OCBC Bk MBLeCW101103

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					Supplemental Listing Document

         If you are in any doubt about this document, you should consult your stockbroker or other registered
dealer in securities, bank manager, solicitor, accountant or other professional adviser. The Singapore Exchange
Securities Trading Limited (the “SGX-ST”) assumes no responsibility for the correctness of any of the statements
made or opinions or reports expressed in this document. Admission to the Official List of the SGX-ST is not to be
taken as an indication of the merits of Macquarie Bank Limited, the Company (defined below) or the Warrants.


                      80,000,000 European Style Cash Settled Call Warrants
                                relating to the ordinary shares of
                          Oversea-Chinese Banking Corporation Limited
                                             issued by




                                          Macquarie Bank Limited
                                                (ABN 46 008 583 542)
                                      (Incorporated under the laws of Australia)



                                    Issue Price: S$0.409 per Warrant

         This document is published for the purpose of obtaining a listing of all the above warrants (the
“Warrants”) to be issued by Macquarie Bank Limited (the “Issuer”) and is supplemental to and should be read in
conjunction with a base listing document published on 30 June 2009 (the “Base Listing Document”) for the
purpose of giving information with regard to the Issuer and the Warrants. Information relating to Oversea-Chinese
Banking Corporation Limited (the “Company”) is contained in this document.

           This document does not constitute or form part of any offer, or invitation, to subscribe for or to sell, or
solicitation of any offer to subscribe for or to purchase, Warrants or other securities of the Issuer, nor is it
calculated to invite, nor does it permit the making of, offers by the public to subscribe for or purchase for cash or
other consideration Warrants or other securities of the Issuer. Restrictions have been imposed on offers and
sales of the Warrants and on distributions of documents relating thereto in Singapore, the United States, the
United Kingdom, Hong Kong and Australia (see Base Listing Document).

         Investors are warned that the price of the Warrants may fall in value as rapidly as it may rise and
holders may sustain a total loss of their investment. Prospective purchasers should therefore ensure that
they understand the nature of the Warrants and carefully study the risk factors set out in this document
before they invest in the Warrants.

        The Warrants constitute direct, general and unsecured contractual obligations of the Issuer and
of no other person, including those in respect of deposits, but excluding any debts for the time being
preferred by law and any subordinated obligations and if you purchase the Warrants you are relying
upon the creditworthiness of the Issuer and have no rights under the Warrants against the Company.

        The Issuer is regulated as an authorised deposit-taking institution by the Australian Prudential
Regulation Authority. The Issuer does not carry on banking business in Singapore. The Issuer does not
hold a licence under the Banking Act, Chapter 19 of Singapore and therefore is not subject to the
supervision of the Monetary Authority of Singapore.

                                                    14 May 2010
                                                    2


       Application has been made to the SGX-ST for permission to deal in and for quotation of the
Warrants and the SGX-ST has agreed in principle to grant permission to deal in and for quotation of
the Warrants. It is expected that dealings in the Warrants will commence on 17 May 2010.

        Subject as set out below, the Issuer accepts full responsibility for the accuracy of the
information contained in this document and the Base Listing Document in relation to itself and the
Warrants. To the best of the knowledge and belief of the Issuer (which has taken all reasonable care
to ensure that such is the case), the information contained in this document and the Base Listing
Document for which it accepts responsibility (subject as set out below in respect of the information
contained herein with regard to the Company) is in accordance with the facts and is not limited by
anything likely to affect the import of such information. The information contained herein with regard to
the Company consists of extracts from information released publicly by the Company on the web-site
of the SGX-ST. The Issuer accepts responsibility for accurately reproducing such extracts but accept
no further or other responsibility in respect of such information.

         Neither the delivery of this document nor any sale made hereunder shall create any
implication that there has been no change in the affairs of the Issuer, and its subsidiaries and affiliates
since the date hereof. No person has been authorised to give any information or to make any
representations other than those contained in this document in connection with the offering of the
Warrants, and, if given or made, such information or representations must not be relied upon as
having been authorised by the Issuer.

       This document does not constitute an offer or invitation by or on behalf of the Issuer to
purchase or subscribe for any of the Warrants. The distribution of this document and the offering of
the Warrants may, in certain jurisdictions, be restricted by law. The Issuer requires persons into
whose possession this document comes to inform themselves of and observe all such restrictions.

         The Warrants have not been and will not be registered under the U.S. Securities Act of 1933,
as amended (the “Securities Act”). Warrants, or interests therein, may not at any time be offered,
sold, resold or delivered within the United States or to, or for the account or benefit of, U.S. persons
and any offer, sale, resale or delivery made within the United States or to, or for the account or benefit
of, a U.S. person will not be recognised. A further description of certain restrictions on offering and
sale of the Warrants and distribution of this document is given in the section headed “Sales
Restrictions” in the Base Listing Document.

         The SGX-ST has made no assessment of, nor taken any responsibility for, the financial
soundness of the Issuer or the merits of investing in the Warrants, nor have they verified the accuracy
or the truthfulness of statements made or opinions expressed in this document.

         The Issuer or its affiliates may repurchase Warrants at any time and any Warrant which is
repurchased may be offered from time to time in one or more transactions in the over-the-counter
market or otherwise at prevailing market prices or in negotiated transactions, at the discretion of the
Issuer. Investors should not therefore make any assumption as to the number of Warrants in issue at
any time.

        References in this document to the “Conditions” shall mean references to the Terms and
Conditions of the European Style Cash Settled Call Warrants contained in the Base Listing Document.
Terms not defined herein shall have the meanings ascribed thereto in the Conditions.
                                              3


                                       Table of Contents

                                                                        Page

Terms and Conditions of the Warrants                                     4

Terms and Conditions of the European Style Cash Settled Call Warrants    6

Summary of the Issue                                                    16

Risk Factors                                                            18

Information Relating to the Company                                     23

Information Relating to the Designated Market Maker                     24

Supplemental Information Relating to the Issuer                         25

Sale                                                                    26

Supplemental General Information                                        29

Appendix I

Appendix II
                                                   4


                         TERMS AND CONDITIONS OF THE WARRANTS

         The following are the terms and conditions of the Warrants and should be read in conjunction
with, and are qualified by reference to, the other information set out in this document and the base
listing document dated 30 June 2009 (the “Base Listing Document”).

         The Conditions are set out in the section headed “Terms and Conditions of the European
Style Cash Settled Call Warrants” in the Base Listing Document. For the purposes of the Conditions,
the following terms shall have the following meanings:

Warrants:                         80,000,000 European Style Cash Settled Call Warrants relating to
                                  the ordinary shares (“Shares”) of the Company

Company:                          Oversea-Chinese Banking Corporation Limited

Conversion Ratio (number of       0.5 (i.e. every 2 Warrants initially relate to 1 Share)
Shares per Warrant):

Exercise Price:                   S$8.60

Closing Date:                     14 May 2010

Dealing Commencement Date:        17 May 2010

Expiry Date:                      3 November 2010

Board Lot:                        1,000 Warrants

Valuation Date:                   Each of the five Business Days immediately preceding the Expiry
                                  Date (subject to Market Disruption Events as set out in the
                                  Conditions of the Warrants)

Settlement Currency:              Singapore dollars

Exercise:                         Warrantholders shall not be required to deliver an exercise notice.
                                  Exercise of Warrants shall be determined by whether the Cash
                                  Settlement Amount is positive. If the Cash Settlement Amount is
                                  positive, all Warrants shall be deemed to have been automatically
                                  exercised at 12:00 noon (Singapore time) on the Expiry Date. The
                                  Cash Settlement Amount less the Exercise Expenses in respect of
                                  the Warrants shall be paid in the manner set out in Condition 4(c)
                                  of the Warrants. In the event the Cash Settlement Amount is zero
                                  or negative, all Warrants shall be deemed to have expired at 12:00
                                  noon (Singapore time) on the Expiry Date and Warrantholders
                                  shall not be entitled to receive any payment from the Issuer in
                                  respect of the Warrants.

Cash Settlement Amount:           In respect of each Warrant, shall be an amount (if positive) payable
                                  in the Settlement Currency equal to:

                                  (A) (i) the arithmetic mean of the closing prices of one Share (as
                                          5


                           derived from the daily publications of the Relevant Stock
                           Exchange, subject to any adjustments to such closing prices
                           determined by the Issuer to be necessary to reflect any
                           capitalisation, rights issue, distribution or the like) f o r each
                           Valuation Date LESS (ii) the Exercise Price MULTIPLIED by (B)
                           the Conversion Ratio

                           In certain circumstances, the Conversion Ratio and the Exercise
                           Price will be adjusted as set out in Condition 6 of the Warrants.

Exercise Expenses:         Warrantholders will be required to pay all charges which are
                           incurred in respect of the exercise of the Warrants.

Relevant Stock Exchange:   Singapore Exchange Securities Trading Limited (“SGX-ST”)
                                                   6


         The Conditions set out in the section headed “Terms and Conditions of the European Style
Cash Settled Call Warrants” in the Base Listing Document are set out below. This section is qualified
in its entirety by reference to the detailed information appearing elsewhere in this document which
shall, to the extent so specified or to the extent inconsistent with the relevant Conditions set out
below, replace or modify the relevant Conditions for the purpose of the Warrants.

                                 TERMS AND CONDITIONS OF
                      THE EUROPEAN STYLE CASH SETTLED CALL WARRANTS

1.      Form, Status, Transfer and Title

        (a)     Form. The Warrants (which expression shall, unless the context otherwise requires,
                include any further warrants issued pursuant to Condition 11) are issued subject to
                and with the benefit of:-

                (i)      an instrument by way of deed poll (the “Instrument”) dated the Closing Date,
                         made by Macquarie Bank Limited (the “Issuer”); and

               (ii)      a master warrant agent agreement (the “Warrant Agent Agreement”) dated
                         26 November 2004 and such other Warrant Agent Agreement as may be in
                         force from time to time, made between the Issuer and the Warrant Agent for
                         the Warrants.

                Copies of the Instrument and the Warrant Agent Agreement are available for
                inspection at the specified office of the Warrant Agent.

                The Warrantholders (as defined below) are entitled to the benefit of, are bound by
                and are deemed to have notice of all the provisions of the Instrument and the Warrant
                Agent Agreement.

        (b)     Status.    The Warrants constitute direct, general and unsecured contractual
                obligations of the Issuer and rank, and will rank, equally among themselves and pari
                passu with all other present and future unsecured and unsubordinated obligations of
                the Issuer (save for statutorily preferred exceptions). The Warrants provide for cash
                settlement on exercise.

        (c)     Transfer. The Warrants are represented by a global warrant certificate (“Global
                Warrant”) which will be deposited with The Central Depository (Pte) Limited (“CDP”).
                Warrants in definitive form will not be issued. Transfers of Warrants may be effected
                only in Board Lots or integral multiples thereof. All transactions in (including transfers
                of) Warrants, in the open market or otherwise, must be effected through a securities
                account with CDP. Title will pass upon registration of the transfer in the records
                maintained by CDP.

        (d)     Title. Each person who is for the time being shown in the records maintained by CDP
                as entitled to a particular number of Warrants shall be treated by the Issuer and the
                Warrant Agent as the holder and absolute owner of such number of Warrants,
                notwithstanding any notice to the contrary. The expression “Warrantholder” shall be
                construed accordingly.
                                             7


2.   Warrant Rights and Exercise Expenses

     (a)   Warrant Rights. Every Warrant entitles each Warrantholder, upon due exercise and
           on compliance with Condition 4, to payment by the Issuer of the Cash Settlement
           Amount (as defined below) (if any) in the manner set out in Condition 4.

           The "Cash Settlement Amount", in respect of each Warrant, shall be an amount (if
           positive) payable in the Settlement Currency equal to:

           (A) (i) the arithmetic mean of the closing prices of one Share (as derived from the
           daily publications of the relevant stock exchange on which the Shares related to the
           Warrants are traded (“Relevant Stock Exchange”) (as specified in the relevant
           Supplemental Listing Document), subject to any adjustments to such closing prices
           determined by the Issuer to be necessary to reflect any capitalisation, rights issue,
           distribution or the like) for each Valuation Date (as defined below) LESS (ii) the
           Exercise Price for the time being MULTIPLIED by (B) the Conversion Ratio.

           If the Issuer determines, in its sole discretion, that on any Valuation Date a Market
           Disruption Event (as defined below) has occurred, then that Valuation Date shall be
           postponed until the first succeeding Business Day (as defined below) on which there
           is no Market Disruption Event, unless there is a Market Disruption Event on each of
           the two Business Days immediately following the original date that, but for the Market
           Disruption Event, would have been a Valuation Date. In that case:-

           (A)     that second Business Day shall be deemed to be the Valuation Date
                   notwithstanding the Market Disruption Event; and

           (B)     the Issuer shall determine the closing price on the basis of its good faith
                   estimate of the bid price that would have prevailed on that second Business
                   Day but for the Market Disruption Event.

           If the postponement of a Valuation Date as aforesaid would result in a Valuation Date
           falling on or after the Expiry Date, then (1) the Business Day immediately preceding
           the Expiry Date (the "Last Valuation Date") shall be deemed to be the Valuation
           Date notwithstanding the Market Disruption Event and (2) the Issuer shall determine
           the closing price on the basis of its good faith estimate of the bid price that would
           have prevailed on the Last Valuation Date but for the Market Disruption Event.

           “Conversion Ratio” means the ratio (expressed as the number of Shares to which
           one Warrant relates) specified by the Issuer, subject to adjustments in accordance
           with these Conditions.

           “Market Disruption Event” means the occurrence or existence on any Valuation
           Date of (i) any suspension of trading on the Relevant Stock Exchange of the Shares
           requested by the Company if that suspension, is in the determination of the Issuer,
           material, (ii) any suspension of or limitation imposed on trading (including but not
           limited to unforeseen circumstances such as by reason of movements in price
           exceeding limits permitted by the Relevant Stock Exchange or any act of God, war,
           riot, public disorder, explosion, terrorism or otherwise) on the Relevant Stock
           Exchange in the Shares if that suspension or limitation is, in the determination of the
                                                 8


               Issuer, material, or (iii) the closing of the Relevant Stock Exchange or a disruption to
               trading on the Relevant Stock Exchange if that disruption, is in the determination of
               the Issuer, material as a result of the occurrence of any act of God, war, riot, public
               disorder, explosion, terrorism or otherwise.

               “Valuation Date” means, with respect to the exercise of Warrants, and subject as
               provided above in relation to a Market Disruption Event, each of the five Business
               Days immediately preceding the Expiry Date relating to such exercise.

       (b)     Exercise Expenses. Warrantholders will be required to pay all charges which are
               incurred in respect of the exercise of the Warrants (the “Exercise Expenses”). An
               amount equivalent to the Exercise Expenses will be deducted by the Issuer from the
               Cash Settlement Amount in accordance with Condition 4. Notwithstanding the
               foregoing, the Warrantholders shall account to the Issuer on demand for any Exercise
               Expenses to the extent that they were not or could not be deducted from the Cash
               Settlement Amount prior to the date of payment of the Cash Settlement Amount to
               the Warrantholders in accordance with Condition 4.

3.     Expiry Date

       Unless automatically exercised in accordance with Condition 4(b), the Warrants shall be
deemed to expire at 12:00 noon (Singapore time) on the Expiry Date or if the Expiry Date is not a
Business Day, the immediately preceding Business Day.

4.     Exercise of Warrants

       (a)     Exercise. Warrants may only be exercised on the Expiry Date in accordance with
               Condition 4(b).

       (b)     Automatic Exercise. Warrantholders shall not be required to deliver an exercise
               notice. Exercise of Warrants shall be determined by whether the Cash Settlement
               Amount is positive. If the Cash Settlement Amount is positive, all Warrants shall be
               deemed to have been automatically exercised at 12:00 noon (Singapore time) on the
               Expiry Date. The Cash Settlement Amount less the Exercise Expenses in respect of
               the Warrants shall be paid in the manner set out in Condition 4(c) below. In the event
               the Cash Settlement Amount is zero or negative, all Warrants shall be deemed to
               have expired at 12:00 noon (Singapore time) on the Expiry Date and Warrantholders
               shall not be entitled to receive any payment from the Issuer in respect of the
               Warrants.

       (c)     Settlement. In respect of Warrants which are automatically exercised in accordance
               with Condition 4(b), the Issuer will pay to the relevant Warrantholder the Cash
               Settlement Amount (if any) in the Settlement Currency. The aggregate Cash
               Settlement Amount (less any Exercise Expenses) shall be despatched as soon as
               practicable and no later than five Business Days following the Last Valuation Date by
               way of crossed cheque or other payment in immediately available funds drawn in
               favour of the Warrantholder only (or, in the case of joint Warrantholders, the first-
               named Warrantholder) appearing in the records maintained by CDP. Any payment
               made pursuant to this Condition 4(c) shall be delivered at the risk and expense of the
               Warrantholder and posted to the Warrantholder's address appearing in the records
                                               9


           maintained by CDP (or, in the case of joint Warrantholders, to the address of the first-
           named Warrantholder appearing in the records maintained by CDP).

     (d)   CDP not liable. CDP shall not be liable to any Warrantholder with respect to any
           action taken or omitted to be taken by the Issuer or the Warrant Agent in connection
           with the exercise of the Warrants or otherwise pursuant to or in connection with these
           Conditions.

     (e)   Business Day. In these Conditions, a “Business Day” shall be a day on which the
           SGX-ST is open for dealings in Singapore during its normal trading hours and banks
           are open for business in Singapore.

5.   Warrant Agent

     (a)   Warrant Agent. The Issuer reserves the right, subject to the appointment of a
           successor, at any time to vary or terminate the appointment of the Warrant Agent and
           to appoint another Warrant Agent provided that it will at all times maintain a Warrant
           Agent which, so long as the Warrants are listed on the SGX-ST, shall be in
           Singapore. Notice of any such termination or appointment and of any change in the
           specified office of the Warrant Agent will be given to the Warrantholders in
           accordance with Condition 9.

     (b)   Agent of Issuer. The Warrant Agent will be acting as agent of the Issuer and will not
           assume any obligation or duty to or any relationship of agency or trust for the
           Warrantholders. All determinations and calculations by the Warrant Agent under
           these Conditions shall (save in the case of manifest error) be final and binding on the
           Issuer and the Warrantholders.

6.   Adjustments

     (a)   Potential Adjustment Event. Following the declaration by a Company of the terms of
           any Potential Adjustment Event (as defined below), the Issuer will determine whether
           such Potential Adjustment Event has a dilutive or concentrative or other effect on the
           theoretical value of the Shares and, if so, will (i) make the corresponding adjustment,
           if any, to any one or more of the Conditions as the Issuer determines appropriate to
           account for that dilutive or concentrative or other effect, and (ii) determine the
           effective date of that adjustment. The Issuer may, but need not, determine the
           appropriate adjustment by reference to the adjustment in respect of such Potential
           Adjustment Event made by an exchange on which options or futures contracts on the
           Shares are traded.

     (b)   Definitions. “Potential Adjustment Event” means any of the following:

           (i)       a subdivision, consolidation or reclassification of the Shares (excluding a
                     Merger Event) or a free distribution or dividend of any such Shares to existing
                     holders by way of bonus, capitalisation or similar issue;

           (ii)      a distribution or dividend to existing holders of the Shares of (1) such Shares,
                     or (2) other share capital or securities granting the right to payment of
                     dividends and/or the proceeds of liquidation of the Company equally or
                     proportionately with such payments to holders of such Shares, or (3) share
                                        10


              capital or other securities of another issuer acquired by the Company as a
              result of a “spin-off” or other similar transaction, or (4) any other type of
              securities, rights or warrants or other assets, in any case for payment (in cash
              or otherwise) at less than the prevailing market price as determined by the
              Issuer;

      (iii)   an extraordinary dividend;

      (iv)    a call by the Company in respect of the Shares that are not fully paid;

      (v)     a repurchase by the Company of the Shares whether out of profits or capital
              and whether the consideration for such repurchase is cash, securities or
              otherwise;

      (vi)    with respect to a Company an event that results in any shareholder rights
              pursuant to a shareholder rights agreement or other plan or arrangement of
              the type commonly referred to as a “poison pill” being distributed, or
              becoming separated from shares of common stock or other shares of the
              capital stock of such Company (provided that any adjustment effected as a
              result of such an event shall be readjusted upon any redemption of such
              rights); or

      (vii)   any other event that may have, in the opinion of the Issuer, a dilutive or
              concentrative or other effect on the theoretical value of the Shares.

(c)   Merger Event, Tender Offer, Nationalisation and Insolvency. If a Merger Event,
      Tender Offer, Nationalisation or Insolvency occurs in relation to the Shares, the
      Issuer may take any action described below:

      (i)     determine the appropriate adjustment, if any, to be made to any one or more
              of the Conditions to account for the Merger Event, Tender Offer,
              Nationalisation or Insolvency, as the case may be, and determine the
              effective date of that adjustment. The Issuer may, but need not, determine
              the appropriate adjustment by reference to the adjustment in respect of the
              Merger Event, Tender Offer, Nationalisation or Insolvency made by an
              options exchange to options on the Shares traded on that options exchange;

      (ii)    cancel the Warrants by giving notice to the Warrantholders in accordance
              with Condition 9. If the Warrants are so cancelled, the Issuer will pay an
              amount to each Warrantholder in respect of each Warrant held by such
              Warrantholder which amount shall be the fair market value of a Warrant
              taking into account the Merger Event, Tender Offer, Nationalisation or
              Insolvency, as the case may be, less the cost to the Issuer and/or any of its
              affiliates of unwinding any underlying related hedging arrangements, all as
              determined by the Issuer in its reasonable discretion. Payment will be made
              in such manner as shall be notified to the Warrantholders in accordance with
              Condition 9; or

      (iii)   following any adjustment to the settlement terms of options on the Shares on
              such exchange(s) or trading system(s) or quotation system(s) as the Issuer in
              its reasonable discretion shall select (the “Option Reference Source”) make
                                         11


              a corresponding adjustment to any one or more of the Conditions, which
              adjustment will be effective as of the date determined by the Issuer to be the
              effective date of the corresponding adjustment made by the Option
              Reference Source. If options on the Shares are not traded on the Option
              Reference Source, the Issuer will make such adjustment, if any, to any one or
              more of the Conditions as the Issuer determines appropriate, with reference
              to the rules and precedents (if any) set by the Option Reference Source, to
              account for the Merger Event, Tender Offer, Nationalisation or Insolvency, as
              the case may be, that in the determination of the Issuer would have given rise
              to an adjustment by the Option Reference Source if such options were so
              traded.

      Once the Issuer determines that its proposed course of action in connection with a
      Merger Event, Tender Offer, Nationalisation or Insolvency, it shall give notice to the
      Warrantholders in accordance with Condition 9 stating the occurrence of the Merger
      Event, Tender Offer, Nationalisation or Insolvency, as the case may be, giving details
      thereof and the action proposed to be taken in relation thereto. Warrantholders
      should be aware that due to the nature of such events, the Issuer will not make an
      immediate determination of its proposed course of action or adjustment upon the
      announcement or occurrence of a Merger Event, Tender Offer, Nationalisation or
      Insolvency.

(d)   Definitions. “Insolvency” means that by reason of the voluntary or involuntary
      liquidation, bankruptcy, insolvency, dissolution or winding-up of or any analogous
      proceeding affecting a Company (i) all the Shares of that Company are required to be
      transferred to a trustee, liquidator or other similar official or (ii) holders of the Shares
      of that Company become legally prohibited from transferring them. “Merger Date”
      means the closing date of a Merger Event or, where a closing date cannot be
      determined under the local law applicable to such Merger Event, such other date as
      determined by the Issuer. “Merger Event” means, in respect of the Shares, any (i)
      reclassification or change of such Shares that results in a transfer of or an irrevocable
      commitment to transfer all of such Shares outstanding to another entity or person, (ii)
      consolidation, amalgamation, merger or binding share exchange of a Company with
      or into another entity or person (other than a consolidation, amalgamation, merger or
      binding share exchange in which such Company is the continuing entity and which
      does not result in reclassification or change of all of such Shares outstanding), (iii)
      takeover offer, exchange offer, solicitation, proposal or other event by any entity or
      person to purchase or otherwise obtain 100 per cent. of the outstanding Shares of the
      Company that results in a transfer of or an irrevocable commitment to transfer all
      such Shares (other than such Shares owned or controlled by such other entity or
      person), or (iv) consolidation, amalgamation, merger or binding share exchange of
      the Company or its subsidiaries with or into another entity in which the Company is
      the continuing entity and which does not result in a reclassification or change of all
      such Shares outstanding but results in the outstanding Shares (other than Shares
      owned or controlled by such other entity) immediately prior to such event collectively
      representing less than 50 per cent. of the outstanding Shares immediately following
      such event, in each case if the Merger Date is on or before the Valuation Date or, if
      there is more than one Valuation Date, the Last Valuation Date. “Nationalisation”
      means that all the Shares or all or substantially all of the assets of a Company are
      nationalised, expropriated or are otherwise required to be transferred to any
      governmental agency, authority, entity or instrumentality thereof. “Tender Offer”
                                                12


               means a takeover offer, tender offer, exchange offer, solicitation, proposal or other
               event by any entity or person that results in such entity or person purchasing, or
               otherwise obtaining or having the right to obtain, by conversion or other means,
               greater than 10 per cent. and less than 100 per cent. of the outstanding voting shares
               of the Company, as determined by the Issuer, based upon the making of filings with
               governmental or self-regulatory agencies or such other information as the Issuer
               deems relevant.

       (e)     Other Adjustments. Except as provided in this Condition 6 and Condition 12,
               adjustments will not be made in any other circumstances, subject to the right
               reserved by the Issuer (such right to be exercised in the Issuer's sole and unfettered
               discretion and without any obligation whatsoever) to make such adjustments as it
               believes appropriate in circumstances where an event or events occur which it
               believes in its sole discretion (and notwithstanding any prior adjustment made
               pursuant to the above) should, in the context of the issue of the Warrants and the
               obligations of the Issuer, give rise to such adjustment provided that such adjustment
               is considered by the Issuer not to be materially prejudicial to the Warrantholders
               generally (without considering the circumstances of any individual Warrantholder or
               the tax or other consequences of such adjustment in any particular jurisdiction).

       (f)     Notice of Adjustments. All determinations made by the Issuer pursuant hereto will be
               conclusive and binding on the Warrantholders. The Issuer will give, or procure that
               there is given, notice as soon as practicable of any adjustment and of the date from
               which such adjustment is effective by publication in accordance with Condition 9.

7.     Purchases

       The Issuer or its related corporations may at any time purchase Warrants at any price in the
open market or by tender or by private treaty. Any Warrants so purchased may be held or resold or
surrendered for cancellation.

8.     Meetings of Warrantholders; Modification

       (a)     Meetings of Warrantholders. The Warrant Agent Agreement contains provisions for
               convening meetings of the Warrantholders to consider any matter affecting their
               interests, including the sanctioning by Extraordinary Resolution (as defined in the
               Warrant Agent Agreement) of a modification of the provisions of the Warrants or of
               the Warrant Agent Agreement.

               At least 21 days' notice (exclusive of the day on which the notice is given and of the
               day on which the meeting is held) specifying the date, time and place of the meeting
               shall be given to the Warrantholders. Such a meeting may be convened by the Issuer
               or by Warrantholders holding not less than ten per cent. of the Warrants for the time
               being remaining unexercised. The quorum at any such meeting for passing an
               Extraordinary Resolution will be two or more persons holding or representing not less
               than 25 per cent. of the Warrants for the time being remaining unexercised, or at any
               adjourned meeting two or more persons being or representing Warrantholders
               whatever the number of Warrants so held or represented.
                                                    13


                 A resolution will be an Extraordinary Resolution when it has been passed at a duly
                 convened meeting by not less than three-quarters of the votes cast by such
                 Warrantholders who, being entitled to do so, vote in person or by proxy.

                 An Extraordinary Resolution passed at any meeting of the Warrantholders shall be
                 binding on all the Warrantholders, whether or not they are present at the meeting.
                 Resolutions can be passed in writing if passed unanimously.

        (b)      Modification. The Issuer may, without the consent of the Warrantholders, effect (i)
                 any modification of the provisions of the Warrants or the Instrument which is not
                 materially prejudicial to the interests of the Warrantholders or (ii) any modification of
                 the provisions of the Warrants or the Instrument which is of a formal, minor or
                 technical nature, which is made to correct an obvious error or which is necessary in
                 order to comply with mandatory provisions of Singapore law. Any such modification
                 shall be binding on the Warrantholders and shall be notified to them by the Warrant
                 Agent before the date such modification becomes effective or as soon as practicable
                 thereafter in accordance with Condition 9.

9.      Notices

        (a)      Documents. All cheques and other documents required or permitted by these
                 Conditions to be sent to a Warrantholder or to which a Warrantholder is entitled or
                 which the Issuer shall have agreed to deliver to a Warrantholder may be delivered by
                 hand or sent by post addressed to the Warrantholder at his address appearing in the
                 records maintained by CDP or, in the case of joint Warrantholders, addressed to the
                 joint holder first named at his address appearing in the records maintained by CDP,
                 and airmail post shall be used if that address is not in Singapore. All documents
                 delivered or sent in accordance with this paragraph shall be delivered or sent at the
                 risk of the relevant Warrantholder.

        (b)      Notices. All notices to Warrantholders will be validly given if published in English on
                 the web-site of the SGX-ST. Such notices shall be deemed to have been given on the
                 date of the first such publication. If publication on the web-site of the SGX-ST is not
                 practicable, notice will be given in such other manner as the Issuer may determine.
                 The Issuer shall, at least one month prior to the expiry of any Warrant, give notice of
                 the date of expiry of such Warrant in the manner prescribed above.

10.     Liquidation

         In the event of a liquidation or dissolution of the Company or the appointment of a liquidator
(including a provisional liquidator) or receiver or judicial manager or trustee or administrator or
analogous person under Singapore or other applicable law in respect of the whole or substantially the
whole of its undertaking, property or assets, all unexercised Warrants will lapse and shall cease to be
valid for any purpose, in the case of voluntary liquidation, on the effective date of the relevant
resolution and, in the case of an involuntary liquidation or dissolution, on the date of the relevant court
order or, in the case of the appointment of a liquidator (including a provisional liquidator) or receiver or
judicial manager or trustee or administrator or analogous person under Singapore or other applicable
law in respect of the whole or substantially the whole of its undertaking, property or assets, on the
date when such appointment is effective but subject (in any such case) to any contrary mandatory
requirement of law. In the event of the voluntary liquidation of the Company, the Issuer shall make
such adjustments or amendments as it reasonably believes are appropriate in the circumstances.
                                                  14



11.     Further Issues

        The Issuer shall be at liberty from time to time, without the consent of the Warrantholders, to
create and issue further warrants so as to form a single series with the Warrants.

12.     De-Listing

        (a)     De-Listing. If at any time, any Shares cease to be listed, traded or publicly quoted on
                the Relevant Stock Exchange for any reason and are not immediately re-listed, re-
                traded or re-quoted on an exchange, trading system or quotation system acceptable
                to the Issuer (“De-Listing”), the Issuer shall give effect to these Conditions in such
                manner and make such adjustments and amendments to the rights attaching to the
                Warrants as it shall, in its absolute discretion, consider appropriate to ensure, so far
                as it is reasonably able to do so, that the interests of the Warrantholders generally are
                not materially prejudiced as a consequence of such De-Listing (without considering
                the individual circumstances of any Warrantholder or the tax or other consequences
                that may result in any particular jurisdiction).

        (b)     Adjustments. Without prejudice to the generality of Condition 12(a), where the
                Shares are, or, upon the De-Listing, become, listed on any other stock exchange,
                these Conditions may, in the absolute discretion of the Issuer, be amended to the
                extent necessary to allow for the substitution of that other stock exchange in place of
                the Relevant Stock Exchange and the Issuer may, without the consent of the
                Warrantholders, make such adjustments to the entitlements of Warrantholders on
                exercise (including, if appropriate, by converting foreign currency amounts at
                prevailing market rates into the Settlement Currency) as may be appropriate in the
                circumstances.

        (c)     Issuer's Determination. The Issuer shall determine, in its absolute discretion, any
                adjustment or amendment and its determination shall be conclusive and binding on
                the Warrantholders save in the case of manifest error. Notice of any adjustments or
                amendments shall be given to the Warrantholders in accordance with Condition 9 as
                soon as practicable after they are determined.

13.     Governing Law

        The Warrants, the Instrument and the Warrant Agent Agreement will be governed by and
construed in accordance with Singapore law. The Issuer and each Warrantholder (by its purchase of
the Warrants) shall be deemed to have submitted for all purposes in connection with the Warrants, the
Instrument and the Warrant Agent Agreement to the non-exclusive jurisdiction of the courts of
Singapore.

14.     Prescription

        Claims against the Issuer for payment of any amount in respect of the Warrants will become
void unless made within six years of the Expiry Date and, thereafter, any sums payable in respect of
such Warrants shall be forfeited and shall revert to the Issuer.
                                                15


15.    Contracts (Rights of Third Parties) Act, Chapter 53B of Singapore

        Unless otherwise provided in the Global Warrant, the Instrument and the Warrant Agent
Agreement, a person who is not a party to any contracts made pursuant to the Global Warrant, the
Instrument and the Warrant Agent Agreement has no rights under the Contracts (Rights of Third
Parties) Act, Chapter 53B of Singapore to enforce any terms of such contracts. Except as expressly
provided herein, the consent of any third party is not required for any subsequent agreement by the
parties hereto to amend or vary (including any release or compromise of any liability) or terminate
such contracts.
                                                16


                                  SUMMARY OF THE ISSUE

         The following is a summary of the issue and should be read in conjunction with, and is
qualified by reference to, the other information set out in this document and the Base Listing
Document. Terms used in this Summary are defined in the Conditions.

Issuer:                   Macquarie Bank Limited

Company:                  Oversea-Chinese Banking Corporation Limited

The Warrants:             European Style Cash Settled Call Warrants relating to the Shares

Number:                   80,000,000 Warrants

Form:                     The Warrants will be issued subject to, and with the benefit of, an
                          instrument by way of deed poll dated 14 May 2010 (the “Instrument”)
                          and executed by the Issuer and a master warrant agent agreement dated
                          26 November 2004 (the “Warrant Agent Agreement”) and made
                          between the Issuer and the Warrant Agent.

Conversion       Ratio    0.5 (i.e. every 2 Warrants initially relate to 1 Share)
(number of Shares per
Warrant):

Cash Settlement Amount:   In respect of each Warrant, shall be an amount (if positive) payable in the
                          Settlement Currency equal to:

                          (A) (i) the arithmetic mean of the closing prices of one Share (as derived
                          from the daily publications of the Relevant Stock Exchange, subject to
                          any adjustments to such closing prices determined by the Issuer to be
                          necessary to reflect any capitalisation, rights issue, distribution or the
                          like) for each Valuation Date LESS (ii) the Exercise Price MULTIPLIED
                          by (B) the Conversion Ratio

                          In certain circumstances, the Conversion Ratio and the Exercise Price
                          will be adjusted as set out in Condition 6 of the Warrants.

Denominations:            Warrants are represented by a global warrant in respect of all the
                          Warrants.

Exercise:                 Warrantholders shall not be required to deliver an exercise notice.
                          Exercise of Warrants shall be determined by whether the Cash
                          Settlement Amount is positive. If the Cash Settlement Amount is
                          positive, all Warrants shall be deemed to have been automatically
                          exercised at 12:00 noon (Singapore time) on the Expiry Date. The Cash
                          Settlement Amount less the Exercise Expenses in respect of the
                          Warrants shall be paid in the manner set out in Condition 4(c) of the
                          Warrants. In the event the Cash Settlement Amount is zero or negative,
                          all Warrants shall be deemed to have expired at 12:00 noon (Singapore
                          time) on the Expiry Date and Warrantholders shall not be entitled to
                          receive any payment from the Issuer in respect of the Warrants.
                                               17


Exercise and Trading      Singapore dollars
Currency:

Transfers of Warrants:    Warrants may only be transferred in Board Lots (or integral multiples
                          thereof). All transfers in Warrants, in the open market or otherwise, must
                          be effected through a securities account with The Central Depository
                          (Pte) Limited (“CDP”). Title will pass upon registration of the transfer in
                          the records of CDP.

Listing:                  Application has been made to the SGX-ST for permission to deal in and
                          for quotation of the Warrants and the SGX-ST has agreed in principle to
                          grant permission to deal in and for quotation of the Warrants. Issue of
                          the Warrants is conditional on such listing being granted. It is expected
                          that dealings in the Warrants on the SGX-ST will commence on or about
                          17 May 2010.

Governing Law:            The laws of Singapore

Warrant Agent:            Macquarie Capital Securities (Singapore) Pte. Limited

Further Issues:           Further issues which will form a single series with the Warrants will be
                          permitted.


       The above summary is qualified in its entirety by reference to the detailed information
appearing elsewhere in this document and the Base Listing Document.
                                                   18


                                            RISK FACTORS

The following risk factors are relevant to the Warrants:-

(a)     investment in Warrants involves substantial risks including market risk, liquidity risk, and the
        risk that the Issuer will be unable to satisfy its obligations under the Warrants. Investors
        should ensure that they understand the nature of all these risks before making a decision to
        invest in the Warrants. You should consider carefully whether Warrants are suitable for you in
        light of your experience, objectives, financial position and other relevant circumstances.
        Warrants are not suitable for inexperienced investors;

(b)     the Warrants constitute direct, general and unsecured contractual obligations of the Issuer
        and will rank on a parity with the Issuer’s other unsecured contractual obligations and with the
        Issuer’s unsecured and subordinated debt. Section 13A of the Banking Act of 1959 of
        Australia provides that, in the event of the Issuer becoming unable to meet its obligations or
        suspending payments, the assets of the Issuer in Australia shall be available to meet the
        deposit liabilities in Australia in priority to all other liabilities of the Issuer (including the
        obligations of the Issuer under the Warrants). If you purchase the Warrants you are relying
        upon the creditworthiness of the Issuer and have no rights under the Warrants against any
        other person. In particular, it should be noted that the Issuer issues a large number of
        financial instruments, including Warrants, on a global basis and, at any given time, the
        financial instruments outstanding may be substantial. If you purchase the Warrants you are
        relying upon the creditworthiness of the Issuer and have no rights under the Warrants against
        the company which has issued the underlying shares. The Issuer has substantially no
        obligation to a Warrantholder other than to pay amounts in accordance with the terms thereof
        as set forth herein and in the Base Listing Document. The Issuer does not in any respect
        underwrite or guarantee the performance of any Warrant. Any profit or loss realised by a
        Warrantholder in respect of a Warrant upon exercise or otherwise due to changes in the value
        of such Warrant, or the underlying shares, is solely for the account of such Warrantholder. In
        addition, the Issuer shall have the absolute discretion to put in place any hedging transaction
        or arrangement which it deems appropriate in connection with any Warrant or the underlying
        shares. A reduction in the rating, if any, accorded to outstanding debt securities of the Issuer
        by any one of its rating agencies could result in a reduction in the trading value of the
        Warrants;

(c)     the risk of losing all or any part of the purchase price of a Warrant upon the expiry of the
        Warrants means that, in order to recover and realise a return on investment, investors in
        Warrants must generally anticipate correctly the direction, timing and magnitude of any
        change in the value of the shares of the underlying company. Changes in the price of the
        shares of the underlying company can be unpredictable, sudden and large and such changes
        may result in the price of such shares moving in a direction which will negatively impact upon
        the return on an investment. In the case of Warrants relating to shares, certain events relating
        to such shares or the underlying company may cause adverse movements in the value and
        price of the underlying shares, as a result of which, the Warrantholders may, in certain
        circumstances, sustain a total loss of their investment if, for the Warrants, the price of the
        underlying shares falls below or is equal to the exercise price on the expiry date;

(d)     due to their nature, the Warrants can be volatile instruments and may be subject to
        considerable fluctuations in value. The price of the Warrants may fall in value as rapidly as it
        may rise due to, including but not limited to, variations in the frequency and magnitude of the
                                                 19


      changes in the price of the underlying shares, dividends and interest rate, the time remaining
      to expiry and the creditworthiness of the Issuer;

(e)   fluctuations in the price of the underlying shares will affect the price of the Warrants but not
      necessarily in the same magnitude and direction, therefore, prospective investors intending to
      purchase Warrants to hedge their market risk associated with investing in the underlying
      shares, should recognise the complexities of utilising the Warrants in this manner;

(f)   the settlement amount of Warrants at any time prior to the expiry of the Warrants may be less
      than the trading price of such Warrants at that time. The difference between the trading price
      and the settlement amount as the case may be, will reflect, among other things, a “time value”
      for the Warrants. The “time value” of the Warrants will depend partly upon the length of the
      period remaining to the expiry date of the Warrants and expectations concerning the value of
      the shares of the underlying company;

(g)   as indicated in the Conditions and as shall be indicated in the Supplemental Listing
      Document, a Warrantholder must tender a specified number of Warrants at any one time in
      order to exercise. Thus, Warrantholders with fewer than the specified minimum number of
      Warrants in a particular series will either have to sell their Warrants or purchase additional
      Warrants, incurring transactions costs in each case, in order to realise their investment;

(h)   unless otherwise specified in the Conditions, in the case of any exercise of the Warrants,
      there may be a time lag between the date on which the Warrants are exercised and the time
      the applicable settlement amount relating to such an event is determined. Any such delay
      between the time of exercise and the determination of the settlement amount, will be specified
      in the Conditions. However such delay could be significantly longer, particularly in the case of
      a delay in the exercise of the Warrants arising from, a determination by the Issuer that a
      Market Disruption Event has occurred at any relevant time or that adjustments are required in
      accordance with the Conditions. That applicable settlement amount, may change significantly
      during any such period, and such movement or movements could decrease or modify the
      settlement amount of the Warrants;

(i)   if, whilst the Warrants remain unexercised, trading in the underlying shares on the relevant
      stock exchange is suspended, trading in the Warrants may be suspended for a similar period;

(j)   in the case of the Warrants, certain events relating to the shares of the underlying company
      require or, as the case may be, permit the Issuer to make certain adjustments or amendments
      to the Conditions, and investors have limited anti-dilution protection under the Conditions. The
      Issuer may at its sole discretion adjust the entitlement upon exercise or valuation of the
      Warrants for events such as, amongst others, subdivision of the shares of the underlying
      company and dividend in specie, however the Issuer is not required to make an adjustment
      for every event that may affect the shares of the underlying company;

(k)   the Warrants are only exercisable on their Expiry Date and may not be exercised by
      Warrantholders prior to such Expiry Date. Accordingly, if on such Expiry Date the Cash
      Settlement Amount (where applicable) is zero or negative, a Warrantholder will lose the value
      of his investment;

(l)   investors should note that it is not possible to predict the price at which the Warrants will trade
      in the secondary market or whether such market will be liquid or illiquid. A decrease in the
      liquidity of an issue of Warrants may cause, in turn, an increase in the volatility associated
                                                 20


      with the price of such issue of Warrants. The Issuer may, but is not obligated to, at any time,
      purchase Warrants at any price in the open market or by tender or private agreement. Any
      Warrants so purchased may be held or resold or surrendered for cancellation. As the
      Warrants are only exercisable on the Expiry Date, an investor will not be able to exercise his
      warrants to realize value in the event that the relevant issue becomes illiquid;

(m)   in the event of any delisting of the Warrants from the SGX-ST (other than at expiry), the
      Issuer will use all reasonable efforts to list the Warrants on another exchange. If the Warrants
      are not listed or traded on any exchange, pricing information for the Warrants may be difficult
      to obtain and the liquidity of the Warrants may be adversely affected;

(n)   two or more risk factors may simultaneously have an effect on the value of a Warrant such
      that the effect of any individual risk factor may not be predicted. No assurance can be given
      as to the effect any combination of risk factors may have on the value of a Warrant;

(o)   various potential and actual conflicts of interest may arise from the overall activities of the
      Issuer and any of its subsidiaries and affiliates.

      The Issuer and any of its subsidiaries and affiliates are diversified financial institutions with
      relationships in countries around the world. These entities engage in a wide range of
      commercial and investment banking, brokerage, funds management, hedging transactions
      and investment and other activities for their own account or the account of others. In addition,
      the Issuer and any of its subsidiaries and/or affiliates, in connection with their other business
      activities, may possess or acquire material information or publish or issue research reports
      about the underlying shares. Such activities and information may involve or otherwise affect
      issuers of underlying shares in a manner that may cause consequences adverse to the
      Warrantholders or otherwise create conflicts of interests in connection with the issue of
      Warrants by the Issuer. Such actions and conflicts may include, without limitation, the
      exercise of voting power, the purchase and sale of securities, financial advisory relationships
      and exercise of creditor rights. The Issuer and any of its subsidiaries and affiliates have no
      obligation to disclose such information about the underlying shares or such activities. The
      Issuer and any of its subsidiaries and affiliates and their officers and directors may engage in
      any such activities without regard to the issue of Warrants by the Issuer or the effect that such
      activities may directly or indirectly have on any Warrant;

(p)   in the ordinary course of their business, including without limitation in connection with the
      Issuer or its appointed designated market maker’s market making activities, the Issuer and
      any of its respective subsidiaries and affiliates may effect transactions for their own account
      or for the account of their customers and hold long or short positions in the underlying shares
      or related derivatives. In addition, in connection with the offering of any Warrants, the Issuer
      and any of its respective subsidiaries and affiliates may enter into one or more hedging
      transactions with respect to the underlying shares or related derivatives. In connection with
      such hedging or market-making activities or with respect to proprietary or other trading
      activities by the Issuer and any of its respective subsidiaries and its affiliates, the Issuer and
      any of its respective subsidiaries and affiliates may enter into transactions in the underlying
      shares or related derivatives which may affect the market price, liquidity or value of the
      Warrants and which may affect the interests of Warrantholders;

(q)   if the Issuer determines in good faith that the performance of its obligations under the
      Conditions has become unlawful or impractical in whole or in part, the Issuer may at its sole
      and absolute discretion and without obligation, terminate the Warrants prior to the Expiry
                                                21


      Date, in which event the Issuer to the extent permitted by any relevant applicable law, will pay
      to each Warrantholder an amount as determined by the Issuer, in its sole and absolute
      discretion, in accordance with the Conditions. If the Issuer terminates the Warrants prior to
      the Expiry Date, the Issuer will, if and to the extent permitted by any relevant applicable law,
      pay each Warrantholder an amount to be determined by the Issuer, in its sole and absolute
      discretion, to be the fair market value of the Warrants immediately prior to such termination or
      otherwise determined as specified in the Conditions, notwithstanding the illegality or
      impracticality;

(r)   the Issuer may enter into discount, commission or fee arrangements with brokers and/or any
      of its affiliates with respect to the primary or secondary market in the Warrants. The
      arrangements may result in the benefit to investors in Warrants buying and selling Warrants
      through nominated brokers by reducing the commission that was paid directly by those
      Warrantholders. Investors in the Warrants should note that any brokers with whom the Issuer
      has a commission arrangement does not, and cannot be expected to deal, exclusively in the
      Warrants, therefore any broker and/or its subsidiaries or affiliates may from time to time
      engage in transactions involving the shares in the underlying company and/or structured
      products of other issuers over the same shares in the same underlying company as the
      Warrants for their proprietary accounts and/or accounts of their clients. The fact that the same
      broker may deal simultaneously for different clients in competing products in the market place
      may affect the value of the Warrants and present certain conflicts of interests;

(s)   changes in Singapore tax law and/or policy may adversely affect Warrantholders.
      Warrantholders who are in any doubt as to the effects of any such changes should consult
      their stockbrokers, bank managers, accountants, solicitors or other professional advisers;

(t)   as the Warrants are represented by a global warrant certificate which will be deposited with
      the CDP:

      (i)     investors should note that no definitive certificate will be issued in relation to the
              Warrants;

      (ii)    there will be no register of Warrantholders and each person who is for the time being
              shown in the records maintained by CDP as entitled to a particular number of
              Warrants by way of interest (to the extent of such number) in the global warrant
              certificate in respect of those Warrants represented thereby shall be treated as the
              holder of such number of Warrants;

      (iii)   investors will need to rely on any statements received from their brokers/custodians
              as evidence of their interest in the Warrants; and

      (iv)    notices to such Warrantholders will be published on the web-site of the SGX-ST.
              Investors will need to check the web-site of the SGX-ST regularly and/or rely on their
              brokers/custodians to obtain such notices; and

(u)   the value of the Warrants depends upon, amongst other things, the ability of Issuer to fulfil its
      obligations under the terms.

      A summary of the significant risks that affect the Issuer’s results of operations and financial
      condition is set forth below. Issuer has a Risk Management Group which is an independent,
      centralised unit and assists in the appropriate assessment and management of these risks.
                                           22


(i)     Market risk. The Issuer is subject to the risk of loss associated with the level of
        volatility and prices in the equity and other markets in which the Issuer operates.
        Issuer and members of the Issuer’s group are dependent on the level of banking,
        finance and financial services required by their customers. The profitability of the
        Issuer’s businesses could be adversely affected by a worsening of general economic
        conditions in its markets, as well as by Australian and offshore trading market
        conditions and/or related factors, including competition from other financial institutions
        and governmental policies and initiatives.

(ii)    Credit and liquidity risk.     The Issuer’s business and financial condition may be
        adversely impacted by the Issuer’s inability to source funds. The Issuer is also
        exposed to credit risk on its trading and other counterparties.

(iii)   Legal, regulatory, compliance and documentation risk. Some of the Issuer’s
        businesses are highly regulated and the Issuer could be adversely affected by
        changes in legal, regulatory and compliance requirements (including requirements
        relating to licensing and the management of conflicts of interest). The Issuer is also
        exposed to the risk of inappropriate documentation of contractual relationships.

(iv)    Operational risk.    The Issuer may incur financial loss, adverse regulatory
        consequences or reputation damage due to inadequate or failed internal or external
        processes, people or systems or external events.

(v)     Tax risk. The Issuer’s business operations expose the Issuer to unforeseen potential
        tax liabilities that could have an adverse impact on the Issuer’s results of operation
        and the Issuer’s reputation.

(vi)    Reputational risk. The Issuer’s reputation and business could be adversely affected
        by negative publicity about the Issuer.
                                                 23


                          INFORMATION RELATING TO THE COMPANY

All information contained in this document regarding the Company, including, without limitation, its
financial information, is derived from publicly available information which appears on the web-site of
the SGX-ST at http://www.sgx.com. The Issuer has not independently verified any of such
information.

Oversea-Chinese Banking Corporation Limited (“OCBC Bank”, the “OCBC Group” or the
“Company”) was incorporated in Singapore on 31 October 1932 to carry on business in banking and
finance. OCBC Bank is the successor to Chinese Commercial Bank Ltd, Ho Hong Bank Ltd and the
Overseas-Chinese Bank Ltd.

OCBC Bank offers a comprehensive range of banking services and financial solutions in consumer
banking, business banking, international banking, global treasury and investment management. The
OCBC Group has diverse subsidiaries that are involved in financial futures, regional stockbroking,
trustee, nominee and custodian services, property development and hotel management.

In August 2001, OCBC Bank acquired Keppel Capital Holdings Ltd and all its subsidiaries, including
Keppel TatLee Bank Ltd, Keppel Securities Pte Ltd and Keppel TatLee Finance Ltd. On 25 February
2002, OCBC Bank and Keppel TatLee Bank were operationally and legally integrated.

OCBC Bank currently has assets of S$151 billion and a network of over 370 branches and
representative offices in 15 countries and territories including Singapore, Malaysia, Indonesia,
Vietnam, China, Hong Kong SAR, Brunei, Japan, Australia, UK and USA. This network includes more
than 250 branches and offices in Indonesia operated by OCBC Bank's subsidiary, PT Bank NISP.
OCBC Bank and its banking subsidiaries offer a wide range of specialist financial services, from
consumer, corporate, investment, private and transaction banking to global treasury and stockbroking
services to meet the needs of its customers across communities.

