarie.com.au. largely consistent over time, is to: Macquarie is regulated by the Australian prudential regulator, — promote the long term profitability of Macquarie while APRA, as a non-operating holding company of a licensed prudently managing risk Australian bank, Macquarie Bank Limited (Macquarie Bank). APRA’s prudential standards include governance — drive superior and sustainable shareholder value over requirements. Macquarie also has subsidiaries that are the long term through the alignment of the interests of supervised by regulators in the overseas jurisdictions in shareholders and staff which they operate. The notes to Macquarie’s financial — meet stakeholder expectations of sound corporate statements include a list of material subsidiaries of the governance as part of Macquarie’s broader company. responsibility to clients, shareholders, investors and During the year, Macquarie continued to monitor regulatory the communities in which it operates. and corporate governance developments and their impact Macquarie recognises that a key factor in delivering long on Macquarie’s businesses. The level of global regulation term shareholder returns is providing superior services to remains a key challenge. clients. Macquarie recruits high quality staff and expects On 19 May 2011, Diane Grady was appointed to the Boards staff to uphold the company’s Goals and Values. of Macquarie and Macquarie Bank and on 21 December Macquarie Group Limited (Macquarie) is a global financial 2011, Greg Ward was appointed Deputy Managing Director services specialist. Its shares are listed on the Australian of Macquarie and Chief Executive Officer and Managing Securities Exchange (ASX). ASX listed companies are Director of Macquarie Bank upon Richard Sheppard’s required to report on the extent to which the company has retirement from those positions. Other than expanding the followed the governance recommendations set by the ASX responsibilities of the Board Corporate Governance Corporate Governance Council (ASX Recommendations) Committee (since renamed the Board Governance and during the reporting period. Macquarie considers that during Compliance Committee) to include oversight of work the year it has followed the governance arrangements set health and safety (WHS) and environmental matters on out in the ASX Recommendations. A summary of the ASX behalf of the Board in December 2011, Macquarie’s Recommendations and reference to the applicable corporate governance framework remained unchanged during the year. Corporate Governance Framework Macquarie Board Board Board Board Board Audit Board Risk Governance and Remuneration Nominating Committee Committee Compliance Committee Committee Committee Financial reporting Risk management Remuneration Corporate Board and Board and Internal Audit framework and risk policies, practices governance Committee 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 Head of RMG 2 22 Corporate Governance Statement Macquarie’s approach to Corporate Governance Macquarie governance practice is available on Macquarie’s Board Oversight Board Committees Macquarie’s approach to governance, which has remained website at macquarie.com.au. The Macquarie Board consists of nine Voting Directors, Macquarie’s five standing Board Committees assist the largely consistent over time, is to: Macquarie is regulated by the Australian prudential regulator, eight of whom are independent. Nicholas Moore, Board in its oversight role. Each Board Committee has an — promote the long term profitability of Macquarie while APRA, as a non-operating holding company of a licensed Macquarie’s Managing Director and Chief Executive independent Chairman. All Board members are sent Board prudently managing risk Australian bank, Macquarie Bank Limited (Macquarie Bank). Officer, is the only executive on the Board. The table Committee meeting agendas and may attend any Board APRA’s prudential standards include governance below sets out the current composition of the Board and Committee meeting. Subsequent to each Board Committee — drive superior and sustainable shareholder value over requirements. Macquarie also has subsidiaries that are the membership of each Board Committee. Details of each meeting, the minutes are included in the Board papers and the long term through the alignment of the interests of supervised by regulators in the overseas jurisdictions in Voting Director’s experience is summarised in Schedule 1 presented to the Board by the respective Board Committee shareholders and staff which they operate. The notes to Macquarie’s financial of the Directors’ Report contained in this Annual Financial Chairmen. — meet stakeholder expectations of sound corporate statements include a list of material subsidiaries of the Report. Schedule 1 also includes the date of each Voting All members of the Audit, Remuneration, Nominating and governance as part of Macquarie’s broader company. Director’s appointment to the Board. Governance and Compliance Committees are independent responsibility to clients, shareholders, investors and During the year, Macquarie continued to monitor regulatory Macquarie’s Constitution includes requirements concerning directors. The Board Risk Committee includes all members the communities in which it operates. and corporate governance developments and their impact the setting of board size, meetings, election of directors of the Board and the Managing Director of Macquarie Bank Macquarie recognises that a key factor in delivering long on Macquarie’s businesses. The level of global regulation and powers and duties of directors. In accordance with to focus appropriate attention on the oversight of risk. term shareholder returns is providing superior services to remains a key challenge. the Constitution, the Board has resolved that the maximum Members’ attendance at Board and Board Committee clients. Macquarie recruits high quality staff and expects On 19 May 2011, Diane Grady was appointed to the Boards number of Voting Directors is currently nine. meetings during the past year is set out at the beginning staff to uphold the company’s Goals and Values. of Macquarie and Macquarie Bank and on 21 December A copy of the Constitution is available on Macquarie’s of the Directors’ Report. Macquarie