The information set out in Appendix I of this document relates to the unaudited consolidated financial
statements of the Company and its subsidiaries for the first quarter ended 31 March 2010 and has
been extracted and reproduced from an announcement by the Company dated 5 May 2010 in relation
to the same. Further information relating to the Company may be located on the web-site of the SGX-
ST at http://www.sgx.com.
                                                      24


                INFORMATION RELATING TO THE DESIGNATED MARKET MAKER

Macquarie Capital Securities (Singapore) Pte. Limited (“MCSSP”) has been appointed the designated
market maker (“DMM”) for the Warrants. The DMM will provide competitive buy and sell quotes for the
Warrants continuously during the trading hours of the SGX-ST on the following basis:

(a)      Maximum bid and offer spread             :    10 times the minimum permitted price movement
                                                       in the Warrants in accordance with the rules of
                                                       the SGX-ST or S$0.30, whichever is the greater

(b)      Minimum quantity subject to bid and      :    10,000 Warrants
         offer spread

(c)      Last Trading Day for Market Making       :    The date falling five Business Days immediately
                                                       preceding the Expiry Date

Quotations will/may however not be provided by the DMM in the following circumstances:

(i)      during the pre-market opening and five minutes following the opening of the SGX-ST on any
         trading day;

(ii)     if the Warrant is valueless (where the Issuer’s bid price is below S$0.005), the DMM will not
         provide the bid price. In such an instance, the DMM will provide the offer price only;

(iii)    when trading in the Shares is suspended or limited in a material way;

(iv)     when the Issuer or DMM faces technical problems affecting the ability of the DMM to provide
         the bid and offer prices;

(v)      when the ability of the Issuer to source a hedge or unwind an existing hedge, as determined
         by the Issuer in good faith, is materially affected by the prevailing market conditions. The
         Issuer will inform the SGX-ST of its inability to do so as soon as practicable;

(vi)     in cases where the Issuer has no Warrants to sell, the DMM will only provide the bid price;

(vii)    when the stock market experiences exceptional price movements and volatility; and

(viii)   when it is a public holiday in Singapore and the SGX-ST is not open for dealings.

History and Business

MCSSP holds a Capital Markets Services License issued by the Monetary Authority of Singapore and
is a trading member of SGX-ST as well as a Clearing Member of the CDP. Under the Capital Markets
Services License, MCSSP is permitted to deal in securities and provide custodial services as well as
act as an exempt financial adviser. Its principal activities are those relating to the provision of stock
and share broking services, prescribed under the rules and regulations of the SGX-ST, and related
securities research services. MCSSP is a wholly owned subsidiary of Macquarie NE Holdings
(Singapore) Pte. Limited and its ultimate holding company is Macquarie Group Limited.
                                                 25


                  SUPPLEMENTAL INFORMATION RELATING TO THE ISSUER

The Macquarie Bank 2010 Annual Report is set out in Appendix II of this document. References to
page numbers in Appendix II are to page numbers of the Macquarie Bank 2010 Annual Report.
Copies of the Macquarie Bank 2010 Annual Report can be obtained at the office of Macquarie Capital
Securities (Singapore) Pte. Limited at 23 Church Street, 6th Floor, Capital Square, Singapore 049481,
and viewed at www.macquarie.com.au.
                                                   26


                                                 SALE

General

        No action has or will be taken by the Issuer that would permit a public offering of the Warrants
or possession or distribution of any offering material in relation to the Warrants in any jurisdiction
where action for that purpose is required. No offers, sales or deliveries of any Warrants, or distribution
of any offering material relating to the Warrants may be made in or from any jurisdiction except in
circumstances which will result in compliance with any applicable laws or regulations and will not
impose any obligation on the Issuer. In the event that the Issuer contemplates a placing, placing fees
may be payable in connection with the issue and the Issuer may at its discretion allow discounts to
placees.

United Kingdom

         In relation to each Member State of the European Economic Area (including the United
Kingdom) which has implemented the Prospectus Directive (each, a “Relevant Member State”), with
effect from and including the date on which the Prospectus Directive is implemented in that Relevant
Member State (the “Relevant Implementation Date”) no offer of Warrants to the public in that
Relevant Member State may be made prior to the publication of a prospectus in relation to
the Warrants which has been approved by the competent authority in that Relevant Member State or,
where appropriate, approved in another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that,
with effect from and including the Relevant Implementation Date, an offer of Warrants to the public in
that Relevant Member State may be made at any time:

(a)     to legal entities which are authorised or regulated to operate in the financial markets or, if not
so authorised or regulated, whose corporate purpose is solely to invest in securities;

(b)     to any legal entity which has two or more of (1) an average of at least 250 employees during
the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net
turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

(c)    in any other circumstances which do not require the publication by the Issuer of a prospectus
pursuant to Article 3 of the Prospectus Directive.

         For the purposes of this provision, the expression an “offer of Warrants to the public” in
relation to any Warrants in any Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer and the Warrants to be offered so as to
enable an investor to decide to purchase or subscribe the Warrants, as the same may be varied in
that Member State by any measure implementing the Prospectus Directive in that Member State and
the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant
implementing measure in each Relevant Member State.

         In addition, all applicable provisions of the Financial Services and Markets Act 2000 (the
“FSMA”) must be complied with in respect of anything done in relation to any Warrants in, from or
otherwise involving the United Kingdom. An invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) may only be communicated or caused to be
communicated in connection with the issue or sale of any Warrants in circumstances in which Section
21(1) of the FSMA would not, if the Issuer was not an authorised person, apply to the Issuer.
                                                   27


United States of America

         The Warrants have not been, and will not be, registered under the Securities Act. Subject to
certain exceptions, Warrants, or interests therein, may not at any time be offered, sold, resold or
delivered, directly or indirectly, in the United States or to, or for the account or benefit of, any U.S.
person or to others for offering, sale or resale in the United States or to any such U.S. person. Offers
and sales of Warrants, or interests therein, in the United States or to U.S. persons would constitute a
violation of United States securities laws unless made in compliance with registration requirements of
the Securities Act or pursuant to an exemption therefrom. As used herein, “United States” means the
United States of America (including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction; and “U.S. person” means any citizen or
resident of the United States, including any corporation, partnership or other entity created or
organised in or under the laws of the United States or of any political subdivision thereof, any estate
or trust the income of which is subject to United States income taxation regardless of its source, and
any other “U.S. person” as such term is defined in Regulation S under the Securities Act.

Singapore

         This document has not been registered as a prospectus with the Monetary Authority of
Singapore. Accordingly, this document and any other document or material in connection with the
offer or sale, or invitation for subscription or purchase, of Warrants may not be circulated or
distributed, nor may Warrants be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to persons in Singapore other than pursuant
to, and in accordance with the conditions of, any applicable provision of the Securities and Futures
Act, Chapter 289 of Singapore.

Hong Kong

         No person, unless permitted to do so under the securities laws of Hong Kong, has issued or
had in its possession for the purposes of issue, or will issue, or has in its possession for the purposes
of issue any advertisement, invitation or document relating to the Warrants, whether in Hong Kong or
elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the
public in Hong Kong (except if permitted to do so under the Securities Laws of Hong Kong) other than
with respect to Warrants intended to be disposed of only to persons outside Hong Kong or only to
“professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of
Hong Kong and any rules thereunder.

Commonwealth of Australia

        No prospectus or other disclosure document (as defined in the Corporations Act 2001 of
Australia (“Corporations Act”)) has been lodged with the Australian Securities and Investments
Commission (“ASIC”) or the Australian Stock Exchange Limited. No person may:

(a)     offer or invite applications for the issue, sale or purchase of the Warrants; and

(b)     distribute or publish any offering material or advertisement relating to the Warrants in the
        Commonwealth of Australia, its territories or possessions (“Australia”) or to any resident of
        Australia (including corporations and other entities organized under the laws of Australia, but
        not including a permanent establishment of such corporation or other entity located outside
        Australia),
                                                  28


unless (i) the minimum aggregate consideration payable by each offeree is at least A$500,000 or its
equivalent in another currency (disregarding moneys lent by the offeror or its associates) or the offer
or invitation or otherwise does not require disclosure to investors in accordance with Part 6D.2 or
Chapter 7 of the Corporations Act, and (ii) such action complies with all applicable laws and
regulations and does not require any document to be lodged with ASIC.
                                                 29


                           SUPPLEMENTAL GENERAL INFORMATION

        The information set out herein is supplemental to, and should be read in conjunction with, the
information set out on page 106 of the Base Listing Document.

1.    Contingent liabilities exist in respect of claims and potential claims against the Issuer. Where
      necessary, appropriate provisions have been made in the Issuer’s financial statements. The
      Issuer does not consider that the outcome of any such claims known to exist at the date of this
      Base Listing Document, either individually or in aggregate, is likely to have a material adverse
      effect on its operations or financial position.

2.    Settlement of trades done on a normal “ready basis” on the SGX-ST generally takes place on
      the third Business Day following the transaction. Dealing in the Warrants will take place in
      Board Lots in Singapore dollars. For further details on the transfer of Warrants and their
      exercise, please refer to the section headed “Summary of the Issue” above.

3.    It is not the current intention of the Issuer to apply for a listing of the Warrants on any stock
      exchange other than the SGX-ST.

4.    There has been no adverse change, material in the context of the issue of the Warrants, in the
      financial position of the Issuer since 31 March 2010.

5.    The following contracts, relating to the issue of the Warrants, have been or will be entered into
      by the Issuer and may be material to the issue of the Warrants:

      (a)     the Instrument; and

      (b)     the Warrant Agent Agreement.

      None of the directors of the Issuer has any direct or indirect interest in any of the above
      contracts.

6.    The auditors of the Issuer have given and have not withdrawn their written agreement to the
      inclusion of the references to their reports in the Base Listing Document. Their reports were not
      prepared exclusively for incorporation into the Base Listing Document.

7.    The Warrants are not fully covered by Shares held by Issuer or a trustee for and on behalf of
      the Issuer. The Issuer has appropriate risk management capabilities to manage the issue of the
      Warrants.

8.    Copies of the following documents may be inspected during usual business hours on any
      weekday (Saturdays, Sundays and holidays excepted) at the office of Macquarie Capital
      Securities (Singapore) Pte. Limited at 23 Church Street, 6th Floor, Capital Square, Singapore
      049481, until the expiry of the Warrants:

      (a)     the Constitution of the Issuer;

      (b)     the 2009 and 2010 annual reports of the Issuer;

      (c)     the Instrument;
                                         30


(d)   the Warrant Agent Agreement; and

(e)   the Base Listing Document.
                                            APPENDIX I

      REPRODUCTION OF THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE FIRST QUARTER ENDED 31 MARCH 2010 OF
       OVERSEA-CHINESE BANKING CORPORATION LIMITED AND ITS SUBSIDIARIES

The information set out below is a reproduction of the unaudited consolidated financial statements of
the Company and its subsidiaries for the first quarter ended 31 March 2010 and has been extracted
and reproduced from an announcement by the Company dated 5 May 2010 in relation to the same.
Media Release


          OCBC Group Achieves Record Quarterly Core Net Profit
                           of S$676 million

                Robust non-interest income growth and low credit losses
        propel earnings – up 24% year-on-year and 35% over the previous quarter




Singapore, 5 May 2010 - Oversea-Chinese Banking Corporation Limited (“OCBC Bank”) reported a
net profit attributable to shareholders of S$676 million for the first quarter of 2010 (“1Q10”), a 24%
increase from the S$545 million profit a year ago. Excluding a non-recurring insurance gain of S$175
million1 in 1Q09, earnings growth in 1Q10 would have been 83%. The strong performance was driven
by broad-based growth in non-interest income, including healthy insurance revenue from Great
Eastern Holdings, and a significant reduction in allowances. The first quarter performance marked a
new quarterly record for the Group in terms of core net profit.

The first quarter results included two months consolidated results of the former ING Asia Private Bank,
which became a wholly-owned subsidiary on 29 January 2010 and was renamed Bank of Singapore
Limited. Bank of Singapore’s two months’ profit contribution was not material relative to the Group’s
record earnings for the quarter.

Excluding the non-recurring gains in 1Q09, non-interest income in the first quarter surged by 68% to
S$681 million, accounting for nearly half of the Group’s revenue. All major segments – fees and
commissions, insurance, trading and investment income – registered strong growth, benefiting from
the economic recovery and more favourable market conditions as compared to a year ago. Net
interest income was 5% lower than a year ago at S$704 million, as margins were impacted by reduced
gapping income and a sustained low interest rate environment. Operating expenses rose 21%, largely
from higher staff costs. Allowances for loans and other assets were S$25 million, well below the
S$197 million in 1Q09. The Group’s non-performing loans (“NPL”) ratio improved to 1.5%, from 1.8%
a year ago and 1.7% at the end of 2009.

Compared to the fourth quarter of 2009 (“4Q09”), net profit was 35% higher. Non-interest income
grew 37%, while net interest income increased 2%. Operating expenses grew 8%, while allowances
were lower than the fourth quarter’s S$77 million.

Annualised return on equity improved to 15.3% from 14.9% in 1Q09 and 11.6% in 4Q09, while
annualised earnings per share rose 20% year-on-year to 82.1 cents.

1
  S$201 million before tax and minority interests, classified under life assurance profit (non-interest income). The
gains were mainly due to the adoption of the risk based capital framework for insurers in Malaysia.
Co.Reg.no.: 193200032W                                                                                            1
Net Interest Income

Net interest income declined 5% year-on-year to S$704 million, as the growth in interest earning assets
was more than offset by a lower interest margin. Net interest margin fell from 2.42% to 2.03%,
contributed by lower gapping income and decline in average asset yields as interest rates remained
low.

Loans grew by 12% from a year ago, and 10% from the previous quarter, to S$90.4 billion. Excluding
the consolidation effect of Bank of Singapore, loan growth would have been 7% year-on-year and 4%
quarter-on-quarter. Growth during the quarter was driven by loans to the general commerce, housing
and manufacturing sectors, and to professionals and individuals.

Compared with 4Q09, net interest income increased 2%, contributed by assets growth. Net interest
margin narrowed 5 basis points from 2.08% in 4Q09 due to the inclusion of Bank of Singapore’s lower-
yielding assets which are largely collateralised by marketable securities. Excluding Bank of
Singapore, the Group’s net interest margin would have improved one basis point over the previous
quarter.


Non-Interest Income

Non-interest income rose 12% year-on-year to S$681 million. Excluding the non-recurring insurance
gains of S$201 million in 1Q09, underlying year-on-year growth was 68%. Fee and commission
income rose 46% to S$226 million, led by increases in wealth management, loan-related, trade-related
and stockbroking income. Life assurance profits surged 127% (excluding the 1Q09 non-recurring
gains) to S$146 million, contributed mainly by a strong investment performance in the Non-
Participating Fund and a better claim experience. Net trading income rose 40% to S$157 million as
the Group achieved strong results in derivatives and securities trading and a stable level of foreign
exchange income. The disposal of investment securities resulted in net gains of S$65 million for the
quarter as compared to net losses of S$36 million a year ago.


Quarter-on-quarter, non-interest income increased by 37%, with fee income and life assurance profits
growing by 18% and 15% respectively, while net trading income and gains from investment securities
more than doubled.


Operating Expenses

Operating expenses increased 21% from a year ago, and 8% from the previous quarter, to S$502
million, partly contributed by the consolidation of Bank of Singapore. Year-on-year, staff costs rose
21% as a result of higher salary and other compensation costs, and increased headcount. Other
operating expenses increased 32% mainly because of higher insurance related expenses.

The cost-to-income ratio was 36.2% in 1Q10 as compared to 30.7% in 1Q09 and 39.4% in 4Q09.




Co.Reg.no.: 193200032W                                                                             2
Allowances and Asset Quality

Net allowances for loans and other assets declined significantly to S$25 million from S$197 million in
1Q09 and S$77 million in 4Q09. Specific loans allowances fell to S$5 million, reflecting the improving
economic conditions and the Group’s strong portfolio quality. Portfolio allowances of S$30 million
were set aside in the quarter in line with loan growth. Net allowance writebacks of S$10 million were
recorded for CDOs and other assets.

The Group’s NPL ratio improved further to 1.5%, from 1.7% at the end of 2009 and 1.8% a year ago.
Absolute NPLs fell 5% over the previous quarter to S$1,319 million. The allowance coverage ratio
remains strong, with cumulative allowances representing 107% of total non-performing assets
(“NPAs”) and 266% of unsecured NPAs.



Capital Position

The Group’s capital position remains strong post-consolidation of Bank of Singapore. As at 31 March
2010, Tier 1 capital adequacy ratio (“CAR”) was 14.4% and total CAR 15.2%, well above the
regulatory minimum of 6% and 10% respectively. Core Tier 1 ratio, which excludes perpetual and
innovative preference shares, was 10.8%.



CEO’s Comments

Commenting on the Group’s performance, CEO David Conner said:

“Our improved performance last year has continued into the first quarter of this year, and we are
seeing strong loan growth and revenue momentum. While slow growth prospects for the European
and US economies warrant caution, Asia’s economic recovery continues to build momentum,
signalling a positive outlook for the rest of the year. We will continue to focus on driving sustainable
growth in our key businesses and markets, with wealth management as a high priority.”




Co.Reg.no.: 193200032W                                                                                3
About OCBC Bank

OCBC Bank, established in 1912, is the second largest financial services group in Southeast Asia by
assets. It is among the world's highest rated banks, with a long term credit rating of Aa1 from Moody's.
OCBC Bank and its subsidiaries offer a broad array of specialist financial services, ranging from
consumer, corporate, investment, private and transaction banking to treasury, insurance, asset
management and stockbroking services.

OCBC Bank’s key markets are Singapore, Malaysia, Indonesia and Greater China. It has a network
of more than 500 branches and representative offices in 15 countries and territories, including 382
branches and offices in Indonesia operated by its subsidiary, Bank OCBC NISP.

OCBC Bank's insurance subsidiary, Great Eastern Holdings, is the largest insurance group in
Singapore and Malaysia by assets, and its asset management subsidiary, Lion Global Investors, is
one of the largest private sector asset management companies in Southeast Asia.

For more information, please visit www.ocbc.com




For more information, please contact:
Koh Ching Ching                                       Kelvin Quek
Head Group Corporate Communications                   Head Investor Relations
Tel: (65) 6530 4890                                   Tel: (65) 6530 4205
Fax: (65) 6535 7477                                   Fax: (65) 6532 6001




Co.Reg.no.: 193200032W                                                                               4
To Our Shareholders

The Board of Directors of Oversea-Chinese Banking Corporation Limited (“OCBC”) reports the
following:


Unaudited Financial Results for the First Quarter Ended 31 March 2010


For the first quarter ended 31 March 2010, Group net profit was S$676 million. Details of the financial
results are in the accompanying Group Financial Report.


Ordinary Dividend

No interim dividend on ordinary shares has been declared for the first quarter ended 31 March 2010.

Preference Dividend

The Board of Directors has declared payment of semi-annual one-tier tax exempt dividends on its
non-cumulative non-convertible preference shares as follows: Class B Preference Shares at 5.1%
(2009: 5.1%) per annum; Class E Preference Shares at 4.5% (2009: 4.5%) per annum and Class G
Preference Shares at 4.2% (2009: 4.2%) per annum. These semi-annual dividends, computed for the
period 20 December 2009 to 19 June 2010 (both dates inclusive) will be paid on 21 June 2010. Total
amounts of dividend payable for the Class B, Class E and Class G Preference Shares are S$25.4
million, S$11.2 million and S$8.3 million respectively.

Notice is hereby given that the Transfer Books and the Registers of Preference Shareholders will be
closed from 8 June 2010 to 9 June 2010 (both dates inclusive). Duly completed transfers received by
the Bank’s Share Registrar, M & C Services Private Limited of 138 Robinson Road #17-00 The
Corporate Office Singapore 068906 up to 5.00 p.m. on 7 June 2010 will be registered to determine the
entitlement of the preference shareholders to the semi-annual dividends.




Peter Yeoh
Secretary

Singapore, 5 May 2010

More details on the results are available on the Bank’s website at www.ocbc.com




                                                                                 Co. Reg. no.: 193200032W   ▌
Oversea-Chinese Banking Corporation Limited
First Quarter 2010 Group Financial Report




                                                              Incorporated in Singapore
                                              Company Registration Number: 193200032W
CONTENTS

Financial Summary                                                                          2

Financial Review
   Net Interest Income                                                                     5

   Non-Interest Income                                                                     7

   Operating Expenses                                                                      8

   Allowances for loans and other assets                                                   9

   Loans and Advances                                                                     10

   Non-Performing Assets                                                                  11

   Cumulative Allowances for Assets                                                       13

   Deposits                                                                               14

   Debts Issued                                                                           14

   Capital Adequacy Ratios                                                                15

   Unrealised Valuation Surplus                                                           16

   Performance by Business Segment                                                        17

   Performance by Geographical Segment                                                    21

   Additional Disclosures                                                                 22


Financial Statements
   Consolidated Income Statement (Unaudited)                                              23

   Consolidated Statement of Comprehensive Income (Unaudited)                             24

   Balance Sheets (Unaudited)                                                             25

   Statement of Changes in Equity (Unaudited)                                             26

   Consolidated Cash Flow Statement (Unaudited)                                           27


Share Capital and Options on Shares in the Bank                                           28

Other Matters / Subsequent Events                                                         29

Attachment: Confirmation by the Board




                                                                First Quarter 2010 Financial Results ▌ 1
FINANCIAL SUMMARY
OCBC Group prepares its financial statements in accordance with the Singapore Financial Reporting
Standards as required by the Companies Act, including the modification to FRS 39 Financial Instruments:
Recognition and Measurement requirement on loan loss provisioning under Notice to Banks No. 612 “Credit
Files, Grading and Provisioning” issued by the Monetary Authority of Singapore.

The following new/revised financial reporting standards and interpretations were mandatory with effect from 1
January 2010:

FRS 27 (Revised):               Consolidated and Separate Financial Statements
FRS 103 (Revised):              Business Combinations
FRS 39 (Amendments):            Financial Instruments: Recognition and Measurement
                                – Embedded Derivatives
                                – Eligible Hedged Items
FRS 102 (Amendments):           Share-Based Payment – Group Cash-settled Share-based Payment
                                Transactions
INT FRS 109 (Amendments):       Reassessment of Embedded Derivatives
INT FRS 117:                    Distributions of Non-cash Assets to Owners
Improvements to FRSs 2008:      Amendments to FRS 105 – Non-current Assets Held for Sale and Discontinued
                                Operations
Improvements to FRSs 2009

Under the revised FRS 103, the Group has to expense costs incurred in the acquisition of a business in the
period in which it was incurred or when the service was rendered. Where an acquirer obtains control of a
business through step acquisition, any previously held equity interests shall be measured at fair value on the
date that control is attained, with resulting gains and losses taken to the income statement.

The initial application of the above standards and interpretations are not expected to have any material impact
on the Group’s financial statements.


Financial Results

Group net profit for the first quarter ended 31 March 2010 (“1Q10”) was S$676 million, an increase of 24%
year-on-year. Non-interest income grew by 12%, and by 68% if non-recurring insurance gains of S$201 million
in 1Q09 were excluded, to S$681 million, with broad-based contributions from fee and commission, trading and
investment income. Net interest income fell 5% to S$704 million, as interest margins were impacted by
reduced gapping income and low interest rates.

Operating expenses rose 21%, largely from higher staff costs. Allowances for loans and other assets fell to
S$25 million from S$197 million in 1Q09, mainly as a result of lower specific allowances for loans and for
CDOs.

The 1Q10 numbers included the consolidated results of Bank of Singapore, formerly known as ING Asia Private
Bank Ltd (“IAPB”), which became a wholly owned subsidiary on 29 January 2010. Its two months’ profit
contribution in 1Q10 was not material relative to the Group’s earnings.

Return on equity was 15.3% in 1Q10, up from 14.9% in 1Q09. Annualised earnings per share rose 20% year-
on-year to 82.1 cents.



                                                                                  First Quarter 2010 Financial Results ▌ 2
FINANCIAL SUMMARY (continued)
S$ million                                                     1Q10       1Q09        +/(-)        4Q09        +/(-)
                                                                                        %                        %
Selected Income Statement Items

    Net interest income                                          704        740         (5)          687          2
    Non-interest income                                          681        607         12           497         37
  Total income                                                 1,385      1,347          3         1,184         17
  Operating expenses                                            (502)      (413)        21          (466)         8
  Operating profit before allowances and amortisation            883        934         (5)          718         23

  Amortisation of intangible assets                             (12)        (12)         –           (12)        –
  Allowances for loans and impairment of other assets           (25)       (197)       (87)          (77)      (68)
  Operating profit after allowances and amortisation            846         725         17           629        34

  Share of results of associates and joint ventures              (#)        (#)       n.m.            (2)      (91)
  Profit before income tax                                      846        725          17           627        35

  Net profit attributable to shareholders                       676        545          24           502         35

                                                        1/
  Cash basis net profit attributable to shareholders            688        557          24           514         34


Selected Balance Sheet Items

  Ordinary equity                                             17,832     14,765         21        17,075          4
  Total equity (excluding minority interests)                 19,728     16,660         18        18,971          4

  Total assets                                               208,724    180,160         16       194,300          7

  Assets excluding life assurance fund investment assets     163,487    141,355         16       151,223          8

  Loans and bills receivable (net of allowances)              88,905     78,815         13        80,876         10
  Deposits of non-bank customers                             108,523     92,401         17       100,633          8


Notes:
1.   Excludes amortisation of intangible assets.
2.   “#” represents amounts less than S$0.5 million.
3.   “n.m.” denotes not meaningful.




                                                                                   First Quarter 2010 Financial Results ▌ 3
FINANCIAL SUMMARY (continued)
                                                                                        1Q10            1Q09             4Q09

Key Financial Ratios

Performance ratios (% p.a.)
  Return on equity 1/ 2/
    SFRS3/ basis                                                                         15.3             14.9            11.6
    Cash basis                                                                           15.6             15.3            11.8
                    4/
  Return on assets
          3/
    SFRS basis                                                                           1.68             1.54            1.32
    Cash basis                                                                           1.71             1.57            1.35


Revenue mix/efficiency ratios (%)
 Net interest margin (annualised)                                                        2.03             2.42            2.08
 Net interest income to total income                                                     50.8             54.9            58.0
 Non-interest income to total income                                                     49.2             45.1            42.0
 Cost to income                                                                          36.2             30.7            39.4
 Loans to deposits                                                                       81.9             85.3            80.4
 NPL ratio                                                                                1.5              1.8             1.7


                       2/
Earnings per share (annualised - cents)
  Basic earnings                                                                         82.1             68.4            59.1
  Basic earnings (cash basis)                                                            83.6             69.9            60.5
  Diluted earnings                                                                       81.8             68.4            58.8


Net asset value per share (S$)
  Before valuation surplus                                                               5.51             4.75            5.29
  After valuation surplus                                                                6.76             5.16            6.33


Capital adequacy ratios (%)
  Tier 1                                                                                 14.4             15.1            15.9
  Total                                                                                  15.2             15.8            16.4


Notes:
1. Preference equity and minority interests are not included in the computation for return on equity.
2. Calculated based on net profit less preference dividends paid and estimated to be due as at the end of the financial period.
3. “SFRS” refers to Singapore Financial Reporting Standards.
4. Computation of return on assets excludes life assurance fund investment assets.




                                                                                                First Quarter 2010 Financial Results ▌ 4
NET INTEREST INCOME

Average Balance Sheet

                                      1Q10                      1Q09                      4Q09
                             Average          Average Average           Average Average           Average
S$ million                   Balance Interest  Rate 4/ Balance Interest  Rate 4/ Balance Interest  Rate 4/
                                                   %                         %                         %
Interest earning assets
Loans and advances to
non-bank customers            85,825         748       3.53      79,290         815         4.17       78,339        730        3.70
Placements with
and loans to banks            27,683          96       1.41      21,392         135         2.57       26,982          93       1.36
Other interest
               1/
earning assets                26,720         177       2.68      23,340         196         3.40       25,796        170        2.62

Total                        140,228       1,021       2.95     124,022       1,146         3.75      131,117        993        3.00

Interest bearing
liabilities
Deposits of non-bank
customers                   105,846          235       0.90      93,742         319         1.38       98,933        229        0.92
Deposits and
balances of banks             13,904          20       0.58      12,145          35         1.17       12,099          18       0.58
                 2/
Other borrowings               8,711          62       2.91       6,651          52         3.19        7,959          59       2.97

Total                        128,461         317       1.00     112,538         406         1.46      118,991        306        1.02

Net interest
              3/
income/margin                                704       2.03                     740         2.42                     687        2.08

Notes:
1. Comprise corporate debts and government securities.
2. Mainly debts issued.
3. Net interest margin is net interest income as a percentage of interest earning assets.
4. Average rates are computed on an annualised basis.




Net interest income declined 5% year-on-year to S$704 million, as the growth in interest earning assets
was more than offset by a lower net interest margin. Interest earning assets grew by 13%, partly
contributed by the consolidation of Bank of Singapore. Net interest margin fell from 2.42% to 2.03%, as a
result of reduced gapping income and lower asset yields due to sustained low interest rates.

Compared to 4Q09, net interest income grew 2%, driven by an increase in interest earning assets. Net
interest margin was 5 basis points lower due to the inclusion of lower-yielding assets from Bank of
Singapore, as these assets are largely collateralised by marketable securities. Excluding the consolidation
effect of Bank of Singapore, net interest margin improved by one basis point over 4Q09.




                                                                                                   First Quarter 2010 Financial Results ▌ 5
NET INTEREST INCOME (continued)

Volume and Rate Analysis


                                                            1Q10 vs 1Q09                   1Q10 vs 4Q09

Increase/(decrease) due to change in:                                       Net                               Net
S$ million                                              Volume   Rate    change     Volume      Rate       change

Interest income
Loans and advances to non-bank customers                    67   (134)      (67)          68       (34)        34
Placements with and loans to banks                          40    (79)      (39)           3         3          6
Other interest earning assets                               28    (47)      (19)           6         4         10
Total                                                      135   (260)     (125)          77       (27)        50

Interest expense
Deposits of non-bank customers                              42   (126)      (84)          16         (4)       12
Deposits and balances of banks                               5    (20)      (15)           2         (#)        2
Other borrowings                                            16     (6)       10            6         (2)        4
Total                                                       63   (152)      (89)          24         (6)       18


Impact on net interest income                               72   (108)      (36)          53       (21)        32

Due to change in number of days                                               –                               (15)

Net interest income                                                         (36)                               17

Note:
1.    “#” represents amounts less than S$0.5 million.




                                                                                   First Quarter 2010 Financial Results ▌ 6
NON-INTEREST INCOME
S$ million                                                       1Q10     1Q09       +/(-)    4Q09       +/(-)
                                                                                       %                   %
Fees and commissions
 Brokerage                                                          20       13       61         20         –
 Wealth management                                                  37       11      232         18       109
 Fund management                                                    19       16       18         20        (2)
 Credit card                                                        10       10        4         14       (26)
 Loan-related                                                       53       37       43         48        10
 Trade-related and remittances                                      37       28       34         36         2
 Guarantees                                                          5        7      (34)         4         6
 Investment banking                                                 16       13       27         11        49
 Service charges                                                    19       14       34         12        58
 Others                                                             10        6       56          9         8
Sub-total                                                          226      155       46        192        18

Dividends                                                           19       17        11         4       347
Rental income                                                       20       19         3        20        (1)
Profit from life assurance                                         146      266       (45)      127        15
Premium income from general insurance                               36       31        14        26        36

Other income
 Net trading income                                                157      112       40         78       103
 Net gain/(loss) from investment securities                         65      (36)     279         30       115
 Net gain from disposal of associates                                2        –        –          –         –
 Net gain from disposal of properties                                #        #      (55)         5       (97)
 Others                                                             10       43      (77)        15       (35)
Sub-total                                                          234      119       96        128        83

Total non-interest income                                         681      607         12       497        37

Fees and commissions/Total income                               16.4%    11.5%               16.2%
Non-interest income/Total income                                49.2%    45.1%               42.0%

Note:
1.    “#” represents amounts less than S$0.5 million.


Non-interest income rose 12% to S$681 million year-on-year, driven by higher fee and commission
income, and net gain from trading and investment securities, as well as from the consolidation of Bank of
Singapore. Fee and commission income increased 46% to S$226 million, led by higher income from
wealth management, loan-related, trade-related and stockbroking activities. Net trading income climbed
40% to S$157 million on higher derivatives and securities income. A net gain of S$65 million from the
disposal of investment securities was recorded in the quarter compared to a net loss of S$36 million in the
previous year.

Profit from life assurance declined 45% to S$146 million from S$266 million a year ago, as there was a
non-recurring gain of S$201 million in 1Q09 arising from the adoption of the new Risk Based Capital
framework in Malaysia. Excluding this gain, profit from life assurance would have more than doubled to
S$146 million, contributed mainly by a strong investment performance in the Non-Participating Fund and a
better claim experience. Total non-interest income would have shown an increase of 68% year-on-year
excluding the 1Q09 non-recurring gains.

Compared to 4Q09, non-interest income rose by 37%, with fee income and life assurance profits growing
by 18% and 15% respectively, while net trading income and gains from investment securities more than
doubled.




                                                                              First Quarter 2010 Financial Results ▌ 7
OPERATING EXPENSES
S$ million                                                 1Q10      1Q09         +/(-)      4Q09       +/(-)
                                                                                    %                     %

Staff costs
 Salaries and other costs                                    264       217           21        242          9
 Share-based expenses                                          4         4           (4)         4        (12)
 Contribution to defined contribution plans                   21        19           15         19         14
                                                             289       240           21        265          9

Property and equipment
 Depreciation                                                 37        33           13          36         3
 Maintenance and hire of property, plant & equipment          15        16           (3)         14        10
 Rental expenses                                              14        11           25          12        13
 Others                                                       30        25           18          25        20
                                                              96        85           13          87        10

Other operating expenses                                     117        88           32        114          2

Total operating expenses                                     502       413           21        466          8

Group staff strength
  Period end                                              20,634    19,748            4     19,792          4
  Average                                                 20,478    19,904            3     19,750          4

Cost to income ratio                                       36.2%     30.7%                  39.4%




Operating expenses increased 21% year-on-year to S$502 million, partly contributed by the consolidation
of Bank of Singapore. Staff costs increased 21% to S$289 million, mainly from increased salaries and
headcount. Property and equipment costs rose 13% to S$96 million, while other operating expenses
increased by 32% to S$117 million mainly because of higher insurance related expenses.

Compared to 4Q09, operating expenses increased by 8%, contributed by higher staff costs and property
and equipment costs, and including the consolidation effects of Bank of Singapore.

The cost-to-income ratio was 36.2% for 1Q10 compared with 30.7% in 1Q09 and 39.4% in 4Q09.




                                                                             First Quarter 2010 Financial Results ▌ 8
ALLOWANCES FOR LOANS AND OTHER ASSETS

S$ million                                                    1Q10       1Q09        +/(-)      4Q09       +/(-)
                                                                                       %                     %

Specific allowances/(write-back) for loans
 Singapore                                                        (1)       15       (107)         (5)       81
 Malaysia                                                          4        22        (83)         18       (80)
 Others                                                            2        51        (95)         48       (95)
                                                                   5        88        (94)         61       (92)

Portfolio allowances for loans                                   30          2        n.m.         11       168

(Write-back)/allowances for CDOs                                  (7)       94       (108)          (1)    (980)

(Write-back)/allowances and impairment charges
for other assets                                                  (3)       13       (123)           6     (158)

Allowances for loans and impairment of other assets              25        197        (87)         77       (68)

Note:
1.    “n.m.” denotes not meaningful.




Allowances for loans and other assets were significantly lower at S$25 million compared to S$197 million
in 1Q09 and S$77 million in 4Q09.

Specific allowances for loans decreased from S$88 million in 1Q09 and S$61 million in 4Q09 to S$5
million in 1Q10, with the declines coming mainly from Malaysia and other Asia Pacific markets. A net
writeback of S$10 million in allowances for CDOs and other assets was made in 1Q10, compared to net
allowances of S$107 million a year ago and S$5 million in 4Q09 for these assets. With stronger loan
growth, portfolio allowances of S$30 million for loans were set aside in the quarter, up from S$2 million in
1Q09 and S$11 million in 4Q09.




                                                                                 First Quarter 2010 Financial Results ▌ 9
LOANS AND ADVANCES
S$ million                                                              31 Mar 2010        31 Dec 2009         31 Mar 2009

Loans to customers                                                             86,996             80,439             79,229
Bills receivable                                                                3,408              1,902              1,174
Gross loans to customers                                                       90,404             82,341             80,403

Allowances
   Specific allowances                                                           (435)              (454)              (608)
   Portfolio allowances                                                        (1,038)              (999)              (980)
                                                                               88,931             80,888             78,815
Less: assets pledged                                                              (26)               (12)                 –
Loans net of allowances                                                        88,905             80,876             78,815


By Maturity
 Within 1 year                                                                 33,452             28,147             28,496
 1 to 3 years                                                                  17,923             17,751             15,629
 Over 3 years                                                                  39,029             36,443             36,278
                                                                               90,404             82,341             80,403

By Industry
 Agriculture, mining and quarrying                                              1,721              1,621              1,472
 Manufacturing                                                                  6,161              5,828              6,375
 Building and construction                                                     15,389             15,643             16,702
 Housing loans                                                                 22,782             21,460             19,659
 General commerce                                                               9,713              7,750              6,317
 Transport, storage and communication                                           5,769              5,791              5,786
 Financial institutions, investment and holding companies                       9,889             10,032             11,249
 Professionals and individuals                                                 12,527              7,968              7,655
 Others                                                                         6,453              6,248              5,188
                                                                               90,404             82,341             80,403

By Currency
 Singapore Dollar                                                              46,658             46,022             45,998
 United States Dollar                                                          15,639             11,081             10,728
 Malaysian Ringgit                                                             14,141             13,239             12,598
 Indonesian Rupiah                                                              3,016              2,889              2,122
 Others                                                                        10,950              9,110              8,957
                                                                               90,404             82,341             80,403

By Geography 1/
 Singapore                                                                     50,659             48,457             47,651
 Malaysia                                                                      16,175             15,322             14,657
 Other ASEAN                                                                    5,673              4,986              4,352
 Greater China                                                                  8,065              7,066              7,139
 Other Asia Pacific                                                             4,490              3,926              3,558
 Rest of the World                                                              5,342              2,584              3,046
                                                                               90,404             82,341             80,403
Note:
1. Loans by geography are based on where the credit risks reside, regardless of where the transactions are booked.




Gross loans rose 12% from a year ago, and 10% from the previous quarter, to S$90.4 billion as at 31
March 2010, partly due to the consolidation of Bank of Singapore, which contributed about 5% of gross
loans. By sector, the year-on-year and quarter-on-quarter growth were mainly from lending to
professionals and individuals, general commerce and housing sectors.



                                                                                           First Quarter 2010 Financial Results ▌ 10
NON-PERFORMING ASSETS 1/
                                                                                  Secured
                                                                                   NPAs/
                      Total                                                        Total
S$ million           NPAs 2/      Substandard       Doubtful         Loss         NPAs            NPLs 3/       NPL Ratio 3/
                                                                                      %                               %

Singapore
 31 Mar 2010             436             183            161             92          67.5             434               0.9
 31 Dec 2009             417             163            164             90          65.2             416               0.9
 31 Mar 2009             424             145            186             93          62.0             423               0.9


Malaysia
 31 Mar 2010             635             367            212             56          56.7             562               3.5
 31 Dec 2009             635             427            155             53          61.1             582               3.8
 31 Mar 2009             544             312            123            109          55.5             521               3.6


Other ASEAN
 31 Mar 2010             160              40             22             98          60.8             159               2.8
 31 Dec 2009             213              95             23             95          59.9             212               4.3
 31 Mar 2009             212             112             34             66          66.9             209               4.8


Greater China
 31 Mar 2010              63              12             51              –          10.4              63               0.8
 31 Dec 2009              69              13             56              –          19.9              67               0.9
 31 Mar 2009             159              44            106              9          31.8             154               2.2


Other Asia Pacific
 31 Mar 2010              36              33              3              –          54.8              36               0.8
 31 Dec 2009              47              40              7              –          51.8              47               1.2
 31 Mar 2009              85               5             80              –           5.0              85               2.4


Rest of the World 2/
 31 Mar 2010              72              17             51              4          81.9              65               1.2
 31 Dec 2009              67              18             46              3          40.3              60               2.3
 31 Mar 2009             209              18            185              6          13.1              31               1.0


Group
 31 Mar 2010           1,402             652            500            250          59.7           1,319               1.5
 31 Dec 2009           1,448             756            451            241          58.9           1,384               1.7
 31 Mar 2009           1,633             636            714            283          48.3           1,423               1.8



Notes:
1. Comprise non-bank loans, debt securities and contingent liabilities.
2. Include CDOs of S$6 million, S$7 million and S$171 million as at 31 Mar 2010, 31 Dec 2009 and 31 Mar 2009 respectively.
3. Exclude debt securities and contingent liabilities. Prior year figures have been restated.




                                                                                           First Quarter 2010 Financial Results ▌ 11
NON-PERFORMING ASSETS (continued)
Non-performing loans (“NPLs”) decreased by 5% from the previous quarter to S$1,319 million as at 31
March 2010. By geography, the decrease was mainly from Malaysia and Other ASEAN.

The Group’s NPL ratio improved further to 1.5% from 1.7% in December 2009 and 1.8% in March 2009.
The Singapore NPL ratio was stable at 0.9%, and the Malaysia NPL ratio improved over the quarter from
3.8% to 3.5%.

Including classified debt securities, contingent liabilities and CDOs, the Group’s total non-performing
assets (“NPAs”) were S$1,402 million, 14% lower from a year ago and 3% lower compared to December
2009. Of the total NPAs, 47% (Dec 09: 52%; Mar 09: 39%) were in the substandard category while 60%
(Dec 09: 59%; Mar 09: 48%) were secured by collateral.


                                                    31 Mar 2010             31 Dec 2009               31 Mar 2009
                                                              % of                    % of                      % of
                                                 S$ million loans         S$ million loans         S$ million loans
NPLs by Industry
Loans and advances
  Agriculture, mining and quarrying                     10         0.6            14        0.8              8      0.5
  Manufacturing                                        414         6.7           402        6.9            491      7.7
  Building and construction                            149         1.0           203        1.3            209      1.3
  Housing loans                                        227         1.0           224        1.0            238      1.2
  General commerce                                     170         1.8           218        2.8            167      2.6
  Transport, storage and communication                 106         1.8           109        1.9             21      0.4
  Financial institutions, investment
  and holding companies                                 28         0.3            37        0.4             116     1.0
  Professionals and individuals                        177         1.4           140        1.8             138     1.8
  Others                                                38         0.6            37        0.6              35     0.7
Total NPLs                                           1,319         1.5         1,384        1.7           1,423     1.8
Classified debt securities                              29                        31                        209
Classified contingent liabilities                       54                        33                          1
Total NPAs                                           1,402                     1,448                      1,633



                                                    31 Mar 2010               31 Dec 2009             31 Mar 2009
                                                 S$ million         %     S$ million        %       S$ million       %
NPAs by Period Overdue
 Over 180 days                                         634          45           639     44                 610    37
 Over 90 to 180 days                                   145          10           188     13                 334    20
 30 to 90 days                                          89           6           208     14                 208    13
 Less than 30 days                                     133          10            74      5                 209    13
 Not overdue                                           401          29           339     24                 272    17
                                                     1,402         100         1,448    100               1,633   100



                                             31 Mar 2010               31 Dec 2009                    31 Mar 2009
S$ million                               Asset   Allowance          Asset Allowance               Asset   Allowance
Restructured Assets
 Substandard                               127                 4         45             2            62              4
 Doubtful                                  113                33         30            29            34             44
 Loss                                       16                10         15             4            14             10
                                           256                47         90            35           110             58




                                                                                    First Quarter 2010 Financial Results ▌ 12
CUMULATIVE ALLOWANCES FOR ASSETS
                                                                                                              Cumulative
                                   Total                                                   Specific          allowances as
                               cumulative            Specific          Portfolio       allowances as            % of total
S$ million                     allowances         allowances 1/       allowances       % of total NPAs           NPAs
                                                                                                 %                    %
Singapore
 31 Mar 2010                         599                 73                526                  16.8               137.5
 31 Dec 2009                         588                 76                512                  18.2               140.9
 31 Mar 2009                         653                145                508                  34.2               153.8


Malaysia
 31 Mar 2010                         482                238                244                  37.4                75.8
 31 Dec 2009                         463                233                230                  36.6                72.8
 31 Mar 2009                         482                259                223                  47.6                88.5


Other ASEAN
 31 Mar 2010                         156                 85                 71                  53.4                97.9
 31 Dec 2009                         177                111                 66                  52.3                83.4
 31 Mar 2009                         132                 73                 59                  34.1                62.0


Greater China
 31 Mar 2010                         154                  53               101                  82.6               242.7
 31 Dec 2009                         149                  55                94                  79.7               217.1
 31 Mar 2009                         188                  98                90                  61.7               118.2


Other Asia Pacific
 31 Mar 2010                          55                   3                52                   9.2               152.8
 31 Dec 2009                          54                   3                51                   7.0               115.7
 31 Mar 2009                         100                  56                44                  65.7               118.3


Rest of the World
 31 Mar 2010                          58                 14                 44                  19.6                80.8
 31 Dec 2009                          52                  6                 46                   9.4                76.9
 31 Mar 2009                         233                177                 56                  85.1               111.8


Group
 31 Mar 2010                       1,504                466              1,038                  33.2               107.3
 31 Dec 2009                       1,483                484                999                  33.4               102.4
 31 Mar 2009                       1,788                808                980                  49.4               109.5


Note:
1. Include allowances of S$6 million, S$6 million and S$170 million for classified CDOs as at 31 Mar 2010, 31 Dec 2009 and 31
     Mar 2009 respectively.



As at 31 March 2010, the Group’s total cumulative allowances for assets were S$1,504 million,
comprising S$466 million in specific allowances and S$1,038 million in portfolio allowances. Total
cumulative allowances were 107% of total NPAs and 266% of unsecured NPAs, up from 102% and 249%
respectively as at 31 December 2009.




                                                                                            First Quarter 2010 Financial Results ▌ 13
DEPOSITS

S$ million                                              31 Mar 2010    31 Dec 2009        31 Mar 2009

Deposits of non-bank customers                              108,523        100,633              92,401
Deposits and balances of banks                               14,362         10,958              12,009
                                                            122,885        111,591             104,410

Loans to deposits ratio
(net non-bank loans/non-bank deposits)                        81.9%          80.4%               85.3%


S$ million                                              31 Mar 2010    31 Dec 2009        31 Mar 2009

Total Deposits By Maturity
 Within 1 year                                              120,696        109,486             101,919
 1 to 3 years                                                 1,605          1,742               2,262
 Over 3 years                                                   584            363                 229
                                                            122,885        111,591             104,410

Non-Bank Deposits By Product
 Fixed deposits                                              57,546         53,621              53,358
 Savings deposits                                            22,703         21,753              17,711
 Current account                                             23,602         20,762              16,095
 Others                                                       4,672          4,497               5,237
                                                            108,523        100,633              92,401

Non-Bank Deposits By Currency
 Singapore Dollar                                            59,517         58,458              52,648
 United States Dollar                                        15,018         11,144              10,469
 Malaysian Ringgit                                           16,514         16,286              15,518
 Indonesian Rupiah                                            3,526          3,735               3,040
 Others                                                      13,948         11,010              10,726
                                                            108,523        100,633              92,401


Non-bank customer deposits grew 17% year-on-year and 8% from the previous quarter to S$108.5 billion,
with Bank of Singapore’s deposits accounting for 5% of total customer deposits. Year-on-year, current
account and savings deposits grew by 47% and 28% respectively, while fixed deposits grew at a slower
pace of 8%.

The Group’s loans-to-deposits ratio was 81.9%, compared to 80.4% in December 2009 and 85.3% a year
ago.

DEBTS ISSUED
S$ million                                               31 Mar 2010    31 Dec 2009        31 Mar 2009


Subordinated debts (unsecured)                                 5,766           5,769               5,166
Commercial papers (unsecured)                                    972           1,061                 660
Structured notes (unsecured)                                      76              33                  14
Total                                                          6,814           6,863               5,840

Debts Issued By Maturity
Within one year                                                1,039           1,082                 664
Over one year                                                  5,775           5,781               5,176
Total                                                          6,814           6,863               5,840


                                                                        First Quarter 2010 Financial Results ▌ 14
CAPITAL ADEQUACY RATIOS
S$ million                                                   31 Mar 2010     31 Dec 2009       31 Mar 2009

Tier 1 Capital
  Ordinary and preference shares                                   7,413            7,376               6,658
  Disclosed reserves/others                                       13,701           12,893              12,158
  Goodwill/others                                                 (5,398)          (4,307)             (4,341)
Eligible Tier 1 Capital                                           15,716           15,962              14,475

Tier 2 Capital
  Subordinated term notes                                          3,205             3,163              3,109
  Others                                                          (2,424)           (2,633)            (2,481)

Total Eligible Capital                                            16,497           16,492              15,103

Risk Weighted Assets                                             108,505          100,013              95,397

Tier 1 capital adequacy ratio                                      14.4%            15.9%              15.1%
Total capital adequacy ratio                                       15.2%            16.4%              15.8%



As at 31 March 2010, Group Tier 1 ratio and total capital adequacy ratio (“CAR”) were 14.4% and 15.2%
respectively. These were well above the regulatory minimum of 6% and 10% respectively. Compared to
December 2009, the ratios were lower, as the increase in retained earnings was offset by increased risk-
weighted assets and goodwill deduction arising from the acquisition of the former ING Asia Private Bank.

The Group’s core Tier 1 ratio, which excludes perpetual and innovative preference shares, was 10.8%,
compared to 12.0% at the end of 2009.




                                                                            First Quarter 2010 Financial Results ▌ 15
UNREALISED VALUATION SURPLUS
S$ million                                                                 31 Mar 2010       31 Dec 2009        31 Mar 2009

Properties 1/                                                                      2,318             2,278              2,157
                  2/
Equity securities                                                                  1,731             1,110               (885)
Total                                                                              4,049             3,388              1,272

Notes:
1. Includes properties classified as investment properties and assets held for sale. Property values are determined mainly based
    on external valuations at year-end, with internal reviews performed for other quarters.
2. Comprises mainly investments in quoted associates and subsidiaries, which are valued based on their market prices at the end
    of each quarter.
3. The carrying values of subsidiaries and associates on the balance sheet are measured at cost plus post-acquisition reserves;
    while those of properties are measured at cost less accumulated depreciation, and impairment, if any.




The Group’s unrealised valuation surplus represents the difference between the carrying values3/ of its
properties and investments in quoted subsidiaries/associates as compared to the property values and
market prices of the quoted investments at the respective periods.

The valuation surplus as at 31 March 2010 was S$4.05 billion, up by 20% from S$3.39 billion at 31
December 2009. The increase was due to the surplus for equity securities, mainly from the Group’s stake
in Great Eastern Holdings (“GEH”).




                                                                                            First Quarter 2010 Financial Results ▌ 16
PERFORMANCE BY BUSINESS SEGMENT

OCBC Group’s businesses are presented in the following customer and product segments:                                     Global
Consumer Financial Services, Global Corporate Banking, Global Treasury and Insurance.

Operating Profit by Business Segment

S$ million                                                                  1Q10        1Q09         +/(-)     4Q09       +/(-)
                                                                                                       %                    %

Global Consumer Financial Services                                            141         139           2        138         2
Global Corporate Banking                                                      292         170          71        216        35
Global Treasury                                                               194         236         (18)       101        93
Insurance                                                                     191         270         (29)       163        17
Others                                                                        120           1        n.m.        111         8
Operating profit after allowances and amortisation
for total business segments                                                   938         816          15        729        29

Add/(Less):
                            1/
- Joint income elimination                                                    (73)         (72)         1        (81)      (10)
- Items not attributed to business segments                                   (19)         (19)         2        (19)       (2)

Operating profit after allowances and amortisation                            846         725          17        629        34

Notes:
1. These are joint income allocated to business segments to reward cross-selling activities.
2. “n.m.” denotes not meaningful.




Global Consumer Financial Services

Global Consumer Financial Services comprises the full range of products and services offered to
individuals, including deposit products (checking accounts, savings and fixed deposits), consumer loans
(housing loans and other personal loans), credit cards and wealth management products (unit trusts,
bancassurance products and structured deposits).

For 1Q10, operating profit after allowances of the consumer segment increased by 2% to S$141 million,
largely because of higher fee and commission income and lower loan allowances, partly offset by lower
net interest income and higher expenses. Compared with 4Q09, operating profit also increased by 2%,
contributed by a reduction in expenses.



Global Corporate Banking

Global Corporate Banking serves business customers ranging from large corporates and the public sector
to small and medium enterprises. The products and services offered include long-term loans such as
project financing, short-term credit such as overdrafts and trade financing, deposit accounts and fee-
based services such as cash management, trustee and custodian services.




                                                                                               First Quarter 2010 Financial Results ▌ 17
PERFORMANCE BY BUSINESS SEGMENT (continued)

Global Corporate Banking’s operating profit after allowances for 1Q10 increased by 71% to S$292 million,
driven by growth in net interest income and fee and commission income and significantly lower
allowances. Net interest income was higher as a result of improved loan spreads.

Against 4Q09, operating profit increased by 35%, attributable to lower allowances and higher fee and
commission income.


Global Treasury

Global Treasury engages in foreign exchange activities, money market operations, fixed income and
derivatives trading, and also offers structured treasury products and financial solutions to meet customers’
investment and hedging needs.

Global Treasury’s operating profit declined by 18% to S$194 million in 1Q10, mainly because of lower net
interest income as gapping margins narrowed, partly offset by higher income from derivatives and
securities trading and lower allowances.

Compared to 4Q09, the business achieved strong profit growth of 93%, as a result of higher net interest
income from interbank activities and income from derivatives and securities trading.


Insurance

The Group’s insurance business, including its fund management activities, is carried out by 87.1%-owned
subsidiary GEH, which provides both life and general insurance products to its customers mainly in
Singapore and Malaysia.

Operating profit from GEH fell 29% from S$270 million in 1Q09 to S$191 million in 1Q10, mainly because
the profit for 1Q09 included S$201 million of non-recurring gains arising mainly from the implementation of
the new Risk Based Capital framework in Malaysia. Excluding these non-recurring gains, GEH’s
operating profit would be significantly higher year-on-year, contributed mainly by a strong investment
performance in the Non-Participating Fund and shareholders’ funds, as compared to a year ago when
financial markets were stressed. Compared to 4Q09, GEH’s operating profit grew by 17%.

After minority interests and tax, GEH’s contribution to the Group’s core net profit was S$147 million in
1Q10, compared with S$197 million in 1Q09 (S$22 million excluding the non-recurring gains) and S$119
million in 4Q09.

Others

The “Others” segment comprises Bank OCBC NISP, PacificMas Berhad, Bank of Singapore, corporate
finance, capital markets, property holding, stock brokerage and investment holding. Operating profit after
allowances for this segment was S$120 million in 1Q10, compared to S$1 million in 1Q09. The low profit
in 1Q09 was due to allowances for the Bank’s CDO portfolio and losses from the disposal of corporate
bonds.



                                                                             First Quarter 2010 Financial Results ▌ 18
PERFORMANCE BY BUSINESS SEGMENT (continued)
                                                       Global
                                                     Consumer Global                                           Total
                                                     Financial Corporate Global                              Business
S$ million                                            Services Banking Treasury    Insurance     Others      Segments

1Q10
- External customers                                     275      405      248           247         281        1,456
- Intersegment income                                      –        –        –             –          21           21
Total income                                             275      405      248           247         302        1,477
Operating profit before
allowances and amortisation                              149      287      194           205         140          975
  Amortisation of intangible assets                        –        –        –           (12)          –          (12)
  (Allowances and impairment)/write-back
  for loans and other assets                               (8)      5         –            (2)       (20)         (25)
Operating profit after
allowances and amortisation                              141      292      194           191         120          938

Other information:
 Capital expenditure                                        3        2        #             6         28           39
 Depreciation                                               3        2        #             #         32           37

1Q09
- External customers                                     275      357      294           308         189        1,423
- Intersegment income                                      –        –        –             –          21           21
Total income                                             275      357      294           308         210        1,444
Operating profit before
allowances and amortisation                              156      242      247           285          95        1,025
  Amortisation of intangible assets                        –        –        –           (12)          –          (12)
  Allowances and impairment
  for loans and other assets                              (17)     (72)     (11)           (3)       (94)        (197)
Operating profit after
allowances and amortisation                              139      170      236           270            1         816

Other information:
 Capital expenditure                                       9        1        1              4         23           38
 Depreciation                                              4        2        #              #         27           33

4Q09
- External customers                                     288      391      151           190         246        1,266
- Intersegment income                                      –        –        –             –          21           21
Total income                                             288      391      151           190         267        1,287
Operating profit before
allowances and amortisation                              148      265      101           184         120          818
  Amortisation of intangible assets                        –        –        –           (12)          –          (12)
  Allowances and impairment
  for loans and other assets                              (10)     (49)       –            (9)         (9)        (77)
Operating profit after
allowances and amortisation                              138      216      101           163         111          729

Other information:
 Capital expenditure                                       6        3        #             12         27           48
 Depreciation                                              4        3        #              1         28           36
Note:
1. “#” represents amounts less than S$0.5 million.




                                                                                   First Quarter 2010 Financial Results ▌ 19
PERFORMANCE BY BUSINESS SEGMENT (continued)
                             Global
                           Consumer      Global
                           Financial   Corporate    Global
S$ million                  Services    Banking    Treasury    Insurance     Others      Group

At 31 March 2010
 Segment assets               29,223      60,819      46,330      51,942      30,775      219,089
 Unallocated assets                                                                            89
 Elimination                                                                              (10,454)
Total assets                                                                              208,724

 Segment liabilities          45,149      50,086      28,409      45,797      25,441      194,882
 Unallocated liabilities                                                                    1,728
 Elimination                                                                              (10,454)
Total liabilities                                                                         186,156

Other information:
 Gross non-bank loans         28,028      51,956       1,145          148      9,127       90,404
 NPAs                            273         932           –            7        190        1,402

At 31 December 2009
 Segment assets               27,900      56,549      46,761      49,634      21,743      202,587
 Unallocated assets                                                                            98
 Elimination                                                                               (8,385)
Total assets                                                                              194,300

 Segment liabilities          44,333      48,653      23,405      43,824      19,139      179,354
 Unallocated liabilities                                                                    1,552
 Elimination                                                                               (8,385)
Total liabilities                                                                         172,521

Other information:
 Gross non-bank loans         26,702      49,878       1,046          289      4,426       82,341
 NPAs                            280       1,018           –            7        143        1,448

At 31 March 2009
 Segment assets               26,390      54,213      38,731       45,411     22,501      187,246
 Unallocated assets                                                                           168
 Elimination                                                                               (7,254)
Total assets                                                                              180,160

 Segment liabilities          42,010      44,674      23,380       40,406     16,484      166,954
 Unallocated liabilities                                                                    1,104
 Elimination                                                                               (7,254)
Total liabilities                                                                         160,804

Other information:
 Gross non-bank loans         25,178      50,816        785           317      3,307       80,403
 NPAs                            319       1,017          2             9        286        1,633




                                                               First Quarter 2010 Financial Results ▌ 20
PERFORMANCE BY GEOGRAPHICAL SEGMENT
                                                  1Q10                 1Q09                  4Q09
                                               S$ million    %     S$ million     %      S$ million       %
Total income
 Singapore                                            910    66           694     52             778     66
 Malaysia                                             297    21           484     36             246     21
 Other ASEAN                                          100     7            85      6              91      7
 Other Asia Pacific                                    68     5            70      5              59      5
 Rest of the World                                     10     1            14      1              10      1
                                                    1,385   100         1,347    100           1,184    100
Profit before income tax
 Singapore                                           586     69           326     45             488     78
 Malaysia                                            197     23           375     52             132     21
 Other ASEAN                                          26      3            31      4              23      4
 Other Asia Pacific                                   33      4           (14)    (2)             22      3
 Rest of the World                                     4      1             7      1             (38)    (6)
                                                     846    100           725    100             627    100



                                                31 Mar 2010         31 Dec 2009           31 Mar 2009
                                               S$ million   %      S$ million   %        S$ million   %
Total assets
 Singapore                                       134,765     65       125,001     64        116,420      65
 Malaysia                                         45,281     22        43,070     22         40,020      22
 Other ASEAN                                       6,897      3         6,922      4          6,078       3
 Other Asia Pacific                               17,613      8        15,754      8         14,620       8
 Rest of the World                                 4,168      2         3,553      2          3,022       2
                                                 208,724    100       194,300    100        180,160     100




The geographical segment analysis is based on the location where assets or transactions are booked.
For 1Q10, Singapore accounted for 66% of total income and 69% of pre-tax profit, while Malaysia
accounted for 21% of total income and 23% of pre-tax profit.

The pre-tax profit for Singapore increased by 80% from a year ago to S$586 million, led by higher fee and
commission, trading and investment income.

Malaysia’s pre-tax profit decreased 47% year-on-year to S$197 million, mainly because the year ago
profit was boosted by the non-recurring insurance gains.




                                                                           First Quarter 2010 Financial Results ▌ 21
ADDITIONAL DISCLOSURES

Collateralised Debt Obligations (“CDOs”)

As at 31 March 2010, the Bank1/ has investments of S$69 million in CDOs, comprising entirely of
corporate CDOs, for which full allowances have been made through the income statement since 1Q09.

The corporate CDO portfolio was reduced from S$103 million in the previous quarter as S$34 million of
CDOs were liquidated in 1Q10. As at 31 March 2010, cumulative allowances of S$33 million and
cumulative mark-to-market losses of S$36 million on the credit default swaps related to the corporate
CDOs have been made in the income statement.



S$ million                           31 Mar 10                     31 Dec 09                       31 Mar 09
Type of CDO/Tranche             Exposure  Allowance           Exposure  Allowance            Exposure    Allowance

ABS CDO
 Investment portfolio                     –              –             –              –               100             (100)

Corporate CDO (Non-
 Investment portfolio                   69           (33)^          103            (40)^              205             (136)

Total CDO portfolio                     69             (33)         103             (40)              305             (236)

Note:
^   In addition to the cumulative allowances of S$33 million (Dec 09: S$40 million), the Bank has also taken cumulative
    mark-to-market losses of S$36 million (Dec 09: S$63 million) to the income statement.



Special Purpose Entities (“SPE”)

As at 31 March 2010, OCBC does not utilise any SPE as a conduit for the securitisation of assets.


Business Combinations

On 29 January 2010, the Bank completed its acquisition of the former ING Asia Private Bank, which
became a wholly-owned subsidiary and was renamed Bank of Singapore Limited. The fair values of
Bank of Singapore’s assets and liabilities acquired have been assessed on a provisional basis which will
be finalised within 12 months of the acquisition date.




1.   The disclosures in this section exclude GEH and its asset management subsidiary Lion Global Investors.



                                                                                          First Quarter 2010 Financial Results ▌ 22
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
S$ million                                             1Q10     1Q09     +/(-)     4Q09        +/(-)
                                                                             %                   %
Interest income                                        1,021    1,146     (11)       993         3
Interest expense                                        (317)    (406)    (22)      (306)        4
Net interest income                                      704      740      (5)       687         2

 Premium income                                        1,263    1,106      14      1,561       (19)
 Investment income                                       469      143     228        676       (31)
 Net claims, surrenders and annuities                   (793)    (899)    (12)    (1,149)      (31)
 Change in life assurance fund contract liabilities     (578)     109    (629)      (617)       (6)
 Commission and others                                  (215)    (193)     12       (344)      (37)
Profit from life assurance                               146      266     (45)       127        15
Premium income from general insurance                     36       31      14         26        36
Fees and commissions (net)                               226      155      46        192        18
Dividends                                                 19       17      11          4       347
Rental income                                             20       19       3         20        (1)
Other income                                             234      119      96        128        83
Non-interest income                                      681      607      12        497        37

Total income                                           1,385    1,347       3      1,184        17
Staff costs                                             (289)    (240)    21        (265)         9
Other operating expenses                                (213)    (173)    23        (201)         5
Total operating expenses                                (502)    (413)    21        (466)         8

Operating profit before allowances and amortisation     883      934       (5)       718        23

Amortisation of intangible assets                        (12)     (12)      –         (12)       –
Allowances for loans and impairment of other assets      (25)    (197)    (87)        (77)     (68)


Operating profit after allowances and amortisation      846      725      17         629        34

Share of results of associates and joint ventures         (#)      (#)   n.m.          (2)     (91)

Profit before income tax                                846      725      17         627        35
Income tax expense                                      (116)    (119)     (3)        (75)      54
Profit for the period                                   730      606      20         552        32

Profit attributable to:
 Equity holders of the Bank                             676      545       24        502        35
 Minority interests                                      54       61      (12)        50         6
                                                        730      606       20        552        32

Earnings per share (for the period – cents)
 Basic                                                  20.9     17.6               14.2
 Diluted                                                20.8     17.6               14.1

Notes:
1.   “n,m.” denotes not meaningful.
2.   “#” represents amounts less than S$0.5 million.




                                                                   First Quarter 2010 Financial Results ▌ 23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

S$ million                                                    1Q10    1Q09       +/(-)      4Q09        +/(-)
                                                                                     %                    %

Profit for the period                                          730     606         20         552        32
Other comprehensive income:
Available-for-sale financial assets
 Gains for the period                                           38       8        350         423       (91)
 Reclassification of (gains)/losses to income statement
 – on disposal                                                 (65)     36       (279)        (30)     (115)
 – on impairment                                                (7)     98       (107)         14      (146)
 Tax on net movements                                          (14)     11       (233)        (24)       42
Exchange differences on translating foreign operations         135      70         92          20       579
Other comprehensive income of associates and joint ventures     (#)      4       (105)         (#)       34
Total other comprehensive income, net of tax                    87     227        (61)        403       (78)

Total comprehensive income for the period, net of tax          817     833          (2)       955       (14)

Total comprehensive income attributable to:
 Equity holders of the Bank                                    736     774         (5)        896       (18)
 Minority interests                                             81      59         37          59        36
                                                               817     833         (2)        955       (14)

Note:
1.    “#” represents amounts less than S$0.5 million.




                                                                             First Quarter 2010 Financial Results ▌ 24
BALANCE SHEETS (UNAUDITED)
                                                                GROUP                             BANK
                                                      31 Mar     31 Dec   31 Mar     31 Mar       31 Dec      31 Mar
                                                                      @                                @
S$ million                                             2010      2009      2009       2010        2009         2009
EQUITY
Attributable to equity holders of the Bank
 Share capital                                          7,413     7,376     6,658      7,413       7,376       6,658
 Capital reserves                                         883       986     1,233        687         768       1,018
 Fair value reserves                                    1,451     1,506       380        585         603          56
 Revenue reserves                                       9,981     9,103     8,389      6,188       5,716       5,426
                                                       19,728    18,971    16,660     14,873      14,463      13,158
Minority interests                                      2,840     2,808     2,696          –           –           –
Total equity                                           22,568    21,779    19,356     14,873      14,463      13,158
LIABILITIES
 Deposits of non-bank customers                       108,523   100,633    92,401     79,070      77,298      70,818
 Deposits and balances of banks                        14,362    10,958    12,009     12,408       9,674      10,495
 Due to subsidiaries                                        –         –         –      3,398       1,369       1,491
 Due to associates                                        173       119       122        116         118          93
 Trading portfolio liabilities                          1,832     2,016       917      1,789       2,016         917
 Derivative payables                                    4,076     3,918     5,798      3,840       3,767       5,538
 Other liabilities                                      3,405     3,215     2,832      1,012       1,011         730
 Current tax                                              737       607       544        328         269         309
 Deferred tax                                             991       946       560        119         120          40
 Debts issued                                           6,814     6,863     5,840      8,162       8,230       7,389
                                                      140,913   129,275   121,023    110,242     103,872      97,820
 Life assurance fund liabilities                       45,243    43,246    39,781          –           –           –
Total liabilities                                     186,156   172,521   160,804    110,242     103,872      97,820

Total equity and liabilities                          208,724   194,300   180,160    125,115     118,335     110,978

ASSETS
 Cash and placements with central banks                 9,208    13,171     7,153      4,990       8,160       3,351
 Singapore government treasury bills and securities    11,385    10,922    12,124     10,908      10,550      11,558
 Other government treasury bills and securities         6,581     5,564     4,871      3,232       2,744       1,103
 Placements with and loans to banks                    20,263    15,821    14,480     15,976      11,992      11,497
 Loans and bills receivable                            88,905    80,876    78,815     63,352      61,340      61,186
 Debt and equity securities                            12,875    11,680     9,414      8,707       7,786       6,324
 Assets pledged                                           159       279       312        133         267         312
 Assets held for sale                                       –         –         #          –           –           #
 Derivative receivables                                 4,136     3,973     5,400      3,816       3,770       4,984
 Other assets                                           3,144     2,911     2,758        636         689         684
 Deferred tax                                              59        64       130          1           5          25
 Associates and joint ventures                            265       226       140        105          56          14
 Subsidiaries                                               –         –         –     10,431       8,151       7,157
 Property, plant and equipment                          1,628     1,609     1,669        410         409         413
 Investment property                                      769       765       725        551         549         503
 Goodwill and intangible assets                         4,110     3,362     3,364      1,867       1,867       1,867
                                                      163,487   151,223   141,355    125,115     118,335     110,978
 Life assurance fund investment assets                 45,237    43,077    38,805          –           –           –
Total assets                                          208,724   194,300   180,160    125,115     118,335     110,978


Net Asset Value Per Ordinary Share
(before valuation surplus – S$)                          5.51      5.29      4.75       4.01        3.89        3.63
OFF-BALANCE SHEET ITEMS
 Contingent liabilities                                 7,741     7,314     7,392      6,723       6,458       6,404
 Commitments                                           55,422    43,093    46,449     39,332      34,899      37,508
 Derivative financial instruments                     408,533   355,210   380,379    378,393     335,535     359,624

Notes:
1. “#” represents amounts less than S$0.5 million.
2. “@” represents audited.




                                                                                    First Quarter 2010 Financial Results ▌ 25
STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
For the three months ended 31 March 2010

                                                           Attributable to equity holders of the Bank
GROUP                                                   Share Capital Fair value Revenue                           Minority Total
S$ million                                              capital reserves reserves reserves Total                  interests equity
Balance at 1 January 2010                               7,376       986         1,506        9,103     18,971        2,808       21,779
Total comprehensive income for the period                   –         –           (55)         791          736           81        817
Transfers                                                   –       (87)            –           87          –            –      –
Dividends to minority interests                             –         –             –            –          –          (49)   (49)
Share-based staff costs capitalised                         –         4             –            –          4            –      4
Shares vested under DSP Scheme                              –         8             –            –          8            –      8
Treasury shares transferred/sold                           37       (28)            –            –          9            –      9
Balance at 31 March 2010                                7,413       883         1,451        9,981     19,728        2,840 22,568
Included:
Share of reserves of associates
and joint ventures                                          –         –             #           33           33           (3)        30

Balance at 1 January 2009                               6,638     1,329           222        7,685     15,874        2,686       18,560
Total comprehensive income for the period                   –         –           158          616          774           59        833
Transfers                                                   –       (88)            –           88          –            –      –
Dividends to minority interests                             –         –             –            –          –          (49)   (49)
Share-based staff costs capitalised                         –         4             –            –          4            –      4
Shares vested under DSP Scheme                              –         8             –            –          8            –      8
Treasury shares transferred/sold                           20       (20)            –            –          #            –      #
Balance at 31 March 2009                                6,658     1,233           380        8,389     16,660        2,696 19,356
Included:
Share of reserves of associates
and joint ventures                                          –         3            (#)          36           39           (1)        38




BANK                                                             Share          Capital      Fair value      Revenue            Total
S$ million                                                       capital       reserves      reserves        reserves           equity
Balance at 1 January 2010                                           7,376           768              603          5,716          14,463

Total comprehensive income for the period                                  –             –           (18)          387              369
Transfers                                                               –           (85)               –             85               –
Share-based staff costs capitalised                                     –             4                –              –               4
Treasury shares transferred/sold                                       37             –                –              –              37
Balance at 31 March 2010                                            7,413           687              585          6,188          14,873

Balance at 1 January 2009                                           6,638         1,099               12          5,076          12,825
Total comprehensive income for the period                                  –             –            44           265              309
Transfers                                                               –           (85)               –             85               –
Share-based staff costs capitalised                                     –             4                –              –               4
Treasury shares transferred/sold                                       20             –                –              –              20
Balance at 31 March 2009                                            6,658         1,018               56          5,426          13,158
Note:
1.    “#” represents amounts less than S$0.5 million.




                                                                                                 First Quarter 2010 Financial Results ▌ 26
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
For the three months ended 31 March 2010
S$ million                                                                                  1Q10          1Q09
Cash flows from operating activities
Profit before income tax                                                                      846           725
Adjustments for non-cash items
 Amortisation of intangible assets                                                             12            12
 Allowances for loans and impairment of other assets                                           25           197
 Change in fair value for hedging transactions and trading securities                         (22)          (89)
 Depreciation of property, plant and equipment and investment property                         37            33
 Net gain on disposal of property, plant and equipment and investment property                 (#)           (#)
 Net (gain)/loss on disposal of government, debt and equity securities                        (65)           36
 Net gain on disposal of associates                                                            (2)            –
 Share-based staff costs                                                                        4             4
 Share of results of associates and joint ventures                                              #             #
 Items relating to life assurance fund
   Surplus before income tax                                                                  201           254
   Surplus transferred from life assurance fund                                              (146)         (266)
 Operating profit before change in operating assets and liabilities                           890           906
Change in operating assets and liabilities
  Deposits of non-bank customers                                                            1,948        (1,649)
  Deposits and balances of banks                                                            3,170         1,896
  Derivative payables and other liabilities                                                   247        (2,006)
  Trading portfolio liabilities                                                              (184)         (195)
  Government securities and treasury bills                                                   (618)       (3,010)
  Trading securities                                                                         (605)          410
  Placements with and loans to banks                                                       (2,401)        1,303
  Loans and bills receivable                                                               (3,292)          901
  Derivative receivables and other assets                                                    (387)        1,023
  Net change in investment assets and liabilities of life assurance fund                     (135)           88
Cash used in operating activities                                                          (1,367)         (333)
Income tax paid                                                                               (40)          (55)
Net cash used in operating activities                                                      (1,407)         (388)
Cash flows from investing activities
 Dividends from associates                                                                      #             #
 Increase in associates and joint ventures                                                    (45)           (6)
 Net cash outflow from acquisition of subsidiaries                                         (2,024)            –
 Purchases of debt and equity securities                                                   (1,582)         (311)
 Purchases of property, plant and equipment and investment property                           (39)          (38)
 Proceeds from disposal of debt and equity securities                                       1,103         1,066
 Proceeds from disposal of an associate                                                         7             –
 Proceeds from disposal of property, plant and equipment and investment property                2             1
Net cash (used in)/from investing activities                                               (2,578)          712
Cash flows from financing activities
 Dividends paid to minority interests                                                         (49)          (49)
 Decrease in debts issued                                                                     (46)         (222)
 Proceeds from treasury shares transferred/sold under
 the Bank’s employee share schemes                                                              9             1
Net cash used in financing activities                                                         (86)         (270)
Net currency translation adjustments                                                          108            71
Net change in cash and cash equivalents                                                   (3,963)           125
Cash and cash equivalents at beginning of period                                          13,171          7,028
Cash and cash equivalents at end of period                                                 9,208          7,153

Note:
1.      “#” represents amounts less than S$0.5 million.



                                                                                   First Quarter 2010 Financial Results ▌ 27
SHARE CAPITAL AND OPTIONS ON SHARES IN THE BANK
The following table shows movements in the issued ordinary shares of the Bank:

                                                                                 Three months ended 31 Mar
Number of Shares                                                                      2010            2009

Issued ordinary shares
Balance at beginning/end of period                                             3,245,120,283     3,126,565,512

Treasury shares
Balance at beginning of period                                                   (14,781,749)       (25,746,212)
  Shares sold/transferred to employees pursuant to OCBC Share Option Schemes       1,478,029            134,608
  Shares sold/transferred to employees pursuant to
  OCBC Employee Share Purchase Plan                                                   56,902                  –
  Shares transferred to DSP Trust pursuant to OCBC Deferred Share Plan             3,140,418          4,482,563
Balance at end of period                                                         (10,106,400)       (21,129,041)

Total                                                                          3,235,013,883     3,105,436,471



From 1 January 2010 to 31 March 2010 (both dates inclusive), the Bank utilised 1,478,029 treasury
shares upon the exercise of options by employees of the Group pursuant to OCBC Share Option
Schemes 1994 and 2001. As at 31 March 2010, the number of options outstanding under the OCBC
Share Option Schemes was 38,204,198 (31 March 2009: 42,852,492).

From 1 January 2010 to 31 March 2010 (both dates inclusive), the Bank utilised 56,902 treasury shares
upon the exercise of acquisition rights by employees of the Group pursuant to OCBC Employee Share
Purchase Plan (“ESPP”). As at 31 March 2010, the number of acquisition rights outstanding under the
OCBC ESPP was 8,201,174 (31 March 2009: 9,396,469).

From 1 January 2010 to 31 March 2010 (both dates inclusive), the Bank transferred 3,140,418 treasury
shares to the Trust administering OCBC Deferred Share Plan following the Bank’s award of deferred
shares to employees of the Group.

There was no share buyback in the first quarter ended 31 March 2010. No new preference shares were
allotted and issued by the Bank in the first quarter ended 31 March 2010.




                                                                                First Quarter 2010 Financial Results ▌ 28
OTHER MATTERS / SUBSEQUENT EVENTS

1.   On 28 April 2010, the Bank announced that for the purpose of the application of its Scrip Dividend
     Scheme to the final one-tier tax exempt dividend of 14 cents per ordinary share of the Bank for the
     financial year ended 31 December 2009 (“FY09 Final Dividend”), the price at which each new
     ordinary share of the Bank will be issued is S$7.94, being a 10% discount to the average of the last
     dealt prices of the Shares on the Singapore Exchange Securities Trading Limited during the price
     determination period between 23 April 2010 and 27 April 2010 (both dates inclusive).

     Holders of fully paid ordinary shares in the Bank as at 5.00 p.m. on 27 April 2010 (Books Closure
     Date) will have an option to elect to receive new ordinary shares in the Bank in lieu of the cash
     amount of the FY09 Final Dividend. Further details of the application of the Scheme to the FY09
     Final Dividend are set out in the Bank’s announcement dated 30 March 2010, which is available on
     www.sgx.com.




                                                                           First Quarter 2010 Financial Results ▌ 29
                                          APPENDIX II

            REPRODUCTION OF THE MACQUARIE BANK 2010 ANNUAL REPORT

The Macquarie Bank 2010 Annual Report is set out below. References to page numbers in this
Appendix are to page numbers of the Macquarie Bank 2010 Annual Report. Copies of the Macquarie
Bank 2010 Annual Report can be obtained at the office of Macquarie Capital Securities (Singapore)
Pte. Limited at 23 Church Street, 6th Floor, Capital Square, Singapore 049481, and viewed at
www.macquarie.com.au.
  MACQUARIE BAnk
  2010 AnnuAl RepoRt




Macquarie Bank LiMited acn 008 583 542
Macquarie Bank limited is        2010 Annual General Meeting              The Holey Dollar
a subsidiary of Macquarie        Macquarie Bank’s 2010 Annual             In 1813 Governor lachlan Macquarie overcame an
Group limited and is regulated   General Meeting will be held on          acute currency shortage by purchasing Spanish silver
by the Australian prudential     Friday, 30 July 2010 in the Macquarie    dollars (then worth five shillings), punching the centres
Regulation Authority (ApRA) as   Auditorium, level 3, no.1 Martin         out and creating two new coins – the ‘Holey Dollar’
an Authorised Deposit-taking     place, Sydney nSW after the              (valued at five shillings) and the ‘Dump’ (valued at one
Institution (ADI). Macquarie     Macquarie Group limited Annual           shilling and three pence).
Group limited is regulated       General Meeting, but not earlier         this single move not only doubled the number of coins
by ApRA as a non-operating       than 2:00pm.                             in circulation but increased their worth by 25 per cent
holding company of an ADI.       Details of the business of the           and prevented the coins leaving the colony. Governor
                                 meeting will be contained in the         Macquarie’s creation of the Holey Dollar was an
                                 notice of Annual General Meeting,        inspired solution to a difficult problem and for this
                                 to be sent to shareholders separately.   reason it was chosen as the symbol for Macquarie.
Macquarie Bank Limited and its subsidiaries   2010 Annual Report   macquarie.com.au

Macquarie Bank Limited
2010 Annual Report
Contents




Directors’ Report                                                                2
Directors’ Report Schedules                                                    50
Financial Report                                                               55
Directors’ Declaration                                                        161
Independent audit report                                                      162
Investor information                                                          164
Glossary                                                                      167




                                                                                      1
        Macquarie Bank Limited and its subsidiaries           2010 Annual Report                                   macquarie.com.au

        Directors’ Report
        for the financial year ended 31 March 2010




        In accordance with a resolution of the Voting Directors          Other than Mr Hawker, the Voting Directors listed
        (the Directors) of Macquarie Bank Limited (MBL or the            above each held office as a Voting Director of
        Bank), the Voting Directors submit herewith the income           Macquarie Bank throughout the financial year ended
        statements, statements of comprehensive income,                  31 March 2010. Those Voting Directors listed as
        statements of changes in equity and the statements of            Independent Directors have been independent
        cash flows for the year ended 31 March 2010 and the               throughout the period of their appointment.
        statements of financial position as at 31 March 2010
                                                                         Mr L.G. Cox was an Executive Voting Director from the
        of the Bank and its subsidiaries (consolidated entity) at
                                                                         beginning of the financial year until his retirement on
        the end of, and during, the financial year ended on that
                                                                         29 July 2009.
        date and report as follows:
                                                                         Details of the qualifications, experience and special
        Voting Directors                                                 responsibilities of the Voting Directors and qualifications
        At the date of this report, the Voting Directors of              and experience of the Company Secretaries at the
        Macquarie Bank are:                                              date of this report are set out in Schedule 1 at the end
                                                                         of this report.
        Non-Executive Voting Director
        D.S. Clarke, AO, Chairman1
        Executive Voting Directors
        W.R. Sheppard, Managing Director and Chief
        Executive Officer
        N.W. Moore
        Independent Voting Directors
        M.J. Hawker2
        P.M. Kirby
        C.B. Livingstone, AO
        H.K. McCann, AM3
        J.R. Niland, AC
        H.M. Nugent, AO
        P.H. Warne
    1
        On 31 August 2009, Mr Clarke resumed full duties
        as Chairman following a leave of absence which
        commenced on 27 November 2008.
    2
        Mr Hawker was appointed to the Board on 22 March
        2010.
    3
        Mr McCann was appointed Acting Chairman during
        Mr Clarke’s absence (from 27 November 2008 to
        30 August 2009).




2
    Directors’ meetings
    The number of meetings of the Board of Voting Directors of Macquarie Bank (the Board) and meetings of
    Committees of the Board, and the number of meetings attended by each of the Voting Directors during the
    financial year is summarised in the tables below:
    Board meetings
                                       Monthly Board meetings                     Special Board meetings
                                                 12                                         2
                                         Eligible to           Attended            Eligible to           Attended
                                             attend                                    attend
    D.S. Clarke1                                 12                    7                     2                   1
    W.R. Sheppard                                12                   12                     2                   1
    N.W. Moore                                   12                   12                     2                   2
    L.G. Cox2                                      3                   3                     -                   -
    M.J. Hawker3                                   1                   1                     -                   -
    P.M. Kirby                                   12                   11                     2                   2
    C.B. Livingstone                             12                   11                     2                   2
    H.K. McCann                                  12                   12                     2                   2
    J.R. Niland                                  12                   12                     2                   2
    H.M. Nugent                                  12                   12                     2                   2
    P.H. Warne                                   12                   12                     2                   2
1
    Mr Clarke was granted leave of absence from 27 November 2008 to 30 August 2009 due to illness. Since
    resuming full duties on 31 August 2009, Mr Clarke has attended all Board and Special Board meetings.
2
    Mr Cox retired as an Executive Voting Director on 29 July 2009.
3
    Mr Hawker was appointed to the Board as an Independent Voting Director on 22 March 2010.
    Board Committee meetings
                                     Board Audit and Compliance
                                        Committee meetings
                                                   8
                                        Eligible to
                                            attend         Attended
    D.S. Clarke                                   –               –
    W.R. Sheppard                                 –               –
    N.W. Moore                                    –               –
    L.G. Cox                                      –               –
    M.J. Hawker                                   –               –
    P.M. Kirby                                    8               8
    C.B. Livingstone                              8               8
    H.K. McCann                                   8               7
    J.R. Niland                                   –               –
    H.M. Nugent                                   –               –
    P.H. Warne                                    8               8
1
    These are meetings held by the Macquarie Group Limited (MGL) Board Audit and Compliance Committee (BACC).
    The MGL BACC assists the Boards of Voting Directors of MGL and MBL in fulfilling the responsibility for oversight
    of the quality and integrity of the accounting, financial reporting and compliance practices of Macquarie Group.




                                                                                                                       3
        Macquarie Bank Limited and its subsidiaries        2010 Annual Report                                   macquarie.com.au

        Directors’ Report
        for the financial year ended 31 March 2010
        continued




        Principal activities
        The principal activity of the consolidated entity during the financial year ended 31 March 2010 was to act as a full
        service financial services provider offering a range of commercial banking and retail financial services in Australia
        and selected financial services offshore. The Bank is a subsidiary of Macquarie Group Limited and is regulated
        by the Australian Prudential Regulation Authority (APRA) as an authorised deposit–taking institution (ADI). In the
        opinion of the Voting Directors, there were no significant changes to the principal activities of the consolidated
        entity during the financial year under review not otherwise disclosed in this report.
        Result
        The financial report for the financial years ended 31 March 2010 and 31 March 2009, and the results herein, have
        been prepared in accordance with Australian Accounting Standards.
        The consolidated profit from ordinary activities after income tax attributable to ordinary equity holders for the
        financial year ended 31 March 2010 was $663 million (2009: $576 million).
        Dividends and distributions
        MBL paid dividends and paid or provided distributions during the financial year as set out in the table below:

                                                                                        In respect of the
                                     Payment            Payment                         financial year
        Security                     date               type                          $ ended/period
        Ordinary shares              3 July 2009        Final Dividend      345,000,000 31 March 2009             Paid
                                     16 December 2009   Interim Dividend     35,000,000 31 March 2010             Paid

        Macquarie Income             15 April 2009      Periodic                 5,543,018 15 January 2009 to     Paid
        Securities1                                                                        14 April 2009
                                     15 July 2009       Periodic                 4,876,602 15 April 2009 to       Paid
                                                                                           14 July 2009
                                     15 October 2009    Periodic                 4,930,191 15 July 2009 to        Paid
                                                                                           14 October 2009
                                     15 January 2010    Periodic                 5,595,616 15 October 2009 to     Paid
                                                                                           14 January 2010
                                     15 April 2009      Periodic                 5,888,219 15 January 2010 to     Provided
                                                                                           31 March 2010
        Macquarie Income             15 April 2009      Periodic                22,252,535 16 October 2008 to     Paid
        Preferred Securities2                                                              15 April 2009
                                     15 October 2009    Periodic                15,960,054 16 April 2009 to       Paid
                                                                                           15 October 2009
                                     15 April 2010      Periodic                 1,975,706 16 October 2009 to     Provided
                                                                                           31 March 2010
    1
        Macquarie Income Securities (MIS) are stapled securities comprising an interest in a note, being an unsecured
        debt obligation of Macquarie Finance Limited (MFL), issued to a trustee on behalf of the holders of the MIS (MFL
        note) and a preference share in Macquarie Bank. The MIS are quoted on Australian Securities Exchange (ASX).
        The MIS distributions set out above represent payments made, or to be made, by MFL to MIS holders, in respect
        of the MFL note component of the MIS. The payments are not dividends or distributions paid or provided by
        Macquarie Bank to its members. The MIS are classified as equity under Australian Accounting Standards – see
        notes 31 and 32 to the financial report for further information on the MIS and MIS distributions.
    2
        Macquarie Income Preferred Securities (MIPS) are limited partnership interests in Macquarie Capital Funding LP
        (Partnership), a partnership established in Jersey as a limited partnership, that are traded on the Luxembourg
        Stock Exchange. In certain circumstances, preference shares issued by Macquarie Bank and held by the general
        partner of the Partnership may be substituted for the MIPS. The assets of the Partnership include convertible
        debentures issued by Macquarie Bank (acting through its London Branch) which are listed on the Channel
        Islands Stock Exchange. The MIPS distributions set out above represent payments made, or to be made, by the
        Partnership to the MIPS holders. The payments are not dividends or distributions paid or provided by MBL to its
        members. The MIPS are classified as equity under Australian Accounting Standards – see notes 31 and 32 to the
        financial report for further information on the MIPS and MIPS distributions.
        No other dividends or distributions were declared or paid during the financial year.
4
State of affairs                                          Financial Position
There were no other significant changes in the state       The consolidated entity’s liquidity risk management
of the affairs of the consolidated entity that occurred   framework operated effectively throughout the year
during the financial year under review not otherwise       ensuring funding requirements were met and sufficient
disclosed in this report.                                 liquidity was maintained, despite the challenging credit
                                                          market conditions. Cash and liquid assets decreased
Review of operations and financial result                  from $26 billion at 31 March 2009 to $20 billion at
The consolidated profit from ordinary activities after     31 March 2010. Cash and liquid asset holdings now
income tax attributable to ordinary equity holders of     represent over 34 per cent of the consolidated entity’s
the consolidated entity for the year ended 31 March       net funded assets.
2010 was $663 million, an increase of 15 per cent on
the prior year. This result was achieved despite the      The consolidated entity’s capital management policy
extremely challenging global markets and economic         is to be conservatively capitalised and to maintain
environment.                                              diversified funding sources in order to support
                                                          business initiatives, particularly specialised funds and
Net operating income for the year ended 31 March          offshore expansion, whilst maintaining counterparty
2010 was $3,652 million, an increase of 19 per cent       and client confidence.
on the prior year.
                                                          Macquarie Bank is subject to minimum capital
The year ended 31 March 2010 included significant          requirements externally imposed by APRA. Macquarie
write-downs, impairment charges, net equity               Bank has received APRA accreditation to adopt
accounted losses ($395 million), negative fair value      Foundation Internal Ratings Based Approach for the
adjustment on fixed rate issued debt ($255 million) and    calculation of credit risk capital and the Advanced
gains from liability management (Macquarie Income         Measurement Approach for operational risk, under
Preferred Securities, $127 million and subordinated       the Basel II regulatory capital framework. In addition,
debt, $55 million).                                       Macquarie Bank received APRA accreditation to use
                                                          an internal model to calculate Interest Rate Risk in the
Included within operating income is an amount
                                                          Banking Book.
recognised as a result of changes in the credit spread
on issued debt and subordinated debt carried at fair      The consolidated entity has met its externally
value of $255 million loss (2009: $274 million gain).     imposed capital requirements throughout the year.
In addition, the consolidated entity’s financing of the    The consolidated entity is well capitalised, and as at
acquisition of GBP157.5 million of MIPS contributed       31 March 2010, it had a Tier 1 capital ratio of 11.5 per
$127 million to operating income.                         cent and a total capital ratio of 13.3 per cent.
Operating expenses were up 18 per cent on the             Events subsequent to balance date
prior year to $2,890 million. Employment expenses,
                                                          Following approval by unitholders on 22 April 2010,
the largest contributor to operating expenses, were
                                                          investments in the Macquarie Cash Management
up 23 per cent on the prior corresponding period to
                                                          Trust (CMT) will be converted to an at call account
$1,089 million. The increase in employment expenses
                                                          with Macquarie Bank. The conversion is scheduled
was primarily driven by higher performance–related
                                                          to take place in July 2010. At the current time, total
profit share.
                                                          funds under management in the Macquarie CMT are
Return on equity for the year to 31 March 2010 was        $10 billion. The funds transferred to the consolidated
9.9 per cent.                                             entity will form part of the consolidated entity’s overall
                                                          funding pool.
Additional information relating to each of MBL’s
operating segments is set out in the Financial Report     At the date of this report, the Directors are not aware
on page 79-82.                                            of any other matter or circumstance which has arisen
                                                          that has significantly affected or may significantly
                                                          affect the operations of the consolidated entity, the
                                                          results of those operations or the state of affairs of the
                                                          consolidated entity in the financial years subsequent to
                                                          31 March 2010 not otherwise disclosed in this report.




                                                                                                                       5
    Macquarie Bank Limited and its subsidiaries        2010 Annual Report   macquarie.com.au

    Directors’ Report
    for the financial year ended 31 March 2010
    continued




    Likely developments in operations and expected
    outcomes
    While market conditions continue to improve,
    continuing uncertainty makes forecasting difficult.
    Subject to market conditions, for the year to 31 March
    2011 we currently expect improved operating results
    on the prior year for all of our businesses.
    The income statement for the year to 31 March 2011
    is likely to be characterised by fewer one-off items as
    seen in the second half of this year; a compensation
    ratio consistent with historical levels, continued higher
    cost of funding reflecting market conditions and high
    liquidity levels including the recent CMT/CMA initiative.
    The balance sheet in the 31 March 2011 financial year
    is likely to be characterised by high cash balances as
    a result of the CMT/CMA initiative, which we anticipate
    will continue to be deployed across the businesses,
    and a level of equity investments at or below existing
    levels.
    In addition to market conditions, the result for the year
    to 31 March 2011 remains subject to a range of other
    challenges, including: increased competition across
    all markets; the cost of maintaining our continued
    conservative approach to funding and capital and
    proposed regulatory reform which has the potential to
    impact flows to capital markets.
    Over the medium term, we remain well placed due
    to the global depth and reach of our businesses,
    the diversification of our business mix, our strong
    committed team with interests aligned to shareholders,
    our strong balance sheet, capital and funding position
    and effective risk management.
    Subject to the continuation of increasing economic
    activity across major markets, we expect continued
    growth in revenue and earnings across most
    businesses over time and continued growth in our
    businesses driven by further expansion of our strong
    client franchise.




6
Directors’ Report — Remuneration Report
for the financial year ended 31 March 2010




Introduction                                                                                                     8
1   Macquarie’s remuneration framework has remained robust despite unprecedented change
    in financial markets                                                                                          9
    1.1    Global financial markets have seen unprecedented change                                                9
           1.1.1 Governments and regulators reviewed remuneration arrangements and the industry
                   landscape has been reshaped following the global financial crisis                             10
           1.1.2 The composition of remuneration has significantly changed with some major
                   themes emerging                                                                              10
           1.1.3 Governance expectations have significantly increased                                            11
    1.2    Macquarie’s underlying remuneration framework remains robust                                         11
2   While Macquarie’s underlying principles remain unchanged, its remuneration arrangements have been
    enhanced to further align staff and shareholders interests and to continue to be in line with or ahead of
    leading practice                                                                                            11
    2.1    The remuneration structure continues to emphasise performance-based remuneration                     14
    2.2    Remuneration is linked to the drivers of shareholder returns                                         16
    2.3    Direct long-term alignment with shareholder interests is emphasised                                  18
           2.3.1 Transitional arrangements                                                                      19
           2.3.2 Profit share arrangements – delivery of profit share                                             19
           2.3.3 Investment of retained profit share                                                             19
           2.3.4 Income on invested retained profit share                                                        21
           2.3.5 Release of retained profit share – normal vesting                                               21
           2.3.6 Early vesting and release of retained profit share                                              21
           2.3.7 Disqualifying events - clawback                                                                22
           2.3.8 Tax events                                                                                     22
           2.3.9 Minimum shareholding requirement for Executive Directors                                       23
           2.3.10 Other equity arrangements - Staff share plans encourage broader staff equity participation    23
    2.4    Options, while discontinued, remain outstanding                                                      24
           2.4.1 General terms of option arrangements                                                           24
           2.4.2 Performance hurdles for Executive Director options                                             24
    2.5    Performance share units (PSUs) have been substituted for options for Executive Committee
           members only                                                                                         25
           2.5.1 Determination and allocation of the PSUs                                                       25
           2.5.2 Vesting Schedule                                                                               25
           2.5.3 Performance hurdles for Executive Committee PSUs                                               25
    2.6    No special contractual termination payments are made                                                 27
3   Remuneration arrangements are delivering results, although comparisons are difficult because of
    the changes                                                                                                 28
4   Strong governance has been exercised                                                                        28
    4.1    Strong Board oversight exists to ensure sound overall remuneration governance                        28
    4.2    Risk is assessed as part of the profit share allocation process                                       30
    4.3    An independent remuneration review has been undertaken                                               31
5   Non-Executive Directors continue to be recognised for their role                                            32
    5.1    Non-Executive Director remuneration policy                                                           32
    5.2    Board and Committee fees                                                                             32
    5.3    Minimum shareholding requirement for Non-Executive Directors                                         33
Appendices                                                                                                      36


                                                                                                                     7
    Macquarie Bank Limited and its subsidiaries      2010 Annual Report                                  macquarie.com.au

    Directors’ Report — Remuneration Report
    for the financial year ended 31 March 2010
    continued




    Introduction                                                This Remuneration Report has been prepared in
    Macquarie’s remuneration strategy is designed               accordance with the Corporations Act 2001 (Cth)
    to ensure our people are focused on generating              (the Act). The Report contains disclosures as required
    outstanding shareholder value over the long-term and        by Accounting Standard AASB 124 Related Party
    are rewarded in line with the outcomes they achieve.        Disclosures as permitted by Corporations Regulation
    This broad strategy has been in place since the             2M.3.03.
    inception of Macquarie, evolving over time to ensure        Financial information is used extensively in this Report.
    the system continues to meet its overriding objectives.     Some long-term trend information is presented,
    Macquarie Bank Limited (Macquarie Bank) is a                although accounting standards and practices have
    wholly owned subsidiary of Macquarie Group Limited          changed over time. In particular, throughout this
    (Macquarie). Whilst subject to the remuneration             Report:
    framework determined by Macquarie, Macquarie                — financial information for Macquarie Bank relating to
    Bank Limited’s Board considers remuneration                    the years ended 31 March 2006, 31 March 2007,
    recommendations relating to the senior executives              31 March 2008, 31 March 2009 and 31 March
    of Macquarie Bank. Throughout this Remuneration                2010 has been presented in accordance with
    Report, for consistency, references are made to                Australian Accounting Standards equivalent to
    Macquarie’s remuneration arrangements rather than              International Financial Reporting Standards (AIFRS)
    Macquarie Bank’s remuneration arrangements.                 — financial information for Macquarie Bank relating to
    Macquarie Group Limited’s Board of Directors                   the year ended 31 March 2005 has been restated
    oversees Macquarie’s remuneration arrangements,                in accordance with AIFRS, with the exception of
    including executive remuneration and the remuneration          AASB 132 Financial Instruments: Presentation and
    of Non-Executive Voting Directors. This Board and the          AASB 139 Financial Instruments: Recognition and
    Board Remuneration Committee (BRC) annually review             Measurement, which became effective from 1 April
    the remuneration strategy to ensure the best outcomes          2005
    are delivered for Macquarie and its shareholders.           — financial information for Macquarie Bank relating
    Following this year’s review the Macquarie Group               to earlier periods has not been restated in
    Limited Board’s view is that:                                  accordance with AIFRS, and is, therefore, presented
    In the difficult financial markets of the past year,             in accordance with the Australian Accounting
    Macquarie’s consistent approach to remuneration                Standards prevailing at the time.
    continues to deliver long-term shareholder returns
    by ensuring continued alignment with the interests
    of staff and shareholders while attracting and
    retaining high quality people. These outcomes
    have been achieved because:
    1 Macquarie’s remuneration framework has remained
        robust despite unprecedented change in financial
        markets
    2 While the underlying principles remain unchanged,
        Macquarie’s remuneration arrangements have been
        enhanced to further align staff and shareholders’
        interests and to remain in line with or ahead of
        leading practice
    3 Macquarie’s remuneration arrangements are
        delivering results, although comparisons are more
        difficult because of the changes
    4 Strong corporate governance has been exercised
        and
    5 Non-Executive Directors continue to be recognised
        for their role.
    These points are discussed in detail in sections one to
    five of this Remuneration Report.




8
1       Macquarie’s remuneration framework has remained robust despite unprecedented change in financial
        markets
Significant changes in global financial markets resulted in remuneration practices, particularly in the financial services
industry, coming under scrutiny from governments and regulators. These changes are still unfolding in jurisdictions around
the world. In this context, the Macquarie remuneration approach remains robust.
1.1    Global financial markets have seen unprecedented change
1.1.1 Governments and regulators reviewed remuneration arrangements and the industry landscape has been
      reshaped following the global financial crisis

             2008                         2009 – January                     2009 – February                        2009 – April
JP Morgan Chase acquired Bear      Many US financial institutions       FSA (UK) first regulator to           Financial Stability Board (FSB)
Stearns following its collapse,    start receiving significant US       publish a draft Code of Practice     published its principles for
Bank of America acquired Merrill   Treasury cash infusions under       (Code) on remuneration policies      sound compensation practices
Lynch                              Troubled Asset Relief Program       The Code’s overriding                which were endorsed by the
Lehman Brothers filed for           (TARP) - including Goldman          General Principle: Firms must        G20 leaders. Principles were
bankruptcy with most of its        Sachs, Morgan Stanley,              establish, implement and             intended to reduce incentives
investment banking and trading     Citigroup and JP Morgan Chase       maintain remuneration policies,      towards excessive risk taking
businesses sold to Barclays        Several major European              procedures and practices that
Babcock & Brown placed in          institutions receive assistance     are consistent with effective risk
voluntary administration           from relevant governments,          management
                                   including Royal Bank of
Widespread redundancies            Scotland and UBS
by global investment banks
commence, continuing well into
2009 - many relate to closure of
non-core businesses

                                                                             2009 – October
         2009 – May                  2009 – June to August                                                       2009 – December
                                                                              to November
Australian Prudential Regulation   Regulators in other countries       Application of FSB principles        Final Productivity Commission
Authority (APRA) releases first     including Hong Kong, France         through the US Federal Reserve       report makes recommendations
draft of the revised Prudential    and Switzerland release             Bank                                 in relation to governance
Standard APS 510 and               guidelines in line with FSB’s                                            and accountability of boards
                                                                       Final APRA standard published
accompanying guidance,             principles                                                               regarding remuneration matters
                                                                       - implementation date of
Prudential Practice Guide PPG      Final FSA Code on                                                        Australian Government changes
511                                                                    1 April 2010
                                   remuneration policies published                                          to taxation of employee share
Australian Government requests                                         Australian Government                schemes enacted in legislation,
Productivity Commission                                                legislation passed by                reducing the concessional tax
undertake a review into                                                Parliament, significantly             treatment available for employee
executive remuneration                                                 reducing amount of executive         share plans
Australian Government puts                                             termination benefits which
                                                                                                            US - The Wall Street Reform
forward legislation relating to                                        can be paid without obtaining        and Consumer Protection Act -
executive termination benefits                                          shareholder approval, to the         requiring an annual say-on-pay,
                                                                       equivalent of one year’s base        golden parachutes vote, and
Australian Government
                                                                       salary for relevant executives       new compensation committee
announces changes to the
taxation of employee share                                             UK Government examination            requirements
schemes                                                                of corporate governance              UK announced an employer-
UK Government commissions                                              in the financial services             paid tax of 50 per cent on
examination of corporate                                               industry published - number          bankers’ bonuses greater than
governance in the financial                                             of recommendations relate            £25,000 paid before 5 April
services industry                                                      to remuneration and broadly          2010
                                                                       mirror FSA Code

                                                             2010 to date
April 2010, Australian Government released response to final Productivity Commission report on executive remuneration
March 2010, UK Government publishes draft regulations under the Financial Services Bill to apply from the 2010 reporting year, including
mandatory disclosure for all executives receiving greater than £500,000, disclosed in bands of £500,000 up to £5 million and thereafter in
£1 million bands




                                                                                                                                          9
     Macquarie Bank Limited and its subsidiaries        2010 Annual Report                                  macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     Despite the difficult conditions at the beginning of           1.1.3 Governance expectations have significantly
     2009, many financial services firms recovered during                    increased
     the year as reflected in their financial results, increasing    One of the more significant impacts of the government
     their ability to offer more compelling pay packages           and regulator-driven change has been the increase in
     and their desire to rebuild businesses. Some of the           governance expectations for boards and remuneration
     US banks began to repay their TARP cash injections,           committees.
     therefore removing themselves from government                 The APRA prudential standards require increased
     restrictions as well as from the public spotlight on          scrutiny by boards and remuneration committees,
     compensation. These banks were then able to offer             including the requirement that boards approve a
     more competitive compensation packages. The                   company’s remuneration policy.
     perception by many financial institutions of a unique
     window for recruiting talent, building businesses and         The Federal Government has indicated that it intends
     increasing market share also placed significant upward         to implement many of the Productivity Commission’s
     pressure on remuneration levels. The recruitment              recommendations, and further strengthen several of
     market strengthened, particularly at the top executive        the Productivity Commission’s proposals by expanding
     end of the market where high performers found several         their scope, coverage and enforceability.
     opportunities on offer. This has resulted in intense          With the significant reduction in executive termination
     competition across the globe for proven talent. This          benefits which can be paid without obtaining
     competition for talent is arguably the most intense           shareholder approval, boards will likely become more
     witnessed in Macquarie’s history.                             mindful of the termination benefits restrictions that
     1.1.2 The composition of remuneration has                     impose criminal sanctions on directors and officers
             significantly changed with some major                  who receive termination benefits in contravention of the
             themes emerging                                       restrictions as well as the company that provides the
     The major themes emerging in the current                      benefit and the company officers involved.
     remuneration environment reflect a greater desire to           1.2     Macquarie’s underlying remuneration
     manage the behaviour between risk and return. These                   framework remains robust
     themes are:                                                   In the difficult financial markets of the past year,
     — bonuses are based on profits not revenue, and on             Macquarie’s underlying remuneration framework has
        risk-adjusted capital                                      remained robust and has contributed to Macquarie’s
     — a higher percentage of performance-based                    resilience relative to peers. It has also contributed to
        remuneration is being deferred                             Macquarie’s long-term success in growing earnings.
                                                                   That approach, and its consistency over time, has
     — a higher proportion of retained performance-based           served shareholders well during recent times, as well
        remuneration is being delivered in equity                  as over the longer term. The Board believes that this
     — options are being used less frequently, being               continues to be the right approach.
        replaced by other forms of equity such as restricted       The overarching objective of Macquarie’s remuneration
        stock                                                      framework is to drive superior shareholder returns over
     — clawback practices are being implemented                    the long-term while managing risk in a prudent fashion.
     — the fixed remuneration component for risk and                This is delivered through two key drivers. The first is
        finance staff has increased.                                to attract and retain high quality people by offering
     Macquarie’s old remuneration arrangements reflected            a competitive performance-driven remuneration
     these themes, and with the changes approved by                package that encourages both long-term commitment
     shareholders in December 2009, these themes are               and superior performance. The second key driver
     featured to an even greater extent.                           is to use remuneration to align the interests of staff
                                                                   and shareholders by motivating staff through its
                                                                   remuneration policies to increase Macquarie’s net profit
                                                                   after tax (NPAT) and sustain a high relative return on
                                                                   equity (ROE) while managing risk.




10
The principles that underpin Macquarie’s remuneration        2   While Macquarie’s underlying principles remain
framework are unchanged:                                         unchanged, its remuneration arrangements
— emphasising performance-based remuneration                     have been enhanced to further align staff and
   with an appropriate balance between short and                 shareholders interests and to continue to be in
   longer-term incentives having regard to risk (refer           line with or ahead of leading practice
   section 2.1)                                              Changes to Macquarie’s remuneration arrangements
— linking rewards to create sustainable shareholder          were approved by shareholders in December 2009.
   value through the use of shareholder return drivers,      Whilst the remuneration approach is robust, to ensure
   namely profitability and returns in excess of the cost     ongoing long-term alignment with shareholders and
   of capital (refer section 2.2)                            staff retention, Macquarie announced proposed
— using equity to create alignment with shareholder          changes to its remuneration arrangements on
   interests (refer section 2.3)                             31 March 2009. The changes also reflected global
— designing retention mechanisms to encourage a              remuneration and regulatory trends. Further details
   long-term perspective and hence alignment with            of the March proposal were announced on 1 May
   shareholders (refer section 2.3.2 to 2.3.7)               2009, with a view to seeking shareholder approval at
                                                             the 2009 Annual General Meeting (2009 AGM). The
— using broadly consistent arrangements over time to         Board subsequently deferred the proposals following
   ensure staff are confident that efforts over multiple      foreshadowed legislative changes announced by the
   years will be rewarded (refer section 2.3)                Australian Government. While the legislation was not
— ensuring arrangements are competitive on a                 yet finalised, in the interests of reducing uncertainty
   global basis with Macquarie’s international peers         for shareholders and staff, Macquarie considered that
   (refer discussion in section 1.1.1 in regards to the      adequate clarity existed to progress its proposals,
   competitive environment).                                 and announced modifications to its March 2009
                                                             proposals on 31 October 2009. Macquarie sought and
                                                             obtained shareholder approval at a General Meeting
                                                             on 17 December 2009. The revised remuneration
                                                             arrangements took effect for the 2009 financial year
                                                             and are as follows:
                                                             — less profit share is delivered as cash
                                                             — more profit share is being deferred
                                                             — more retained profit share is held as equity
                                                             — options have been replaced by Performance Share
                                                                 Units (PSU’s) and awarded to the most senior
                                                                 people only
                                                             — retention arrangements have been strengthened
                                                             — more onerous conditions have been introduced
                                                                 around the release of retained profit share on
                                                                 termination.

Key elements of the remuneration framework

                                  Align interests of staff         1 Emphasise performance-based
                                    and shareholders                 remuneration
                                                                   2 Use shareholder return drivers
     Drive long-term                                               3 Use equity
                                                                                                    Creating a
   shareholder returns                                             4 Use retention mechanisms
                                                                                                    long-term
                                                                   5 Provide consistency to create  focus
                                                                     staff confidence
                                    Attract and retain             6 Provide competitive
                                   high quality people               remuneration

The next section of the Remuneration Report discusses how Macquarie enhanced its remuneration arrangements
to further align staff and shareholders interests.




                                                                                                                      11
     Macquarie Bank Limited and its subsidiaries     2010 Annual Report                                 macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     Full details of Macquarie’s remuneration arrangements are set out in the remainder of this section.
     The following table shows how Macquarie’s remuneration arrangements relate to the remuneration principles
     referred to on the previous page.
     Link between the remuneration principles and the remuneration arrangements
      Principle                Features of the remuneration system
      1 There is an emphasis — Profit share allocations are highly variable
         on performance-       — Performance-based remuneration can comprise a high proportion of total
         based remuneration      remuneration in the case of superior performance (approximately 94 per cent in the
         with an appropriate     case of the Managing Director and Chief Executive Officer)
         balance between       — Profit share allocations and PSU grants for Executive Committee members provide
         short and longer-       substantial incentives for superior performance, but low or no participation for less
         term incentives         satisfactory performance
         having regard to risk — The CRO advises the BRC on risk management issues
         (Refer discussion in — The CRO and CFO advise the BRC on the risk input into the determination of the
         section 2.1)            profit share pool, such as the cost of equity capital to be used in the profit share
                                 pool calculation
      2 Rewards are linked     — The overall profit share pool is determined annually by reference to Macquarie’s
         to sustainable          after-tax profits and its earnings over and above the estimated cost of capital
         shareholder value     — The allocation of the pool to individual businesses, and in turn to individuals, is
         through the use of      based primarily, but not exclusively, on relative contribution to profits, taking into
         shareholder return      account capital usage and other factors including specific risk factors. Performance
         drivers, namely         looks at a range of factors including risk management, governance and compliance,
         profitability and        people leadership and upholding Macquarie’s Goals and Values
         returns in excess of — Earnings per share and ROE are used as performance hurdles for Executive
         the cost of capital     Committee PSUs
         (Refer discussion in — ROE is used as the performance hurdle for Executive Director options granted
         section 2.2)            under the old remuneration arangements
      3 Equity is used to      — For Executive Directors, retained profit share is invested in a combination of
         provide rewards to      Macquarie shares and notionally in Macquarie-managed fund equity. The investment
         create alignment        mix varies depending on an individual’s role
         with shareholder      — For other staff, retained profit share is invested in Macquarie shares
         interests             — PSU grants with performance hurdles are granted to Executive Committee
         (Refer discussion in    members
         section 2.3)          — Grants of Macquarie shares may be made to staff being hired or promoted
                               — Executive Directors are required to acquire and hold a minimum number of shares
                                 calculated based on their profit share. This is satisfied through the new equity
                                 arangements
                               — Staff share plans are available to encourage broader staff equity participation
      4 Retention              — For Executive Committee members and Designated Executive Directors, 50 per
         mechanisms              cent (55 per cent for Managing Director and Chief Executive Officer) of annual profit
         encourage a long-       share is retained, and vests and is released from years three to seven
         term perspective      — For other Executive Directors, 50 per cent of 2009 annual profit share is retained,
         and hence alignment     and vests and is released from years three to seven. From 2010, 40 per cent is
         with shareholders       retained, and vests and is released from years three to five
         (Refer discussion     — Time based vesting rules with hurdles apply to Executive Committee PSUs
         in section 2.3.2 to
         2.3.7)




12
Principle                 Features of the remuneration system
5 Arrangements            — Macquarie’s remuneration approach has been in place since it was founded with
   provide consistency      only incremental changes over time as appropriate
   over time to
   ensure staff have
   the confidence
   that efforts over
   multiple years will be
   rewarded
  (Refer discussion in
  section 2.3)
6 Arrangements are         — The Board reviews the remuneration arrangements at least annually to ensure that
  competitive on a           they are equitable and competitive
  global basis with        — The compensation ratio is used as a general guide to consideration of the overall
  international peers        competitiveness of remuneration levels, but is not the basis on which the profit
    (Refer discussion in     share pool is created
    section 3)


The primary focus of section 2 is on Executive Director remuneration, in particular, Executive Committee
members. However, comments are made in relation to other staff where relevant. Macquarie Bank’s Executive
Committee has responsibility for the management of Macquarie Bank as delegated by the Macquarie Bank Board,
and is made up of a central group comprising the Macquarie Group Managing Director and Chief Executive
Officer, the Macquarie Bank Managing Director and Chief Executive Officer, the CRO, the CFO and the heads of
Macquarie Bank’s major Operating Groups. The current members of the Executive Committee are identified in
Appendix 1.
The remainder of this section discusses the remuneration structure and its individual components in greater detail.
Specifically, it describes how the remuneration system:
— emphasises performance-based remuneration (refer section 2.1)
— links the quantum of an individual’s annual performance-based remuneration to the individual’s contribution to
  shareholder return drivers (refer section 2.2)
— delivers remuneration in a manner which ensures that employees have a direct long-term alignment with
  shareholder interests which encourages appropriate management of risk (refer section 2.3).




                                                                                                                      13
         Macquarie Bank Limited and its subsidiaries        2010 Annual Report                                 macquarie.com.au

         Directors’ Report — Remuneration Report
         for the financial year ended 31 March 2010
         continued




         2.1     The remuneration structure continues to emphasise performance-based remuneration
         The foundation of Macquarie’s remuneration structure continues to be an emphasis on performance-based
         remuneration. In line with regulatory sentiment and competitive market conditions, the ‘pay mix’ for certain risk
         and finance personnel was reviewed and where appropriate, fixed remuneration is being increased to ensure a
         more appropriate balance between fixed and variable compensation. The base pay of other executives continues
         to be reviewed in line with overall market conditions.
         Despite these increases, levels of fixed remuneration remain relatively low with the emphasis being on
         performance-based remuneration. For other Executive Directors, fixed remuneration can be relatively low or
         modest compared with similar roles in non-investment banking organisations. Fixed remuneration generally
         includes cash salary as well as non-cash benefits, primarily superannuation and nominated benefits, including
         those provided on a salary sacrifice basis. (Salary sacrifice is calculated on a total cost basis and includes any
         fringe benefit tax charges related to employee benefits).
         The following table summarises the current performance-based remuneration arrangements:

                                  Executive Committee and                                           Staff other than
         Key Area                 Designated Executive Directors1    Other Executive Directors      Executive Directors
         Amount of profit          50 per cent (55 per cent for the   50 per cent (for profit share   25 per cent above
         share retained           Macquarie Group Managing           retained in 2009) and 40 per   certain thresholds
                                  Director and Chief Executive       cent from 2010
                                  Officer)
         How retained             Invested in a combination of       Invested in a combination      Invested in Macquarie
         profit share is           Macquarie shares and Macquarie-    of Macquarie shares and        shares
         invested                 managed fund equity notionally     Macquarie-managed fund
                                  invested                           equity notionally invested
                             Investment mix will vary depending Investment mix will vary
                             on an individual’s role                 depending on an individual’s
                                                                     role
         Vesting and         All retained amounts vest and are All retained amounts vest              Vesting and release
         release of retained released from three to seven years and are released from three occurs two to four years
         profit share         after the year retained (see also       to seven years after the year after the year retained
                             forfeiture below)                       retained (for profit share
                                                                     retained in 2009) and from
                                                                     three to five years for profit
                                                                     share retained from 2010
                                                                     (see also forfeiture below)
         Forfeiture of       Unvested amounts are forfeited          Unvested amounts are             Unvested amounts
         retained profit      except in the case of death,            forfeited except in the          are forfeited except
         share on leaving    permanent disability, genuine           case of death, permanent         in the case of death,
                             retirement, redundancy and other disability, genuine retirement, permanent disability,
                             limited exceptional circumstances redundancy and other limited genuine retirement,
                                                                     exceptional circumstances        redundancy and other
                             Retained profit share is forfeited
                                                                                                      limited exceptional
                             in stages if a “disqualifying event” Retained profit share is
                                                                                                      circumstances
                             occurs within two years of leaving forfeited in stages if a
                                                                     “disqualifying event” occurs
                                                                     within two years of leaving
         Other               PSUs granted to Executive               N/A                              N/A
                             Committee members
         Minimum             Required to hold the deemed             Required to hold the deemed
         Shareholding        after-tax equivalent of 10 per cent after-tax equivalent of 10 per
         Requirement         of all of their profit share allocations cent of all of their profit share
                             over the last 10 years in Macquarie allocations over the last five
                             shares (which is satisfied by the        years in Macquarie shares
                             above requirements)                     (which is satisfied by the
                                                                     above requirements)
     1
         Executive Directors who are members of the Operations Review Committee and others who have a significant
         management or risk responsibility in the organisation.
14
    Old performance-based remuneration arrangements1
                        Executive Committee
                        (including Managing Director and                                  Staff other than
    Key Area            Chief Executive Officer)            Other Executive Directors      Executive Directors
    Amount of profit     40 per cent (55 per cent           20 per cent                    25 per cent above certain
    share retained      for the Macquarie Group                                           thresholds
                        Managing Director and Chief
                        Executive Officer)
    How retained        20 per cent is invested            20 per cent is invested        Held in cash
    profit share is      in a notional portfolio of         in a notional portfolio of
    invested            Macquarie-managed funds            Macquarie-managed funds
                        and cash under the DPS Plan        and cash under the DPS
                                                           Plan
                        20 per cent (35 per cent for
                        the Managing Director and
                        Chief Executive Officer) is
                        held in the form of Macquarie
                        shares
    Vesting and         DPS Plan amounts begin to          DPS Plan amounts begin to Vesting and release occurs
    release of retained vest after five years of service    vest after five years of service two to four years after the
    profit share         as an Executive Director and       as an Executive Director and year retained
                        fully vest after 10 years          fully vest after 10 years
                        Amounts are released in            Amounts are released in
                        cash 10 years after the year       cash 10 years after the year
                        retained or earlier if they        retained or earlier if they
                        leave employment (see also         leave employment (see also
                        forfeiture below)                  forfeiture below)
                        Macquarie shares released
                        after three years from date
                        shares acquired
    Forfeiture of       Unvested amounts in the DPS Unvested amounts in the           Unvested amounts are
    retained profit      Plan are forfeited except in   DPS Plan are forfeited except forfeited except on the
    share on leaving    limited circumstances          in limited circumstances       grounds of redundancy,
                                                                                      death, total and permanent
                        Retained profit share is        Retained profit share is
                                                                                      disability and other limited
                        forfeited if a “disqualifying  forfeited if a “disqualifying
                                                                                      exceptional circumstances
                        event” occurs within six       event” occurs within six
                        months of leaving              months of leaving
    Other               Options granted                Options granted                Options granted to Division
                                                                                      Directors and Associate
                                                                                      Directors
    Minimum             Required to hold the deemed Required to hold the deemed
    Shareholding        after-tax equivalent of 10 per after-tax equivalent of 10 per
    Requirement         cent of all their profit share  cent of all their profit share
                        allocations over the last      allocations over the last five
                        10 years in Macquarie shares years in Macquarie shares
1
    They were disclosed as current in the 2009 Remuneration Report. These arrangements are reflected in the prior
    year comparative data in the Executive Remuneration disclosure in Appendix 2.




                                                                                                                         15
     Macquarie Bank Limited and its subsidiaries        2010 Annual Report                                     macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     2.2       Remuneration is linked to the drivers of            Overview of profit share arrangements
               shareholder returns                                 The profit share arrangements are designed to
     For most Executive Directors, the largest component           encourage superior performance by motivating
     of their remuneration is delivered as an annual profit         executives to focus on maximising earnings and
     share allocation, based on their performance over the         ROE, while having appropriate regard for risk, thereby
     year. Macquarie’s approach to measuring performance           driving long-term shareholder returns. A Macquarie-
     for the purpose of determining annual profit share             wide profit sharing pool is created at the corporate
     is to utilise Macquarie Group financial performance            level. Substantial incentives are offered in relation to
     measures which are known to be drivers of long-               superior profitability, but low or no participation for less
     term shareholder returns. They are NPAT and ROE.              satisfactory performance.
     Executives have greater “line of sight” over these            Determination of the profit share pool
     measures. In the short term, share price fluctuations
                                                                   The size of the Macquarie profit share pool is
     can be driven by a variety of factors, including market
                                                                   determined annually by reference to Macquarie’s
     sentiment over which executives may have very
                                                                   after-tax profits and its earnings over and above the
     little control. Therefore, Total Shareholder Return
                                                                   estimated cost of capital. A portion of Macquarie’s
     (TSR), whether absolute or relative, is not regarded
                                                                   profits earned accrues to the staff profit share pool.
     as a satisfactory measure in assessing performance
                                                                   Once the cost of equity capital is met, an additional
     over just one year. Globally, regulators have recently
                                                                   portion of the excess profits is accrued to the profit
     recognised this.
                                                                   share pool. The methodology used to calculate the
     Macquarie’s NPAT and ROE were selected as the most            profit share pool is reviewed at least annually by
     appropriate performance measures for the following            the BRC and the Non-Executive Directors of the
     reasons:                                                      Macquarie Board, including:
     — they are correlated over time with total shareholder        — the proportion of after-tax profit and the proportion
          returns                                                     of earnings in excess of Macquarie’s cost of equity
     — they provide an appropriate incentive because                  capital used to calculate the pool
          they are elements of performance over which the          — the cost of equity capital and the tax rate.
          executives can exercise considerable control. TSR,
                                                                   As part of this review, the CRO and the CFO advise the
          on the other hand, is influenced by many external
                                                                   BRC on the risk input into the calculation of the profit
          factors over which executives have limited control
                                                                   share pool.
     — both measures can be substantiated using
                                                                   The Non-Executive Directors of the Macquarie Board
          information that is disclosed in audited financial
                                                                   have discretions:
          accounts, providing confidence in the integrity of the
          remuneration system from the perspective of both         — to change the quantum of the pool to reflect internal
          shareholders and staff.                                     or external factors if deemed in the interests of
                                                                      Macquarie and shareholders
     These two drivers motivate staff to expand existing
     businesses and establish promising new activities. The        — to defer the payment of profit share amounts
     use of ROE to measure excess returns - ROE relative              to a subsequent year at a Macquarie business
     to the cost of equity capital - creates a particularly           or individual level where it is in the interests of
     strong incentive for staff to ensure that capital is used        Macquarie and shareholders to do so.
     efficiently, while having regard to risk. Therefore, the       This year, the Non-Executive Directors of the
     use of these two measures, in combination, results            Macquarie Board have exercised their discretion in
     in appropriate outcomes for Macquarie Group                   relation to changing the quantum of the pool.
     shareholders.
     ROE is also one of the two measures enshrined in the
     performance hurdle applicable on PSUs for Executive
     Committee members (refer section 2.5.3).
     Notwithstanding these factors, other qualitative
     measures are also used in assessing performance.




16
Allocation of the profit share pool                           The BRC reviews the allocation of the profit share
Allocation of the pool to businesses is based on             pool to the central Risk Management Group and
performance, primarily, but not exclusively, reflecting       central Finance function. It also annually recommends
relative contributions to profits (not revenue) while         to the Board, remuneration for all risk management
taking into account capital usage. It also takes             and finance staff as a total category, in addition to
into account other risk factors such as operational          specific recommendations for the CFO, CRO and other
incidents and the risk profiles of the businesses, as         Executive Directors with a risk management or financial
identified by the CRO to the BRC.                             control role.
An individual’s profit share allocation is based on           Arrangements are also in place to ensure that
performance, measured primarily through the                  performance-based remuneration is appropriately
performance appraisal process that requires all staff        allocated to the individuals who contributed to
to have at least one formal appraisal session with their     particular transactions. Therefore, businesses may
manager each year.                                           further recognise cross-divisional contributions by
                                                             allocating part of their profit share pool to individuals
Performance criteria vary according to an individual’s
                                                             in other areas of Macquarie who have contributed
role. Performance is linked where possible to
                                                             strongly to their success.
outcomes that contribute directly to NPAT and excess
ROE. Capital usage is important as it factors in the         In summary, profit share allocations to each individual
level of risk associated with the income derived.            generally reflect:
Performance also takes into consideration how                — Macquarie-wide performance – which determines
business is done. Superior performance looks                     the size of the overall profit share pool
at a range of indicators that go beyond financial             — the performance of their business – which
performance and include risk management,                         determines the profit share pool allocated to that
governance and compliance, people leadership and                 business
upholding Macquarie’s Goals and Values.                      — their individual performance – which determines
The CRO advises the BRC on risk management                       their own share of the profit share pool for that
issues.                                                          business.
The performance of staff whose role is not linked to         Profit share allocations to individuals are subject to
profit contribution is measured according to criteria         retention arrangements as discussed in section 2.3.2.
appropriate to their position. Staff working in support      Commentary on allocation to the Managing
areas may, for example, be rewarded on the basis of          Director and Chief Executive Officer of Macquarie
their contribution to Macquarie’s financial reporting, risk   Bank
management processes or information systems.
                                                             In approving the profit share and PSU grants to
The Board and management seek to ensure that                 the Managing Director and Chief Executive Officer
remuneration for risk and financial control personnel,        of Macquarie Bank, the Non-Executive Directors
including the CFO and the CRO, is structured in a            annually and specifically assess the Managing
way that does not compromise the independence of             Director’s performance by considering a range of
these personnel in carrying out their functions and          indicators, including risk management, governance
is determined in a way that maintains Macquarie’s            and compliance, financial performance measures,
robust risk management framework. For instance, an           strategic initiatives, staff and human resources
evaluation of their performance occurs independently         indicators, reputation management and monitoring,
of the business with which they are associated.              and community and social responsibility matters.
Profit share allocations for risk and financial control
personnel are reflective of their individual performance,
including the quality of the control decisions they have
made, and their contribution to the quality and integrity
of the control functions. The allocations to these staff
are not directly linked to the profits of Macquarie or the
businesses in which they operate.




                                                                                                                        17
     Macquarie Bank Limited and its subsidiaries         2010 Annual Report                                    macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     2.3      Direct long-term alignment with shareholder           More generally, long-term alignment is encouraged
              interests is emphasised                               through the emphasis on a degree of consistency over
     The remuneration arrangements are also structured              time in remuneration arrangements. Many initiatives
     to deliver remuneration in a manner which ensures              on which staff work can take a long time, sometimes
     that employees have a direct long-term alignment with          years, to come to fruition. Because the remuneration
     shareholder interests through:                                 system is outcomes driven, profit share allocations for
     — retention arrangements which encourage long-                 transactions and business development activities that
         term commitment to Macquarie, and therefore, to            are ‘in progress’, are low.
         shareholders                                               Staff must, therefore, have confidence that when a
     — the use of equity-based remuneration.                        transaction is completed - potentially some years later
                                                                    - the remuneration system will recognise successful
     The remuneration changes approved by shareholders              outcomes in the way the staff member anticipated
     at the December 2009 General Meeting provide                   at the outset of the transaction. This requires broad
     an even closer alignment of staff and shareholder              consistency over time.
     interests, with a greater emphasis on longer-term
     incentives.                                                    2.3.1 Transitional arrangements
     Under these new remuneration arrangements, retained            Under the new remuneration arrangements, Executive
     Executive Director profit share from 2009 is invested           Directors were given the choice of leaving their pre-
     in a combination of Macquarie shares, under the new            2009 retained profit share in the Pre-2009 DPS Plan,
     equity plan, the Macquarie Group Employee Retained             or move some or all of these amounts into the new
     Equity Plan (MEREP) and Macquarie-managed fund                 arrangements (Transitioned Amounts).
     equity notionally invested under the DPS Plan that             Transitioned Amounts have been invested in the
     operates for 2009 and future retained profit share              MEREP and notionally in Macquarie-managed funds
     (Post-2009 DPS Plan).                                          (through the Post-2009 DPS Plan) according to the
     A tailored approach is adopted to ensure that retention        relevant Executive Director’s role, in the manner set out
     arrangements and equity-based remuneration are                 in section 2.3.3. Transitioned Amounts will vest to the
     appropriate given the seniority of the individual and          Executive Directors on a straight line basis over seven
     their ability to influence results.                             years from 2010 to 2016 (for Executive Committee
                                                                    members) or over five years (for other Executive
     However, some overarching rules apply to equity-               Directors) from 2010 to 2014. The disqualifying events
     based remuneration:                                            set out in section 2.3.7 will apply.
     — the following cannot be hedged:                              Any pre-2009 retained profit share not transitioned
         — Macquarie shares held to satisfy the minimum             to the new arrangements will be grandfathered in
             shareholding requirement                               the Pre-2009 DPS Plan. The old vesting, release and
         — awards under the MEREP                                   forfeiture provisions for Executive Director retention will
                                                                    continue to apply under the Pre-2009 DPS Plan, as
         — Macquarie shares held under the Executive
                                                                    set out in the table headed ‘Old performance-based
             Committee Share Acquisition Plan
                                                                    remuneration arrangements’ in section 2.1.
         — unvested options
                                                                    The following sections 2.3.2 to 2.3.8 set out the
     — all shares and options must be dealt with in                 new profit share arrangements as approved by
         accordance with Macquarie’s Trading Policy, which          shareholders at the December 2009 General Meeting.
         is available on Macquarie’s website, including that
         trading must be conducted within designated
         trading windows.
     All Executive Committee members and Voting
     Directors are required to at least annually disclose their
     financing arrangements relating to their Macquarie
     securities to Macquarie.




18
    2.3.2 Profit share arrangements – delivery of profit share
    A percentage of each employee’s annual gross profit share allocation will be retained by Macquarie (retained profit
    share). The percentage is set according to their role, as follows:

    Role                                        2008                   2009                    2010
    Macquarie Group Managing Director and       30 per cent            55 per cent             55 per cent
    Chief Executive Officer1
    Executive Committee Members2                30 per cent            50 per cent             50 per cent
    Designated Executive Directors              20 per cent            50 per cent             50 per cent
    Other Executive Directors                   20 per cent            50 per cent             40 per cent
    Staff other than Executive Directors        25 per cent of profit   25 per cent of profit    25 per cent of profit
                                                share allocations      share allocations       share allocations
                                                above certain          above certain           above certain
                                                thresholds             thresholds              thresholds
1
    Refers to the percentage retained for Nicholas Moore in 2008 in his role as Group Head of Macquarie Capital.
2
    Including the Macquarie Bank Managing Director and Chief Executive Officer.

    The Macquarie Board has the discretion to change the percentage of profit share allocations retained on an
    annual basis to meet changing market conditions as well as to comply with regulatory and corporate governance
    guidance, provided that the retention percentage is at least 30 per cent for Executive Directors. This is because:
    — regulatory and remuneration trends continue to evolve and change
    — Macquarie must have the ability to meet regulatory requirements
    — Macquarie must have the flexibility to remain competitive in the global markets in which it operates. The
       global remuneration environment is a very important consideration when determining remuneration structures.
       Competition for talented staff is unprecedented with aggressive recruiting activity for high quality staff.
    In addition, the Macquarie Board has the discretion to change the percentage of profit share allocation retained to
    meet exceptional circumstances that may arise when a staff member moves between jurisdictions. The Macquarie
    Board would consider changing the retention level where local laws impact the application of the Transitional
    Arrangements. At all times these adjustments are to ensure that all Executive Directors are in a similar situation
    and not disadvantaged due to local restrictions.
    2.3.3 Investment of retained profit share
    Retained profit share is invested in a combination of Macquarie shares under the equity plan (MEREP), and
    Macquarie-managed fund equity notionally invested under the Post-2009 DPS Plan. The following table shows
    the current percentage allocation of retained profit share that is invested in the Post-2009 DPS Plan and the
    MEREP, depending on the staff member’s role:

                                                Post-2009 DPS Plan (notional
                                                investment in Macquarie-
    Role                                        managed fund equity)                 MEREP (Macquarie shares)
    Macquarie Group Managing Director and       20 per cent                          80 per cent
    Chief Executive Officer, Macquarie Bank
    Managing Director and Chief Executive
    Officer, CFO and CRO, General Counsel
    Group Head, Macquarie Funds Group           50 per cent                          50 per cent
    Other Executive Committee members           10 per cent                          90 per cent
    Executive Directors with Funds              Minimum of 40 per cent to            Maximum of 60 per cent to
    responsibilities                            a maximum of 50 per cent             a minimum of 50 per cent
                                                depending on mix of funds            depending on mix of funds
                                                management and other functions       management and other functions
    Other Executive Directors                   10 per cent                          90 per cent
    Staff other than Executive Directors        Nil                                  100 per cent

    Both the MEREP and the DPS Plan are fundamental tools in Macquarie’s retention and alignment strategies,
    encompassing both long-term retention arrangements and equity holding requirements.

                                                                                                                         19
     Macquarie Bank Limited and its subsidiaries         2010 Annual Report                                     macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     Post-2009 DPS Plan                                             MEREP
     The Post-2009 DPS Plan comprises exposure to                   Retained profit share invested in Macquarie shares is
     a notional portfolio of Macquarie-managed funds.               held under the new equity plan, the Macquarie Group
     These retained amounts for Executive Directors                 Employee Retained Equity Plan (MEREP). MEREP has
     are notionally invested over the retention period.             been established with a flexible plan structure that
     This investment is described as “notional” because             offers different types of equity grants depending on
     Executive Directors do not directly hold securities            the jurisdiction in which the participating employees
     in relation to this investment. However, the value of          are based. In most cases, the equity grants are in
     the retained amounts will vary as if these amounts             the form of units comprising a beneficial interest in a
     were directly invested in actual securities, giving the        Macquarie share held in a trust for the staff member
     Executive Directors an effective economic exposure to          (Restricted Share Units or RSUs). A RSU comprises a
     the performance of the securities.                             beneficial interest in a Macquarie share held on behalf
     The notional portfolio is set for each Executive Director      of a MEREP participant by the Trustee. The participant
     according to their role, as determined by the BRC.             is entitled to receive dividends on the share and direct
     The BRC makes an annual determination as to how                the Trustee how to exercise voting rights in the share.
     each Executive Director’s retained profit share that is         The participant also has the right to request the release
     invested in Macquarie-managed fund equity (retained            of the share from the Trust, subject to the vesting
     DPS in the DPS Plan) for that year should be notionally        and forfeiture provisions of the MEREP. RSUs are the
     invested by Macquarie. The Executive Director has              primary form of award under the MEREP. Where legal
     no input into that decision or its timing. The following       or tax rules make the grant of RSUs impractical, due
     general principles are used in making this decision:           to different tax rules for employee equity and different
                                                                    securities laws, equity grants will be in the form of:
     — retained DPS in the DPS Plan for Executive
         Directors who are involved in the management of a          — shares held by the staff member subject to
         particular fund (e.g. the Chief Executive Officer of a          restrictions (Restricted Shares). A Restricted Share
         fund), will be 100 per cent notionally invested in that        comprises a Macquarie share transferred from the
         particular fund                                                MEREP Trust and held by a MEREP participant
                                                                        subject to restrictions on disposal, vesting and
     — retained DPS in the DPS Plan for Executive
                                                                        forfeiture rules. The participant is entitled to receive
         Directors who are involved more generally in
                                                                        dividends on those Restricted Shares and to vote
         the management of one of Macquarie’s funds
                                                                        those Restricted Shares; or
         businesses, including certain Operating Group
         Heads, will be notionally invested in a portfolio of       — the right to receive Macquarie shares in the future
         funds managed by that particular business                      (Deferred Share Units or DSUs). A DSU comprises
                                                                        a right to receive on exercise of the DSU either a
     — retained DPS in the DPS Plan for other Executive
                                                                        share held in the Trust or a newly issued share (as
         Committee members will be notionally invested in a
                                                                        determined by Macquarie in its absolute discretion)
         general portfolio of Macquarie-managed fund equity
                                                                        for no cash payment, subject to the vesting and
     — retained DPS in the DPS Plan for Executive                       forfeiture provisions of the MEREP. A MEREP
         Directors who provide other services to particular             participant holding a DSU has no right or interest
         funds (e.g. advisory services), will be notionally             in any share until the DSU is exercised. Macquarie
         invested in a portfolio of funds that are managed by           may issue shares to the Trustee or procure the
         that particular business                                       Trustee to acquire shares on-market for potential
     — retained DPS in the DPS Plan for all other Executive             future allocations to holders of DSUs. Generally
         Directors will be notionally invested in a general             DSUs provide for cash payments or additional
         portfolio of Macquarie-managed fund equity.                    DSUs in lieu of dividends paid on Macquarie shares
     Notional returns on these amounts may be paid                      before the DSU is exercised. Further, the number
     annually to Executive Directors, and these amounts                 of shares underlying a DSU will be adjusted upon
     are required to be disclosed as remuneration for                   any bonus issue or other capital reconstruction
     Key Management Personnel. The notional returns                     of Macquarie in accordance with the ASX Listing
     are calculated based on total shareholder return. If               Rules, so that the holder of a DSU does not receive
     the notional investment of retained DPS results in a               a benefit that holders generally of Macquarie shares
     notional loss, this loss will be offset against any future         do not receive. These provisions are intended to
     notional income until the loss is completely offset.               provide the holders of DSUs, as far as possible,
                                                                        with the same benefits and risks as will be provided
                                                                        to holders of Restricted Shares or RSUs. However,
                                                                        holders of DSUs have no voting rights as to any
                                                                        underlying Macquarie share.



20
These different types of equity grants enable                2.3.6 Early vesting and release of retained
Macquarie through the MEREP to offer substantially                     profit share
similar economic benefits to staff across multiple            The Macquarie Board, the BRC or the Macquarie
jurisdictions.                                               Executive Committee under delegation from the BRC
The Macquarie Board or the BRC has the discretion to         has the discretion to accelerate the vesting of retained
review the percentage allocated to the Post-2009 DPS         profit share and/or reduce the retention period,
Plan and the MEREP on an annual basis to reflect an           including where an Executive Director’s employment
individual Executive Director’s responsibilities and to      ends on the grounds of genuine retirement or
strengthen shareholder alignment for Macquarie and           redundancy (subject to the disqualifying events
the Macquarie-managed funds.                                 provisions).
In limited circumstances, and only with the approval of      In considering whether the discretion should be
the BRC, the allocation of retained profit share may be       exercised in a particular case of genuine retirement,
in other than the Post-2009 DPS Plan or the MEREP.           factors including, but not limited to, the following
An example might include investment in funds or              matters, events or circumstances may be taken into
products of a specific business group where there is          account:
a view to directly align the interests of employees with     — whether the Executive Director demonstrates that
those of their clients.                                          he/she is genuinely retiring from the industries within
2.3.4 Income on invested retained profit share                    which Macquarie operates and competes
Notional returns on retained profit share invested in         — whether the Executive Director is likely to work at
the Post-2009 DPS Plan may be paid annually to                   any time in the future within the industries within
Executive Directors. The notional returns are calculated         which Macquarie operates and competes
based on total shareholder return. If the notional           — whether the Executive Director is likely to work
investment of retained profit share results in a notional         full-time in any capacity, including directorships or
loss, this loss will be offset against any future notional       consultancy
income until the loss is completely offset.                  — whether the Executive Director has facilitated an
Employees with retained profit share invested in the              appropriate succession strategy
MEREP will be entitled to either receive dividends or        — the Executive Director’s length of service with
cash payments or additional equity in lieu of dividends          Macquarie reflecting a sustained contribution and
paid on Macquarie shares.                                        commitment to Macquarie, with an expectation of at
2.3.5 Release of retained profit share –                          least 10 years of service as an Executive Director.
        normal vesting                                       If an Executive Director dies or becomes wholly
The vesting period is established for each retained          and permanently unable to work while employed
profit share allocation by the BRC, according to the          by Macquarie, 100 per cent of their retained profit
prevailing market conditions and having regard to            share will vest and (subject to the disqualifying event
regulatory and remuneration trends at the time of            provisions) be released to the Executive Director or,
allocation (refer to section 2.3.2 above for further         in the case of death or incapacity, to the Executive
commentary). The BRC has established the following           Director’s legal personal representative.
release schedule for 2009 and 2010 retained profit
share invested in the Post-2009 DPS Plan and the
MEREP:

Role                                             2009 Performance Year             2010 Performance Year
Executive Committee Members,                     one-fifth in each of years 3-7     one-fifth in each of years 3-7
Designated Executive Directors
Other Executive Directors                        one-fifth in each of years 3-7     one-third in each of years 3-5
Staff other than Executive Directors             one-third in each of years 2-4    one-third in each of years 2-4
For each year’s allocation, once the vesting period has been determined it will remain fixed for that allocation.
Retained profit share is released when it vests.




                                                                                                                           21
     Macquarie Bank Limited and its subsidiaries        2010 Annual Report                                     macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     In certain other limited exceptional circumstances, the       — retained profit share from the second year prior
     discretion may be exercised to accelerate the vesting             to the end of employment - released on the expiry
     of retained profit share and reduce the retention period           of a further six months following the end of the First
     on the grounds of business efficacy. If the discretion             Period (the ‘Second Period’) provided the Executive
     is exercised, all relevant factors will be considered on          Committee has determined that no disqualifying
     a case by case basis and will include consideration               event occurred during the First Period and
     as to whether exercise of the discretion is in the best           disqualifying events (a), (b), (d) and (e) set out above
     interests of Macquarie.                                           have not occurred during the Second Period.
     In all cases where the discretion is exercised,               — retained profit share from the year prior to
     the Macquarie Board, the BRC or the Macquarie                     the end of employment - released on the expiry
     Executive Committee under delegation from the BRC                 of a further 12 months following the end of the
     may impose such other conditions as it considers                  Second Period (the ‘Third Period’) provided the
     appropriate.                                                      Executive Committee has determined that no
     2.3.7 Disqualifying events - clawback                             disqualifying event occurred during the First Period,
                                                                       disqualifying events (a), (b), (d) and (e) set out above
     An Executive Director will not be entitled to receive
                                                                       have not occurred during the Second Period and
     any of their unvested Transitioned Amounts from the
                                                                       disqualifying events (a), (b) and (e) set out above
     Pre-2009 DPS Plan, or retained profit share from 2009
                                                                       have not occurred during the Third Period.
     and future years if the Macquarie Board, the BRC or
     the Macquarie Executive Committee under delegation            A similar effect is achieved whilst the Executive Director
     from the BRC determines, in its absolute discretion,          is employed by Macquarie. Where it becomes apparent
     that the Executive Director has during the period of          that an existing Executive Director has acted in a way
     employment with Macquarie or since leaving:                   that damages Macquarie, including but not limited
                                                                   to acts that led to a material financial restatement, a
     (a) committed an act of dishonesty (including but not
                                                                   significant financial loss or any significant reputational
          limited to misappropriation of funds and deliberate
                                                                   harm to Macquarie or its businesses, then in practice,
          concealment of a transaction)
                                                                   this may cause termination of employment such that
     (b) committed a significant and wilful breach of duty          the same forfeiture provisions would apply. In other
          that causes material damage to Macquarie                 situations where the Executive Director remains
     (c) joined a competitor of Macquarie Group                    employed, then in practice, a similar economic
     (d) taken staff to a competitor or been instrumental in       effect can be achieved by reducing or eliminating
          causing staff to go to a competitor or                   discretionary current and future profit share allocations.
     (e) otherwise acted, or failed to act, in a way that          2.3.8 Tax events
          damages Macquarie, including but not limited             As described in the explanatory information provided
          to situations, where the action or inaction leads        ahead of shareholders approving the MEREP and
          to a material financial restatement, a significant         certain benefits under the MEREP, the rules of the
          financial loss or any significant reputational harm to     MEREP give the Macquarie Board or its delegate the
          Macquarie or its businesses.                             discretion to change the terms of MEREP awards,
     If an Executive Director leaves Macquarie and the             including the vesting date, to avoid situations of
     discretion to release unvested retained amounts is            undue hardship or to maintain business efficacy. The
     exercised as described above in section 2.3.6, the            Macquarie Board, the BRC or the Macquarie Executive
     release will occur over the period from six months to         Committee under delegation from the BRC, may
     two years after the Executive Director leaves. Different      exercise this discretion where an employee has a tax
     disqualifying event provisions will apply at the six          liability on termination of employment in respect of any
     month, one year and two year timeframes as follows:           unvested equity award which is subject to continued
                                                                   vesting conditions and other restrictions beyond
     — retained profit share from all but the last two              cessation of employment (for example, the two year
         years – released on the expiry of six months              clawback period described in section 2.3.7 above).
         following the end of employment (the ‘First Period’)      This would enable the early release of some Macquarie
         provided the Executive Committee has determined           shares from the MEREP, in cases where an employee
         that none of the disqualifying events (a), (b), (c),      terminates employment and this triggers a tax liability
         (d) and (e) set out above occurred during the First       in respect of MEREP awards at a time when the
         Period.                                                   employee has not received the underlying shares and
                                                                   may not receive the full number of shares on which
                                                                   they will be taxed for a considerable time.




22
The number of shares released would be limited to             2.3.10 Other equity arrangements - Staff share
the number with an aggregate value equal to the tax                    plans encourage broader staff equity
liability (see below). The employee would be required                  participation
to contractually agree to repay an amount equal to the        In addition to the arrangements already outlined,
value of the shares released in the event that the BRC        Macquarie has a number of employee share plans that
deem a disqualifying event has occurred. Approval             encourage share ownership by employees under the
for early release of Macquarie shares under these             plans.
circumstances for Executive Committee members will            Staff share acquisition plan
reside with the BRC.
                                                              Prior to 1 January 2010, under the Macquarie Group
Process for determination of early release of tax liability   Staff Share Acquisition Plan (MGSSAP), eligible
Where an employee terminates employment the                   employees in Australia were given the opportunity to
Taxation Division will determine whether a tax liability      nominate an amount of their pre-tax available profit
arises in respect of retained MEREP awards and                share to acquire Macquarie ordinary shares. The
calculate an estimate of the tax liability1. Executive        MGSSAP was adopted by Macquarie at the time
Committee and/or the BRC will, on a best endeavours           of the corporate restructure in November 2007 and
basis, consider, amongst other things, the possibility        substantially replicates the terms of the Macquarie
of the operation of the forfeiture rules in respect of        Bank Staff Share Acquisition Plan (MBSSAP)
the individual. For example, if there is a high risk of       which was approved by Macquarie Bank Limited
forfeiture, early release would not be made.                  shareholders in 1999. The MGSSAP was modified in
If a decision to allow early release is made, Macquarie       2008 to include the ability to issue new shares as an
will then instruct the Trustee to release sufficient shares    alternative to acquiring existing shares on-market, at
to the employee to fund the estimated tax liability.          the option of Macquarie.
Subject to the Staff Dealing Policy, the employee is          As a result of changes to the taxation rules for shares
then able to sell these shares and use the cash to            acquired under the MGSSAP, new offers will not be
fund the tax liability. The remaining MEREP awards will       made from 1 January 2010.
be held within the MEREP until the post-termination           Employee share plan
retention period ends.
                                                              The Macquarie Group Employee Share Plan (ESP)
2.3.9 Minimum shareholding requirement for                    substantially replicates the terms of the Macquarie
         Executive Directors                                  Bank Employee Share Plan which was approved
The retention arrangements also impose on Executive           by Macquarie Bank Limited’s shareholders in 1997.
Directors a requirement to hold Macquarie ordinary            Eligible employees in Australia are offered up to
shares equivalent to the aggregate of five per cent            $1,000 worth of Macquarie ordinary shares funded
(being the deemed after-tax equivalent of 10 per cent)        from pre-tax available profit share.
of their annual gross DPS allocation for the past five         Shares issued under the ESP cannot be sold until the
years (for the wider Executive Director population) or        earlier of three years after issue or the time when the
10 years (for Executive Committee members). These             participant is no longer employed by Macquarie or a
shares cannot be hedged.                                      subsidiary of Macquarie. In all other respects, shares
This requirement remains but is satisfied through the          issued rank equally with all other fully paid ordinary
new equity retention arrangements.                            shares then on issue.
                                                              The number of shares each participant receives is
                                                              $1,000 divided by the weighted average price at which
                                                              Macquarie Group Limited’s shares are traded on the
                                                              ASX on the seven days up to and including the date of
                                                              allotment, rounded down to the nearest whole share.




1
    Estimate based on number of retained MEREP Awards,
    Macquarie share price and top marginal tax rate.


                                                                                                                        23
     Macquarie Bank Limited and its subsidiaries          2010 Annual Report                               macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     2.4    Options, while discontinued, remain outstanding
     Options were previously granted to approximately the most senior 20 per cent of staff based on performance and
     promotion. As previously noted, Macquarie has ceased offering options.
     This section explains the options arrangements that were in place for previous option grants, some of which are
     currently unvested. These arrangements are not in place going forward, but provide some background to assist in
     understanding the relevant option disclosures in Appendix 2 and Appendix 3. Final tranches will be due to vest in
     October 2013.
     2.4.1 General terms of option arrangements
     The Plan

     Plan                    Macquarie Group Employee Share Option Plan (MGESOP)
     History                 Macquarie has had an employee option plan in place since 1995, with only minor
                             amendments to the Plan rules being made over that time. The MGESOP was established
                             by Macquarie Group Limited with substantially the same terms as the predecessor plan, the
                             Macquarie Bank Employee Share Option Plan, administered by Macquarie Bank Limited
     Eligible staff          Associate Director, Division Director and Executive Director
     Key option terms

     Options over     Fully paid unissued ordinary shares in Macquarie Group Limited
     Term of options  Five years
     Consideration    Nil
     Exercise price   Set at the prevailing market price: the exercise price will generally be the weighted average
                      price of shares traded on ASX during one week up to and including the date of grant of the
                      options (adjusted for cum-dividend trading and excluding certain special trades)
     Vesting schedule Options vest in three tranches after two, three and four years, giving an average vesting
                      period of three years. However, vested options can only be exercised by Executive Directors
                      if the relevant performance condition is also satisfied
     Hedging          Executive Directors are not permitted to hedge unvested options. Executive Directors are
                      permitted to hedge options which have previously vested because the minimum service
                      period and relevant performance hurdles, as described in this section, have been satisfied
     2.4.2 Performance hurdles for Executive Committee options
     Description of performance hurdles for Executive Committee options

     Applicability     Performance conditions are imposed as summarised below on options granted to Executive
                       Directors
     Description of    The performance hurdle requires that Macquarie’s three year average ROE exceeds the three
     performance       year average ROE of a reference group of companies at a certain percentile level. This hurdle
     hurdle            operates in addition to both the vesting rules and the embedded share price hurdle
     Basis of hurdle   Macquarie’s three year average ROE versus companies in a Reference Index
     Reference index S&P/ASX 100 Index (note that the S&P/ASX 300 Industrials was used for options granted
                       prior to June 2006)
     Performance level For Executive Committee members, above the 65th percentile was chosen as it was
     required to meet considered a challenging medium to long-term target, noting that if the hurdle is not met,
     hurdle            none of the relevant options can be exercised
     Application of    No retesting for option grants has applied since June 2006. The performance hurdle is
     retesting         tested once only (at time of vesting). Prior to June 2006, the performance hurdle was
                       retested on a quarterly basis until expiry
     Calculation       In assessing whether Macquarie’s performance is above these hurdles, Macquarie obtains
     methodology       data from external sources and, where required, supplements this with data published by the
                       individual companies. The percentile ranking of Macquarie, based on the three year average
                       annual ROE against all companies in the applicable reference index, is then determined
                       quarterly. This method of assessment was selected because the data is readily available and
                       easily computed


24
2.5       Performance share units (PSUs) have been           2.5.2 Vesting Schedule
          substituted for options for Executive              The PSUs vest in three equal tranches after two,
          Committee members only                             three and four years from the deemed vesting
One aspect of the remuneration changes approved              commencement date (typically 1 July in the year
by shareholders at the December 2009 General                 of grant), giving an average vesting period of three
Meeting was the suspension of option grants, and             years. As a general rule, unvested PSUs will lapse on
their replacement with PSUs, which are DSUs or RSUs          termination. However, the Macquarie Board or the
with performance hurdles attached, for Executive             BRC has the authority to accelerate the vesting of
Committee members only. This was done for the                PSUs. The Macquarie Board or the BRC may consider
following reasons:                                           exercising this authority where, for example, a staff
— tax legislation requires taxation of options at the        member dies, is totally and permanently disabled,
    vesting date and not at the date of exercise, with       gives notice of their intention to enter into genuine
    no opportunity for any refund of income taxes paid       retirement or a staff member’s employment ends on
    in the event the options subsequently lapse due to       the grounds of redundancy, illness or in other limited
    non-exercise, rather a capital loss only is available.   exceptional circumstances, such as hardship or where
    This acts as an incentive for exercise on vesting,       business efficacy justifies exercising the discretion.
    limiting their use as a mechanism for long-term          2.5.3 Performance hurdles for Executive
    alignment                                                        Committee PSUs
— options reward staff when there is an upside               PSUs issued under the MEREP will only be released or
    but there is not the same consequence on the             become exercisable upon the achievement of certain
    downside. PSUs provide alignment across market           performance hurdles. Two performance hurdles have
    cycles.                                                  been determined and each will apply individually to
For 2009 and 2010, the PSUs granted to the Executive         50 per cent of the total number of PSUs awarded.
Committee are structured as DSUs with performance            The BRC will periodically review the performance
hurdles. Where PSUs are structured as DSUs, holders          hurdles, including the reference group, and has the
will have no right to dividend equivalent payments           discretion to change the performance hurdles in line
before the PSUs vest. In all other respects, holders         with regulatory and remuneration trends.
of these PSUs will have the same rights as holders of
DSUs.                                                        Description of performance hurdles:
Unlike options, there is no exercise price for PSUs.         Hurdle 1— 50 per cent of the PSUs, based solely
                                                             on the relative average annual ROE over the vesting
2.5.1 Determination and allocation of the PSUs               period compared to a reference group of domestic
The Macquarie Board approves the number of PSUs              and international financial institutions. Vesting is on
to be allocated to each Executive Committee member           a sliding scale with 50 per cent vesting above the
each year as part of the annual remuneration review          50th percentile and 100 per cent vesting at the 75th
process. This determination has regard to overall            percentile. For example, if ROE achievement is at the
performance of Macquarie, the extent to which the            60th percentile, 70 per cent of the award would vest.
Executive Committee members have fulfilled their roles,
                                                             The reference group comprises significant Australian
and the long term value delivered to shareholders.
                                                             financial companies within the ASX100 as well as
The allocation to individual executives is broadly in the
                                                             Macquarie’s major international investment banking
same manner as annual profit share allocations i.e. it is
                                                             peers with whom Macquarie competes and frequently
performance-based.
                                                             compares its performance. The reference group for the
                                                             2009 and 2010 PSU allocations is comprised of ANZ
                                                             Group, Commonwealth Bank, National Australia Bank,
                                                             Westpac, Suncorp, Bank of America, Citigroup, Credit
                                                             Suisse, Deutsche Bank, Goldman Sachs, JP Morgan,
                                                             Morgan Stanley and UBS.




                                                                                                                       25
         Macquarie Bank Limited and its subsidiaries          2010 Annual Report                                   macquarie.com.au

         Directors’ Report — Remuneration Report
         for the financial year ended 31 March 2010
         continued




         Hurdle 2 — 50 per cent of the PSUs, based solely on             — use of a reference group of significant Australian
         compound average annual growth rate (CAGR) in EPS                 financial companies and international peers
         over the vesting period. Awards will vest on a sliding            provides a more appropriate reference group than
         scale with 50 per cent vesting at EPS CAGR of 9 per               the previous use of the S&P/ASX 100 Index which
         cent and 100 per cent vesting at EPS CAGR of 13 per               includes only domestic companies and a small
         cent. For example, if EPS CAGR was 11 per cent,                   proportion of financial services institutions. This also
         75 per cent of the award would vest.                              recognises that, following the significant changes
                                                                           in global financial markets, regulated financial
         Under both performance hurdles, the objective will be             institutions will likely face increased regulatory
         examined once only, effectively at the calendar quarter           requirements, which other companies will not.
         end immediately before vesting. If the condition is not           The inclusion of international peers recognises
         met when examined, the PSUs due to vest expire.                   the extent of Macquarie’s internationalisation.
         Rationale for selection of performance hurdles:                   At 31 March 2010, over half of Macquarie’s
         — ROE and EPS are considered appropriate measures                 income and approximately half of Macquarie’s
           of performance as they are considered to be drivers             staff were offshore. Also, international ownership
           of longer term shareholder returns and are broadly              of Macquarie’s shares remains significant with
           similar to the performance measures Macquarie                   non-Australian ownership averaging approximately
           uses for determining annual profit share                         33 per cent over the five years to 31 March 2010
         — the addition of an EPS objective provides closer              — the approach is consistent with that advocated by
           alignment with the interests of shareholders as it is           APRA in not using TSR as a measure.
           a measure with which they are directly concerned.             Performance level required to meet hurdles:
           In addition, such a measure is particularly                   — being two, three or four year average measures
           appropriate for the Executive Committee who are                 aligned with the vesting period, Macquarie’s
           at a level within Macquarie where they can affect               performance hurdles reward sustained strong
           its achievement without being highly impacted by                performance and are relatively well insulated from
           factors, including market sentiment, over which                 short-term fluctuations
           other executives have reduced control; ROE and
           EPS can be substantiated using information that is            — the ROE hurdle has vesting only commencing if
           disclosed in audited financial statements, providing             the mid-point of peers’ performance has been
           confidence in the integrity of the remuneration                  exceeded and 100 per cent vesting is only achieved
           system from the perspective of both shareholders                if the 75th percentile has been reached
           and staff                                                     — the use of an absolute EPS hurdle requires
         — the use of a sliding vesting scale diversifies the               Macquarie to deliver increased business results
           risk of not achieving the hurdle for executives,                before awards are vested, lessening the chance that
           provides rewards proportional to performance for                awards could vest when results are negative as with
           shareholders and replaces the all-or-nothing test               the use of a relative measure
           which some have argued could, in the current                  — the chosen EPS CAGR hurdle is considered
           climate, promote excessive risk taking. Sliding                 appropriate having regard to a range of factors
           vesting scales are also more widely used and                    including historical average market EPS CAGR
           supported by governance agencies                                figures. The table below shows the five year
                                                                           historical mean and 75th percentile EPS CAGRs for
                                                                           some relevant market sectors. The figures include
                                                                           reported 2009 annual results, which have been
                                                                           affected by the global economic downturn.
         5 year EPS CAGR (per cent per annum)1
                                               S&P/ASX 100                               S&P/ASX Financials
                                               ex Resources     S&P/ASX Banks             ex Property Trusts    MSCI Financials
         Mean                                          10.4                        5.7                   8.7                   5.7
         75th percentile                               17.5                    11.1                    11.1                   13.2
     1
         Data provided by Macquarie Research Equities as at 31 March 2010. MSCI refers to the MSCI All Countries World
         Index.
         Macquarie’s EPS CAGR over the same five year period was (2.8) per cent per annum and since listing in 1996 has
         been 12.6 per cent per annum.
         Further, many of Macquarie’s international peers do not have performance hurdles on their equity plans.


26
    2.6     No special contractual termination payments are made
    The following table summarises key features of the employment contracts for Executive Committee members
    including the Macquarie Bank Managing Director and Chief Executive Officer:

    Length of contract         Permanent open ended
    Remuneration review        1 April to 31 March annually
    period
    Directors’ profit share     All Executive Directors are eligible to be considered for a DPS allocation, referred to
    participation              in section 2.3.2, which ensures that a large part of their remuneration is ‘at risk’. The
                               DPS terms are set out in the Macquarie Group Executive Directors’ Remuneration
                               Booklet (also known as the Grey Book). A departing Executive Director’s retained DPS
                               will only be released early on a discretionary basis in the case of genuine retirement,
                               redundancy and certain other limited exceptional circumstances and will be subject
                               to forfeiture provisions. Upon retirement from Macquarie, Executive Directors may
                               be entitled to the vested retained DPS held under the Pre-2009 DPS Plan scheme
                               provided that it is determined that no disqualifying events have occurred
    Option participation       Executive Directors are no longer eligible for options (five year options over ordinary
                               unissued Macquarie ordinary shares). Subject to discretions able to be exercised by
                               the Board or its delegates, on termination from Macquarie, all Executive Directors
                               continue to remain entitled to retain options which are vested at the termination date
    PSU participation          Executive Committee are eligible to receive PSUs which are DSUs with performance
                               hurdles and are a replacement for new options grants
    Termination of             Termination of employment by Macquarie or the Executive Director requires four weeks
    employment                 notice1. Depending on the jurisdiction, Executive Directors may also receive a payment
                               in lieu of any accrued but untaken leave and entitlements. Aside from notice (for which
                               a payment or part payment may be made in lieu of being required to work the notice
                               subject to legislative restrictions on termination benefits), no other solely contractual
                               termination entitlements exist.
1
    Subject to compliance with local regulatory and legal requirements. In Australia, Executive Directors given notice
    by Macquarie may receive an additional weeks notice where they are over 45 years of age and have more than
    two years’ continuous service.

    Subject to variations arising from local employment, transmission of business and other laws in the jurisdictions in
    which Macquarie operates, these contractual arrangements generally apply to all staff at Executive Director level.
    Executive Directors who chose to keep some or all pre-2009 profit share in the Pre-2009 DPS Plan as per the
    transitional arrangements detailed in section 2.3.1 and leave Macquarie are eligible to receive the vested portion
    (subject to there being no disqualifying events in the period of up to six months following the departure) under the
    Pre-2009 DPS Plan. Executive Directors who leave Macquarie may also retain any vested but unexercised options
    (which will lapse if they are not exercised in the six months following departure).




                                                                                                                           27
         Macquarie Bank Limited and its subsidiaries           2010 Annual Report                                    macquarie.com.au

         Directors’ Report — Remuneration Report
         for the financial year ended 31 March 2010
         continued




         3     Remuneration arrangements are delivering results, although comparisons are difficult
               because of the changes
         Performance over past five years 2005-2010
                                                                          2005      2006      2007       2008       2009       2010
         Net profit after tax attributable to ordinary
                                                        $ millions        812        916     1,463   15,6961         576         663
         equityholders (NPAT)
         Return on average ordinary shareholders’
         funds (p.a.)                                          %          29.8       26.0     28.1       23.82       11.3        9.9
     1
         NPAT from continuing operations for the 12 months to 31 March 2008 was $750m (2007: $657m).
     2
         After adjusting for discontinued operations.



         4        Strong governance has been exercised                     The BRC currently comprises four Non-Executive
         Effective governance is central to Macquarie’s                    Directors, a majority of whom are Independent,
         remuneration strategy and approach. As noted in                   including the BRC Chairman:
         section 1, governance expectations have significantly
         increased. The Macquarie Board and the Macquarie                  Helen Nugent BRC Chairman             Independent Non-
         Bank Board considers that strategies are in place to                                                    Executive Director
         provide even stronger governance of Macquarie’s                   David Clarke1 BRC Member              Non-Executive
         remuneration approach. The Board aims to ensure                                                         Chairman
         that Macquarie’s remuneration system is sound in the
         following ways:                                                   John Niland      BRC Member           Independent Non-
                                                                                                                 Executive Director
         — strong Board and Board Remuneration Committee
             (BRC) oversight                                               Peter Warne      BRC Member           Independent Non-
                                                                                                                 Executive Director
         — assessment of risk as part of the profit share
             allocation process                                            Kevin            BRC Member           Independent Non-
         — independent remuneration review.                                McCann2                               Executive Acting
                                                                                                                 Chairman
         These key elements of Macquarie’s approach are
         described below.
                                                                      1
                                                                          Due to illness, Mr Clarke sought and was granted leave
                                                                          of absence from 27 November 2008 to 30 August
         4.1    Strong Board oversight exists to ensure                   2009.
                sound overall remuneration governance
         The Macquarie Board of Directors has oversight of
                                                                      2
                                                                          Mr McCann was appointed Acting Chairman of
         Macquarie’s remuneration arrangements and has a                  Macquarie Group Limited and a BRC member on
         BRC whose objective is to assist the Macquarie Board             27 November 2008 for the duration of Mr Clarke’s
         and the Board of Macquarie Bank Limited (Macquarie               absence and served in this capacity during that time.
         Bank) with Macquarie’s remuneration policies
                                                                           The BRC members have the required experience and
         and practices. Whilst subject to the remuneration
                                                                           expertise in both human resources and risk to achieve
         framework determined by Macquarie Group Limited,
                                                                           effective governance of Macquarie’s remuneration
         the Macquarie Bank Limited Board considers the
                                                                           system. All members of the BRC are also members
         remuneration recommendations relating to senior
                                                                           of the Board Risk Committee, with Mr Warne being
         executives of Macquarie Bank.
                                                                           the Acting Chairman of that committee in Mr Clarke’s
                                                                           absence, and the Chairman since 27 August 2009.
                                                                           In addition, all members of the BRC have extensive
                                                                           experience in remuneration, either through their
                                                                           professional background or as members of the
                                                                           remuneration committees of other boards.




28
The BRC has a regular meeting cycle and held a              Board oversight of the approval framework
significant number of additional meetings this year          for remuneration recommendations can be
in order to address the various remuneration issues         summarised as follows:
arising from the changing remuneration environment.         Subject to the appropriate management of conflict
The BRC met 20 times over the last financial year.           of interest issues, the Boards of Macquarie and
Attendance at the meetings is set out in the Directors      Macquarie Bank, as appropriate, approve the following
Report.                                                     on the recommendation of the BRC:
The Board pays serious, sustained attention to the          — the remuneration policy for the whole of Macquarie
design and the operation of remuneration practices              (not just for the Executive Committee) including:
for all of Macquarie, not just for the most senior
                                                               — assessing the effectiveness of the remuneration
executives.
                                                                   policy and compliance with legal and regulatory
The responsibilities of the BRC are set out in a                   requirements
formal charter which is available on Macquarie’s               — material changes to the remuneration policy
website                                                            including remuneration structure, retention and
The Charter was reviewed and amended during the                    termination policies for staff
year to reflect the requirements of APRA’s Prudential
                                                               — material changes to the recruitment policies and
Standard APS 510. The amendments included the
                                                                   procedures for Macquarie’s senior management
specific inclusions of the following BRC responsibilities:
                                                                   team (Executive Committee and other Operating
— ensuring that Macquarie’s remuneration policies and              Group Heads)
   practices support Macquarie’s risk management
                                                            — all individual remuneration/profit share
   framework
                                                                recommendations for members of the respective
— liaising with the Board Risk Committee and the                Executive Committees and other Executive Voting
   Board Audit and Compliance Committee to                      Directors (including the Managing Director), and
   ensure there is effective coordination between               other persons whose activities may, in the BRC’s
   the committees to assist in producing a properly             opinion affect the financial soundness of Macquarie
   integrated approach to remuneration that
                                                            — all individual PSU grants to members of the
   appropriately reflects risk
                                                                respective Executive Committees, with the proviso
— reviewing and assessing the effectiveness of                  that grants to Executive Voting Directors (including
   Macquarie’s remuneration policy including                    the Managing Director) must be approved by
   compliance with regulatory requirements                      shareholders at the Annual General Meeting
— reviewing and making specific remuneration                 — other remuneration recommendations relating
   recommendations for persons whose activities                 to individuals or groups of individuals which
   may in the BRC’s opinion affect the financial                 are disclosed or are significant because of their
   soundness of Macquarie. This is in addition to the           sensitivity or precedent implications, or because
   existing specific remuneration recommendations in             they are covered by regulatory standards
   respect of Executive Voting Directors and Executive
                                                            — the continued application of the profit share
   Committee members.
                                                                methodology and any adjustments
                                                            — determination of the total PSU pool available for
                                                                Executive Committee members
                                                            — recommendations relating to the remuneration
                                                                framework for the Non-Executive Directors of
                                                                Macquarie and Macquarie Bank
                                                            — appropriate levels of delegated responsibility from
                                                                Macquarie’s Board to management for remuneration
                                                                related policy and practice decisions
                                                            — remuneration recommendations relating to Non-
                                                                Executive Directors of Macquarie and Macquarie
                                                                Bank.




                                                                                                                       29
     Macquarie Bank Limited and its subsidiaries         2010 Annual Report                                  macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     The BRC approves the following matters on behalf of            — ROE is taken into account at a Macquarie-wide level
     the Macquarie Board:                                               and economic and prudential capital usage at a
     — changes to the remuneration, recruitment, retention              business group level for profit share pool allocation
         and termination policies and procedures not                — the performance hurdle for existing Executive
         requiring Macquarie Board approval                             Director options and Executive Committee PSUs to
     — material changes to superannuation/pension                       vest is linked to ROE, not TSR.
         arrangements                                               The Macquarie Board acknowledges that quantitative
     — the percentage of Executive Directors retained               risk measures have limitations and, therefore, overlays
         profit share allocated to Macquarie shares and              these measures with executive judgement. Just as
         Macquarie-managed fund equity                              judgement is required in managing Macquarie’s risk
                                                                    profile, significant judgement is exercised when risk-
     — the specific notional portfolio allocations of retained
                                                                    adjusting profit share allocations. When assessing
         DPS amounts for individual Executive Directors.
                                                                    the performance of businesses and individuals,
     The BRC approves the following matters on behalf of            management and the BRC look at a range of
     both the Macquarie Board and Macquarie Bank Board:             factors, including risk management, governance
     — all individual remuneration/profit share                      and compliance, people leadership and upholding
         recommendations for Executive Directors, other             Macquarie’s Goals and Values.
         than those required to be approved by the Non-             In addition to this, the Non-Executive Directors of
         Executive Directors of Macquarie and Macquarie             the Macquarie Board have discretion to change the
         Bank Boards as noted above                                 quantum of the profit share pool to reflect internal
     — remuneration recommendations made outside of                 or external factors if deemed in Macquarie’s and
         policy relating to individuals or groups of individuals    shareholders’ interests, and/or to defer the payment
         (unless required to be approved by the Board)              of profit share amounts to a subsequent year at a
     — all individual Director promotion equity grants to           company-wide, business or individual level where it is
         staff other than those designated above.                   in the interests of Macquarie and shareholders to do
                                                                    so.
     The BRC also has the authority to monitor the
     implementation of the executive remuneration                   To strengthen Macquarie’s arrangements in this area,
     policy, including an annual review of compliance               the CRO reports to the BRC on capital allocation in
     with the Executive Director minimum shareholding               respect of risks assumed and its impact on the overall
     requirements.                                                  profit share pool, and the profit share allocated to
                                                                    individual Operating Groups.
     The Board has adopted internal guidelines on declaring
     and dealing with conflicts of interest. These are rigidly       The Macquarie Board seeks to ensure that
     followed by the BRC.                                           remuneration is sensitive to risk outcomes in the
                                                                    following three ways:
     This remuneration governance framework ensures
     that remuneration recommendations relating to staff            Remuneration outcomes must be consistent with
     at various levels of seniority must be approved at an          risk outcomes
     appropriate level of authority.                                Profit share allocations are truly variable. The profit
                                                                    share component is variable upward and downward
     4.2     Risk is assessed as part of the profit share
                                                                    in response to good or poor performance. The fact
             allocation process
                                                                    that the profit share pool at a Macquarie-wide level is
     The Macquarie Board considers that the effective               determined by reference to both profit and earnings
     alignment of remuneration with prudent risk taking             over and above the estimated cost of capital ensures
     to be a fundamental criteria for any successful                that there is no available profit share in the event of a
     remuneration system.                                           loss at a Macquarie level, other than via the Macquarie
     The approach to risk management is to make risk                Board’s discretion.
     decisions at multiple levels.
     The Macquarie Board has always used both executive
     judgement and quantitative risk measures to determine
     the quantum of variable remuneration allocations. The
     quantitative measures are as follows:
     — the profit share pool is determined by reference
         to both profit (not revenue) and earnings over and
         above the estimated cost of capital




30
Remuneration payout schedules must be sensitive              Towers Watson’s findings were that:
to the time horizon of risks                                 — Macquarie has used essentially the same
Under the revised remuneration arrangements, the               remuneration system since Macquarie’s founding
proportion of an Executive Director’s profit share            — the objectives on which Macquarie’s remuneration
allocation that is deferred and subject to the time            system are built are similar to those cited in
horizon of risk has increased from 20 per cent to 50           other leading global investment banks, with the
per cent for 2009, and to 40 per cent for 2010 and             paramount goal to encourage management to drive
for Executive Committee members from 40 per cent               shareholder returns over the short and longer term
to 50 per cent (55 per cent for the Macquarie Group
Managing Director and Chief Executive Officer).               — Macquarie’s remuneration system:
A departing Executive Director’s unvested retained             — has helped ensure that pay and performance are
profit share is only paid out in the case of genuine                linked tightly
retirement, redundancy or in certain other limited             — has several means to align executive reward and
exceptional circumstances, and is forfeited in stages              shareholder value creation
if a ‘disqualifying event’ occurs within two years of          — orients senior staff toward longer-term value
leaving. For example, the payment of a departing                   creation rather than short-term benefits
Executive Director’s retained profit share will be subject
                                                             — Macquarie’s remuneration governance process is
to forfeiture if it is found that the individual has acted
                                                               fairly similar to that in place at Macquarie’s peer US
in a way that damages Macquarie, including but not
                                                               investment banks
limited to action or inaction that leads to a material
financial restatement, a significant financial loss or          — Macquarie’s remuneration components support its
any significant reputational harm to Macquarie or its           remuneration principles and are very much in line
businesses.                                                    with practices at peer global investment banks,
                                                               including that:
Consistent with previous arrangements there are no
“golden handshake” payments.                                   — fixed remuneration is modest relative to total
                                                                   compensation, the bulk of which is delivered
The mix of cash, equity and other forms of                         through variable means (annual and long-term
remuneration should be consistent with risk                        incentives)
alignment
                                                               — the annual profit share is based on profit and
Macquarie adopts a tailored approach to ensure that
                                                                   return on equity, which are recognised by most
the retention levels and equity-based remuneration is
                                                                   peers as necessary to drive share price
appropriate given the seniority of the individual and
their ability to influence results.                             — individual profit share awards to executives are
                                                                   highly differentiated by individual contribution and
4.3    An independent remuneration review                          results
       has been undertaken
                                                               — a significant portion of profit share is invested in
The BRC has access to Macquarie senior                             both Macquarie equity and Macquarie-managed
management and has retained independent                            funds equity and withheld for several years
consultants, Towers Watson for the use of the
                                                               — executives must maintain an equity stake in the
Board to obtain advice on the appropriateness of
                                                                   company
remuneration packages and other employment
conditions as required.                                        — equity-based compensation (in the form of
                                                                   Macquarie shares and Macquarie PSUs for
The BRC, on behalf of the Non-Executive Directors                  Executive Committee) is used as a long-term
of Macquarie, commissioned an independent review                   incentive for executives
of Executive Director remuneration from a US office
                                                               — Macquarie imposes a long vesting period on the
of Towers Watson. The review considered the overall
                                                                   portion of profit share deferred
approach to remuneration, the extent of alignment with
shareholder interests and a comparison of individual           — Macquarie’s total remuneration as a percentage
remuneration for senior executives where relevant                  of revenue and as a percentage of earnings is
peer information was available. In addition, the BRC               centred near the median relative to investment
independently analysed global remuneration trends                  banking peers
and data.                                                      — like other investment banks, Macquarie has a
                                                                   long holding period for senior executives.
                                                             An external review of Non-Executive Directors’
                                                             remuneration was also commissioned in early 2010
                                                             from Guerdon Associates (refer section 5.2 for details).



                                                                                                                          31
     Macquarie Bank Limited and its subsidiaries      2010 Annual Report                                 macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     5        Non-Executive Directors continue to                5.2     Board and Committee fees
              be recognised for their role                       Non-Executive Directors are remunerated via Board
     Finally, Macquarie’s remuneration approach ensures          and committee fees in line with market rates for
     that the Non-Executive Directors are appropriately          relevant Australian financial organisations for the
     recognised. Reflecting this different focus, the             time commitment and responsibilities involved.
     remuneration arrangements applicable to Non-                These fees are reviewed annually on the basis of a
     Executive Directors, as outlined in this section,           comparison to market rates. An external review is
     are different from the arrangements applicable to           conducted periodically both as verification of the
     executives.                                                 market comparison and also to provide observations
     5.1      Non-Executive Director remuneration policy         concerning the continuing validity of the methodology.
     The overall objective of Macquarie’s Non-Executive          Such an external review was completed in early
     Director remuneration policy is to ensure that Non-         2010 to ensure that the Non-Executive Directors’
     Executive Directors are remunerated appropriately. This     remuneration was in line with the relevant benchmark
     objective is achieved by:                                   organisations and to ensure that the methodology and
                                                                 framework employed was appropriate. The review
     — setting Board and Board Committee fees in line
                                                                 was conducted by Guerdon Associates. The Board
         with market rates for relevant Australian financial
                                                                 of Directors critically evaluated the analyses and the
         organisations for the time commitment and
                                                                 conclusions reached.
         responsibilities involved
                                                                 The current per annum base outlined below are
     — delivering these fees in a form that is not contingent
                                                                 consistent with the recommendations of this review.
         on Macquarie’s performance
     — not providing termination or retirement benefits
         other than payments relating to their accrued           Macquarie and Macquarie Bank Fees
         superannuation contributions comprising part of
         their remuneration.                                                                    Macquarie Bank fees
                                                                                                Chairman Member
     Thus, Macquarie’s Non-Executive Director
     remuneration arrangements are structured quite               Board                         $240,000    $65,000
     differently from the executive remuneration
     arrangements. Executive Directors are not                   Macquarie Bank Limited does not have separate Board
     remunerated for acting as Voting Directors.                 Committees, although Macquarie Group Limited’s
     All Voting Directors are required to at least annually      Audit and Compliance Committee and Remuneration
     disclose their financing arrangements relating to their      Committee support both Boards.
     Macquarie securities to Macquarie.
     All Non-Executive Directors of Macquarie Group
     Limited are also Non-Executive Directors of Macquarie
     Bank Limited. This policy governs the remuneration
     of Non-Executive Directors of both Macquarie and
     Macquarie Bank in aggregate.




32
Base and committee fees are paid quarterly. Non-          5.3     Minimum shareholding requirement for
Executive Directors may elect to receive their                    Non-Executive Directors
remuneration, in part, in the form of superannuation      To encourage long-term commitment and to
contributions and, until recently, by way of Macquarie    more closely align the interests of the Board with
ordinary shares acquired via the Macquarie Group          shareholders, the Board has a minimum shareholding
Non-Executive Director Share Acquisition Plan             requirement for Non-Executive Directors. Non-
(NEDSAP), a mechanism for the Non-Executive               Executive Directors are required to have a meaningful
Directors to acquire additional ordinary shares in        direct shareholding in Macquarie.
Macquarie. The terms of the NEDSAP substantially          Under the minimum shareholding requirement,
replicate the terms of an equivalent plan that was        Non-Executive Directors are required to acquire
operated by Macquarie Bank Limited, as approved           and maintain, directly or indirectly, a holding of
at Macquarie Bank Limited’s 1999 Annual General           4,000 Macquarie ordinary shares, which they
Meeting. Shares under the NEDSAP have been                may accumulate over three years from the date of
acquired on-market at prevailing market prices. New       appointment. They are required to extend this holding
offers under the NEDSAP were suspended in 2009.           by an additional 2,000 Macquarie ordinary shares
Information on the frequency of Board and Committee       over the next two years, such that they maintain a
meetings is included on page 3 of the Directors’          holding of 6,000 Macquarie ordinary shares. Under
Report.                                                   Macquarie’s Trading Policy, Non-Executive Directors
There are no termination payments to Non-Executive        are forbidden from hedging shares held to meet this
Directors on their retirement from office (and there       minimum Macquarie shareholding requirement. Actual
never have been in the case of both Macquarie Group       shareholdings are set out in Appendix 3 below.
Limited and Macquarie Bank Limited) other than
payments relating to their accrued superannuation
contributions comprising part of their remuneration.
Macquarie’s Non-Executive Directors are remunerated
for their services from the maximum aggregate
amount (currently $3,000,000 per annum) approved
by shareholders for that purpose. The current limit of
$3,000,000 was approved by Macquarie Bank Limited
shareholders at Macquarie Bank’s 2007 AGM. This
same amount has been set in place for Macquarie
Group Limited and applies on a consolidated basis.
Although fees have been split between Macquarie
Bank Limited and Macquarie Group Limited, the Board
ensures that Non-Executive Director remuneration for
Macquarie Group Limited and Macquarie Bank Limited
taken together does not exceed this shareholder
approved maximum aggregate amount.
It is expected that shareholder approval will be sought
at the 2010 Annual General Meeting to increase this
maximum aggregate amount to reflect the increase
in the workload of Non-Executive Directors, to
accommodate the appointment of an additional Non-
Executive Board member in March 2010 and to allow
for moderate future growth.




                                                                                                                  33
         Macquarie Bank Limited and its subsidiaries             2010 Annual Report                                   macquarie.com.au

         Directors’ Report — Remuneration Report
         for the financial year ended 31 March 2010
         continued




         Appendices: Key Management Personnel disclosures
         Appendix 1: Key Management Personnel
         The disclosures set out in these Appendices reflect Key Management Personnel’s services to Macquarie Bank.
         The following persons were Voting Directors of Macquarie Bank Limited for the period during the financial years
         ended 31 March 2010 and 31 March 2009, unless otherwise indicated:
         Directors:                                                    Changes during 2009 and 2010 (except as noted below)
         Executive
         N.W. Moore1                  Macquarie Group Limited          Ceased being a Key Management Personnel on
                                      Managing Director and Chief      12 November 2007. Appointed to the Macquarie Bank
                                      Executive Officer                 Limited Board on 24 May 2008
         A.E. Moss, AO                                                 Retired 24 May 2008
         L.G. Cox, AO                                                  Retired 29 July 2009
         W.R. Sheppard1               Managing Director and Chief
                                      Executive Officer
         Non-Executive
         D.S. Clarke, AO              Non- Executive Chairman          On leave of absence from 27 November 2008 to
                                                                       30 August 2009
         M.J. Hawker                                                   Appointed to the Board on 22 March 2010
         P.M. Kirby
         C.B. Livingstone, AO
         H.K. McCann, AM                                               Acting Chairman in D.S. Clarke’s absence
         J.R. Niland, AC
         H.M. Nugent, AO
         P.H. Warne                                                    Acting Chairman of the Board Risk Committee in
                                                                       D.S. Clarke’s absence and was appointed Chairman
                                                                       of the Board Risk Committee on 27 August 2009
         In addition to the Executive Directors listed above, the following persons also had authority and responsibility for
         planning, directing and controlling the activities of Macquarie and its controlled entities during the financial years ended
         31 March 2010 and 31 March 2009, unless otherwise indicated:
         Executives:
         S.D. Allen1                         Group Head, Risk Management Group (appointed 28 September 2009)
         J.K. Burke                          Former Joint Group Head, Macquarie Securities Group (retired on 26 February 2009)
         A.J. Downe1                         Group Head, Fixed Income, Currencies and Commodities Group
         R.S. Laidlaw1                       Group Head, Macquarie Securities Group (appointed 10 June 2008)
         P.J. Maher1                         Group Head, Banking and Financial Services Group
         N.R. Minogue                        Former Group Head, Risk Management Group (retired 30 November 2009)
         G.C. Ward1                          Chief Financial Officer
         S. Wikramanayake1                   Group Head, Macquarie Funds Group (appointed 10 June 2008)
     1
         Member of Macquarie Bank’s Executive Committee as at 29 April 2010.

         The remuneration and other related party disclosures included in the Remuneration Report have been prepared in
         accordance with the requirements of the Corporations Act 2001 and in compliance with AASB 124: Related Party
         Disclosures.
         For the purpose of these disclosures, all the individuals listed above have been determined to be Key
         Management Personnel, as defined by AASB 124: Related Party Disclosures. Macquarie’s Non-Executive
         Directors are specifically required by the Corporations Act 2001 to be included as Key Management Personnel.
         However, the Non-Executive Directors do not consider themselves as part of ‘management’.




34
Appendix 2: Remuneration disclosures                         –     Transitioned Amounts, as explained in section 2.3.1,
The remuneration arrangements for all of the persons               have been reclassified in the current year from profit
listed above as Executive Directors or Executives are              share liability to equity, and the discount to the fair
described in section 2 above.                                      value per MEREP equity award at grant date is
                                                                   accounted for as a share-based payment, expensed
The individuals identified above as Key Management                  over the vesting period, being seven years for
Personnel include the five highest remunerated                      Executive Committee members
Company Executives and Relevant Group Executives.
                                                             –     While MEREP equity awards in respect of the
In accordance with the requirements of AASB                        current year’s performance will be granted in
124 Related Party Disclosures, the remuneration                    the following financial year, Macquarie begins
disclosures in the remuneration tables for the years               recognising an expense (based on an initial estimate)
ended 31 March 2010 and 31 March 2009, only                        from 1 April of the current financial year in relation to
include remuneration relating to the portion of the                these future grants. The expense is estimated using
relevant periods that each individual was a Key                    the Macquarie share price as at 31 March 2010
Management Person.                                                 (and for PSUs, also incorporates a risk free interest
The following factors impact the current year and prior            rate of 5.75 per cent; expected life of four years;
year comparatives:                                                 and a dividend yield of 3.47 per cent per annum).
                                                                   In the following financial year, Macquarie will adjust
–    Comparative data in the following remuneration
                                                                   the accumulated expense recognised for the final
     table reflects the amounts disclosed in the 2009
                                                                   determination of fair value for each MEREP award to
     Remuneration Report, i.e. the old remuneration
                                                                   be granted when granted, and will use this valuation
     arrangements. Under those arrangements, the
                                                                   for recognising the expense over the remaining
     whole of the profit share provision, including
                                                                   vesting period.
     amounts held subject to restrictions, for each
     financial year was charged against earnings in           As explained in section 2.3.3 above, DPS amounts
     that year, and was disclosed in the Executive           retained under the DPS Plan are notionally invested for
     remuneration disclosure for Key Management              Executive Directors, providing them with an economic
     Personnel. As explained in section 2.3, under           exposure to the underlying investments, typically
     the revised arrangements, retained profit share is       Macquarie-managed specialist funds. This ensures that
     invested as a combination of Macquarie equity,          they are exposed to both the upside and downside of
     and Macquarie-managed fund equity notionally            the underlying securities.
     invested under the Post-2009 DPS Plan. The              Executive Directors are each entitled to amounts
     portion of retained profit share that is delivered as    equivalent to the investment earnings (dividends/
     Macquarie equity is recognised in earnings as a         distributions and security price appreciation) on the
     share based payment expense, spread over the            underlying securities. Where these amounts are
     vesting period, which is up to seven years for the      positive, they may be paid to Executive Directors as
     most senior group. The portion that is delivered as     additional remuneration and are included in the relevant
     Macquarie-managed fund equity is not accounted          remuneration disclosures below as part of “Long-Term
     for as a share-based payment and the full amount        Employee Benefits” (refer to the “Earnings on prior year
     is charged against earnings in the current year,        restricted profit share” column in the tables on pages
     consistent with prior years                             36 to 37). When these amounts are negative, they
–    The current year also reflects the accounting            are deducted from “Long-Term Employee Benefits”
     adjustments required to transition to the revised       remuneration in the same column.
     remuneration arrangements including the treatment       These earnings on restricted profit share amounts
     of 2009 profit share retention that was previously to    reflect the investment performance of the assets in
     be delivered as either cash or fully vested Macquarie   which prior year retained DPS amounts have been
     shares, but is now delivered as Macquarie equity        invested. Their inclusion in the individual remuneration
     under the MEREP. The portion of Executive               disclosures below may therefore cause distortions
     Directors’ retained profit share relating to 2009        when year-on-year remuneration trends are examined.
     that is no longer to be paid in cash or delivered in    They do not reflect remuneration review decisions
     fully vested Macquarie shares has been reversed         made in relation to the individual’s current year
     in the current year with a benefit and recognised        performance.
     in earnings. The MEREP equity awards granted
     in relation to the 2009 profit share retention are
     accounted for as a share-based payment expensed
     over the vesting period from 1 April 2009 which is
     up to seven years for the most senior group



                                                                                                                              35
     Macquarie Bank Limited and its subsidiaries   2010 Annual Report                                  macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     Executive key management personnel remuneration disclosure


                                                                                      Short-Term Employee Benefits



                                                                             Salary   Performance         Total short-
                                                                         (including         related    term employee
                                                                    superannuation    remuneration           benefits
                                                                                                 (a)
                                                                                 $                $                  $
      Executive Directors
      N.W. Moore                                           2010            297,203       2,681,904          2,979,107
                                                           2009            335,977       1,376,414          1,712,391
      W.R. Sheppard                                        2010            423,389         926,337          1,349,726
                                                           2009            464,958         253,990            718,948
      Other Executives
      S.D. Allen (h)                                       2010            111,870          86,500            198,370
                                                           2009                  –               –                  –
      A.J. Downe                                           2010            420,965       3,565,907          3,986,872
                                                           2009            440,954       3,642,070          4,083,024
      R.S. Laidlaw (i)                                     2010             89,895         738,605            828,500
                                                           2009              7,311          32,345             39,656
      P.J. Maher                                           2010            436,580       1,520,590          1,957,170
                                                           2009            431,585         911,272          1,342,857
      G.C. Ward                                            2010            247,669       1,002,989          1,250,658
                                                           2009            329,447       1,511,709          1,841,156
      S. Wikramanayake (i)                                 2010            334,781         906,733          1,241,514
                                                           2009            169,698         375,394            545,092
      Former Executive Directors and Executives
      J.K. Burke (j)                                       2010                  –               –                 –
                                                           2009            112,085               –           112,085
      L.G. Cox (k)                                         2010              8,533               –             8,533
                                                           2009            201,954         116,257           318,211
      N.R. Minogue (l)                                     2010            166,023         406,349           572,372
                                                           2009            329,447       1,187,771         1,517,218
      A.E. Moss (m)                                        2010                  –               –                 –
                                                           2009             76,949       1,157,863         1,234,812
      Total Remuneration – Executive Key Management        2010          2,536,908      11,835,914        14,372,822
      Personnel                                            2009          2,900,365      10,565,085        13,465,450




36
                                                                                                               Percentage
    Long-Term Employee Benefits                            Share Based Payments                                           of
                                                                                                             remuneration
               Earnings on           Total      Equity                                Total                            that
                 prior year     long-term      Awards                                share-                       consists
 Restricted      restricted     employee     including                               based             Total    of options
profit share    profit share        benefits      Shares         PSUs    Options     payments      remuneration    and PSUs
         (b)             (c)                        (d)         (e)    (f), (g)
           $              $             $             $          $            $            $               $             %

   423,893         196,699        620,592    205,522        688,542   981,244     1,875,308        5,475,007         30.50
   611,740      (3,110,901)    (2,499,161) 1,070,545              –   584,665     1,655,210          868,440         67.32
   156,469          69,950        226,419    236,797        169,545   359,302       765,644        2,341,789         22.58
    84,663      (1,655,184)    (1,570,521)    84,663              –   157,415       242,078         (609,495)       (25.83)

    (26,700)         (6,212)      (32,912)   257,707         53,412   136,729       447,848          613,306         31.00
           –               –              –        –              –         –             –                –             –
  (428,090)        466,881          38,791   151,572      1,193,709 1,061,308     2,406,589        6,432,252         35.06
 1,214,023      (3,403,223)    (2,189,200) 1,214,023              –   307,384     1,521,407        3,415,232          9.00
   (15,910)          55,355         39,445   104,134        172,084   211,344       487,562        1,355,507         28.29
     10,782         (43,168)       (32,386)   10,782              –    18,522        29,304           36,574         50.64
   (55,993)          36,179       (19,814)   239,211        390,654   310,562       940,427        2,877,783         24.37
   303,757        (841,014)      (537,257)   303,757              –   163,884       467,641        1,273,240         12.87
      56,612         30,165         86,777    35,136        369,470   203,053       607,659        1,945,094         29.43
    503,903       (607,005)      (103,102)   503,903              –   143,256       647,159        2,385,213          6.01
    579,454        297,553        877,007      8,557        273,926   439,817       722,300        2,840,821         25.12
    125,131       (381,421)      (256,290)   125,131              –   228,688       353,819          642,621         35.59

         –                 –            –        –                –          –              –               –              –
         –         (160,663)   (160,663)         –                – (121,657)      (121,657)        (170,235)         71.46
         –              460          460         –                –    (3,729)        (3,729)          5,264        (70.82)
    29,064         (101,894)     (72,830)        –                –      7,075          7,075        252,456           2.80
   406,349           75,651     482,000          –                – (179,141)      (179,141)         875,231        (20.47)
   395,924         (840,269)   (444,345)   395,924                –   101,993        497,917       1,570,790           6.49
         –                 –            –        –                –          –              –               –              –
         –       (3,629,506) (3,629,506)         –                –    42,840         42,840      (2,351,854)         (1.82)
 1,096,084        1,222,681   2,318,765 1,238,636         3,311,342 3,520,489     8,070,467       24,762,054
 3,278,987     (14,774,248) (11,495,261) 3,708,728                – 1,634,065     5,342,793        7,312,982




                                                                                                                               37
     Macquarie Bank Limited and its subsidiaries       2010 Annual Report                                   macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     Notes on elements of executive remuneration                  (d) For 2009, this was the amount of the current year
     (a) Performance related remuneration represents the              profit share allocation, which is allocated to invest
         current portion of each individual’s profit share             in Macquarie ordinary shares under the Executive
         allocation in relation to the reporting period. For          Committee Share Acquisition Plan. For 2010, this
         2010, these amounts also include an adjustment               amount represents:
         to reflect the difference between the percentage              — the current year amortised amount in respect
         of 2009 profit share that was reported as current                of both 2009 and 2010 retained profit share
         in the 2009 Executive remuneration disclosure                   as calculated on the basis as described in
         and the actual percentage of 2009 profit share                   note 1 (xx) Share based payments to the 2010
         that is current, as per the revised remuneration                Financial Statements
         arrangements.                                                — the write back of 100 per cent of 2009 profit
         For 2009, in the case of Mr A.E. Moss, the amount               share which was allocated to invest in fully
         included in this column in the table above also                 vested Macquarie ordinary shares as described
         includes the related restricted profit share amounts             in section 2.3.3. This is an adjustment because
         (refer (b) below), which was paid within 12 months              this is now being delivered as Macquarie equity
         of the end of the reporting period, in accordance               under MEREP, which is expensed over the
         with the requirements of AASB 124: Related Party                vesting period from 1 April 2009 which is up to
         Disclosures.                                                    seven years for the most senior group
     (b) For 2010, this amount represents:                            — the current year amortisation, as calculated
         — 2010 retained profit share notionally invested in              on the basis as described in note 1 (xx)
            Macquarie-managed fund equity                                Share based payments to the 2010 Financial
         — An adjustment to reflect the difference                        Statements, in respect of the discount to the fair
            between the percentage of 2009 retained                      value per share at grant date for Transitioned
            profit share notionally invested in Macquarie-                Amounts, as discussed in section 2.3.1.
            managed fund equity as reported in the 2009               For retained profit share relating to 2009 invested in
            Executive remuneration disclosure and the                 the MEREP and pre-2009 profit share transitioned
            actual percentage of 2009 retained profit share            to the MEREP, the conversion price was publicly
            notionally invested in Macquarie-managed                  announced by Macquarie on 1 May 2009 to be the
            fund equity, as per the revised remuneration              volume weighted average price (VWAP) from 4 May
            arrangements.                                             2009 up to and including the date of the 2009 AGM
         For 2009, this amount represents retained                    on 29 July 2009, being $36.36.
         profit share notionally invested in Macquarie-                Equity awards granted in respect of the 2009
         managed fund equity as per the old remuneration              year are measured for accounting purposes
         arrangements. For 2009, in the case of Mr A.E.               on 17 December 2009, being the date that
         Moss (because he retired), the retained amount is            shareholders approved the MEREP, using the
         included within “Performance related remuneration”           closing price of Macquarie shares traded on the
         as it was paid within 12 months of the end of the            ASX on that day, being $46.35.
         reporting period.                                        (e) This amount has been calculated on the basis as
     (c) This is the notional earnings / (loss) on prior year         described in note 1 (xx) Share based payments to
         restricted profit share allocations described on              the 2010 Financial Statements and is in respect
         page 35 in this Appendix.                                    of PSUs granted in respect of both the 2009 and
                                                                      2010 performance years. PSU grants for each
                                                                      individual have been measured at their grant date
                                                                      based on each grants fair value, and this amount is
                                                                      recognised evenly over the relevant vesting period
                                                                      for each tranche of PSUs granted.




38
(f) This amount has been calculated on the basis as        Notes on individuals
    described in note 1 (xx) Share based payments to       (h) Mr S.D. Allen was appointed to the Executive
    the 2010 Financial Statements. Prior option grants         Committee on 28 September 2009.
    for each individual have been measured at their        (i) Mr R.S. Laidlaw and Ms S. Wikramanayake were
    grant dates based on each grant’s fair value, and          appointed to the Executive Committee on 10 June
    this amount is recognised evenly over the relevant         2008.
    vesting period for each tranche of options granted,
                                                           (j) Mr J.K. Burke retired on 26 February 2009.
    regardless of whether the options are in or out-
    of-the-money. For 2010, the amount is based on         (k) Mr L.G. Cox retired from the Board on 29 July
    options granted in August 2006 (exercise price of          2009.
    $61.79), August 2007 (exercise price of $71.41)        (l) Mr N.R. Minogue retired from the Executive
    and August 2008 (exercise price of $53.91) which           Committee on 30 November 2009.
    are all currently out-of-the-money.                    (m) Mr A.E. Moss retired on 24 May 2008. Mr Moss’s
    If an option lapses in a reporting period, amounts         total remuneration for 2009 included a final profit
    previously recognised as remuneration in relation to       share allocation for the period 1 April 2008 up to
    the lapsed options are deducted from remuneration          the date of his retirement on 24 May 2008, which
    in the reporting period. In the case of Mr Cox,            was paid in November 2008.
    87,052 options lapsed in the current year when he      For each of the persons named in the tables above,
    retired from the Board on 29 July 2009. In the case    the amounts of their remuneration for the reporting
    of Mr Minogue, 9,083 options lapsed in the current     period that were not related to performance are the
    year when he retired from executive responsibilities   amounts in the columns headed ‘Salary (including
    on 30 November 2009. In the case of Mr Burke,          superannuation)’ and ‘Earnings on prior year restricted
    108,334 unvested options lapsed in the 2009            profit share’. All other remuneration was performance
    financial year when he retired from executive           based.
    responsibilities on 26 February 2009. The reversal
    of the amounts previously recognised in relation to    As is evident from the tables on pages 36 to 37,
    these options exceeded the amounts recognised          the majority of the remuneration for the named
    in relation to their options which vested during the   Group executives is performance based (ranging
    year, resulting in a negative balance in the table     from 81 per cent to 94 per cent for individuals who
    above for 2010 for Mr Cox and Mr Minogue and for       were Executive Committee members during the
    2009 for Mr Burke.                                     year ended 31 March 2010, excluding the impact
                                                           of notional earnings on retained amounts). This is
(g) Performance hurdles attached to the options issued     consistent with the comments previously made that
    to the Executive Committee and Executive Voting        the effect of Macquarie’s profit sharing mechanism is
    Directors allow for options to become exercisable      to provide substantial incentives in relation to superior
    upon vesting only when Macquarie’s average             performance, but low or no participation for less
    annual ROE for the three previous financial years       satisfactory performance. The mechanism provides
    is above the 65th percentile, as further discussed     significant alignment of their interests with those of
    in section 2.4.2. Performance hurdles for options      shareholders.
    issued on or after 30 June 2006 and vesting at
    1 July 2009 were not achieved and therefore
    the options did not to vest. The related expense
    previously recognised for these option grants was
    reversed in 2009 and result in a reduction in total
    2009 remuneration for the impacted individuals.




                                                                                                                       39
     Macquarie Bank Limited and its subsidiaries          2010 Annual Report                                   macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     Non-Executive Director remuneration
     The remuneration arrangements for all of the persons listed below as Non-Executive Directors are described in
     section 5.1 above.
                                                                Directors Fees     Other Benefits (a) Total Compensation
                                                                             $                     $                  $
     D.S. Clarke (b)                               2010                167,554                     –            167,554
                                                   2009                180,208               10,487             190,695
     M.J. Hawker (c)                               2010                  1,747                     –              1,747
                                                   2009                      –                     –                  –
     P.M. Kirby                                    2010                 65,000                     –             65,000
                                                   2009                 65,000                     –             65,000
     C.B. Livingstone                              2010                 65,000                     –             65,000
                                                   2009                 65,000                     –             65,000
     H.K. McCann (d)                               2010                137,446                     –            137,446
                                                   2009                122,792                     –            122,792
     J.R. Niland                                   2010                 65,000                     –             65,000
                                                   2009                 65,000                     –             65,000
     H.M. Nugent                                   2010                 65,000                     –             65,000
                                                   2009                 65,000                     –             65,000
     P.H. Warne (e)                                2010                 65,000                     –             65,000
                                                   2009                 65,000                     –             65,000
      Total Remuneration                           2010                631,747                     –            631,747
      – Non-Executive Key                          2009                628,000               10,487             638,487
      Management Personnel
     (a) For the period that Mr Clarke was Non-Executive Chairman, Mr Clarke was entitled to the use of an office and
         administrative support. The prior year amount of $10,487 is an estimate of the portion of the cost of these services
         which may have been used by the Chairman for other purposes.
     (b) Mr Clarke sought and was granted leave from 27 November 2008 to 30 August 2009.
     (c) Mr Hawker was appointed to the Board on 22 March 2010.
     (d) Mr McCann was appointed Acting Chairman in Mr Clarke’s absence (from 27 November 2008 to 30 August 2009).
     (e) Mr Warne was appointed Acting Chairman of the Board Risk Committee in Mr Clarke’s absence (from 27 November
         2008) and was appointed Chairman on 27 August 2009.




40
Appendix 3: Loan disclosures
Loans to Key Management Personnel
Details of loans provided by Macquarie to Key Management Personnel and their related parties are
disclosed in the following tables:
                                              Opening                                         Closing      Number in
                                            balance at         Interest                    balance at          group
                                                1 April       charged      Write-down       31 March        31 March

                                                 $’000           $’000          $’000           $’000
Total for Key Management         2010           42,861           3,045              –          31,691              11
Personnel and their              2009           57,176           4,501              –          42,861              10
related parties
Total for Key Management         2010           22,729             863              –          12,422               5
Personnel                        2009           39,164           2,493              –          22,729               5
Loans and other financial instrument transactions are made by Macquarie in the ordinary course of business with
related parties.
Certain loans are provided under zero cost collar facilities secured over Macquarie Group Limited shares under
normal terms and conditions consistent with other customers and employees.
Key Management Personnel including their related parties with loans above $100,000 at any time during
the financial year:
For the year ended 31 March 2010
                                                                                          Balance at
                                           Balance at          Interest                    31 March        Highest in
Name and position                         1 April 2009        charged      Write-down          2010           period
                                                                     (a)
                                                 $’000           $’000          $’000           $’000           $’000
Executive Directors
 N.M. Moore                                       5,313             330               –           5,274          5,313
 Non-Executive Directors
 D.S. Clarke (b)                                 37,290           2,700               –         26,160          38,975
 Executives
 R.S. Laidlaw                                       238              14               –             238            238
(a) All loans provided by Macquarie to Directors and Executives are made in the ordinary course of business on an
    arm’s-length basis and are entered into under normal terms and conditions consistent with other customers and
    employees. There have been no write-downs or allowances for doubtful debts.
(b) Mr Clarke sought and was granted leave from 27 November 2008 to 30 August 2009.




                                                                                                                         41
     Macquarie Bank Limited and its subsidiaries              2010 Annual Report                              macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     Key Management Personnel including their related parties with loans above $100,000 at any time during the
     financial year (continued)
     For the year ended 31 March 2009
                                                    Balance at           Interest                Balance at       Highest in
     Name and position                             1 April 2008         charged     Write-down    31 March           period
                                                             (a)              (b)                      2009
                                                          $’000            $’000     $’000            $’000           $’000
      Executive Directors
      N.M. Moore (c)                                 6,985             376                –            5,313         12,570
      Non-Executive Directors
      D.S. Clarke (d)                               34,826           3,352                –          37,290          37,798
      Executives
      A.J Downe                                      1,847             105                –                –          1,847
      R.S. Laidlaw (e)                                 238               –                –              238            238
      P.J. Maher                                     4,878             499                –               20          5,572
      N.R. Minogue                                   4,234              42                –                –          4,339
      G.C. Ward                                      4,406             127                –                –          4,406
     (a) Or date of appointment if later.
     (b) All loans provided by Macquarie to Directors and Executives are made in the ordinary course of business on an
          arm’s-length basis and are entered into under normal terms and conditions consistent with other customers and
          employees. There have been no write-downs or allowances for doubtful debts.
     (c) Mr Moore ceased being a member of the Executive Committee on 12 November 2007. Mr Moore was reappointed
          on 24 May 2008.
     (d) Mr Clarke sought and was granted leave from 27 November 2008 to 30 August 2009.
     (e) Mr Laidlaw was appointed to the Executive Committee on 10 June 2008. The balance at 1 April 2008 represents
          holdings at date of appointment.




42
Appendix 4: Other disclosures
Other transactions and balances of Key Management Personnel and their related parties
The following Key Management Personnel have acquired Infrastructure Bonds and similar products from
controlled entities within the Bank which have been financed with limited recourse loans and are subject to
forward sale agreements. The loan repayments and proceeds arising from the forward sale agreements are
subject to a legal right of set-off and as such are not recognised for financial reporting purposes. The only
amounts recognised by the economic entity in respect of these transactions are the annual payments from the
relevant Key Management Personnel which are brought to account as fee revenue. These transactions have been
undertaken on terms and conditions consistent with other customers and employees.
                                                                                      Consolidated     Consolidated
                                                                                              2010            2009
                                                                                             $’000            $’000
Total annual contributions from Key Management Personnel and their related parties
in respect of Infrastructure Bonds and similar products                                       7,772         10,823

The annual contributions in respect of Infrastructure Bonds and similar products relate to the following
Key Management Personnel:
Executive Directors
N.W. Moore
Non-Executive Directors
P.M. Kirby
Executives
S.D. Allen (2010 only), A.J. Downe, R.S. Laidlaw, P.J. Maher, W.R. Sheppard, G.C. Ward and S. Wikramanayake
(2010 only)
Former
L.G. Cox, N.R. Minogue




                                                                                                                      43
     Macquarie Bank Limited and its subsidiaries            2010 Annual Report                          macquarie.com.au

     Directors’ Report — Remuneration Report
     for the financial year ended 31 March 2010
     continued




     The following Key Management Personnel (including related parties) have entered into a zero cost collar
     transaction with Macquarie Bank and other non related entities in respect of fully paid ordinary Macquarie
     ordinary shares. This has the effect of acquiring cash-settled put options against movements in the Macquarie
     share price below current levels and disposing of the benefit of any share price movement above the nominated
     level.
                                                                                            Number of      Number of
                                                                                               shares         shares
     Name and position                                         Description                       2010          2009
     Non-Executive Directors
     D.S. Clarke                                               Maturing May 2009                    –         361,163
                                                               Maturing August 2009                 –          25,196
                                                               Maturing June 2010             213,517         213,517
     Executives
     A.J. Downe                                                Maturing July 2010              21,905                –


     All other transactions with Key Management Personnel (including their personally related parties) were conducted
     on an arm’s-length basis in the ordinary course of business and under normal terms and conditions for
     customers and employees. These transactions were trivial or domestic in nature and consisted principally of
     normal personal banking and financial investment services.


                                              This is the end of the Remuneration Report.




44
Directors’ Report
for the financial year ended 31 March 2010
continued




Voting Directors’ equity participation                         Following approval by shareholders at the 1998 Annual
At 29 April 2010, none of the Voting Directors held any        General Meeting, Macquarie Bank entered into a Deed
relevant interests, as notified by the Voting Directors to      of Access, Indemnity and Insurance dated 4 August
the ASX in accordance with the Corporations Act 2001           1998 (Deed), which protects Voting Directors acting
(Cth) (the Act), in shares or share options of Macquarie       as Voting Directors during their term of office and after
Bank.                                                          their resignation (except where an individual engages
                                                               in conduct involving a lack of good faith). Under the
Directors’ and Officers’ indemnification and                     Deed, Macquarie Bank agrees to:
insurance                                                      — indemnify a current or past Voting Director to the full
Under Macquarie Bank’s Constitution, Macquarie                     extent of the indemnity given in relation to officers of
Bank indemnifies all past and present Directors and                 Macquarie Bank under its Constitution in force from
Secretaries of Macquarie Bank (including at this                   time to time
time the Voting Directors named in this report and             — take out and maintain a company reimbursement
the Secretaries), and its wholly-owned subsidiaries,               insurance policy and make available to Voting
against every liability incurred by them in, and all legal         Directors a Directors’ and Officers’ insurance policy
costs incurred in defending or resisting (or otherwise             (each policy to be in an amount and on terms and
in connection with) proceedings in which they become               conditions appropriate for a reasonably prudent
involved because of their respective capacities unless:            company in Macquarie Bank’s position) for seven
— the liability is owed to Macquarie Bank or to a                  years after the Voting Director ceases to be a Voting
    related body corporate                                         Director of Macquarie Bank
— the liability did not arise out of conduct in good faith;    — loan funds to a Voting Director to cover the
— the liability is for a pecuniary penalty order or a              Voting Director’s legal costs in defending a claim,
    compensation order under the Act                               repayable when the outcome of the proceedings is
                                                                   determined (where the outcome results in the Voting
— in the case of legal costs, the costs are incurred
                                                                   Director having an indemnity for such legal costs,
    in defending or resisting a liability excluded above,
                                                                   the loan will be repayable from the amount paid by
    criminal proceedings in which the person is found
                                                                   Macquarie Bank to the Voting Director under the
    guilty or proceedings brought by the Australian
                                                                   indemnity) and
    Securities & Investments Commission (ASIC)
    or a liquidator where grounds for a court order            — grant access to Voting Directors to all Board papers
    are established (but excluding costs relating                  for at least seven years after the Voting Director
    to investigations before commencement of                       ceases to be a Voting Director of Macquarie Bank,
    proceedings for the court order), or the costs                 and access to other documents if the documents
    incurred in relation to proceedings for relief to the          were in Macquarie Bank’s possession at the time
    person under the Corporations Act 2001 in which                the Voting Director was a Voting Director and where
    the court denies relief                                        it is not contrary to Macquarie Bank’s interest for the
                                                                   documents to be provided.
— Macquarie Bank is forbidden by statute from
    indemnifying the person against the liability or legal     In addition, following the approval of shareholders at
    costs                                                      the 1999 Annual General Meeting, Macquarie Bank
— an indemnity by Macquarie Bank of the person                 made an Indemnity and Insurance Deed Poll on 30 July
    against the liability or legal costs would, if given, be   1999 (Deed Poll). The benefit of the undertakings
    made void by statute.                                      made by Macquarie Bank under the Deed Poll have
                                                               been given to each of the Directors, Secretaries,
                                                               persons involved in the management and certain
                                                               other persons, of Macquarie Bank, its wholly-owned
                                                               subsidiaries and other companies where the person
                                                               is acting as such at the specific request of Macquarie
                                                               Bank or a wholly-owned subsidiary of Macquarie Bank.
                                                               The Deed Poll provides for the same indemnity and
                                                               insurance arrangements for those persons with the
                                                               benefit of the Deed Poll as for the Deed of Indemnity,
                                                               Access and Insurance described above. However, the
                                                               Deed Poll does not provide for access to documents
                                                               of Macquarie Bank.




                                                                                                                             45
     Macquarie Bank Limited and its subsidiaries          2010 Annual Report                                   macquarie.com.au

     Directors’ Report
     for the financial year ended 31 March 2010
     continued




     Following the approval of shareholders at the 2000              Directors’ interests and benefits
     Annual General Meeting, both the Deed and the                   A number of Directors have given written notices
     Deed Poll were amended in a minor way to clarify the            stating that they hold office in specified companies
     operation of the deeds with respect to the provision            and accordingly are regarded as having a relevant
     of loans to indemnified persons for legal costs and              interest in any contract or proposed contract that may
     the requirement to repay such loans. From November              be made between Macquarie Bank and any of these
     2005, each Director, each Secretary and other officers           companies. Transactions between Macquarie Bank
     having the benefit of the indemnity provisions under             and any of these companies are on normal commercial
     Macquarie Bank‘s Constitution, the Deed and the                 terms and conditions.
     Deed Poll was asked to agree that those indemnities
     would not apply to the extent to which an indemnity             Other than any benefit that may have been derived
     for any liability or legal costs is forbidden by Australian     from loans and other financial instrument transactions
     statute or would, if given, be made void by Australian          provided by and to Macquarie Bank or a related entity
     statute. These limitations on the indemnities were              and any amounts received in respect of previously
     subsequently adopted into the indemnity provisions of           accrued remuneration, no Director has, during the
     Macquarie Bank’s Constitution given the approval of             financial year and the period to the date of this
     shareholders at the 2006 Annual General Meeting with            report, become entitled to receive any benefit (other
     the effect that this limitation now applies directly to the     than a benefit included in the aggregate amount
     terms of the Deed and the Deed Poll.                            of emoluments received or due and receivable by
                                                                     Directors shown in this report, or the fixed salary of a
     Certain Directors or Secretaries have executed the              full-time employee of Macquarie Bank or of a related
     Macquarie Indemnity & Insurance Deed Poll under                 entity) by reason of a contract made by Macquarie
     which Macquarie indemnifies them against every                   Bank or a related entity with the Director, or with a firm
     liability incurred by them, including all legal costs           of which he/she is a member, or with an entity in which
     incurred in defending or resisting (or otherwise in             he/she has a substantial financial interest.
     connection with) proceedings in which they become
     involved, because of their respective capacities.               Share options
     This indemnity does not apply to the extent that:               Information on Macquarie’s share option scheme,
                                                                     options granted and shares issued as a result of the
     — Macquarie is forbidden by law from indemnifying the           exercise of options during or since the end of the
        person against the liability or legal costs; or              financial year is contained in note 36 - Employee equity
     — An indemnity by Macquarie of the person against               participation, in the financial report.
        the liability or legal costs, if given would be void by
        law.                                                         No unissued shares in Macquarie Bank are under
                                                                     option as at the date of this report.
      A Directors’ and Officers’ insurance policy, taken
     out by Macquarie, is in place that provides cover
     for each person in favour of whom such insurance
     is required to be taken out under the Deed and the
     Deed Poll and for Macquarie Bank in indemnifying
     such persons pursuant to the Deed and the Deed Poll.
     Relevant individuals pay the premium attributable to
     the direct coverage under the policy and Macquarie
     Bank pays the premium attributable to the company
     reimbursement coverage under the policy. The
     Directors’ and Officers’ insurance policy prohibits
     disclosure of the premium payable under the policy
     and the nature of the liabilities insured.




46
Voting Directors’ relevant interests
The relevant interests of Voting Directors as at 29 April 2010 in managed investment schemes made available by
related bodies corporate of Macquarie Bank and other disclosable relevant interests (including Macquarie Group
ordinary shares) are listed in the table below:

Name and position         Direct interests                           Indirect interest
Non-Executive Voting Directors
D.S. Clarke            — 50,210 Macquarie ordinary shares            — 222,366 Macquarie ordinary shares
                                                                     — 213,517 Cash Settled Put Options1

Executive Voting Directors
W.R. Sheppard           — 9,082 Macquarie ordinary shares            — 240,227 Macquarie ordinary shares
                        — 95,000 Macquarie share options2            — 96,000 Macquarie share options
                        — 108,729 Restricted Share Units in the      — 132,933 Macquarie Australian Small
                           MEREP3                                       Companies Fund units
                        — 3,900 Performance Share Units in the       — 6,000 Macquarie Convertible
                           MEREP3                                       Preference Securities
                        — 49,000 Macquarie Nine Film &               — 150,000 Macquarie Technology Fund
                           Television Investment Fund ordinary          units
                           shares                                    — 206,000 Macquarie Martin Place Trust
                        — 67,701 Macquarie Wrap Cash Account            units
                           units                                     — 98,044 Macquarie Global Infrastructure
                                                                        Fund (A) shares
                                                                     — 2,156 Macquarie Global Infrastructure
                                                                        Fund (B) shares
                                                                     — 350,378 Macquarie Master Australian
                                                                        Enhanced Equities Fund units
                                                                     — 609,004 Charter Hall Retail REIT units
N.W. Moore                — 858,699 Macquarie ordinary shares        — 387,046 Macquarie ordinary shares
                          — 728,300 Macquarie share options2         — 200,000 Macquarie Technology Fund –
                          — 466,460 Restricted Share Units in the     1A ordinary shares
                              MEREP  3
                                                                    — 64,177 Macquarie Global Infrastructure
                          —   38,300 Performance Share Units in the   Fund (B) units
                              MEREP3                                — 362,382 Macquarie Global
                          —   483,674 Macquarie Global                Infrastructure Fund III (B) units
                              Infrastructure Fund (B) units         — 201,659 Macquarie Cash Management
                          —   5,000,000 Macquarie Reflexion Trust      Trust units
                              June 2006 units
                          —   50,000 Macquarie Nine Film &
                              Television Investment Fund ordinary
                              shares
                          —   50 Macquarie Timber Land Trust 2004
                              units
                          —   75 Macquarie Timber Land Trust 2006
                              units
                          —   1,637,618 Macquarie Global
                              Infrastructure Fund III (B) units




                                                                                                                 47
         Macquarie Bank Limited and its subsidiaries             2010 Annual Report                                macquarie.com.au

         Directors’ Report
         for the financial year ended 31 March 2010
         continued




          Name and position               Direct interests                            Indirect interest

          Independent Voting Directors
          M.J. Hawker                                        —                        — 4,103 Macquarie ordinary shares
                                                                                      — 1,000 Macquarie Convertible
                                                                                          Preference Securities
                                                                                      — 16,893 Macquarie Wrap Cash Account
                                                                                          units
          P.M. Kirby                      — 23,198 Macquarie ordinary shares                       —
          C.B. Livingstone                — 646 Macquarie ordinary shares             — 11,354 Macquarie ordinary shares
                                                                                      — 18,813 Charter Hall Retail REIT units
          H.K. McCann                     — 11,922 Macquarie ordinary shares          — 1,563 Macquarie ordinary shares
                                                                                      — 103,000 Macquarie Martin Place Trust
                                                                                          units
                                                                                      —   112,415 Charter Hall Retail REIT units
          J.R. Niland                     — 2,309 Macquarie ordinary shares           —   7,813 Macquarie ordinary shares
          H.M. Nugent                     — 3,945 Macquarie ordinary shares           —   9,061 Macquarie ordinary shares
          P.H Warne                       — 2,744 Macquarie ordinary shares           —   13,077 Macquarie ordinary shares
                                                                                      —   70,418 Charter Hall Retail REIT units
     1
         A company in which Mr Clarke has a relevant interest entered into a Zero Cost Collar transaction with Macquarie
         Bank Limited in respect of 213,517 Macquarie Group ordinary shares, which had the effect of acquiring cash-
         settled put options against movements in the Macquarie Group ordinary share price below the then current share
         price over the period from 15 June 2005 for the period to 14 June 2010 in respect of those shares.
         The transaction in 1 above does not relate to Macquarie Group ordinary shares in respect of which the relevant
         persons are not permitted by Macquarie policy to minimise their equity risk.
     2
         These share options were issued pursuant to the Macquarie Group Employee Share Option Plan and are subject
         to the exercise conditions applying to grants of options to Executive Directors, as described in note 36 – Employee
         equity participation.
     3
         These RSUs and PSUs were issued pursuant to the Macquarie Group Employee Retained Equity Plan and are
         subject to the vesting, forfeiture and other conditions applying to grants of awards to Executive Directors, as
         described in note 36 – Employee equity participation.




48
Environmental regulations                                   Auditors’ independence declaration
Macquarie Bank and its subsidiaries have policies           A copy of the auditors’ independence declaration, as
and procedures in place that are designed to ensure         required under section 307C of the Act, is set out in
that, where operations are subject to any particular        the Directors’ Report Schedule 2 following this report.
and significant environmental regulation under a law
of the Commonwealth or of a State or Territory, those       Rounding of amounts
obligations are identified and appropriately addressed.      In accordance with ASIC Class Order 98/0100 (as
                                                            amended), amounts in the Annual Report have been
The Voting Directors have determined that there has         rounded off to the nearest million dollars unless
not been any material breach of those obligations           otherwise indicated.
during the financial year.
                                                            This report is made in accordance with a resolution of
Non-audit services                                          the Voting Directors.
Details of the amounts paid or payable to the auditor of
MBL, PricewaterhouseCoopers (PwC), and its related
practices for non–audit services provided during the
year is disclosed in note 43 to the financial report –
Audit and other services provided by PwC.
Macquarie Bank’s external auditor policy, which is
discussed in the Macquarie Corporate Governance
Statement contained in the 2010 Macquarie Annual
Report, states that the external auditor is not to
provide non-audit services under which the auditor          David S. Clarke, AO
assumes the role of management, becomes an                  Non-Executive Director and
advocate for Macquarie Bank, or audits its own              Chairman
professional expertise. The policy also provides that
significant permissible non–audit assignments awarded
to external auditors must be approved in advance by
the Board Audit and Compliance Committee (BACC)
or the BACC Chairman, as appropriate.
The BACC has reviewed a summary of non-audit
services provided during the year by PwC and its            Richard Sheppard
related practices, and has confirmed that the provision      Managing Director and
of non-audit services is compatible with the general        Chief Executive Officer
standard of independence for auditors imposed by
the Act. This has been formally advised to the Board        Sydney
of Directors. Consequently, the Voting Directors are        29 April 2010
satisfied that the provision of non-audit services during
the year by the auditor and its related practices did not
compromise the auditor independence requirements of
the Act.




                                                                                                                      49
     Macquarie Bank Limited and its subsidiaries    2010 Annual Report                                macquarie.com.au

     Directors’ Report Schedule 1
     for the financial year ended 31 March 2010




     Directors’ experience and special responsibilities        W. Richard Sheppard, BEc (Hons) (Syd) (age 61)
     David S. Clarke, AO, BEc (Hons), Hon DScEcon              Managing Director and Chief Executive Officer since
     (Syd), MBA (Harv) (age 68)                                November 2007
                                                               Executive Voting Director – joined the Board in
     (granted leave from 27 November 2008 to
                                                               November 2007
     30 August 2009)
     Non-Executive Chairman (Chairman of Macquarie             Richard Sheppard joined Macquarie Bank’s
     Bank since its inception in February 1985)                predecessor, Hill Samuel Australia Limited in 1975,
                                                               initially working in Corporate Finance. He was Head
     David Clarke has been Non-Executive Chairman              of Macquarie Bank’s Melbourne Office from 1986 until
     of Macquarie Bank since 1 April 2007 and Non-             1988 and became Head of the Corporate Banking
     Executive Chairman of Macquarie Group Limited             Group in 1988. He has been a member of the Group
     since August 2007. He was Executive Chairman              Executive Committee since 1986 and was appointed
     of Macquarie Bank from its formation in 1985 until        as Deputy Managing Director of Macquarie Bank in
     31 March 2007, when he ceased executive duties.           1996. Following the restructure of Macquarie Group
     From 1971 to 1977, he was Joint Managing Director         in November 2007, he was appointed Managing
     of Hill Samuel Australia Limited (predecessor to          Director and Chief Executive Officer of Macquarie Bank
     Macquarie Bank), from 1977 to 1984 Managing               and Deputy Managing Director of Macquarie Group
     Director and from 1984, Executive Chairman. He is         Limited. He is a past Chairman of several of Macquarie
     a member of the Investment Advisory Committee             Bank’s associates including Macquarie CountryWide
     of the Australian Olympic Foundation and the              Management Limited (March 2007 - March 2010),
     Bloomberg Asia Pacific Advisory Board. He is also a        Hills Motorway Trust (December 2002- April 2006),
     member of Council of the Royal Agricultural Society       Macquarie Airports (December 2002 - April 2006)
     of NSW and an honorary life member of the Financial       and Macquarie Private Capital Group (Director from
     Markets Foundation for Children. He was previously        August 2004 and Chairman from October 2005 until
     Chairman of Australian Vintage Limited (November          June 2008) and a former Director of Macquarie Office
     1991 to July 2009), Goodman Group (October 2000           Management Limited (May 2009 - March 2010). He is
     to July 2009) and the management companies of             currently Chairman of Macquarie DDR Management
     Macquarie ProLogis Trust (June 1987 to March              Limited (since October 2003) and a member of the
     2007), Macquarie Office Trust (June 1987 to March          Government’s Financial Sector Advisory Council and
     2007) and Macquarie CountryWide Trust (June 1995          the Australian Financial Markets Association. He is
     to March 2007). Mr Clarke is a resident of New            also a member of a number of other boards including
     South Wales.                                              Cure Cancer Australia Foundation, Quest for Life
                                                               Foundation, the Bradman Foundation and the Sydney
                                                               Cricket Club. Mr Sheppard is a resident of New South
                                                               Wales.




50
Michael J. Hawker, BSc (Sydney), FAICD, FAIM,             Catherine B. Livingstone, AO, BA (Hons) (Macquarie),
SF Fin (age 50)                                           HonDBus (Macquarie), HonDSc (Murdoch), FCA,
Independent Voting Director since 22 March 2010           FTSE (age 54)
                                                          Independent Voting Director – joined the Board in
Michael Hawker was appointed to the Boards of
                                                          November 2003
Macquarie Bank Limited and Macquarie Group Limited
in March 2010. Mr Hawker was Chief Executive Officer       Chairman – Board Audit and Compliance Committee
and Managing Director of Insurance Australia Group        Catherine Livingstone joined the Board of Macquarie
from 2001 to 2008. From 1995 to 2001, he was with         Bank as an Independent Voting Director in November
Westpac where his roles included Group Executive          2003 and became a member of the Board of Macquarie
of Business and Consumer Banking and General              Group Limited in August 2007. Ms Livingstone was the
Manager of Financial Markets. Prior to this, he held      Managing Director of Cochlear Limited from 1994 to
a number of roles with Citibank, including Deputy         2000. Prior to that she was the Chief Executive, Finance
Managing Director for Australia and subsequently          at Nucleus Limited and before that held a variety of
Executive Director, Head of Derivatives, Europe.          finance and accounting roles including having been with
Currently, Mr Hawker serves as a Director of Aviva        chartered accountants, Price Waterhouse, for several
Plc Group (since January 2010), the largest insurance     years. Ms Livingstone was also previously Chairman of
provider in the UK, the Australian Rugby Union and        the CSIRO and a Director of Goodman Fielder Limited
the Sydney University Football Club Foundation. He        and Rural Press Limited. Ms Livingstone was awarded
is also a member of the Advisory Board to GEMS,           the Centenary Medal in 2003 for service to Australian
a Hong-Kong based private equity firm. He was              Society in Business Leadership and was elected a Fellow
previously President of the Insurance Council of          of the Australian Academy of Technological Sciences
Australia, Chairman of the Australian Financial Markets   and Engineering in 2002. She is Chairman of Telstra
Association, board member of the Geneva Association,      Corporation Limited (Director since November 2000 and
member of the Financial Sector Advisory Council           Chairman since May 2009), WorleyParsons Limited (since
and is the founder of the Australian Business in the      June 2007) and Future Directions International Pty Limited
Community Network. Mr Hawker is a resident of the         and is a member of the New South Wales Innovation
United Kingdom.                                           Council. Ms Livingstone is a resident of New South Wales.
Peter M. Kirby, BEc (Rhodes), BEc (Hons) (Natal),         H. Kevin McCann, AM, BA LLB (Hons) (Syd), LLM
MA (Manch), MBA (Wits) (age 62)                           (Harv), FAICD (age 69)
Independent Voting Director – joined the Board in         Independent Voting Director – joined the Board in
June 2003                                                 December 1996 (Acting Chairman from 27 November
Member – Board Audit and Compliance Committee             2008 to 30 August 2009)
Peter Kirby joined the Board of Macquarie Bank as an      Lead Independent Voting Director
Independent Voting Director in June 2003 and became       Member – Board Audit and Compliance Committee
a member of the Board of Macquarie Group Limited
                                                          Kevin McCann joined the Board of Macquarie Bank as
in August 2007. Mr Kirby was the Managing Director
                                                          an Independent Voting Director in December 1996 and
and Chief Executive Officer of CSR Limited from 1998
                                                          became a member of the Board of Macquarie Group
to March 2003. He was also a member of the Board of
                                                          Limited in August 2007. Currently, he is Chairman of
the Business Council of Australia from 2001 to 2003.
                                                          Origin Energy Limited (since February 2000) and the
Mr Kirby received the Centenary Medal in 2003. Prior
                                                          Sydney Harbour Federation Trust, a Director of BlueScope
to joining CSR, he was with the Imperial Chemical
                                                          Steel Limited (since May 2002) and a member of the
Industries PLC group (ICI) for 25 years in a variety
                                                          Council of the National Library of Australia, the Sydney
of senior management positions around the world,
                                                          Harbour Conservancy Board, the University of Sydney
including Chairman/CEO of ICI Paints, responsible
                                                          Senate and the Evans and Partners Advisory Board.
for the group’s coatings businesses worldwide,
                                                          He is also NSW President, Chairman of the Corporate
and a member of the Executive Board of ICI PLC,
                                                          Governance Committee and a board member of the
with responsibility for ICI Americas and the western
                                                          Australian Institute of Company Directors. Mr McCann
hemisphere. Mr Kirby is a Director of Orica Limited
                                                          was Partner (from 1970 to 2004) and Chairman of Allens
(since July 2003) and the Beacon Foundation. He is
                                                          Arthur Robinson, a leading firm of Australian lawyers. He
a former Chairman and Director of Medibank Private
                                                          practiced as a commercial lawyer specialising in Mergers
Limited. Mr Kirby is a resident of Victoria.
                                                          and Acquisitions, Mineral and Resources Law and Capital
                                                          Markets Transactions. He was also Chairman of Triako
                                                          Resources Limited (April 1999 to September 2006) and
                                                          Healthscope Limited (March 1994 to October 2008) and
                                                          is a former member of the Takeovers Panel in Australia. Mr
                                                          McCann is a resident of New South Wales.

                                                                                                                       51
     Macquarie Bank Limited and its subsidiaries       2010 Annual Report                                  macquarie.com.au

     Directors’ Report Schedule 1
     for the financial year ended 31 March 2010
     continued




     Nicholas W. Moore, BCom LLB (UNSW), FCA                       Helen M. Nugent, AO, BA (Hons), PhD (Qld), MBA
     (age 51)                                                      (Harv), HonDBus (Qld) (age 61)
     Executive Voting Director – joined the Board in May 2008      Independent Voting Director – joined the Board in
                                                                   June 1999
     Nicholas Moore joined the Board of Macquarie Bank
     as an Executive Voting Director in May 2008. Mr Moore         Helen Nugent joined the Board of Macquarie Bank
     is Managing Director and Chief Executive Officer of            as an Independent Voting Director in June 1999 and
     Macquarie Group Limited. He has been an Executive             became a member of the Board of Macquarie Group
     Voting Director of Macquarie Group Limited since              Limited in August 2007. Currently, she is Chairman
     February 2008. He joined the Corporate Services               of Funds SA and Swiss Re Life and Health (Australia)
     Division of Macquarie Bank in 1986. He led a range of         Limited. She is also a Director of Origin Energy
     transactions, including Hills Motorway, which led the         Limited (since March 2003) and Freehills. Previously,
     development of Macquarie’s infrastructure business. In        she was involved in the financial services sector as
     1996, Mr Moore was appointed Head of the Project and          Director of Strategy at Westpac Banking Corporation
     Structured Finance Division. In 1998 he was appointed         (1994 to 1999) and a Non-Executive Director of the
     Head of the Asset and Infrastructure Group and then           State Bank of New South Wales (1993 to 1994) and
     Head of the Investment Banking Group (predecessor to          Mercantile Mutual (1992 to 1994). In addition, she
     Macquarie Capital) on its inception in 2001. In this role,    was previously Chairman of Hudson (Australia and
     he oversaw significant growth in Macquarie Capital’s           New Zealand) and a Director of UNiTAB (July 1999
     net income through the global growth of the advisory,         to October 2006), Carter Holt Harvey (May 2003 to
     fund management, financing and securities businesses.          June 2006) and Australia Post. She has also been a
     Currently, he is Chairman of Police and Community             Partner at McKinsey and Company. She has been
     Youth Clubs NSW Limited, a Director of the Centre for         actively involved in the arts and education. In the
     Independent Studies and Chairman of the University            arts, she is a Director of the National Portrait Gallery
     of NSW Business School Advisory Council. He was a             and was formerly Deputy Chairman of the Australia
     Director of Macquarie Infrastructure Group (January           Council, Chairman of the Major Performing Arts
     1996 - April 2008), Macquarie Capital Alliance Group          Board of the Australia Council, Chairman of the
     (August 2003 - April 2008) and Macquarie Media Group          Ministerial Inquiry into the Major Performing Arts and
     (September 2005 - April 2008). Mr Moore is a resident of      Deputy Chairman of Opera Australia. In education,
     New South Wales.                                              she is currently Chancellor of Bond University and
                                                                   was a member of the Bradley Review into Higher
     John R. Niland, AC, BCom, MCom, HonDSc (UNSW),
                                                                   Education and Professor in Management and Director
     PhD (Illinois), DUniv (SCU), FAICD (age 69)
                                                                   of the MBA Program at the Australian Graduate
     Independent Voting Director – joined the Board in             School of Management. Dr Nugent is a resident of
     February 2003                                                 New South Wales.
     John Niland joined the Board of Macquarie Bank as
     an Independent Voting Director in February 2003 and
     became a member of the Board of Macquarie Group
     Limited in August 2007. Dr Niland is a Professor Emeritus
     of the University of New South Wales (UNSW) and was
     Vice-Chancellor and President of UNSW from 1992 to
     2002. Before that he was the Dean of the Faculty of
     Commerce and Economics. Dr Niland is a former Chief
     Executive of the State Pollution Control Commission
     and Executive Chairman of the Environment Protection
     Authority. He has served on the Australian Universities
     Council, the Prime Minister’s Science, Engineering and
     Innovation Council, and the boards of the Centennial
     Park and Moore Park Trust, realestate.com.au Limited,
     St Vincent’s Hospital, the Sydney Symphony Orchestra
     Foundation and the Sydney Olympic bid’s Building
     Commission. He is a former President of the National
     Trust of Australia (NSW). He is currently Chairman of
     Campus Living Funds Management Limited and is also
     a member of the University Grants Committee of Hong
     Kong and Deputy Chairman of the Board of Trustees of
     Singapore Management University. Dr Niland is a resident
     of New South Wales.


52
Peter H. Warne, BA (Macquarie) (age 54)                  Company secretaries’ qualifications and
Independent Voting Director – joined the Board in        experience
July 2007                                                Dennis Leong, BSc BE (Hons) (Syd), MCom
Member – Board Audit and Compliance Committee            (UNSW), CPA, FCIS
Peter Warne joined the Board of Macquarie Bank as an     Company Secretary since 25 October 1993
Independent Voting Director in July 2007 and became      Dennis Leong is an Executive Director of Macquarie
a member of the Board of Macquarie Group Limited         and Head of Macquarie’s Company Secretarial
in August 2007. Mr Warne was Head of Bankers Trust       Division, which is responsible for the Group’s company
Australia Limited’s (BTAL) Financial Markets Group       secretarial requirements, professional risks insurances
from 1988 to 1999. Prior to this he held a number of     and employee equity plans. He has had over 16 years
roles at BTAL. He was a Director and Deputy Chairman     company secretarial experience and 12 years
of the Sydney Futures Exchange (SFE) from 1995 to        experience in corporate finance at Macquarie and Hill
1999 and a Director from 2000 to 2006. When the SFE      Samuel Australia Limited.
merged with the Australian Securities Exchange in July
2006, he became a Director of ASX Limited. Currently,    Amelia Cho, BCom LLB (UNSW)
Mr Warne is on the boards of other listed entities as    Assistant Company Secretary since 29 March 2001
Chairman of ALE Property Group (since September
2003) and a Director (currently Acting Chairman) of      Amelia Cho is an Associate Director of Macquarie.
WHK Group Limited (since May 2007). He is also           Ms Cho has had 14 years experience in the
Deputy Chairman of Capital Markets CRC Limited           Company Secretarial Division at Macquarie. She was
and Director of Next Financial Limited. Mr Warne is a    previously an Associate Lawyer in the Commercial
Director of Securities Research Centre of Asia Pacific    Division of Dunhill Madden Butler (now known as
Limited and a member of the Advisory Board of the        PricewaterhouseCoopers Legal). She holds a current
Australian Office of Financial Management. He is a        practising certificate with the Law Society of NSW.
former Director of Macquarie Capital Alliance Group      Paula Walsh, ACIS
(February 2005 - June 2007) and a former Chairman
                                                         Assistant Company Secretary since 29 May 2008
and Director of TEYS Limited (Director from October
2007 and Chairman from July 2008 until June 2009).       Paula Walsh is a Division Director of Macquarie. She
Mr Warne is a resident of New South Wales.               has over 22 years company secretarial experience,
                                                         with 24 years service with British Telecommunications
                                                         PLC where, amongst other roles, she was most
                                                         recently Head of Corporate Governance, Asia Pacific,
                                                         until joining Macquarie in May 2007.
                                                         Nigel Donnelly, BEc LLB (Hons) (Macquarie)
                                                         Assistant Company Secretary since 30 October 2008
                                                         Nigel Donnelly is an Associate Director of Macquarie
                                                         and has over 10 years experience as a solicitor. He
                                                         joined Macquarie in April 2006, and was previously a
                                                         Senior Associate at Mallesons Stephen Jaques with a
                                                         general corporate advisory and corporate governance
                                                         focus.




                                                                                                                   53
     Macquarie Bank Limited and its subsidiaries                    2010 Annual Report   macquarie.com.au

     Directors’ Report Schedule 2
     for the financial year ended 31 March 2010




     Auditor’s Independence Declaration
     As lead auditor for the audit of Macquarie Bank Limited
     for the year ended 31 March 2010, I declare that to the
     best of my knowledge and belief, there have been:
     a) no contraventions of the auditor independence
        requirements of the Corporations Act 2001 in relation
        to the audit; and
     b) no contraventions of any applicable code of
        professional conduct in relation to the audit.
     This declaration is in respect of Macquarie Bank Limited
     and the entities it controlled during the period.




     DH Armstrong
     Partner
     PricewaterhouseCoopers
     Sydney
     29 April 2010




     Liability is limited by a scheme approved under Professional

54   Standards Legislation
Macquarie Bank Limited
2010 Financial Report
Contents




Income statements                                                                      56
Statements of comprehensive income                                                     57
Statements of financial position                                                      58
Statements of changes in equity                                                       60
Statements of cash flows                                                               62
Notes to the financial statements                                                      64
1   Summary of significant accounting policies                                         64
2   Profit for the financial year                                                      76
3   Segment reporting                                                                  79
4   Income tax (expense)/benefit                                                       83
5   Dividends paid and distributions paid or provided                                  84
6   Due from banks                                                                     85
7   Cash collateral on securities borrowed and reverse repurchase agreements           85
8   Trading portfolio assets                                                           85
9   Loan assets held at amortised cost                                                 86
10 Impaired financial assets                                                           87
11 Other financial assets at fair value through profit or loss                         87
12 Other assets                                                                        87
13 Investment securities available for sale                                            88
14 Intangible assets                                                                   88
15 Life investment contracts and other unitholder investment assets                    89
16 Interests in associates and joint ventures accounted for using the equity method    89
17 Property, plant and equipment                                                       91
18 Investments in subsidiaries                                                         92
19 Deed of cross guarantee                                                             93
20 Deferred income tax assets/(liabilities)                                            95
21 Non–current assets and disposal groups classified as held for sale                  95
22 Due to banks                                                                        96
23 Cash collateral on securities lent and repurchase agreements                        96
24 Trading portfolio liabilities                                                       96
25 Debt issued at amortised cost                                                       96
26 Other financial liabilities at fair value through profit or loss                    97
27 Other liabilities                                                                   97
28 Provisions                                                                          98
29 Capital management strategy                                                         98
30 Loan capital                                                                        99
31 Contributed equity                                                                 100
32 Reserves, retained earnings and minority interests                                 102
33 Notes to the statements of cash flows                                              103
34 Related party information                                                          105
35 Key Management Personnel disclosure                                                108
36 Employee equity participation                                                      112
37 Contingent liabilities and commitments                                             120
38 Capital and other expenditure commitments                                          120
39 Lease commitments                                                                  120
40 Derivative financial instruments                                                   121
41 Financial risk management                                                          125
42 Fair value of financial assets and liabilities                                     148
43 Audit and other services provided by PricewaterhouseCoopers                        157
44 Acquisitions and disposals of subsidiaries and businesses                          158
45 Events occurring after balance sheet date                                          160
Directors’ declaration                                                                161
Independent audit report                                                              162

The Financial Report was authorised for issue by the Directors on 29 April 2010.
The consolidated entity has the power to amend and reissue the Financial Report.            55
     Macquarie Bank Limited and its subsidiaries           2010 Annual Report                                 macquarie.com.au

     Income statements
     for the financial year ended 31 March 2010



                                                               Consolidated        Consolidated     Bank                Bank
                                                                       2010               2009      2010                2009
                                                         Notes          $m                  $m       $m                   $m

      Interest and similar income                                        4,353           6,267      3,166              4,551
      Interest expense and similar charges                              (3,028)         (5,302)    (2,311)            (4,148)
      Net interest income                                 2              1,325             965        855                403

      Fee and commission income                           2              1,036             995         96                139
      Net trading income                                  2              1,237           1,545        582              1,438
      Share of net profits/(losses) of associates and
      joint ventures accounted for using the equity
      method                                              2                  7              98          –                 (1)
      Other operating income and charges                  2                 47            (534)     1,026                514
      Net operating income                                               3,652           3,069      2,559              2,493

      Employment expenses                                 2             (1,089)           (887)      (687)              (799)
      Brokerage and commission expenses                   2               (548)           (509)      (401)              (383)
      Occupancy expenses                                  2               (122)           (101)        (86)               (77)
      Non–salary technology expenses                      2                 (88)            (75)       (58)               (55)
      Other operating expenses                            2             (1,043)           (872)      (824)              (645)
      Total operating expenses                                          (2,890)         (2,444)    (2,056)            (1,959)

      Operating profit before income tax                                   762             625        503                534
      Income tax (expense)/benefit                        4                (65)             32         81                 86

      Profit from ordinary activities after income tax                     697             657        584                620
      Distributions paid or provided on:
       Macquarie Income Preferred Securities              5                  (8)           (45)          –                  –
       Other minority interests                                              (5)             (3)         –                  –
      Profit attributable to minority interests                            (13)            (48)          –                  –
      Profit attributable to equity holders of
      Macquarie Bank Limited                                               684             609        584                620
      Distributions paid or provided on:
       Macquarie Income Securities                        5                (21)            (33)          –                  –
       Convertible debentures                             5                   –               –       (15)               (47)

      Profit attributable to ordinary equity holders
      of Macquarie Bank Limited                                            663             576        569                573
     The above income statements should be read in conjunction with the accompanying notes.
     Income statements




56
Statements of comprehensive income
for the financial year ended 31 March 2010



                                                       Consolidated     Consolidated         Bank         Bank
                                                               2010            2009          2010         2009
                                                 Notes          $m               $m           $m            $m

 Profit from ordinary activities after income
 tax for the financial year                                      697            657           584          620
 Other comprehensive income/(expense):
   Available for sale investments, net of tax      32            188             (52)         173            (9)
   Cash flow hedges, net of tax                    32             99           (177)            –          (39)
   Share of other comprehensive (expense)/
   income of associates and joint ventures, net    32
   of tax                                                        (29)            36              –            –
   Exchange differences on translation of foreign
   operations, net of tax                                      (167)             39           110          (33)
 Total other comprehensive income/(expense) for the
 financial year                                                   91           (154)          283          (81)
 Total comprehensive income for the financial year               788            503           867          539

 Total comprehensive income for the financial year is
 attributable to:
  Ordinary equity holders of Macquarie Bank Limited              689            394           852          492
  Macquarie Income Securities holders                             21             33             –            –
  Convertible debentures holders                                   –              –            15           47
  Minority interests                                              78             76             –            –
 Total comprehensive income for the financial year               788            503           867          539
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
Statements of comprehensive income




                                                                                                                   57
     Macquarie Bank Limited and its subsidiaries               2010 Annual Report                             macquarie.com.au

     Statements of financial position
     as at 31 March 2010



                                                                   Consolidated      Consolidated     Bank              Bank
                                                                           2010             2009      2010              2009
                                                             Notes          $m                $m       $m                 $m

       Assets
       Cash and balances with central banks                                      –           141          –              141
       Due from banks                                         6              6,490        10,169      5,120            9,032
       Cash collateral on securities borrowed and
       reverse repurchase agreements                          7              6,084         4,534      5,978            4,534
       Trading portfolio assets                               8             11,324         8,772     11,151            8,494
       Loan assets held at amortised cost                     9             43,794        43,922     16,162           15,238
       Other financial assets at fair value through profit
       or loss                                                11             7,125         5,541      6,949            5,201
       Derivative financial instruments – positive values     40            21,540        27,335     14,955           21,418
       Other assets                                           12             7,321         4,341      3,103            1,825
       Investment securities available for sale               13            16,761        14,544     15,937           13,411
       Intangible assets                                      14               948           337         16               15
       Life investment contracts and other unitholder
       investment assets                                      15             4,854         4,314          –                –
       Due from related body corporate entities               34             2,391         4,647      2,457            4,588
       Due from subsidiaries                                  34                 –             –     16,361           15,045
       Interests in associates and joint ventures
       accounted for using the equity method                  16               915         1,571        342              499
       Property, plant and equipment                          17               139            88         23               31
       Investments in subsidiaries                            18                 –             –      3,848            3,959
       Deferred income tax assets                             20               373            93        283               11
       Non-current assets and assets of disposal
       groups classified as held for sale                     21               51             56          –               –
       Total assets                                                       130,110        130,405    102,685         103,442

       Liabilities
       Due to banks                                           22             2,167         3,264      1,238            2,009
       Cash collateral on securities lent and
       repurchase agreements                                  23             7,201         3,881      7,195            3,881
       Trading portfolio liabilities                          24             4,921         1,980      4,910            1,977
       Derivative financial instruments – negative
       values                                                 40            21,634        27,273     14,866           23,906
       Deposits                                                             22,288        21,603     22,043           21,270
       Debt issued at amortised cost                          25            39,408        48,270     19,170           23,776
       Other financial liabilities at fair value through
       profit or loss                                         26             2,625         3,878      2,355            3,276
       Other liabilities                                      27             6,727         4,001      3,103            2,444
       Current tax liabilities                                                  76           111         18               33
       Life investment contracts and other unitholder
       liabilities                                                           4,864         4,312          –                –
       Due to related body corporate entities                 34             8,008         3,332      8,044            2,876
       Due to subsidiaries                                    34                 –             –      9,596            8,849
       Provisions                                             28                71            76         53               71
       Deferred income tax liabilities                        20               273            72         78              246
       Liabilities of disposal groups classified as held
       for sale                                               21                9              –          –                –
       Total liabilities excluding loan capital                           120,272        122,053     92,669           94,614

       Loan capital
       Subordinated debt at amortised cost                                     905         1,491       905             1,488
       Subordinated debt at fair value through profit
       or loss                                                                499            451        499              451
       Total loan capital                                     30            1,404          1,942      1,404            1,939
       Total liabilities                                                  121,676        123,995     94,073           96,553
       Net assets                                                           8,434          6,410      8,612            6,889
     Statements of financial position




58
                                                          Consolidated     Consolidated          Bank   Bank
                                                                  2010            2009           2010   2009
                                                    Notes          $m               $m            $m      $m


Equity
Contributed equity
 Ordinary share capital                              31           6,508          4,503          6,508   4,503
 Equity contribution from ultimate parent entity     31              87             57             67      44
 Macquarie Income Securities                         31             391            391            391     391
 Convertible debentures                              31                –              –           107     884
Reserves                                             32            (170)          (201)           251     (32)
Retained earnings                                    32           1,533          1,250          1,288   1,099
Total capital and reserves attributable to equity
holders of Macquarie Bank Limited                                 8,349          6,000          8,612   6,889

Minority interests
Macquarie Income Preferred Securities                32              67            398              –       –
Other minority interests                             32              18             12              –       –
Total equity                                                      8,434          6,410          8,612   6,889
The above statements of financial position should be read in conjunction with the accompanying notes.




                                                                                                                 59
     Macquarie Bank Limited and its subsidiaries                2010 Annual Report                            macquarie.com.au

     Statements of changes in equity
     for the financial year ended 31 March 2010



                                                         Contributed                 Retained            Minority       Total
                                                              equity   Reserves      earnings   Total   interests      equity
                                                   Notes         $m         $m             $m    $m           $m         $m



                                                                                                               Consolidated
       Balance at 1 April 2008                                3,995          182       1,374    5,551        834      6,385
       Total comprehensive
       (expense)/income for the financial
       year                                                       –         (182)        609     427          76         503
       Transactions with equity holders in
       their capacity as equity holders:
         Contributions of equity, net of
         transaction costs                          31          917             –           –    917           –         917
         Contribution from ultimate parent
         entity in relation to share based
         payments                                   31           39             –           –     39           –          39
         Dividends paid                             5             –             –       (733)   (733)          –        (733)
         Distributions arising from group
         restructure of combining entities
         under common control                       32            –         (201)           –   (201)          –        (201)
       Minority interests:
         Contributions/distributions of
         equity, net of transactions costs          32            –             –           –       –        (70)        (70)
         Financing of Macquarie Income
         Preferred Securities                       32            –             –           –      –       (382)        (382)
         Distributions paid or provided                           –             –           –      –         (48)         (48)
                                                                956         (201)       (733)     22       (500)        (478)

       Balance at 31 March 2009                               4,951         (201)       1,250   6,000        410       6,410
       Total comprehensive income for the
       financial year                                             –           26         684     710          78         788
       Transactions with equity holders in
       their capacity as equity holders:
         Contributions of equity, net of
         transaction costs                          31        2,005             –           –   2,005          –       2,005
         Contribution from ultimate parent
         entity in relation to share based
         payments                                   31           30             –           –     30           –          30
         Dividends paid                              5            –             –       (401)   (401)          –        (401)
         Distributions arising from group
         restructure of combining entities
         under common control                       32            –             5           –      5           –            5
       Minority interests:
         Contributions/distributions of
         equity, net of transactions costs          32            –             –           –       –          6            6
         Cancellation of Macquarie Income
         Preferred Securities                       32            –             –           –       –      (396)        (396)
         Distributions paid or provided                           –             –           –       –        (13)         (13)
                                                              2,035             5       (401)   1,639      (403)       1,236

       Balance at 31 March 2010                               6,986         (170)       1,533   8,349         85       8,434

     Statements of changes in equity




60
                                            Contributed               Retained                  Minority    Total
                                                 equity   Reserves    earnings        Total    interests   equity
                                      Notes         $m         $m           $m         $m            $m      $m



                                                                                                           Bank
Balance at 1 April 2008                           4,873          49       1,226       6,148            –   6,148
Total comprehensive (expense)/
income for the financial year                         –        (81)        620          539            –     539
Transactions with equity holders in
their capacity as equity holders:
  Contributions of equity, net of
  transaction costs                    31          917            –           –         917            –     917
  Contribution from ultimate parent
  entity in relation to share based
  payments                             31           32            –           –         32             –      32
  Dividends paid                       5             –            –       (747)       (747)            –    (747)
                                                   949            –       (747)        202             –     202

Balance at 31 March 2009                          5,822        (32)       1,099       6,889            –   6,889
Total comprehensive income for
the financial year                                    –        283         584          867            –     867
Transactions with equity holders in
their capacity as equity holders:
  Contributions of equity, net of
  transaction costs                    31         1,228           –           –       1,228            –   1,228
  Contribution from ultimate parent
  entity in relation to share based
  payments                             31            23           –           –         23             –      23
  Dividends paid                        5             –           –       (395)       (395)            –    (395)
                                                  1,251           –       (395)        856             –     856

Balance at 31 March 2010                          7,073        251        1,288       8,612            –   8,612
The above statements of changes in equity should be read in conjunction with the accompanying notes.




                                                                                                                    61
     Macquarie Bank Limited and its subsidiaries                2010 Annual Report                                    macquarie.com.au

     Statements of cash flows
     for the financial year ended 31 March 2010



                                                                     Consolidated         Consolidated      Bank                Bank
                                                                             2010                2009       2010                2009
                                                             Notes            $m                   $m        $m                   $m

        Cash flows from operating activities
        Interest received                                                     4,637             5,808       3,436              3,867
        Interest and other costs of finance paid                             (3,195)           (5,312)     (2,467)            (4,113)
        Dividends and distributions received                                    144               260         543                457
        Fees and other non-interest income received                           1,628             1,145         799                514
        Fees and commissions paid                                              (566)             (515)       (407)              (385)
        Net receipts/(payments) from trading portfolio
        assets and other financial assets/liabilities                         3,012             5,681        (641)             8,364
        Payments to suppliers                                                (1,595)           (1,777)     (1,176)              (510)
        Employment expenses paid                                             (1,081)           (1,082)       (748)              (862)
        Income tax (paid)/refunded                                             (131)               (34)        (48)               31
        Life investment contract (expense)/income                              (137)              265             –                 –
        Life investment contract premiums received and
        other unitholder contributions                                        2,295             3,745            –                  –
        Life investment contract payments                                    (3,226)           (4,201)           –                  –
        Non-current assets and disposal groups
        classified as held for sale – net
        (payments)/receipts from operations                                      (41)              53           –                 23
        Net loan assets repaid/(granted)                                       3,738             (565)      2,750            (11,269)
        Loan facility repaid by ultimate parent entity                         2,551            5,000       2,551              5,000
        Recovery of loans previously written-off                                  19                7           6                  2
        Net (decrease)/increase in amounts due to
        other financial institutions, deposits and other
        borrowings                                                          (10,064)           (7,713)     (5,018)             1,347
        Net cash flows (used in)/from operating
        activities                                             33            (2,012)              765        (420)             2,466

        Cash flows from investing activities
        Net payments for financial assets available for
        sale and at fair value through profit or loss                        (8,222)           (2,134)    (10,199)            (2,289)
        Payments for interests in associates                                   (188)             (235)         (28)             (179)
        Proceeds from the disposal of associates                                138               187           17               141
        Payments for the acquisition of assets and
        disposal groups classified as held for sale, net
        of cash acquired                                                              –           (48)           –                (47)
        Proceeds from the disposal of non-current
        assets and disposal groups classified as held
        for sale, net of cash disposed                                                –           563            –               354
        Payments for the acquisition of subsidiaries,
        excluding disposal groups, net of cash acquired                        (255)             (236)       (259)            (2,033)
        Proceeds from the disposal of subsidiaries and
        businesses, excluding disposal groups, net of
        cash deconsolidated                                                          79         3,406            –             3,861
        Payments for life investment contracts and
        other unitholder investment assets                                   (5,722)           (6,942)           –                  –
        Proceeds from the disposal of life investment
        contracts and other unitholder investment
        assets                                                                 6,852            7,208            –                  –
        Payments for property, plant and equipment,
        and tangible assets                                                    (152)              (47)         (15)               (16)
        Net cash flows (used in)/from investing activities                   (7,470)            1,722     (10,484)              (208)
     Statements of cash flows




62
                                                             Consolidated    Consolidated        Bank      Bank
                                                                     2010           2009         2010      2009
                                                     Notes            $m              $m          $m         $m


Cash flows from financing activities
Proceeds from the issue of ordinary shares                          1,805            917         1,805      917
Payments to minority interests                                       (205)          (201)             –         –
Repayment of subordinated debt                                       (406)          (235)         (406)    (235)
Dividends and distributions paid                                     (419)          (791)         (413)    (748)
Convertible debentures extinguished                                      –              –         (622)         –
Net cash flows from/(used in) financing activities                    775           (310)          364       (66)

Net (decrease)/increase in cash and cash
equivalents                                                        (8,707)         2,177    (10,540)       2,192
Cash and cash equivalents at the beginning of
the financial year                                                 19,872         17,695        18,772    16,580
Cash and cash equivalents at the end of the
financial year                                         33          11,165         19,872         8,232    18,772
The above statements of cash flows should be read in conjunction with the accompanying notes.




                                                                                                                    63
         Macquarie Bank Limited and its subsidiaries               2010 Annual Report                                    macquarie.com.au

         Notes to the financial statements
         for the financial year ended 31 March 2010




                                                                            Estimates and judgements are continually evaluated and
         Notes to the financial statements




         Note 1                                                             are based on historical experience and other factors,
     1   Summary of significant accounting policies                         including reasonable expectations of future events.
         (i)                       Basis of preparation                     Management believes the estimates used in preparing the
                                                                            financial report are reasonable. Actual results in the future
         The principal accounting policies adopted in the                   may differ from those reported and therefore it is
         preparation of this financial report and that of the previous      reasonably possible, on the basis of existing knowledge,
         financial year are set out below. These policies have been         that outcomes within the next financial year that are
         consistently applied to all the periods presented, unless          different from our assumptions and estimates could
         otherwise stated.                                                  require an adjustment to the carrying amounts of the
         This financial report is a general purpose financial report        assets and liabilities reported.
         which has been prepared in accordance with Australian              New Accounting Standards, amendments to
         Accounting Standards (which includes Australian                    Accounting Standards and Interpretations that are not
         Interpretations by virtue of AASB 1048), the Corporations          yet effective
         Act 2001 and the Banking Act 1959.                                 When a new Accounting Standard is first adopted, any
         Compliance with IFRS as issued by the IASB                         change in accounting policy is accounted for in
                                                                            accordance with the specific transitional provisions (if any),
         Compliance with Australian Accounting Standards
                                                                            otherwise retrospectively.
         ensures that the financial report complies with
         International Financial Reporting Standards (IFRS) as              The Bank’s and the consolidated entity’s assessment of
         issued by the International Accounting Standards Board             the impact of the key new Accounting Standards,
         (IASB). Consequently, this financial report has also been          amendments to Accounting Standards and Interpretations
         prepared in accordance with and complies with IFRS as              is set out below:
         issued by the IASB.                                                AASB 2008–3 Business Combinations and AASB 127
         Historical cost convention                                         Consolidated and Separate Financial Statements
         This financial report has been prepared under the                  AASB 2008–3 Amendments to Australian Accounting
         historical cost convention, as modified by the revaluation         Standards arising from AASB 3 and AASB 127 (effective
         of investment securities available for sale and certain other      for annual reporting periods beginning on or after 1 July
         assets and liabilities (including derivative instruments) at       2009). These standards amend the accounting for certain
         fair value.                                                        aspects of business combinations and changes in
                                                                            ownership interests in controlled entities. Consequential
         Critical accounting estimates and significant
                                                                            amendments have been made to AASB 128 Investments
         judgements                                                         in Associates and AASB 131 Interests in Joint Ventures.
         The preparation of the financial report in conformity with         Changes include:
         Australian Accounting Standards requires the use of
                                                                            – transaction costs are recognised as an expense at the
         certain critical accounting estimates. It also requires
                                                                              acquisition date, unless the cost relates to issuing debt
         management to exercise judgement in the process of
                                                                              or equity securities;
         applying the accounting policies. The notes to the financial
         statements set out areas involving a higher degree of              – contingent consideration is measured at fair value at the
         judgement or complexity, or areas where assumptions are              acquisition date (allowing for a 12 month period post-
         significant to the Bank and its subsidiaries (consolidated           acquisition to affirm fair values) without regard to the
         entity) and the consolidated financial report such as:               probability of having to make future payment, and all
                                                                              subsequent changes in fair value are recognised in
         – fair value of financial assets and liabilities (note 42);          profit;
         – impairment of loan assets held at amortised cost,                – changes in control or significant influence are
           investment securities available for sale, associates and           considered significant economic events, thereby
           joint ventures and held for sale investments (notes 1(xiii),       requiring ownership interests to be remeasured to their
           1(xiv), 10 and 41.1);                                              fair value (and the gain/loss recognised in profit) when
         – acquisitions and disposals of subsidiaries, associates             control of a controlled entity is gained or lost;
           and joint ventures and assets and disposal groups                – changes in a parent’s ownership interest in a controlled
           classified as held for sale (notes 1(ii), 1(xiii), 16, 18 and      entity that do not result in a loss of control (e.g.
           21);                                                               dilutionary gains) are recognised directly in equity;
         – determination of control of special purpose entities             – disclosure of any restrictions on the ability of associates
           (notes 1(ii), 9 and 25);                                           to transfer funds to the consolidated entity in the form of
         – recoverability of deferred tax assets and provision for            cash dividends, or repayment of loans or advances; and
           current and deferred income tax (notes 1(vii), 4 and 20);        – disclosure of the consolidated entity’s share of the
           and                                                                capital commitments of the joint ventures themselves.
         – goodwill and other identifiable intangible assets (notes
           1(xvii).                                                         Until future acquisitions take place that are accounted for
                                                                            in accordance with revised AASB 3, the impact on the
                                                                            consolidated entity is not known. The consolidated entity
                                                                            will apply the amended standard from 1 April 2010.
64
AASB 2008–6 Further Amendments to Australian                        Changes in the fair value of investments in equity
Accounting Standards                                                securities that are not part of a trading activity may be
AASB 2008–6 Further Amendments to Australian                        reported directly in equity, but upon realisation those
Accounting Standards arising from the Annual                        accumulated changes in value are not recycled to the
Improvements Project (effective for annual periods on or            income statement. Changes in the fair value of all other
after 1 July 2009).                                                 financial assets carried at fair value are reported in the
                                                                    income statement. The consolidated entity is currently
The amendments to AASB 5 Discontinued Operations and
                                                                    assessing the impact of the new standard, and it is likely
AASB 1 First-Time Adoption of Australian Equivalents to
                                                                    that some financial assets:
International Financial Reporting Standards are part of the
IASB’s annual improvements project published in May                 – carried at fair value through profit or loss (e.g. quoted
2008. They clarify that all of a subsidiary’s assets and              bonds outside of trading book) will change to be carried
liabilities are classified as held for sale if a partial disposal     at amortised cost;
sale plan results in loss of control. Relevant disclosures          – carried at amortised cost (e.g. beneficial interests) will
should be made for this subsidiary if the definition of a             change to be carried at fair value through profit or loss;
discontinued operation is met. The consolidated entity will           and
apply the amendments prospectively to all partial                   – containing embedded derivatives (e.g. geared equity
disposals of subsidiaries from 1 April 2010.                          investments, and capital protected products) will no
AASB 2009–4 Further Amendments to Australian                          longer be separated, and the entire product will change
Accounting Standards                                                  to be carried at fair value through profit or loss.
AASB 2009–4 Amendments to Australian Accounting                     AASB 9 must be initially applied in the financial year
Standards arising from the Annual Improvements Project              beginning 1 April 2013, with early adoption permitted.
(effective for annual periods beginning on or after 1 July          Upon adoption, the classification of a financial asset must
2009). The AASB has made amendments to AASB 2                       be assessed based on the facts at the date of initial
Share-based Payment, AASB 138 Intangible Assets and                 application, and that classification is to be applied
AASB Interpretations 9 Reassessment of Embedded                     retrospectively.
Derivatives and 16 Hedges of a Net Investment in a
                                                                    (ii)   Principles of consolidation
Foreign Operation as a result to the IASB's annual
improvements project. The consolidated entity will apply            Subsidiaries
the amendments from 1 April 2010. Currently no                      The consolidated financial report comprises the financial
adjustments are expected as a result of applying the                report of the Bank and its subsidiaries. Subsidiaries are all
revised rules. The impact of these on future transactions           those entities (including special purpose entities) over
will need to be assessed at the time of the transactions.           which the Bank has the power to govern directly or
AASB 2009–5 Further Amendments to Australian                        indirectly decision-making in relation to financial and
Accounting Standards                                                operating policies, so as to require that entity to conform
AASB 2009–5 Further Amendments to Australian                        with the Bank’s objectives. The effects of all transactions
Accounting Standards arising from the Annual                        between entities in the consolidated entity are eliminated
Improvements Project (effective for annual periods                  in full. Minority interests in the results and equity of
beginning on or after 1 July 2010). In May 2009, the AASB           subsidiaries, where the Bank owns less than 100 per cent
issued a number of improvements to existing Australian              of the issued capital, are shown separately in the
Accounting Standards. The consolidated entity will apply            consolidated income statement and consolidated
the revised standards from 1 April 2011. The consolidated           statement of financial position, respectively.
entity does not expect that any adjustments will be                 Where control of an entity was obtained during the
necessary as a result of applying the revised rules. The            financial year, its results have been included in the
impact on future transactions will need to be assessed as           consolidated income statement from the date on which
they occur.                                                         control commenced. Where control of an entity ceased
AASB 9 Financial Instruments                                        during the financial year, its results are included for that
A new standard was issued in December 2009 and is                   part of the financial year during which control existed.
mandatory for annual reporting periods beginning on or              The Bank and consolidated entity determine the dates of
after 1 January 2013. It provides revised guidance on the           obtaining control (i.e. acquisition date) and losing control
classification and measurement of financial assets, which           (i.e. disposal date) of another entity based on an
is the first phase of a multi-phase project to replace AASB         assessment of all pertinent facts and circumstances that
139 Financial Instruments: Recognition and Measurement.             affect the ability to govern the financial and operating
Under the new guidance, a financial asset is to be                  policies of that entity. Facts and circumstances that have
measured at amortised cost only if it is held within a              the most impact include the contractual arrangements
business model whose objective is to collect contractual            agreed with the counterparty, the manner in which those
cash flows and the contractual terms of the asset give rise         arrangements are expected to operate in practice and
on specified dates to cash flows that are payments solely           whether regulatory approval is required to complete. The
of principal and interest (on the principal amount                  acquisition/disposal date does not necessarily occur when
outstanding). All other financial assets are to be measured         the transaction is closed or finalised at law.
at fair value.
                                                                                                                                    65
     Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                      macquarie.com.au

     Notes to the financial statements
     for the financial year ended 31 March 2010
     continued




                                                                       The Bank and consolidated entity determine the dates of
     Note 1                                                            obtaining/losing significant influence or joint control of
     Summary of significant accounting policies continued              another entity based on an assessment of all pertinent
     (ii)   Principles of consolidation continued                      facts and circumstances that affect the ability to
                                                                       significantly influence or jointly control the financial and
     Subsidiaries continued                                            operating policies of that entity. Facts and circumstances
     Subsidiaries held by the Bank are carried in its separate         that have the most impact include the contractual
     financial statements at cost in accordance with AASB 127          arrangements agreed with the counterparty, the manner in
     Consolidated and Separate Financial Statements.                   which those arrangements are expected to operate in
     Impairment of subsidiaries                                        practice, and whether regulatory approval is required to
                                                                       complete. The acquisition/disposal date does not
     Investments in subsidiaries are tested annually for
                                                                       necessarily occur when the transaction is closed or
     impairment, or more frequently if events or changes in
                                                                       finalised at law.
     circumstances indicate that the carrying amount may not
     be recoverable. An impairment loss is recognised for the          Associates and joint ventures held by the Bank are carried
     amount by which the investment’s carrying amount                  in its separate financial statements at cost in accordance
     exceeds its recoverable amount (which is the higher of fair       with AASB 127 Consolidated and Separate Financial
     value less costs to sell and value in use). At each balance       Statements.
     sheet date, the investments in subsidiaries that have been        (iii)   Business combinations
     impaired are reviewed for possible reversal of the
     impairment.                                                       The purchase method of accounting is used to account
                                                                       for all business combinations, including business
     Securitisations                                                   combinations involving entities or businesses under
     Securitised positions are held through a number of Special        common control. Cost is measured as the aggregate of
     Purpose Entities (SPEs). These are generally categorised          the fair values (at the date of exchange) of assets given,
     as Mortgage SPEs and Other SPEs, and include certain              equity instruments issued or liabilities incurred or assumed
     managed funds and repackaging vehicles. As the                    at the date of exchange plus any costs directly attributable
     consolidated entity is exposed to the majority of the             to the acquisition. Transaction costs arising on the issue of
     residual risk associated with these SPEs, their underlying        equity instruments are recognised directly in equity, and
     assets, liabilities, revenues and expenses are reported in        those arising on borrowings are capitalised and included
     the consolidated entity’s balance sheet and income                in interest expense on an effective yield basis.
     statement.                                                        Identifiable assets acquired and liabilities and contingent
     When assessing whether the consolidated entity controls           liabilities assumed in a business combination are
     (and therefore consolidates) an SPE, judgement is                 measured initially at their fair value at the acquisition date.
     required about risks and rewards as well as the                   The excess of the cost of acquisition over the fair value of
     consolidated entity’s ability to make operational decisions       the consolidated entity’s share of the identifiable net
     for the SPE. The range of factors that are considered in          assets acquired is recorded as goodwill. If the cost of
     assessing control include whether:                                acquisition is less than the consolidated entity’s share of
     – the majority of the benefits of an SPEs activities are          the fair value of the identifiable net assets of the business
       obtained;                                                       acquired, the difference is recognised directly in the
                                                                       income statement, but only after a reassessment is
     – the majority of the residual ownership risks related to
                                                                       performed of the identification and measurement of the
       the SPEs assets are obtained;
                                                                       net assets acquired.
     – the decision-making powers of the SPE vest with the
       consolidated entity; and                                        Where settlement of any part of cash consideration is
     – the SPEs activities are being conducted on behalf of the        deferred, the amounts payable in the future are
       consolidated entity and according to its specific               discounted to their present values as at the date of
       business needs.                                                 exchange. The discount rate used is the entity’s
                                                                       incremental borrowing rate, being the rate at which a
     Interests in associates and joint ventures using the              similar borrowing could be obtained from an independent
     equity method                                                     financier under comparable terms and conditions.
     Associates and joint ventures are entities, over which the        Combinations between entities or businesses under
     consolidated entity has significant influence or joint control,   common control
     but not control, and are accounted for under the equity
     method except for those which are classified as held for          Combinations between entities under common control are
     sale (see note 1(xiii)). The equity method of accounting is       business combinations in which all of the combining
     applied in the consolidated financial report and involves         entities or businesses ultimately are controlled by the
     the recognition of the consolidated entity’s share of its         same party or parties both before and after the
     associates’ and joint ventures’ post-acquisition profits or       combination and that control is not transitory. In the
     losses in the income statement, and its share of post-            consolidated financial statements of the Bank, assets and
     acquisition movements in reserves.                                liabilities of the acquired entities are measured at the



66
carrying amounts recognised previously in the seller’s          Subsidiaries and other entities
consolidated financial statements at the date of the            The results and financial position of all foreign operations
combination. In the separate financial statements of the        that have a functional currency other than Australian
Bank, assets and liabilities of the acquired businesses are     dollars (the presentation currency) are translated into
measured at the carrying amounts recognised previously          Australian dollars as follows:
in the seller’s financial statements at the date of the
combination. Any difference between the fair value of the       – assets and liabilities for each balance sheet presented
consideration given over the carrying amounts recognised          are translated at the closing exchange rate at the date
is recorded directly in reserves arising from the Group           of that balance sheet;
restructure.                                                    – income and expenses for each income statement are
                                                                  translated at actual exchange rates at the date of the
(iv)   Segment reporting                                          transactions; and
Operating segments are identified on the basis of internal      – all resulting exchange differences are recognised in a
reports to senior management who have been identified             separate component of equity – the foreign currency
as the chief operating decision makers, about                     translation reserve.
components of the consolidated entity that are regularly
                                                                On consolidation, exchange differences arising from the
reviewed by senior management in order to allocate
                                                                translation of any net investment in foreign operations, and
resources to the segment and to assess its performance.
                                                                of borrowings and other foreign currency instruments
Information reported to senior management for the
                                                                designated as hedges of such investments, are taken
purposes of resource allocation and assessment of
                                                                directly to the foreign currency translation reserve. When a
performance is specifically focussed on core products and
                                                                foreign operation is disposed of or any borrowings forming
services offered, comprising seven reportable segments
                                                                part of the net investment are repaid, such exchange
as disclosed in note 3. Information about products and
                                                                differences are recognised in the income statement as
services and geographical segments are based on the
                                                                part of the gain or loss on disposal.
financial information used to produce the consolidated
entity’s financial statements.                                  Goodwill and fair value adjustments arising on the
                                                                acquisition of a foreign entity are treated as assets and
(v)    Foreign currency translation                             liabilities of the foreign entities and translated at the closing
Functional and presentation currency                            rate.
Items included in the financial statements of foreign           (vi)   Revenue recognition
operations are measured using the currency of the primary
                                                                Revenue is measured at the fair value of the consideration
economic environment in which the foreign operation
                                                                received or receivable. Revenue is recognised for each
operates (the functional currency). The Bank and
                                                                major revenue stream as follows:
consolidated entity’s financial statements are presented in
Australian dollars (presentation currency), which is the        Interest income
Bank’s functional currency.                                     Interest income is brought to account using the effective
Transactions and balances                                       interest method. The effective interest method calculates
                                                                the amortised cost of a financial instrument and allocates
Foreign currency transactions are translated into the
                                                                the interest income or interest expense over the relevant
functional currency using the exchange rates prevailing at
                                                                period. The effective interest rate is the rate that discounts
the dates of the transactions. Foreign exchange gains and
                                                                estimated future cash payments or receipts through the
losses resulting from the settlement of such transactions
                                                                expected life of the financial instrument or, when
and from the translation at year-end exchange rates of
                                                                appropriate, a shorter period, to the net carrying amount
monetary assets and liabilities denominated in foreign
                                                                of the financial asset or liability. Fees and transaction costs
currencies are recognised in the income statement,
                                                                associated with loans are capitalised and included in the
except when deferred in equity as a result of meeting cash
                                                                effective interest rate and recognised in the income
flow hedge or net investment hedge accounting
                                                                statement over the expected life of the instrument. Interest
requirements (see note 1(xii)).
                                                                income on finance leases is brought to account
Translation differences on non-monetary items (such as          progressively over the life of the lease consistent with the
equities) held at fair value through profit or loss, are        outstanding investment balance.
reported as part of the fair value gain or loss in the income
statement. Translation differences on non-monetary items        Fee and commission income
(such as equities) classified as available for sale financial   Fees and commission income and expense that are
assets are included in the available for sale reserve in        integral to the effective interest rate on a financial asset or
equity, unless they form part of fair value hedge               liability are capitalised and included in the effective interest
relationships in which case the translation differences are     rate and recognised in the income statement over the
recognised in the income statement (see note 1(xii)).           expected life of the instrument.




                                                                                                                                    67
     Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                     macquarie.com.au

     Notes to the financial statements
     for the financial year ended 31 March 2010
     continued




                                                                       relation to tax losses, are probable of recovery. Factors
     Note 1                                                            considered include the ability to offset tax losses within the
     Summary of significant accounting policies continued              group in the relevant jurisdiction, the nature of the tax loss,
     (vi)    Revenue recognition continued                             the length of time that tax losses are eligible for carry
                                                                       forward to offset against future taxable profits and whether
     Fee and commission income continued                               future taxable profits are expected to be sufficient to allow
     Other fees and commission income, including fees from             recovery of deferred tax assets.
     funds management, brokerage, account servicing,
                                                                       The consolidated entity undertakes transactions in the
     corporate advisory, underwriting and securitisation
                                                                       ordinary course of business where the income tax
     arrangements, are recognised as the related services are
                                                                       treatment requires the exercise of judgement. The
     performed. Where commissions and fees are subject to
                                                                       consolidated entity estimates its tax liability based on its
     claw back or meeting certain performance hurdles, they
                                                                       understanding of the tax law.
     are recognised as income at the point when those
     conditions can no longer affect the outcome.                      Tax consolidation
     Fees charged for performing a significant act in relation to      All eligible Australian resident wholly–owned subsidiaries of
     funds managed by the consolidated entity are recognised           the Macquarie Group represent a tax consolidated group,
     as revenue when that act has been completed.                      with MGL as the head entity. As a consequence, the Bank
                                                                       and the relevant subsidiaries are not liable to make income
     Net trading income                                                tax payments and do not recognise any current tax
     Net trading income comprises gains and losses related to          balances or deferred tax assets arising from unused tax
     trading assets and liabilities and includes all realised and      losses in its own financial statements. Under the terms
     unrealised fair value changes, dividends and foreign              and conditions of a tax funding agreement, MGL charges
     exchange differences.                                             each subsidiary for all current tax liabilities incurred in
     Dividends and distributions                                       respect of their activities and reimburses each subsidiary
                                                                       for any tax assets arising from unused tax losses.
     Dividends and distributions are recognised as income
     upon declaration. Dividends from subsidiaries, associates         (viii) Cash collateral on securities borrowed/lent and
     and joint ventures are recognised in profit or loss when the      reverse repurchase/repurchase agreements
     Bank’s right to receive the dividend is established.              As part of its trading activities, the Bank borrows and
     (vii)   Income tax                                                lends securities on a collateralised basis. The securities
                                                                       subject to the borrowing/lending are not derecognised
     The income tax expense for the year is the tax payable on         from the balance sheets of the relevant parties, as the
     the current period’s taxable income based on the national
                                                                       risks and rewards of ownership remain with the initial
     income tax rate for each jurisdiction, adjusted for changes       holder. Where cash is provided as collateral, the cash paid
     in deferred tax assets and liabilities and unused tax losses.
                                                                       to third parties on securities borrowed is recorded as a
     Deferred tax assets are recognised when temporary                 receivable, while cash received from third parties on
     differences arise between the tax base of assets and              securities lent is recorded as a borrowing.
     liabilities and their respective carrying amounts which give      Reverse repurchase transactions, where the Bank
     rise to a future tax benefit, or where a benefit arises due to    purchases securities under an agreement to resell, and
     unused tax losses. In both cases, deferred tax assets are
                                                                       repurchase transactions, where the Bank sells securities
     recognised only to the extent that it is probable that future     under an agreement to repurchase, are also conducted on
     taxable amounts will be available to utilise those temporary      a collateralised basis. The securities subject to the reverse
     differences or tax losses. Deferred tax liabilities are           repurchase/repurchase agreements are not derecognised
     recognised when such temporary differences will give rise
                                                                       from the balance sheets of the relevant parties, as the
     to taxable amounts being payable in future periods.               risks and rewards of ownership remain with the initial
     Deferred tax assets and liabilities are recognised at the tax     holder. Where cash is provided as collateral, the cash paid
     rates expected to apply when the assets are recovered or
                                                                       to third parties on the reverse repurchase agreement is
     the liabilities are settled.
                                                                       recorded as a receivable, while cash received from third
     Deferred tax assets and liabilities are offset when there is a    parties on the repurchase agreement is recorded as a
     legally enforceable right to offset current tax assets and        borrowing.
     liabilities and when the deferred tax balances relate to the
                                                                       Fees and interest relating to securities borrowing/lending
     same taxation authority. Current tax assets and liabilities       and reverse repurchase/repurchase agreements are
     are offset when the consolidated entity has a legally             recognised in the income statement using the effective
     enforceable right to offset and intends either to settle on a     interest method, over the expected life of the agreements.
     net basis, or to realise the asset and settle the liability
     simultaneously. Current and deferred tax balances                 The consolidated entity continually reviews the fair values
     attributable to amounts recognised directly in equity are         of the securities on which the above transactions are
     also recognised directly in equity.                               based and, where appropriate, requests or provides
                                                                       additional collateral to support the transactions, in
     The Bank and consolidated entity exercise judgement in
                                                                       accordance with the underlying agreements.
     determining whether deferred tax assets, particularly in


68
(ix) Discontinued operations                                       models, as appropriate. Movements in the carrying
A discontinued operation is a component of the                     amounts of derivatives are recognised in the income
consolidated entity’s business that represents a separate          statement in net trading income, unless the derivative
major line of business or area of operation that has been          meets the requirements for hedge accounting.
disposed of or is classified as held for sale. Classification      The best evidence of a derivative’s fair value at initial
as a discontinued operation occurs upon disposal or                recognition is its transaction price, unless its fair value is
when the operation meets the criteria to be classified as          evidenced by comparison with other observable current
held for sale, if earlier. When an operation is classified as a    market transactions in the same instrument, or based on a
discontinued operation, the comparative income                     valuation technique for which variables include only data
statement is re–presented as if the operation had been             from observable markets. Where such alternative evidence
discontinued from the start of the comparative period. The         exists, the Bank and consolidated entity recognise profits
results of the discontinued operations are presented               immediately when the derivative is recognised.
separately on the face of the income statements.
                                                                   (xii) Hedge accounting
(x)    Trading portfolio assets and liabilities                    The Bank and consolidated entity designate certain
Trading portfolio assets (long positions) comprise debt            derivatives or financial instruments as hedging instruments
and equity securities, bank bills, treasury notes, bullion         in qualifying hedge relationships. On initial designation of
and commodities purchased with the intent of being                 the hedge, the Bank and consolidated entity document
actively traded. Trading portfolio liabilities (short positions)   the hedging relationship between hedging instruments
comprise obligations to deliver assets across the same             and hedged items, as well as its risk management
trading categories, which the Bank and consolidated                objectives and strategies. The Bank and consolidated
entity have short–sold and are actively traded.                    entity also document the assessment, both at hedge
Assets and liabilities included in the trading portfolio are       inception and on an ongoing basis, of whether the
carried at fair value (see note 42). Realised gains and            hedging relationships have been and will continue to be
losses, and unrealised gains and losses arising from               highly effective. Derivatives or financial instruments can be
changes in the fair value of the trading portfolio are             designated in one of the three types of hedge
recognised as net trading income in the income statement           relationships:
in the period in which they arise. Dividend income or              Cash flow hedges
expense on the trading portfolio is recognised in the              For a derivative or financial instrument designated as
income statement as net trading income.                            hedging the variability in cash flows attributable to a
The Bank and consolidated entity use trade date                    particular risk associated with a recognised asset or
accounting when recording regular way purchases and                liability (or a highly probable forecast transaction). The gain
sales of financial assets. At the date the transaction is          or loss on the derivative or financial instrument associated
entered into (trade date), the Bank and consolidated entity        with the effective portion of the hedge is initially
recognise the resulting financial asset or liability and any       recognised in equity in the cash flow hedging reserve and
subsequent unrealised profits or losses arising from               subsequently released to the income statement when the
revaluing that contract to fair value in the income                hedged item affects the income statement. The gain or
statement. When the Bank and consolidated entity                   loss relating to the ineffective portion of the hedge is
become party to a sale contract of a financial asset, the          recognised immediately in the income statement.
asset is derecognised and a trade receivable is recognised         Fair value hedges
from trade date until settlement date.                             For a derivative or financial instrument designated as
(xi) Derivative instruments                                        hedging the change in fair value of a recognised asset or
Derivative instruments entered into by the Bank and                liability (or an unrecognised firm commitment), the gain or
consolidated entity include futures, forwards and forward          loss on the derivative or financial instrument is recognised
rate agreements, swaps and options in the interest rate,           in the income statement immediately, together with the
foreign exchange, commodity and equity markets. These              loss or gain on the hedged asset or liability that is
derivative instruments are principally used for the risk           attributable to the hedged risk.
management of existing financial assets and financial              Net investment hedges
liabilities.                                                       For a derivative or borrowing designated as hedging a net
All derivatives, including those used for balance sheet            investment in a foreign operation, the gain or loss on
hedging purposes, are recognised on the statement of               revaluing the derivative or borrowing associated with the
financial position and are disclosed as an asset where they        effective portion of the hedge is recognised in the foreign
have a positive fair value at balance date or as a liability       currency translation reserve and subsequently released to
where the fair value at balance date is negative.                  the income statement when the foreign operation is
                                                                   disposed of. The ineffective portion is recognised in the
Derivatives are initially recognised at fair value on the date     income statement immediately.
a derivative contract is entered into and subsequently
remeasured to their fair value. Fair values are obtained           The fair values of various financial instruments used for
from quoted market prices in active markets including              hedging purposes are disclosed in note 40. Movements in
recent market transactions, and valuation techniques               the cash flow hedging reserve in equity are shown in
including discounted cash flow models and option pricing           note 32.
                                                                                                                                     69
     Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                     macquarie.com.au

     Notes to the financial statements
     for the financial year ended 31 March 2010
     continued




                                                                       are unlisted), fair value is established by using valuation
     Note 1                                                            techniques, including recent arm’s length transactions,
     Summary of significant accounting policies continued              discounted cash flow analysis, and other valuation
     (xiii) Investments and other financial assets                     techniques commonly used by market participants.

     With the exception of trading portfolio assets, derivatives       Interest income on debt securities available for sale is
     and investments in associates and joint ventures which            recognised in the income statement in interest income
     are classified separately in the balance sheet, the               using the effective interest method as disclosed in
     remaining investments in financial assets are classified into     note 1(vi).
     the following categories: loans and receivables (loan             Non–current assets and disposal groups classified as
     assets held at amortised cost, amounts due from related           held for sale
     body corporate entities and amounts due from                      This category includes interests in associates and joint
     subsidiaries), other financial assets at fair value through       ventures for which their carrying amount will be recovered
     profit or loss, investment securities available for sale and      principally through a sale transaction rather than
     non–current assets and assets of disposal groups                  continuing use, and subsidiaries acquired exclusively with
     classified as held for sale. The classification depends on        a view to resale. These assets are classified as held for
     the purpose for which the financial asset was acquired,           sale when it is highly probable that the asset will be sold
     which is determined at initial recognition and, except for        within the 12 months subsequent to being classified as
     fair value through profit or loss, is re–evaluated at each        such.
     reporting date.
                                                                       Non–current assets and disposal groups classified as held
     Loans and receivables                                             for sale are presented separately on the face of the
     Loan assets held at amortised cost, amounts due from              statement of financial position. Revenue and expenses
     related body corporate entities and amounts due from              from disposal groups are presented as a single amount on
     subsidiaries are non–derivative financial assets with fixed       the face of the income statement. Financial instruments
     or determinable payments that are not quoted in an active         that are part of disposal groups within the scope of AASB
     market.                                                           5 Non–current Assets Held for Sale and Discontinued
     Other financial assets at fair value through profit or            Operations are not subject to the disclosure requirements
     loss                                                              of AASB 7 Financial Instruments: Disclosures.
     This category includes only those financial assets which          Non–current assets and disposal groups classified as held
     have been designated by management as held at fair                for sale are measured at the lower of their carrying amount
     value through profit or loss on initial recognition. The policy   and fair value less costs to sell. These assets are not
     of management is to designate a financial asset as such if        depreciated.
     the asset contains embedded derivatives which must                An impairment loss is recognised for any initial or
     otherwise be separated and carried at fair value; if it is part   subsequent write down of the asset to fair value less costs
     of a group of financial assets managed and evaluated on a         to sell. A gain is recognised for any subsequent increase in
     fair value basis; or if by doing so eliminates or significantly   fair value less costs to sell, limited by the cumulative
     reduces, a measurement or recognition inconsistency that          impairment loss previously recognised. A gain or loss not
     would otherwise arise. Interest income on debt securities         previously recognised by the date of sale is recognised at
     designated as at fair value through profit or loss is             the date of sale.
     recognised in the income statement in interest income
     using the effective interest method as disclosed in               (xiv) Impairment
     note 1(vi).                                                       Loan assets held at amortised cost
     Investment securities available for sale                          Loan assets are subject to regular review and assessment
                                                                       for possible impairment. Provisions for impairment on loan
     Investment securities available for sale comprise securities
                                                                       assets are recognised based on an incurred loss model
     that are not actively traded and are intended to be held for
                                                                       and re–assessed at each balance sheet date. A provision
     an indefinite period. Such securities are available for sale
                                                                       for impairment is recognised when there is objective
     and may be sold should the need arise, including
                                                                       evidence of impairment, and is calculated based on the
     purposes of liquidity, or due to the impacts of changes in
                                                                       present value of expected future cash flows, discounted
     interest rates, foreign exchange rates or equity prices.
                                                                       using the original effective interest rate.
     Investment securities available for sale are initially carried
                                                                       Specific provisions for impairment are recognised where
     at fair value plus transaction costs. Gains and losses
                                                                       impairment of individual loans are identified. Where
     arising from subsequent changes in fair value are
                                                                       individual loans are found not to be impaired, they are
     recognised directly in the available for sale reserve in
                                                                       placed into pools of assets with similar risk profiles and
     equity until the asset is derecognised or impaired, at which
                                                                       collectively assessed for losses that have been incurred
     time the cumulative gain or loss is recognised in the             but are not yet specifically identifiable.
     income statement. Fair values of quoted investments in
     active markets are based on current bid prices. If the
     relevant market is not considered active (or the securities


70
The Bank and consolidated entity make judgements as to             When the fair value of an available for sale financial asset
whether there is any observable data indicating that there         is less than its initial carrying amount and there is objective
is a significant decrease in the estimated future cash flows       evidence that the asset is impaired, the cumulative loss
from a portfolio of loans before the decrease can be               recognised directly in equity is removed from equity and
identified with an individual loan in that portfolio. This         recognised in the income statement.
evidence may include observable data indicating that               Impairment losses recognised in the income statement for
there has been an adverse change in the payment status             equity securities classified as available for sale are not
of the borrowers in a group, or national or local economic         subsequently reversed through the income statement.
conditions that correlate with defaults on assets in the           However impairment losses recognised for debt securities
group. Management uses estimates based on historical               classified as available for sale are subsequently reversed
loss experience for assets with credit risk characteristics        through the income statement if the fair value increases
and objective evidence of impairment similar to those in           and the increase can be objectively related to an event
the portfolio when scheduling its future cash flows. The           after the impairment loss was recognised in the income
methodology and assumptions used for estimating both               statement.
the amount and timing of future cash flows are reviewed
regularly to reduce any differences between loss estimates         Interests in associates and joint ventures
and actual loss experience. Changes in assumptions used            The consolidated entity performs an assessment at each
for estimating future cash flows could result in a change in       balance sheet date to determine whether there is any
the estimated provisions for impairment on loan assets at          objective evidence that its interests in associates and joint
balance sheet date.                                                ventures are impaired. The entire carrying amount of each
If, in a subsequent period, the amount of impairment               investment in associate and joint venture is considered in
losses decrease and the decrease can be related                    the assessment. The main indicators of impairment are as
objectively to an event occurring after the impairment             for equity securities classified as available for sale,
losses were recognised, the previously recognised                  disclosed above.
impairment losses are reversed through the income                  If there is an indication that an investment in an associate
statement to the extent of what the amortised cost would           or joint venture may be impaired, then the entire carrying
have been had the impairment not been recognised.                  amount of the investment in the associate or joint venture
Investment securities available for sale                           is tested for impairment by comparing the recoverable
                                                                   amount (higher of value in use and fair value less costs to
The consolidated entity performs an assessment at each             sell) with its carrying amount. Impairment losses
balance sheet date to determine whether there is any               recognised in the income statement for investments in
objective evidence that available for sale financial assets        associates and joint ventures are subsequently reversed
have been impaired. Impairment exists if there is objective        through the income statement if the recoverable amount
evidence of impairment as a result of one or more events           increases and the increase can be objectively related to an
(loss event) which have an impact on the estimated future          event after the impairment loss was recognised in the
cash flows of the financial asset that can be reliably             income statement.
estimated.
                                                                   (xv)   Life insurance business
For equity securities classified as available for sale, the
main indicators of impairment are: significant changes in          The life insurance business is comprised of insurance
the market/economic or legal environment; and a                    contracts and investment contracts as defined in AASB 4
significant or prolonged decline in fair value below cost.         Insurance Contracts. The following are key accounting
                                                                   policies in relation to the life insurance business:
In making this judgement, the consolidated entity
evaluates among other factors, the normal volatility in            Disclosure
share price and the period of time for which fair value has        The consolidated financial statements include the assets,
been below cost.                                                   liabilities, income and expenses of the life insurance
In the case of debt securities classified as available for sale,   business conducted by a subsidiary of the Bank in
observable data that relates to loss events are considered,        accordance with AASB 139 Financial Instruments:
including adverse changes in the payment status of the             Recognition and Measurement, and AASB 1038 Life
issuer and national or local economic conditions that              Insurance Contracts which apply to investment contracts
correlate with defaults on those assets.                           and assets backing insurance liabilities, respectively.
                                                                   These amounts represent the total life insurance business
In addition, impairment may be appropriate when there is           of the subsidiary, including underlying amounts that relate
evidence of deterioration in the financial condition of the        to both policyholders and shareholders of the life
investee, industry and sector performance, operational             insurance business.
and financing cash flows or changes in technology.




                                                                                                                                     71
         Macquarie Bank Limited and its subsidiaries             2010 Annual Report                                    macquarie.com.au

         Notes to the financial statements
         for the financial year ended 31 March 2010
         continued




                                                                          Useful lives and residual values are reviewed annually and
         Note 1                                                           reassessed in light of commercial and technological
         Summary of significant accounting policies continued             developments. If an asset’s carrying value is greater than
         (xv)   Life insurance business continued                         its recoverable amount due to an adjustment to its useful
                                                                          life, residual value or impairment, the carrying amount is
         Investment assets                                                written down immediately to its recoverable amount.
         Investment assets are carried at fair value through profit or    Adjustments arising from such items and on disposal of
         loss. Fair values of quoted investments in active markets        property, plant and equipment are recognised in the
         are based on current bid prices. If the relevant market is       income statement.
         not considered active (and for unlisted securities), fair        Gains and losses on disposal are determined by
         value is established by using valuation techniques,              comparing proceeds with the asset’s carrying amount and
         including recent arm’s length transactions, discounted           are included in the income statement.
         cash flow analysis, option pricing models and other
         valuation techniques commonly used by market                     (xvii) Goodwill and other identifiable intangible assets
         participants. Changes in fair values are recognised in the       Goodwill
         income statement in the financial period in which the            Goodwill represents the excess of the cost of an
         changes occur.                                                   acquisition over the fair value of the consolidated entity’s
         Restriction on assets                                            share of the net identifiable assets of the acquired entity at
         Investments held in the Life Funds can only be used within       the date of acquisition. Goodwill arising from business
         the restrictions imposed under the Life Insurance Act 1995.      combinations is included in intangible assets on the face
         The main restrictions are that the assets in a fund can only     of the statement of financial position. Goodwill arising from
         be used to meet the liabilities and expenses of the fund,        acquisitions of associates is included in the carrying
         acquire investments to further the business of the fund or       amount of investments in associates.
         pay distributions when solvency and capital adequacy             Other identifiable intangible assets
         requirements allow. Shareholders can only receive a              Licences and trading rights are carried at cost less
         distribution when the capital adequacy requirements of the       accumulated impairment losses. These assets are not
         Life Insurance Act 1995 are met.                                 amortised because they are considered to have an
         Policy liabilities                                               indefinite useful life.
         Life insurance liabilities are measured as the accumulated       Management rights have a finite useful life and are carried
         benefits to policyholders in accordance with AASB 139            at cost less accumulated amortisation and impairment
         and AASB 1038, which apply to investment contracts and           losses. Amortisation is calculated using the straight–line
         assets backing insurance liabilities, respectively.              method to allocate the cost of management rights over
         (xvi) Property, plant and equipment                              the estimated useful life, usually a period not exceeding
                                                                          20 years.
         Property, plant and equipment are stated at historical cost
         less accumulated depreciation and accumulated                    Customer and servicing contracts acquired with a finite
         impairment losses, if any. Property, plant and equipment         useful life are carried at cost less accumulated
         are reviewed for impairment annually. Historical cost            amortisation and any impairment losses. Amortisation is
         includes expenditure directly attributable to the acquisition    calculated based on the timing of projected cash flows of
         of the asset.                                                    the contracts over their estimated useful lives.

         Depreciation on assets is calculated on a straight–line          Customer and servicing contracts with indefinite useful life
         basis to allocate the difference between cost and residual       are carried at cost less accumulated impairment losses.
         values over their estimated useful lives, at the following       Software
         rates:                                                           Certain internal and external costs directly incurred in
         Furniture and fittings        10 to 20 per cent                  acquiring and developing certain software are capitalised
         Leasehold improvements1       20 per cent                        and amortised over their estimated useful life, usually a
         Computer equipment            33 to 50 per cent                  period of three years. Costs incurred on software
         Plant and equipment           20 to 33 per cent                  maintenance are expensed as incurred.
     1
         Where remaining lease terms are less than five years,
         leasehold improvements are depreciated over the
         remaining lease term.




72
Impairment                                                        made. In determining this amount, consideration is given
Goodwill and intangible assets that have an indefinite            to expected future salary levels and employee service
useful life are not subject to amortisation and are tested        histories. Expected future payments are discounted to
annually for impairment or more frequently if events or           their net present value using discount rates on high quality
changes in circumstances indicate that the carrying               corporate bonds, except where there is no deep market,
amount may not be recoverable. An impairment loss is              in which case rates on Commonwealth Government
recognised for the amount by which the asset’s carrying           securities are used. Such discount rates have terms that
amount exceeds its recoverable amount. The recoverable            match as closely as possible the expected future cash
amount is the higher of the asset’s fair value less costs to      flows.
sell and value in use. For the purposes of assessing              Provisions for unpaid employee benefits are derecognised
impairment, assets are grouped at the lowest levels for           when the benefit is settled, or it is transferred to another
which there are separately identifiable cash inflows which        entity and the Bank and consolidated entity are legally
are largely independent of the cash inflows from other            released from the obligation and do not retain a
assets or groups of assets (cash–generating units).               constructive obligation.
Intangible assets (other than goodwill) that suffered an
                                                                  Dividends
impairment are reviewed for possible reversal of the
impairment at each reporting date.                                Provisions for dividends to be paid by the Bank are
                                                                  recognised on the statement of financial position as a
(xviii) Financial liabilities                                     liability and a reduction in retained earnings when the
The consolidated entity has on issue debt securities and          dividend has been declared.
instruments which are initially recognised at fair value net      (xx)   Performance based remuneration
of transaction costs incurred, and subsequently measured
at amortised cost. Any difference between the proceeds            Share based payments
(net of transaction costs) and the redemption amount is           The ultimate parent entity, Macquarie Group Limited
recognised in the income statement over the period of the         (MGL), operates share–based compensation plans, which
borrowings using the effective interest method.                   include options granted to employees and shares
                                                                  (including those delivered through the Macquarie Group
Other financial liabilities at fair value through profit
                                                                  Employee Retained Equity Plan (MEREP)) granted to
or loss                                                           employees under share acquisition plans. Information
This category includes only those financial liabilities which     relating to these schemes is set out in note 36. The
have been designated by management as held at fair                consolidated entity recognises an expense for the shares
value through profit or loss on initial recognition. The policy   and options granted to its employees by MGL. The shares
of management is to designate a financial liability as such       and options are measured at the grant dates based on
if: the liability contains embedded derivatives which must        their fair value and using the number of equity instruments
otherwise be separated and carried at fair value; the             expected to vest. This amount is recognised as an
liability is part of a group of financial assets and financial    expense evenly over the respective vesting periods.
liabilities managed and evaluated on a fair value basis; or if
by doing so eliminates (or significantly reduces) a               Performance hurdles attached to options, and
measurement or recognition inconsistency that would               Performance Share Units (PSUs) under MEREP, that are
otherwise arise. Interest expense on such items is                issued to the Executive Officers are not taken into account
recognised in the income statement in interest expense.           when determining their fair value at grant date. Instead,
                                                                  these vesting conditions are taken into account by
(xix) Provisions                                                  adjusting the number of equity instruments expected to
Employee benefits                                                 vest.
A liability for employee benefits is recognised by the entity     The fair value of each option granted in prior years was
that has the obligation to the employee. Generally, this is       estimated on the date of grant using standard option
consistent with the legal position of the parties to the          pricing techniques based on the Black–Scholes theory.
employment contract.                                              The following key assumptions were adopted for grants
                                                                  made in the prior financial year:
Liabilities for unpaid salaries, salary related costs and
provisions for annual leave are recorded in the statement         –   risk free interest rate: 6.77 per cent;
of financial position at the salary rates which are expected      –   expected life of options: four years;
to be paid when the liability is settled. Provisions for long     –   volatility of share price: 24 per cent; and
service leave and other long–term benefits are recognised         –   dividend yield: 3.47 per cent per annum.
at the present value of expected future payments to be




                                                                                                                                 73
     Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                   macquarie.com.au

     Notes to the financial statements
     for the financial year ended 31 March 2010
     continued




                                                                     Further, Executive Directors’ retained profit share relating
     Note 1                                                          to 2009 that is no longer to be paid in cash is reversed in
     Summary of significant accounting policies continued            the current year and recognised in profit, and where the
     (xx)   Performance based remuneration continued                 liability was defeased by MBL to MGSA in the prior
                                                                     financial year this amount is returned to MBL in the current
     In the current year, MGL established a new equity plan,         year (and recognised in profit) due to becoming a party to
     MEREP. Restricted Share Units (RSUs)/Deferred Share             a Chargeback Agreement. RSUs/DSUs granted in the
     Units (DSUs) and PSUs for Executive Committee                   place of 2009 retained profit share is accounted for as a
     members, have been granted in the current year in               share-based payment from 1 April 2009.
     respect of 2009. The fair value of each of these grants is
     estimated using MGL’s share price on the date of grant,         The consolidated entity and the Bank annually revises its
     and for each PSU also incorporates a discounted cash            estimates of the number of shares (including those
     flow method using the following key assumptions:                delivered through MEREP) and options that are expected
                                                                     to vest. Where appropriate, the impact of revised
     – risk free interest rate: 5.24 per cent (weighted average);    estimates are reflected in the income statement over the
     – expected life of PSU: four years; and                         remaining vesting period, with a corresponding adjustment
     – dividend yield: 3.47 per cent per annum.                      to the share based payments reserve in equity.
     While RSUs/DSUs and PSUs for Executive Committee                Profit share remuneration
     members, in respect of the current year’s performance will      The consolidated entity and the Bank recognises a liability
     be granted in the following financial year, the consolidated    and an expense for profit share remuneration to be paid in
     entity and the Bank begins recognising an expense (based        cash, based on a formula that takes into consideration the
     on an initial estimate) from 1 April of the current financial   consolidated entity’s profit from ordinary activities after
     year related to these future grants. The expense is             income tax and its earnings over and above the estimated
     estimated using MGL’s share price as at 31 March 2010           cost of capital.
     (and for PSUs, also incorporates a risk free interest rate of
                                                                     (xxi) Cash and cash equivalents
     5.75 per cent; an expected life of four years; and a
     dividend yield of 3.47 per cent per annum). In the following    Cash and cash equivalents include cash and balances
     financial year, the consolidated entity and the Bank will       with central banks and short–term amounts included in
     adjust the accumulated expense recognised for the final         due from banks. Negotiable certificates of deposit with an
     determination of fair value for each RSU/DSU and PSU to         original maturity of less than 3 months is included within
     be granted when granted, and will use this valuation for        cash and cash equivalents and negotiable certificates of
     recognising the expense over the remaining vesting period.      deposit with an original maturity greater than 3 months is
                                                                     included within trading portfolio assets or investment
     Where options and shares are issued by MGL to                   securities available for sale.
     employees of the consolidated entity and the Bank, and
     MGL is not subsequently reimbursed by the consolidated          (xxii) Leases
     entity and the Bank, the consolidated entity and the Bank       Where finance leases are granted to third parties, the
     recognises the equity provided as a capital contribution        present value of the lease payments is recognised as a
     from MGL. Where MGL is reimbursed, the consolidated             receivable and included in loan assets held at amortised
     entity and the Bank recognises any amount it pays in            cost. The difference between the gross receivable and the
     advance (of the share-based payment to be recognised as         present value of the receivable is recognised as unearned
     an expense over the future vesting period) as a prepaid         interest income. Lease income is recognised over the term
     asset.                                                          of the lease using the effective interest method, which
                                                                     reflects a constant rate of return.
     On transition to MEREP, RSUs/DSUs were granted in
     place of 2009 and some prior years’ retained profit share.      Leases entered into by the Bank and consolidated entity
     Where certain Executive Directors’ retained profit share        as lessee are primarily operating leases. The total
     relating to 2008 and prior years was voluntarily invested in    payments made under operating leases is charged to the
     MEREP at a price of $36.36 per share (Transitioned              income statement on a straight–line basis over the period
     Amounts), this is accounted for with the Transitioned           of the lease.
     Amounts being reclassified from a profit share liability to     Purchased assets, where the Bank and consolidated
     an intercompany liability owing to MGL (due to the              entity are the lessor under operating leases, are carried at
     consolidated entity and the Bank being a party to a             cost and depreciated over their useful lives which vary
     Payment Agreement with MGL), and the discount to the            depending on each class of asset and range from 3 to 40
     fair value per RSU at grant date being treated as a share-      years. Assets under operating leases are included in other
     based payment.                                                  assets.




74
(xxiii) Offsetting financial instruments                      (xxvi) Transactions with minorities
Financial assets and liabilities are offset and the net       Transactions with minorities are recognised in the
amount reported on the statement of financial position        consolidated entity's financial statements using the
when there is a legally enforceable right to offset the       parent–entity approach. For securities held by minority
recognised amounts and there is an intention to settle on     interests that are purchased by the consolidated entity at
a net basis, or realise the financial asset and settle the    a price less than the securities' carrying amount, then the
financial liability simultaneously.                           difference is recognised as a gain in the income statement.
(xxiv) Loan capital                                           (xxvii) Comparatives
Loan capital is debt issued by the consolidated entity with   Where necessary, comparative information has been
terms and conditions that qualify for inclusion as capital    restated to conform with changes in presentation in the
under APRA Prudential Standards. Loan capital debt            current year.
issues are initially recorded at fair value plus directly     (xxviii)   Rounding of amounts
attributable transaction costs and thereafter at either
amortised cost using the effective interest method or at      The Bank is of a kind referred to in ASIC Class Order
fair value through profit or loss.                            98/0100 (as amended), relating to the rounding off of
                                                              amounts in the financial report. Amounts in the financial
(xxv) Contributed equity                                      report have been rounded off in accordance with that
Ordinary shares are classified as equity. Incremental costs   Class Order to the nearest million dollars unless otherwise
directly attributable to the issue of new shares or options   indicated.
are shown in equity as a deduction, net of tax, from the
proceeds.




                                                                                                                            75
             Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                     macquarie.com.au

             Notes to the financial statements
             for the financial year ended 31 March 2010
             continued


                                                                         Consolidated        Consolidated         Bank               Bank
                                                                                 2010               2009          2010               2009
                                                                                  $m                  $m           $m                  $m


             Note 2
     2       Profit for the financial year
             Net interest income
             Interest and similar income received/receivable:
               Other entities                                                     4,198            5,660          2,592              3,437
               Subsidiaries (note 34)                                                 –                –            419                529
               Related body corporate entities (note 34)                            155              607            155                585
             Interest expense and similar charges paid/payable:
               Other entities                                                    (2,861)          (4,777)       (1,895)            (2,891)
               Subsidiaries (note 34)                                                  –                –         (252)              (785)
               Related body corporate entities (note 34)                           (167)            (525)         (164)              (472)
             Net interest income                                                  1,325              965           855                403

             Fee and commission income
             Base fees                                                              464              403             16                 16
             Performance fees                                                        45               15              –                  –
             Mergers and acquisitions, advisory and underwriting fees                37               71             22                 53
             Brokerage & commissions                                                288              276             58                 68
             Other fee and commission income                                        154              171              –                  –
             Income from life investment contracts and other
             unitholder investment assets (note 15)                                  48               59              –                  2
             Total fee and commission income                                      1,036              995             96                139

             Net trading income1
             Equities                                                               555              430           619                 421
             Commodities                                                            663              574            (33)               128
             Foreign exchange products                                              104              241           513                 500
             Interest rate products                                                 (85)             300          (517)                389
             Net trading income                                                   1,237            1,545           582               1,438

             Share of net profits/(losses) of associates and joint
             ventures accounted for using the equity method                              7            98               –                (1)
         1
             Included in net trading income are fair value losses of $295 million (2009: $177 million gain) relating to financial assets
             and financial liabilities designated as held at fair value through profit or loss. This includes $255 million loss (2009:
             $274 million gain) as a result of changes in own credit spread on issued debt and subordinated debt carried at fair value.
             Fair value changes relating to derivatives are also reported in net trading income which partially offsets the fair value
             changes relating to the financial assets and financial liabilities designated at fair value. This also includes fair value
             changes on derivatives used to hedge the consolidated entity’s economic interest rate risk where hedge accounting
             requirements are not met – refer to note 1(xii) – Summary of significant accounting policies.




76
                                                                 Consolidated      Consolidated            Bank             Bank
                                                                         2010             2009             2010             2009
                                                                          $m                $m              $m                $m


    Note 2
    Profit for the financial year continued
    Other operating income and charges
    Net gains/(losses) on sale of investment securities
    available for sale                                                       42               (6)            117                 1
    Impairment charge on investment securities available for
    sale                                                                   (101)           (240)              (3)           (109)
    Net gains on sale of associates (including associates held
    for sale) and joint ventures                                               9              29                –            124
    Impairment charge on investment in associates (including
    associates held for sale) and joint ventures                            (69)           (102)             (21)               (5)
    Impairment charge on subsidiaries                                          –                –            (84)           (205)
    Net expense from disposal groups held for sale                             –              (3)               –             (30)
    Impairment charge on disposal groups held for sale1                        –           (192)                –           (189)
    Gain on acquiring, disposing and change in ownership
    interest in subsidiaries and businesses held for sale                   138             298              141             402
    Impairment charge on non-financial assets                               (23)            (45)               –               –
    Gain on repurchase of subordinated debt                                  55                –              55               –
    Net operating lease income2                                              72              55                –               –
    Dividends/distributions received/receivable:
      Investment securities available for sale                               23               19              29              87
      Subsidiaries (note 34)                                                  –                –             491             325
    Management fees, group service charges and cost
    recoveries                                                              (27)             (21)            471             520
    Collective allowance for credit losses (provided
    for)/written back during the financial year (note 9)                     (1)             (91)               2             (73)
    Specific provisions:
      Loan assets provided for during the financial year (note 9)         (175)            (325)            (161)           (294)
      Other receivables provided for during the financial year              (27)             (18)             (27)            (10)
      Recovery of loans previously provided for (note 9)                     32               17               29              17
      Recovery of other receivables previously provided for                   5                 –                –               –
      Loan losses written–off                                               (63)             (40)             (23)            (12)
      Recovery of loans previously written–off                               19                7                6               2
    Other income/(expenses)                                                 138             124                 4             (37)
    Total other operating income and charges                                 47            (534)           1,026             514
    Net operating income                                                  3,652           3,069            2,559           2,493
1
    Prior year impairment charge arising from the reclassification of the Italian mortgages business as a disposal group held
    for sale.
2
    Includes rental income of $279 million (2009: $140 million) less depreciation of $207 million (2009: $85 million) in relation
    to operating leases where the consolidated entity is lessor.




                                                                                                                                      77
         Macquarie Bank Limited and its subsidiaries          2010 Annual Report                                    macquarie.com.au

         Notes to the financial statements
         for the financial year ended 31 March 2010
         continued


                                                                   Consolidated        Consolidated       Bank                Bank
                                                                           2010               2009        2010                2009
                                                                            $m                  $m         $m                   $m


         Note 2
         Profit for the financial year continued
         Employment expenses
         Salary and salary related costs including commissions,
         superannuation and performance–related profit share               (1,012)            (853)       (661)               (774)
         Share based payments                                                  (66)             (32)        (21)                (25)
         Provision for annual leave                                              (8)              (2)         (3)                  –
         Provision for long service leave                                        (3)                –         (2)                  –
         Total employment expenses                                         (1,089)            (887)       (687)               (799)

         Brokerage and commission expenses
         Brokerage expenses                                                  (417)            (380)       (313)               (308)
         Other fee and commission expenses                                   (131)            (129)         (88)                (75)
         Total brokerage and commission expenses                             (548)            (509)       (401)               (383)

         Occupancy expenses
         Operating lease rental                                                (68)            (58)         (48)                (43)
         Depreciation: furniture, fittings and leasehold
         improvements (note 17)                                                (28)             (17)        (18)                (11)
         Other occupancy expenses                                              (26)             (26)        (20)                (23)
         Total occupancy expenses                                            (122)            (101)         (86)                (77)

         Non–salary technology expenses
         Information services                                                  (45)            (42)         (32)                (35)
         Depreciation: computer equipment (note 17)                              (9)           (14)           (6)                 (9)
         Other non–salary technology expenses                                  (34)            (19)         (20)                (11)
         Total non–salary technology expenses                                  (88)            (75)         (58)                (55)

         Other operating expenses
         Professional fees                                                   (111)            (120)         (83)                (81)
         Auditor’s remuneration (note 43)                                      (10)             (11)          (5)                 (5)
         Travel and entertainment expenses                                     (55)             (57)        (33)                (39)
         Advertising and promotional expenses                                  (40)             (30)        (24)                (20)
         Communication expenses                                                (16)             (15)          (8)                 (7)
         Amortisation of intangibles                                           (22)             (23)            –                   –
         Other expenses1                                                     (789)            (616)       (671)               (493)
         Total other operating expenses                                    (1,043)            (872)       (824)               (645)
         Total operating expenses                                          (2,890)          (2,444)     (2,056)             (1,959)
     1
         Other expenses includes recharges from Macquarie Group Services Australia Pty Limited (MGSA) which provides
         administration and central support functions.




78
    Note 3
3   Segment reporting
    (i)   Operating segments
    For internal reporting and risk management purposes, the consolidated entity is divided into five operating groups, two
    operating divisions and a corporate group. These segments have been set up based on the different core products and
    services offered:
    Macquarie Securities Group activities include institutional/retail derivatives, structured equity finance, arbitrage trading,
    synthetic products, capital management, collateral management and securities borrowing and lending. It is a full service
    institutional cash equities broker in the Asia Pacific region and South Africa and specialised in the rest of the world. It
    provides an equity capital markets service through a joint venture with Macquarie Capital Advisers.
    Macquarie Capital comprises Macquarie Group's corporate advisory, equity underwriting and specialised funds
    management businesses (including infrastructure and real estate funds).
    Macquarie Funds Group is a full service fund manager that manages assets for pension funds, institutional and retail
    investors.
    Fixed Income, Currencies and Commodities provides a variety of trading, research, sales and financing services
    across the globe with an underlying specialisation in interest rate, commodity or foreign exchange related institutional
    trading, marketing, lending, clearing or platform provision.
    Corporate and Asset Finance Division provides innovative and traditional capital, finance and related services to clients
    operating in selected international markets. Corporate and Asset Finance specialises in leasing and asset finance, tailored
    debt and finance solutions and asset remarketing, sourcing and trading.
    Real Estate Banking Division encompasses real estate funds management, asset management, real estate investment,
    advisory, development management and real estate project and development financing.
    Banking and Financial Services Group is the primary relationship manager for Macquarie Group’s retail client base.
    The group brings together Macquarie Group’s retail banking and financial services businesses providing a diverse range
    of wealth management products and services to financial advisers, stockbrokers, mortgage brokers, professional service
    industries and the end consumer.=
    Corporate=includes Group Treasury, head office and central support functions. Costs within Corporate include
    unallocated head office costs, employment related costs, earnings on capital, non-trading derivative volatility, income tax
    expense and expenses attributable to minority interests. Corporate is not considered an operating group.
    Any transfers between segments are determined on an arm’s length basis and eliminate on consolidation.
    Segment information has been prepared in conformity with the consolidated entity's segment accounting policy. In
    accordance with AASB 8 Operating Segments, comparative information has been restated to reflect current reportable
    operating segments.




                                                                                                                                    79
         Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                macquarie.com.au

         Notes to the financial statements
         for the financial year ended 31 March 2010
         continued

                                                                               Macquarie                              Macquarie
                                                                               Securities         Macquarie              Funds
                                                                                  Group             Capital              Group
                                                                                     $m                $m                   $m


         Note 3
         Segment reporting continued
         The following is an analysis of the consolidated entity’s revenue
         and results by reportable segment for the financial year:


         Revenues from external customers                                              489                 6               1,132
         Inter–segmental (expense)/revenue1                                            (56)               22                 (16)
         Interest revenue                                                               36                 3                 148
         Interest expense                                                              (22)                –                 (40)
         Depreciation and amortisation                                                   (1)               –                 (17)
         Share of net profits/(losses) of associates and joint
         ventures accounted for using the equity method                                   –               12                   7
         Net operating expense from non–current assets held for sale                      –                 –                  –
         Reportable segment profit/(loss)                                               116              (49)                 84
         Reportable segment assets                                                   12,687              479               7,892



         Revenues from external customers                                              675                97                 718
         Inter–segmental (expense)/revenue1                                             (31)             133                 (36)
         Interest revenue                                                              304               (14)                194
         Interest expense                                                             (176)                (7)               (37)
         Depreciation and amortisation                                                    (1)              (6)                 (2)
         Share of net profits/(losses) of associates and joint
         ventures accounted for using the equity method                                   –               31                  (1)
         Net operating expense from non–current assets held for sale                      –                –                    –
         Reportable segment profit/(loss)                                                78              133                  93
         Reportable segment assets                                                    9,842              737               8,491
     1
         Internal reporting systems do not enable the separation of inter–segmental revenues and expenses. The net position is
         disclosed above. The key inter–segmental item is internal interest and funding costs charged to businesses for funding of
         their business net assets.




80
 Fixed Income,           Corporate     Real Estate      Banking and
Currencies and           and Asset       Banking            Financial
  Commodities      Finance Division       Division    Services Group     Corporate                 Total
            $m                  $m             $m                 $m           $m                   $m




                                                                                   Consolidated 2010
        1,790                  955            144              2,242           985             7,743
           (68)               (239)           (81)                119          319                  –
          637                  993             76              1,494           966             4,353
         (380)                (184)            (5)            (1,128)       (1,269)           (3,028)
         (108)                (108)            (2)                (30)            –             (266)

           10                    1             (22)                2             (3)                   7
            –                    –                –                –               –                   –
          736                  259           (151)               268          (600)                  663
       42,060               14,338          1,840             29,860        20,954               130,110


                                                                                       Consolidated 2009
        1,877                  397            279              3,439         2,110                 9,592
           (98)                 (94)         (189)              (420)          735                      –
          761                  365            173              2,691         1,793                 6,267
         (538)                (129)             (5)           (1,902)       (2,508)               (5,302)
             (8)                (80)            (3)               (16)            –                 (116)

           69                   (1)             6                  (6)            –                   98
           (3)                    –              –                   –            –                   (3)
          553                   84           (355)              (104)            94                  576
       45,810                8,368          3,040             32,103        22,014              130,405




                                                                                                            81
         Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                  macquarie.com.au

         Notes to the financial statements
         for the financial year ended 31 March 2010
         continued




         Note 3
         Segment reporting continued
         (ii)    Products and services
         For the purposes of preparing a segment report based on products and services, the activities of the consolidated entity
         have been divided into four areas:
         Asset and Wealth Management: distribution and manufacture of funds management products;
         Financial Markets: trading in fixed income, equities, currency, commodities and derivative products;
         Capital Markets: corporate and structured finance, advisory, underwriting, facilitation, broking and real estate/property
         development; and
         Lending: banking activities, mortgages, and leasing.
                                                         Asset and
                                                           Wealth            Financial       Capital
                                                       Management             Markets       Markets         Lending            Total
                                                                $m                $m            $m              $m              $m

                                                                                                               Consolidated 2010
         Revenues from external customers                    1,845               3,014            11          2,873        7,743

                                                                                                                Consolidated 2009
         Revenues from external customers                    2,256               3,735          141           3,460         9,592


         (iii)   Geographical areas
         Geographical segments have been determined based on where the transactions have been booked. The operations of
         the consolidated entity are headquartered in Australia.
                                                                                     Revenues from                    Non–current
                                                                                 external customers                       assets1
                                                                                                $m                            $m

                                                                                                               Consolidated 2010
         Australia                                                                            4,898                          174
         Asia Pacific                                                                           708                           19
         Europe, Middle East and Africa                                                       1,036                           75
         Americas                                                                             1,101                          819
         Total                                                                                7,743                        1,087

                                                                                                                Consolidated 2009
         Australia                                                                            6,870                           152
         Asia Pacific                                                                           547                            21
         Europe, Middle East and Africa                                                       1,311                            44
         Americas                                                                               864                           208
         Total                                                                                9,592                           425
     1
         Non–current assets consist of intangible assets and property, plant and equipment.

         (iv)    Major customers
         The consolidated entity does not rely on any major customer.




82
                                                                    Consolidated       Consolidated           Bank             Bank
                                                                            2010              2009            2010             2009
                                                                             $m                 $m             $m                $m


        Note 4
4       Income tax (expense)/benefit
        (a) Income tax (expense)/benefit
        Current tax (expense)/benefit                                         (428)             (17)           (436)            213
        Deferred tax benefit/(expense)                                         363               49             517            (127)
        Total                                                                   (65)             32              81              86

        Deferred income tax benefit/(expense) included in
        income tax benefit/(expense) comprises:
          (Decrease)/increase in deferred tax assets                           564              (72)            348              (36)
          (Increase)/decrease in deferred tax liabilities                     (201)             121             169              (91)
        Total                                                                  363               49             517            (127)

        (b) Numerical reconciliation of income tax
        (expense)/benefit to prima facie tax payable
        Prima facie income tax expense on operating profit1                   (229)           (188)            (151)           (160)
        Tax effect of amounts which are (not deductible)/
        non–assessable in calculating taxable income:
          Rate differential on offshore income                                 200              155             166             111
          Distribution provided on Macquarie Income Preferred
          Securities and related distributions                                    2              13                7              14
          Non–deductible share-based payments expense                            (9)            (10)              (6)             (8)
          Intra–group dividends                                                    –               –            147               98
          Other items                                                          (29)              62             (82)              31
          Gain on sale of discontinued operations                                  –               –                –               –
        Total income tax (expense)/benefit                                     (65)              32              81               86

        (c) Tax (expense)/benefit relating to items of other
        comprehensive income
        Available for sale reserve                                              (51)             27             (52)               8
        Cash flow hedges                                                        (42)             75               3               14
        Foreign currency translation reserve                                  (204)               –             (26)               –
        Share of other comprehensive income of associates and
        joint ventures                                                          13              (15)               –                  –
        Total tax (expense)/benefit relating to items of other
        comprehensive income                                                  (284)              87             (75)              22
    1
        Prima facie income tax on operating profit is calculated at the rate of 30 per cent (2009: 30 per cent). The Australian tax
        consolidated group has a tax year ending on 30 September.




                                                                                                                                          83
         Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                   macquarie.com.au

         Notes to the financial statements
         for the financial year ended 31 March 2010
         continued


                                                                         Consolidated       Consolidated      Bank               Bank
                                                                                 2010              2009       2010               2009
                                                                                  $m                 $m        $m                  $m


         Note 5
     5   Dividends paid and distributions paid or provided
         (i)     Dividends paid
         Ordinary share capital
         Interim dividend paid                                                     35                 –          35                 –
         2009 Final dividend paid                                                 345               700         345               700
         Total dividends paid (note 32)                                           380               700         380               700


         (ii)    Dividends not recognised at the end of the financial year
         Since the end of the financial year the Directors have recommended the payment of a dividend. The aggregate amount of
         the proposed dividend expected to be paid on 2 July 2010 from retained profits at 31 March 2010, but not recognised
         as a liability at the end of the financial year, is $450 million (2009: $345 million).

         (iii)   Distributions paid or provided
         Macquarie Income Securities
         Distributions paid (net of distributions previously provided)                 16            28            –                  –
         Distributions provided                                                         5             5            –                  –
         Total distributions paid or provided (note 32)                                21            33            –                  –
         The Macquarie Income Securities (MIS) is a stapled arrangement, which includes a perpetual preference share issued by
         the Bank. No dividends are payable under the preference shares until the Bank exercises its option to receive future
         payments of interest and principal under the other stapled security. Upon exercise, dividends are payable at the same
         rate, and subject to similar conditions, as the MIS. Dividends are also subject to Directors' discretion. The distributions
         paid/provided in respect of the MIS are recognised directly in equity in accordance with AASB 132 Financial Instruments:
         Presentation. Refer to note 31 – Contributed equity for further details on these instruments.

         Macquarie Income Preferred Securities
         Distributions paid (net of distributions previously provided)                 6             33            –                  –
         Distributions provided                                                        2             12            –                  –
         Total distributions paid or provided (note 32)                                8             45            –                  –
         The Macquarie Income Preferred Securities (MIPS) represent the minority interests of a subsidiary. Accordingly, the
         distributions paid/provided in respect of the MIPS are recorded as movements in minority interests, as disclosed in note
         32 – Reserves, retained earnings and minority interests. The Bank can redirect the payments of distributions under the
         convertible debentures to be paid to itself. For each debenture 500 Bank preference shares may be substituted at the
         Bank's discretion at any time, in certain circumstances (to meet capital requirements), or on maturity. Refer to note 31 –
         Contributed equity, for further details on these instruments.

         Convertible Debentures
         Distributions paid (net of distributions previously provided)                 –              –          12                26
         Distributions provided                                                        –              –           3                21
         Total distributions paid or provided (note 32)                                –              –          15                47




84
                                                                      Consolidated      Consolidated             Bank             Bank
                                                                              2010             2009              2010             2009
                                                                               $m                $m               $m                $m


        Note 6
6       Due from banks
        Cash at bank1                                                          2,745           1,857            1,666              869
        Overnight cash at bank2                                                2,966           5,578            2,776            5,577
        Other loans to banks                                                     697           2,566              596            2,418
        Due from clearing houses3                                                 82             168               82              168
        Total due from banks                                                   6,490          10,169            5,120            9,032
    1
        Included within this balance is $nil (2009: $1 million) provided as security over payables to other financial institutions.
    2
        Included within this balance is $126 million (2009: $nil) provided as security over payables.
    3
        Included within this balance is $9 million (2009: $nil) provided as security over payables.


        Note 7
7       Cash collateral on securities borrowed and reverse
        repurchase agreements
        Central banks                                                              –               13               –               13
        Governments1                                                              28              709              28              709
        Financial institutions                                                 6,036            3,791           5,930            3,791
        Other                                                                     20               21              20               21
        Total cash collateral on securities borrowed and
        reverse repurchase agreements                                          6,084            4,534           5,978            4,534
    1
        Governments include federal, state and local governments and related enterprises.
        The consolidated entity enters into stock borrowing and reverse repurchase transactions with counterparties which
        require lodgement of non-cash collateral. The fair value of collateral held as at 31 March 2010 is $6,237 million
        (2009: $1,555 million). Under certain transactions, the consolidated entity is allowed to resell or repledge the collateral
        held.


        Note 8
8       Trading portfolio assets
        Trading securities
        Equities1
         Listed                                                               4,566            2,843           4,537             2,836
         Unlisted                                                                28               43               6                 7
        Corporate bonds                                                       2,699            1,117           2,678             1,070
        Commonwealth government bonds1                                        2,455            3,017           2,455             3,017
        Other government securities                                           1,063              995           1,063               995
        Foreign government bonds1                                               305              511             305               479
        Treasury notes                                                           73                –              73                 –
        Bank bills                                                                3                9               –                 9
        Promissory notes                                                          1                –               1                 –
        Certificates of deposit                                                   –               66               –                66
        Total trading securities                                             11,193            8,601          11,118             8,479

        Other trading assets
        Commodities                                                             131              171              33                15
        Total other trading assets                                              131              171              33                15
        Total trading portfolio assets2                                      11,324            8,772          11,151             8,494
    1
        Included within these balances are assets provided as security over issued notes and payables to other external
        investors and financial institutions. The value of assets provided as security is $121 million (2009: $nil).
    2
        Included within this balance are trading assets of $4,144 million (2009: $3,214 million) pledged as collateral to secure
        liabilities under repurchase agreements and stock lending agreements.

                                                                                                                                         85
             Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                       macquarie.com.au

             Notes to the financial statements
             for the financial year ended 31 March 2010
             continued


                                                                           Consolidated       Consolidated           Bank                Bank
                                                                                   2010              2009            2010                2009
                                                                                    $m                 $m             $m                   $m


             Note 9
     9       Loan assets held at amortised cost
             Due from clearing houses                                               2,217           1,310            1,229                742
             Due from governments1                                                    297             111              200                  9
             Due from other entities
              Other loans and advances                                             38,160          39,574          15,158              14,986
              Less specific provisions for impairment                                (332)           (396)           (293)               (326)
                                                                                   37,828          39,178          14,865              14,660
              Lease receivables                                                     3,684           3,556              57                   7
              Less specific provisions for impairment                                   (5)            (14)              –                   –
             Total due from other entities                                         41,507          42,720          14,922              14,667
             Total loan assets before collective allowance for
             credit losses                                                         44,021          44,141          16,351              15,418
             Less collective allowance for credit losses                             (227)           (219)           (189)               (180)
             Total loan assets held at amortised cost2, 3                          43,794          43,922          16,162              15,238
         1
             Governments include federal, state and local governments and related enterprises in Australia.
         2
             Included within this balance are loans of $15,998 million (2009: $20,390 million) held by consolidated SPEs which are
             available as security to note holders and debt providers.
         3
             Included within this balance are loans of $690 million (2009: $830 million) provided as security over issued notes and
             payables to other external investors and financial institutions.

             Specific provisions for impairment
             Balance at the beginning of the financial year                           410             100              326                 60
             Provided for during the financial year (note 2)                          175             325              161                294
             Loan assets written–off, previously provided for                        (142)            (24)            (106)               (16)
             Recovery of loans previously provided for (note 2)                        (32)           (17)              (29)              (17)
             Transfer from related body corporate entities                               2              7                  –                 –
             Attributable to foreign currency translation                              (76)            19               (59)                5
             Balance at the end of the financial year                                 337             410              293                326
             Specific provisions as a percentage of total gross
             loan assets                                                           0.76%           0.92%            1.76%              2.07%

             Collective allowance for credit losses
             Balance at the beginning of the financial year                           219             112              180                106
             Transfer from related body corporate entities                               –             10                 –                 –
             Provided for during the financial year (note 2)                            1              91               (2)                73
             Attributable to acquisitions during the financial year                    11               6               11                  1
             Attributable to foreign currency translation                              (4)              –                 –                 –
             Balance at the end of the financial year                                 227             219              189                180

             The collective allowance for credit losses is intended to cover losses in the existing overall credit portfolio which are not
             yet specifically identifiable.




86
                                                                    Consolidated   Consolidated            Bank             Bank
                                                                            2010          2009             2010             2009
                                                                             $m             $m              $m                $m


     Note 10
10   Impaired financial assets
     Impaired debt investment securities available for sale
     before specific provisions for impairment                              143             188                 –                  –
     Less specific provisions for impairment                               (115)           (137)                –                  –
     Debt investment securities available for sale after specific
     provisions for impairment                                                28              51                –                  –
     Impaired loan assets and other financial assets with
     specific provisions for impairment                                     994           1,340             898            1,195
     Less specific provisions for impairment                               (368)           (423)           (322)            (341)
     Loan assets and other financial assets after specific
     provisions for impairment                                              626             917              576             854
     Total net impaired assets                                              654             968              576             854

     Impaired assets have been reported in accordance with AASB 139 Financial Instruments: Recognition and Measurement
     and include loan assets (netted with certain derivative liabilities of $nil (2009: $85 million)).


     Note 11
11   Other financial assets at fair value through profit or loss
     Investment securities                                                 4,479          3,065            4,241           2,725
     Loan assets                                                           2,646          2,476            2,708           2,476
     Total other financial assets at fair value through
     profit or loss1                                                       7,125          5,541            6,949           5,201
 1
     Included within this balance is $2,173 million (2009: $2,793 million) provided as security over payables to other financial
     institutions.


     Note 12
12   Other assets
     Debtors and prepayments                                               4,491           2,931           1,864           1,820
     Security settlements1                                                 1,446             156           1,237               –
     Assets under operating leases2                                          754             926               –               1
     Property held for sale and development                                  563             298               1               1
     Other                                                                    67              30               1               3
     Total other assets3                                                   7,321           4,341           3,103           1,825
 1
     Security settlements are receivable within three working days of the relevant trade date.
 2
     Assets under operating lease are stated net of accumulated depreciation of $250 million (2009: $411 million).
 3
     Included within this balance is $626 million (2009: $710 million) of assets which are provided as security over amounts
     payable to other financial institutions.




                                                                                                                                       87
          Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                       macquarie.com.au

          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued


                                                                        Consolidated     Consolidated           Bank                Bank
                                                                                2010            2009            2010                2009
                                                                                 $m               $m             $m                   $m


          Note 13
     13   Investment securities available for sale
          Equity securities
           Listed1                                                               391             140              289                121
           Unlisted                                                              270             271               61                 67
          Debt securities2, 3                                                 16,100          14,133           15,587             13,223
          Total investment securities available for sale4                     16,761          14,544           15,937             13,411
      1
          Included within this balance is $1 million (2009: $1 million) provided as security over payables to other financial
          institutions.
      2
          Includes $2,234 million (2009: $6,217 million) of Negotiable Certificates of Deposit (NCD) due from financial institutions
          and $20 million (2009: $238 million) of bank bills.
      3
          Included within this balance is $299 million (2009: $15 million) provided as security over payables to other financial
          institutions.
      4
          Included within this balance is $182 million (2009: $nil) pledged as collateral to secure liabilities under repurchase
          agreements and stock lending agreements.

          Note 14
     14   Intangible assets
          Goodwill                                                               378              189               –                   –
          Customer and servicing contracts                                       168               67               –                   –
          Intangible assets with indefinite lives                                262               18               –                   –
          Other identifiable intangible assets                                   140               63              16                  15
          Total intangible assets                                                948              337              16                  15


          Reconciliation of the consolidated entity’s movement in intangible assets:
                                                                                           Intangible            Other
                                                                       Customer           assets with     identifiable
                                                                    and servicing           indefinite      intangible
                                                           Goodwill    contracts                 lives          assets              Total
                                                               $m             $m                   $m              $m                $m

          Balance at the beginning of the financial year         189               67              18              63                 337
          Acquisitions during the financial year                 218              126             234             106                 684
          Adjustments to purchase consideration1                   4                1               –                 –                  5
          Transferred from held for sale                            –                –             11                 –                11
          Disposals during the financial year                       –                –              –             (10)                (10)
          Impairment during the financial year                    (2)                –              –               (2)                 (4)
          Amortisation expense for the financial year               –             (14)              –              (8)                (22)
          Currency translation difference arising during
          the financial year                                     (31)             (12)             (1)             (9)                (53)
          Balance at the end of the financial year               378              168             262             140                 948
      1
          These balances relate to adjustments to purchase considerations and allocations.
          In relation to businesses acquired and held for disposal, the individual business is treated as a cash generating unit.
          Assets associated with strategic business acquisitions are allocated to each of the operating segments (refer to note 3 –
          Segment reporting) and assessed for impairment on a regional legal entity operating group basis.




88
                                                                  Consolidated      Consolidated           Bank            Bank
                                                                          2010             2009            2010            2009
                                                                           $m                $m             $m               $m


     Note 15
15   Life investment contracts and other unitholder
     investment assets
     Cash and due from banks                                                 103             106                –               –
     Debt securities                                                         617             714                –               –
     Units in unit trusts                                                  3,968           3,372                –               –
     Equity securities                                                       166             122                –               –
     Total life investment contracts and other unitholder
     investment assets                                                     4,854           4,314                –               –

     Investment assets are held to satisfy policy and unitholder liabilities, which are predominately investment linked.
     Income from life investment contracts and other
     unitholder investment assets
     Premium income, investment revenue and management
     fees                                                                    667             346                –               2
     Life investment contract claims, reinsurance and changes
     in policy liabilities                                                 (585)            (266)               –               –
     Direct fees                                                             (34)             (21)              –               –
     Total income from life investment contracts and other
     unitholder investment assets (note 2)                                    48              59                –               2

     Solvency requirements for the life investment contracts business have been met at all times during the financial year.
     As at 31 March 2010, the life investment contracts business had investment assets in excess of policy holder liabilities of
     $13 million (2009: $14 million).



     Note 16
16   Interests in associates and joint ventures accounted
     for using the equity method
     Loans and investments without provisions for impairment                723            1,064             144              375
     Loans and investments with provisions for impairment                   394              926             241              128
     Less provision for impairment                                         (202)            (419)            (43)              (4)
     Loans and investments at recoverable amount                            192              507             198              124
     Total interests in associates and joint ventures
     accounted for using the equity method                                  915            1,571             342              499




                                                                                                                                     89
         Macquarie Bank Limited and its subsidiaries             2010 Annual Report                                        macquarie.com.au

         Notes to the financial statements
         for the financial year ended 31 March 2010
         continued




         Note 16
         Interest in associates and joint ventures accounted for using the equity method continued
                                                                                                         Consolidated        Consolidated
                                                                                                                 2010               2009
                                                                                                                  $m                  $m

         (a)  Reconciliation of movement in the consolidated entity’s interests in
         associates and joint ventures accounted for using the equity method:
         Balance at the beginning of the financial year                                                         1,571               1,956
         Transfer as part of restructure                                                                              2                  2
         Associates acquired/equity invested                                                                      200                 268
         Share of pre–tax profits of associates and joint ventures                                                  10                139
         Share of tax expense of associates and joint ventures                                                       (3)               (41)
         Dividends received/receivable from associates (note 34)                                                   (96)              (200)
         Associates disposed of                                                                                  (129)               (195)
         Impairment of investments in associates                                                                   (65)              (102)
         Foreign exchange and other adjustments                                                                  (164)                186
         Transferred to other asset categories                                                                   (411)               (442)
         Balance at the end of the financial year                                                                 915               1,571

         (b)    Summarised information of interests in material associates and joint ventures is as follows:
                                                                                                               Ownership interest
                                                                   Country of         Reporting                 2010           2009
         Name of entity                                            incorporation      date                        %               %

         Diversified CMBS Investments Inc1, a                      USA                31 March                      57                  57
         Macquarie Countrywide Trust2, 3, b                        Australia          30 June                        –                  11
         Macquarie Goodman Japan Limitedb                          Singapore          31 March                      50                  50
         Macquarie Office Trust2, 3, b                             Australia          30 June                        –                  14
         MGPA Limited4, b                                          Bermuda            30 June                       56                  56
     1
         Voting rights for this investment are not proportional to the ownership interest. The consolidated entity has joint control
         because neither the consolidated entity nor its joint investor has control in their own right.
     2
         The consolidated entity had significant influence due to its fiduciary relationship as manager of these entities.
     3
         Due to a restructure of ownership these interests have now been classified as investment securities available for sale.
     4
         Significant influence arises due to the consolidated entity’s voting power and board representation.
     a
         Funds management and investing.
     b
         Property development/management entity.

                                                                      Consolidated        Consolidated          Bank                 Bank
                                                                              2010               2009           2010                 2009
                                                                               $m                  $m            $m                    $m

         (c)  Contingent liabilities of associates and joint
         ventures are as follows:
         Share incurred jointly with other investors                                  9             2                 –                  –
         For which the consolidated entity is severally liable                        3             1                 –                  –




90
                                                                    Consolidated   Consolidated           Bank            Bank
                                                                            2010          2009            2010            2009
                                                                             $m             $m             $m               $m


     Note 16
     Interest in associates and joint ventures accounted for using the equity method continued
     (d) Financial information of interests in associates
     and joint ventures are as follows:
     Consolidated entity’s share of:
     Assets                                                                2,036         4,466              443            961
     Liabilities                                                           1,147         2,322              323            592
     Revenues                                                                558           911              112            223
     Profit after tax                                                          4            98                1              –


     Note 17
17   Property, plant and equipment
     Furniture, fittings and leasehold improvements
     Cost                                                                   177            124               48                 55
     Less accumulated depreciation                                          (50)           (50)             (30)               (34)
     Total furniture, fittings and leasehold improvements                   127             74               18                 21

     Communication equipment
     Cost                                                                     7               9               5                  6
     Less accumulated depreciation                                           (6)             (8)             (5)                (6)
     Total communication equipment                                            1               1                –                  –

     Computer equipment
     Cost                                                                    63              70              82                 48
     Less accumulated depreciation                                          (55)            (57)            (77)               (38)
     Total computer equipment                                                 8              13               5                 10

     Infrastructure assets
     Cost                                                                     3               –               –                  –
     Less accumulated depreciation                                            –               –               –                  –
     Total infrastructure assets                                              3               –               –                  –
     Total property, plant and equipment                                    139              88              23                 31

     Reconciliation of the movement in the consolidated entity’s property, plant and equipment at their
     written–down value:
                                                     Furniture,
                                                  fittings and
                                                    leasehold Communication           Computer Infrastructure
                                               improvements      equipment           equipment         assets              Total
                                                            $m          $m                 $m             $m                $m

     Balance at the beginning of the
     financial year                                          74                1             13                –                88
     Acquisitions                                            50                –              4                3                57
     Disposals                                                (3)              –               –               –                 (3)
     Reclassification1                                       30                –               –               –                30
     Foreign exchange movements                                4               –               –               –                  4
     Depreciation expense (note 2)                          (28)               –             (9)               –               (37)
     Balance at the end of the financial year               127                1              8                3               139
 1
     During the year a number of agricultural non-current assets have been transferred out of held for sale resulting in $30
     million being transferred into property, plant and equipment.


                                                                                                                                       91
          Macquarie Bank Limited and its subsidiaries             2010 Annual Report                                      macquarie.com.au

          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued


                                                                       Consolidated        Consolidated          Bank               Bank
                                                                               2010               2009           2010               2009
                                                                                $m                  $m            $m                  $m


          Note 18
     18   Investments in subsidiaries
          Investments at cost without provisions for impairment                        –             –           3,794             3,921
          Investments at cost with provisions for impairment                           –             –             352               252
          Less provisions for impairment                                               –             –            (298)             (214)
          Investments at recoverable amount                                            –             –              54                38
          Total investments in subsidiaries                                            –             –           3,848             3,959
          The material subsidiaries of the Bank, based on contribution to the consolidated entity's profit from ordinary activities, the
          size of the investment made by the Bank or the nature of the activities conducted by the subsidiary, are:
          –   Delaware Management Holdings Inc. (United States)
          –   Macquarie Agricultural Funds Management Limited (formerly known as Macquarie Pastoral Management Limited)
          –   Macquarie Alternative Assets Management Limited
          –   Macquarie Americas Corp (United States)
          –   Macquarie Australia Securities Limited
          –   Macquarie Bank International Limited (United Kingdom)
          –   Macquarie Corporate and Asset Finance Limited
          –   Macquarie Financial Limited/Financiere Macquarie Ltee (Canada)
          –   Macquarie Financial Products Management Limited
          –   Macquarie France SARL (France)
          –   Macquarie Funding Inc (Canada)
          –   Macquarie Funding Holdings Inc (United States)
          –   Macquarie Funds Management Holdings Pty Limited
          –   Macquarie Hong Kong Finance International Limited (Hong Kong)
          –   Macquarie Hong Kong Finance Limited (Cayman Islands)1
          –   Macquarie Income Investments Limited
          –   Macquarie Investment Management Limited
          –   Macquarie Investment Services Limited
          –   Macquarie Investments (UK) Limited (United Kingdom)
          –   Macquarie Leasing Pty Limited
          –   Macquarie Life Limited
          –   Macquarie Private Capital Management Limited
          –   Macquarie Securitisation Limited
          –   Macquarie TCG (USA) LLC (United States)
          –   MQ Portfolio Management Limited
          Note: All entities are incorporated in Australia unless otherwise stated.
          Overseas subsidiaries conduct business predominantly in their place of incorporation unless otherwise stated.
          Beneficial interest in all entities is 100 per cent.
          All entities have a 31 March reporting date.
      1
          Incorporated in the Cayman Islands with business conducted predominantly in Hong Kong.




92
     Note 19
19   Deed of cross guarantee
     On 26 March 2009 MBL, Macquarie Americas Holdings Pty Limited, Macquarie Corporate and Asset Finance Limited,
     Macquarie Leisure Developments Pty Limited, Macquarie Property Investment Management Holdings Limited and Pacific
     Rim Operations Limited entered into a deed of cross guarantee under which each company guarantees the debts of the
     others. On 25 February 2010, Macquarie Australia Pty Limited entered the deed and on 22 March 2010 Boston Australia
     Pty Limited and MTF Holdings Pty Limited entered the deed. By entering into the deed, the wholly-owned entities have
     been relieved from the requirement to prepare a financial report and directors’ report under Class Order 98/1418 (as
     amended) issued by the Australian Securities and Investments Commission.
     Consolidated income statement and a summary of movements in consolidated retained earnings
     The above entities represent a ‘Closed Group’ (the Closed Group) for the purpose of the Class Order, and as there are
     no other parties to the Deed of Cross Guarantee that are controlled by MBL they also represent the ‘Extended Closed
     Group’.
     Consolidated income statement of the Closed Group for the financial year ended 31 March 2010
                                                                                                        2010            2009
                                                                                                         $m               $m

     Interest and similar income                                                                       3,239           4,571
     Interest expense and similar charges                                                             (2,311)         (4,149)
     Net interest income                                                                                 928             422

     Fee and commission income                                                                             69            139
     Net trading income                                                                                   565          1,436
     Share of net profits of associates and joint ventures accounted for using the equity method           13             86
     Other operating income and charges                                                                   858            441
     Net operating income                                                                               2,433          2,524

     Employment expenses                                                                                (688)           (799)
     Brokerage and commission expenses                                                                  (375)           (381)
     Occupancy expenses                                                                                   (85)            (77)
     Non–salary technology expenses                                                                       (58)            (55)
     Other operating expenses                                                                           (707)           (627)
     Total operating expenses                                                                         (1,913)         (1,939)

     Operating profit before income tax                                                                   520            585
     Income tax benefit                                                                                    83             83
     Profit attributable to equity holders of the Closed Group                                            603            668

     Summary of movements in consolidated retained earnings
     Retained earnings at the beginning of the financial year1                                          1,090          1,183
     Profit attributable to equity holder of the Closed Group                                             603            668
     Dividends paid or provided                                                                          (416)          (747)
     Retained earnings at the end of the financial year                                                 1,277          1,104
 1
     The opening retained earnings of the Closed Group for 2010 includes the opening retained earnings of Macquarie
     Australia Pty Limited, Boston Australia Pty Limited and MTF Holdings Pty Limited amounting to $14 million, entities which
     entered into the deed of cross guarantee in the year ended 31 March 2010.




                                                                                                                                 93
     Macquarie Bank Limited and its subsidiaries              2010 Annual Report                      macquarie.com.au

     Notes to the financial statements
     for the financial year ended 31 March 2010
     continued




     Note 19
     Deed of cross guarantee continued
     Consolidated statement of financial position of the Closed Group as at 31 March 2010
                                                                                              2010              2009
                                                                                               $m                 $m
     Assets
     Cash and balances with central banks                                                         –              141
     Due from banks                                                                           5,120            9,032
     Cash collateral on securities borrowed and reverse repurchase agreements                 5,978            4,534
     Trading portfolio assets                                                                11,151            8,494
     Loan assets held at amortised cost                                                      16,162           15,238
     Other financial assets at fair value through profit or loss                              6,965            5,222
     Derivative financial instruments – positive values                                      14,955           21,418
     Other assets                                                                             3,103            1,827
     Investment securities available for sale                                                16,014           13,430
     Intangible assets                                                                           16               15
     Due from related body corporate entities                                                 2,457            4,588
     Due from subsidiaries                                                                   13,835           14,076
     Interest in associates and joint ventures accounted for using the equity method            339              736
     Property, plant and equipment                                                               23               31
     Investments in subsidiaries                                                              5,221            4,547
     Deferred income tax assets                                                                 214                6
     Total assets                                                                           101,553          103,335
     Liabilities
     Due to banks                                                                             1,657            2,009
     Cash collateral on securities lent and repurchase agreements                             7,195            3,881
     Trading portfolio liabilities                                                            4,910            1,977
     Derivative financial instruments – negative values                                      14,866           23,906
     Deposits                                                                                21,623           21,267
     Debt issued at amortised cost                                                           19,170           23,776
     Other financial liabilities at fair value through profit or loss                         2,355            3,276
     Other liabilities                                                                        3,103            2,445
     Current tax liabilities                                                                     18               33
     Due to related body corporate entities                                                   8,046            2,847
     Due to subsidiaries                                                                      8,271            8,763
     Provisions                                                                                  53               71
     Deferred income tax liabilities                                                              –              301
     Total liabilities excluding loan capital                                                91,267           94,552
     Loan capital
     Subordinated debt at amortised cost                                                        905            1,488
     Subordinated debt at fair value through profit or loss                                     499              451
     Total loan capital                                                                       1,404            1,939
     Total liabilities                                                                       92,671           96,491
     Net assets                                                                               8,882            6,844
     Equity
     Contributed equity
      Ordinary share capital                                                                  6,855             4,547
      Macquarie Income Securities                                                               391               391
      Convertible debentures                                                                    107               884
     Reserves                                                                                   252               (82)
     Retained earnings                                                                        1,277             1,104
     Total equity                                                                             8,882             6,844

94
                                                                  Consolidated      Consolidated           Bank              Bank
                                                                          2010             2009            2010              2009
                                                                           $m                $m             $m                 $m


     Note 20
20   Deferred income tax assets/(liabilities)
     The balance comprises temporary differences
     attributable to:
     Other assets and liabilities                                           247             367              96                 (4)
     Tax losses                                                             115              49              46                   –
     Fixed assets                                                            26              33              28                33
     Investments in subsidiaries, associates and joint ventures              69              39               –                   –
     Set–off of deferred tax liabilities                                    (84)           (395)            113               (18)
     Total deferred income tax assets                                       373              93             283                11

     Intangible assets                                                     (145)                –               –                 –
     Financial instruments                                                   (94)          (508)            165              (261)
     Other liabilities                                                       (78)               –            (78)                 –
     Tax effect of reserves                                                  (40)             41             (52)               (3)
     Set–off of deferred tax assets                                           84            395            (113)               18
     Total deferred income tax liabilities                                 (273)             (72)            (78)            (246)
     Net deferred income tax assets/(liabilities)                           100               21            205              (235)

     Potential tax assets of approximately $58 million (2009: $29 million) attributable to tax losses carried forward by
     subsidiaries have not been brought to account in the subsidiaries and in the consolidated entity as the Directors do not
     believe the realisation of the tax assets is probable.
     The principles of the balance sheet method of tax effect accounting have been adopted whereby the income tax
     expense for the financial year is the tax payable on the current period's taxable income adjusted for changes in deferred
     tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their
     carrying amounts in the financial statements and unused tax losses. Deductible temporary differences and tax losses give
     rise to deferred tax assets. Deferred tax assets are not recognised unless the benefit is probable of realisation.
     The deferred tax assets have been applied against deferred tax liabilities to the extent that they are expected to be
     realised in the same period and within the same tax paying entity.


     Note 21
21   Non–current assets and disposal groups classified as
     held for sale
     Non–current assets and assets of disposal groups
     classified as held for sale
     Other non–current assets1                                                 4             56                –                 –
     Assets of disposal groups classified as held for sale2                   47              –                –                 –
     Total non–current assets and assets of disposal
     groups classified as held for sale                                       51             56                –                 –
     Liabilities of disposal groups classified as held for sale
     Total liabilities of disposal groups classified as held
     for sale2                                                                 9               –               –                 –
 1
     Included within this balance are assets with a carrying value of $nil (2009: $10 million) provided as security over payables
     to other financial institutions.
 2
     The balance at 31 March 2010 represents the assets and liabilities of Advanced Markets Holdings LLC.
     All of the above non–current assets and assets/liabilities of disposal groups classified as held for sale are expected to be
     disposed of to other investors within 12 months of being classified as held for sale, unless events or circumstances occur
     that are beyond the control of the consolidated entity and the consolidated entity remains committed to its plan to sell
     the asset.




                                                                                                                                      95
          Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                    macquarie.com.au

          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued


                                                                      Consolidated      Consolidated            Bank             Bank
                                                                              2010             2009             2010             2009
                                                                               $m                $m              $m                $m


          Note 22
     22   Due to banks
          OECD banks                                                             699           1,030             197              448
          Clearing houses1                                                        42              26              42               26
          Other                                                                1,426           2,208             999            1,535
          Total due to banks                                                   2,167           3,264           1,238            2,009
      1
          Amounts due to clearing houses are settled on the next business day.


          Note 23
     23   Cash collateral on securities lent and repurchase agreements
          Central banks                                                        2,776             729           2,776               729
          Governments                                                              –             101               –               101
          Financial institutions                                               4,419           3,044           4,413             3,044
          Other                                                                    6               7               6                 7
          Total cash collateral on securities lent and
          repurchase agreements                                                7,201           3,881           7,195             3,881


          Note 24
     24   Trading portfolio liabilities
          Listed equity securities                                             3,381           1,878           3,381            1,875
          Corporate securities                                                   819              12             808               12
          Commonwealth government securities                                     434              78             434               78
          Other government securities                                            287              12             287               12
          Total trading portfolio liabilities                                  4,921           1,980           4,910            1,977


          Note 25
     25   Debt issued at amortised cost
          Debt issued at amortised cost1                                      39,408          48,270          19,170           23,776
          Total debt issued at amortised cost                                 39,408          48,270          19,170           23,776
      1
          Included within this balance are amounts payable to SPE note holders of $14,419 million (2009: $20,131 million).
          The consolidated entity has not had any defaults of principal, interest or other breaches with respect to its debt during
          the periods reported.




96
                                                                   Consolidated   Consolidated          Bank             Bank
                                                                           2010          2009           2010             2009
                                                                            $m             $m            $m                $m


     Note 26
26   Other financial liabilities at fair value through profit or loss
     Debt issued at fair value                                             101            176              95             169
     Equity linked notes                                                 2,524          3,702           2,260           3,107
     Total other financial liabilities at fair value through
     profit or loss                                                      2,625          3,878           2,355           3,276

     Reconciliation of debt issued at amortised cost and
     other financial liabilities at fair value through profit or
     loss by major currency:
     Australian dollars                                                 18,020         25,259          5,314            8,658
     United States dollars                                              14,035         16,320         12,993           14,302
     Canadian dollars                                                    5,789          3,607             39                7
     Euros                                                               1,622          4,081            804            2,378
     Japanese yen                                                        1,350            683          1,350              683
     Great British pounds                                                  547            905            477              183
     Hong Kong dollars                                                     386            626            382              626
     Singapore dollars                                                     177            492             59               40
     New Zealand dollars                                                    88             94             88               94
     Korean won                                                             19             81             19               81
     Total by currency                                                  42,033         52,148         21,525           27,052

     The Bank’s and consolidated entity's primary sources for domestic and international debt funding is its multi–currency,
     multi–jurisdictional Debt Instrument Program and domestic NCD issuance. Securities can be issued for terms varying
     from one day to 30 years.


     Note 27
27   Other liabilities
     Creditors                                                            4,205         2,388           1,664           1,360
     Due to brokers and customers1                                        1,768           958           1,000             676
     Accrued charges and sundry provisions                                  472           534             266             374
     Other                                                                  282           121             173              34
     Total other liabilities                                              6,727         4,001           3,103           2,444
 1
     Amounts due to brokers and customers are payable within three working days of the relevant trade date.




                                                                                                                                97
          Macquarie Bank Limited and its subsidiaries             2010 Annual Report                                      macquarie.com.au

          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued


                                                                       Consolidated         Consolidated          Bank              Bank
                                                                               2010                2009           2010              2009
                                                                                $m                   $m            $m                 $m


          Note 28
     28   Provisions
          Provision for annual leave                                                   35            30              23                22
          Provision for long service leave                                             26            25              26                25
          Provision for other employee entitlements                                     3             4               1                 3
          Provision for dividends                                                       7            17               3                21
          Total provisions                                                             71            76              53                71


          Note 29
     29   Capital management strategy
          The Bank and consolidated entity’s capital management strategy is to maximise shareholder value through optimising the
          level and use of capital resources, whilst also providing the flexibility to take advantage of opportunities as they may arise.
          The consolidated entity’s capital management objectives are to:
          –   Continue to support the consolidated entity’s credit rating;
          –   Ensure sufficient capital resource to support the consolidated entity’s business and operational requirements;
          –   Maintain sufficient capital to exceed externally imposed capital requirements; and
          –   Safeguard the consolidated entity’s ability to continue as a going concern.
          The consolidated entity’s capital management strategy uses both internal and external measures of capital. Internally, an
          economic capital model (ECM) has been developed to quantify the consolidated entity’s aggregate level of risk. The ECM
          is used in the cash flow to support business decision making, including deciding the required level of capital, the setting
          of risk appetite and as a risk adjusted performance measure.
          The consolidated entity is subject to minimum capital requirements externally imposed by APRA, following the guidelines
          developed by the Basel Committee on Banking Supervision. The Bank reports to APRA under Basel II capital
          requirements effective from 1 January 2008. The Bank has been granted accreditation by APRA to adopt the Basel II
          Foundation Internal Ratings Based Approach for credit risk and the Advanced Measurement Approach for operational
          risk. Prior to 1 January 2008, the consolidated entity reported to APRA under the prudential requirements referred to as
          Basel I.
          Regulatory capital requirements are measured for the Bank and certain subsidiaries which meet the definition of
          extended licensed entities (Level 1 reporting), and for the Banking group (Level 2 reporting). Level 2 consists of MBL, its
          subsidiaries and its immediate parent less certain subsidiaries of MBL which are deconsolidated for APRA reporting
          purposes. These include entities conducting insurance, funds management, non–financial operations and special
          purpose vehicles. APRA requires ADIs to have a minimum ratio of capital to risk weighted assets of 8 per cent at both
          Level 1 and Level 2, with at least four per cent of this capital in the form of Tier 1 capital. In addition, APRA imposes ADI
          specific minimum capital ratios which may be higher than these levels. The Macquarie Group internal capital policy set
          by the Board requires capital floors above this regulatory required level.
          MBL’s Tier 1 capital consists of share capital, retained earnings, certain reserves, Macquarie Income Securities and
          convertible debentures. Deductions from Tier 1 capital are made for intangibles, certain capitalised expenses, deferred
          tax assets, and equity investments over prescribed limits. In addition, Basel II requires that investments in subsidiaries
          that are fund management entities, special purpose securitisation vehicles and non–commercial entities are deducted
          50 per cent from Tier 1 capital and 50 per cent from Tier 2 capital. MBL’s Tier 2 capital includes term subordinated
          debt and certain reserves. Deductions from Tier 2 capital include certain reserves and 50 per cent of investments in
          subsidiaries as noted above.
          The Bank and consolidated entity have complied with all internal and external capital management requirements
          throughout the year.




98
     Note 30
30   Loan capital
     Subordinated debt
     Agreements between the consolidated entity and the lenders provide that, in the event of liquidation, entitlement of such
     lenders to repayment of the principal sum and interest thereon is and shall at all times be and remain subordinated to the
     rights of all other present and future creditors of the consolidated entity.
     The dates upon which the consolidated entity has committed to repay the principal sum to the lenders are as follows:
                                                                  Consolidated Consolidated                Bank              Bank
                                                                          2010        2009                 2010              2009
                                                                           $m           $m                  $m                 $m

     30 September 2009                                                         –               3               –                –
     15 September 2014                                                         –             301               –              301
     18 September 2015                                                       239             489             239              489
     19 September 2016                                                       330             176             330              176
     6 December 2016                                                         516             668             516              668
     31 May 2017                                                             319             305             319              305
     Total subordinated debt                                               1,404           1,942           1,404            1,939
     Reconciliation of subordinated debt by major currency:
     Euros                                                                   516             669             516              669
     Great British pounds                                                    331             413             331              413
     Australian dollars                                                      318             368             318              368
     United States dollars                                                   239             492             239              489
     Total subordinated debt by currency                                   1,404           1,942           1,404            1,939

     The consolidated entity has not had any defaults of principal, interest or other breaches with respect to its loan capital
     during the periods reported.
     The carrying value of subordinated debt at fair value through profit or loss at 31 March 2010 is $14 million higher
     (2009: $236 million lower) than the contractual amount at maturity as credit risk and current market interest rates
     are factored into the determination of fair value.
     In accordance with APRA guidelines, the consolidated entity includes the applicable portion of its loan capital principal
     as Tier 2 capital.




                                                                                                                                    99
           Macquarie Bank Limited and its subsidiaries           2010 Annual Report                                     macquarie.com.au

           Notes to the financial statements
           for the financial year ended 31 March 2010
           continued

                                                                         Consolidated and Bank            Consolidated and Bank
                                                                               2010         2009
                                                                         Number of      Number of               2010              2009
                                                                             shares        shares                $m                 $m


           Note 31
      31   Contributed equity
           Ordinary share capital
           Opening balance of fully paid ordinary shares                337,902,108        300,536,918          4,503            3,586
           Issue of 3,926,700 shares to Macquarie B.H. Pty Ltd
           on 4 July 2008 at $76.40 per share                                          –     3,926,700              –              300
           Issue of 2,341,926 shares to Macquarie B.H. Pty Ltd
           on 1 November 2008 at $19.87 per share                                      –     2,341,926              –                47
           Issue of 31,096,564 shares to Macquarie B.H. Pty Ltd
           on 30 March 2009 at $18.33 per share                                        –    31,096,564              –              570
           Issue of 10,920,790 shares to Macquarie B.H. Pty Ltd
           on 1 April 2009 at $18.33 per share                            10,920,790                 –            200                 –
           Issue of 26,301,219 shares to Macquarie B.H. Pty Ltd
           on 28 September 2009 at $18.06 per share                       26,301,219                 –            475                 –
           Issue of 30,854,431 shares to Macquarie B.H. Pty Ltd
           on 31 January 2010 at $18.96 per share                         30,854,431                 –            585                 –
           Issue of 38,107,417 shares to Macquarie B.H. Pty Ltd
           on 29 March 2010 at $19.55 per share                          38,107,417                  –            745                –
           Closing balance of fully paid ordinary shares                444,085,965        337,902,108          6,508            4,503


                                                                       Consolidated        Consolidated         Bank              Bank
                                                                               2010               2009          2010              2009
                                                                                $m                  $m           $m                 $m

           Equity contribution from ultimate parent entity
           Balance at the beginning of the financial year                             57            18             44                12
           Additional paid up capital                                                 30            39             23                32
           Balance at the end of the financial year                                   87            57             67                44

           During the current year, the ultimate parent entity, MGL, introduced MEREP, which grants RSUs, DSUs and PSUs to
           eligible staff of the consolidated entity. Under MEREP the staff retained profit share will be held in the shares of MGL by
           Macquarie Group Employee Retained Equity Plan Trust (MEREP Trust). Where MEREP Awards are issued by MGL to
           employees of the consolidated entity and MGL is not subsequently reimbursed by the consolidated entity, the
           consolidated entity recognises the equity provided as a capital contribution from MGL. During the year ended 31 March
           2010 compensation expense relating to MEREP which has been treated as paid up capital totalled $827,641. For further
           information regarding the terms and conditions of MEREP refer to note 36 – Employee equity participation.
           In November 1995, the Bank introduced an Employee Option Plan, as a replacement for the Bank’s then closed partly
           paid share scheme. On 13 November 2007, the date of the restructure of the Macquarie Group, all MBL options were
           cancelled and replacement options over shares in the new ultimate parent entity, MGL, were issued on the same terms
           on a one-for-one basis under the Macquarie Group Employee Share Option Plan (MGESOP). Staff eligible to participate
           are those of Associate Director level and above and consultants to the consolidated entity. The options are measured at
           their grant dates based on their fair value and the number expected to vest. This amount is recognised as an expense
           evenly over the respective vesting periods. Since 13 November 2007 the equity provided has been treated as an equity
           contribution from MGL. For the year ended 31 March 2010, compensation expense relating to MGESOP which has been
           treated as additional paid up capital in the consolidated entity totalled $27,990,616 (2009: $31,885,238) and in the Bank
           $21,429,822 (2009: $25,386,197). In addition, pursuant to an amendment to the terms of the Macquarie Group Staff
           Share Acquisition Plan (MGSSAP) and Employee Share Plan (ESP) to allow the issue of new shares as an alternative to
           acquiring existing shares on-market, compensation expense relating to these plans which has been recognised as
           additional paid up capital in the consolidated entity totalled $8,402,764 (2009: $7,174,013) and in the Bank $8,210,646
           (2009: $6,999,693). Details of the MGESOP, MGSSAP and ESP are disclosed in note 36 – Employee equity participation.




100
                                                              Consolidated      Consolidated            Bank             Bank
                                                                      2010             2009             2010             2009
                                                                       $m                $m              $m                $m


Note 31
Contributed equity continued
Macquarie Income Securities
4,000,000 Macquarie Income Securities of $100 each                       400             400              400             400
Less transaction costs for original placement                             (9)             (9)              (9)             (9)
Total Macquarie Income Securities                                        391             391              391             391

The Macquarie Income Securities are classified as equity in accordance with AASB 132 Financial Instruments:
Presentation. Interest is paid quarterly at a floating rate of Bank Bill Swap Rate (BBSW) plus 1.7 per cent p.a. Payment of
interest to holders is subject to certain conditions, including the profitability of the Bank. They are a perpetual instrument
with no conversion rights. They were listed for trading on the Australian Securities Exchange on 19 October 1999 and
became redeemable (in whole or in part) at the Bank’s discretion on 19 November 2004.

Convertible debentures
7,000 convertible debentures of £50,000 each                                –               –             107             884
Total convertible debentures                                                –               –             107             884

As part of the issue of the Macquarie Income Preferred Securities (detailed in note 32 – Reserves, retained earnings and
minority interests) the London branch of the Bank issued 7,000 reset subordinated convertible debentures, each with a
face value of £50,000, to Macquarie Capital Funding LP, a subsidiary of the Bank. The convertible debentures, which
eliminate on consolidation, currently pay a 6.177 per cent (2009: 6.177 per cent) semi–annual cumulative fixed rate
distribution. The debentures mature on 15 April 2050, but may be redeemed, at the Bank’s discretion, on 15 April 2020
or on any reset date thereafter. If redemption is not elected, then on 15 April 2020 and on each fifth anniversary
thereafter, the debenture coupon will be reset to 2.35 per cent (2009: 2.35 per cent) per annum above the then
prevailing five year benchmark sterling gilt rate.
The distribution policies for these instruments are included in note 5 – Dividends paid and distributions paid or provided.




                                                                                                                                 101
           Macquarie Bank Limited and its subsidiaries             2010 Annual Report                                   macquarie.com.au

           Notes to the financial statements
           for the financial year ended 31 March 2010
           continued


                                                                           Consolidated       Consolidated    Bank                Bank
                                                                                   2010              2009     2010                2009
                                                                                    $m                 $m      $m                   $m


           Note 32
      32   Reserves, retained earnings and minority interests
           Reserves
           Foreign currency translation reserve
           Balance at the beginning of the financial year                               (9)           (20)    (167)               (134)
           Currency translation differences arising during the financial
           year, net of hedge                                                     (232)                 11      110                 (33)
           Balance at the end of the financial year                               (241)                 (9)     (57)              (167)
           Available for sale reserve
           Balance at the beginning of the financial year                             4                 56       37                  46
           Revaluation movement for the financial year, net of tax                  192              (134)      177                 (57)
           Transfer to income statement for impairment                                1                 92        1                  57
           Transfer to profit on realisation                                         (5)               (10)      (5)                  (9)
           Balance at the end of the financial year                                 192                  4      210                  37

           Share based payments reserve
           Balance at the beginning of the financial year                           186               186       186                 186
           Balance at the end of the financial year                                 186               186       186                 186

           Cash flow hedging reserve
           Balance at the beginning of the financial year                         (146)                31       (27)                 12
           Revaluation movement for the financial year, net of tax                   99              (177)         –                (39)
           Balance at the end of the financial year                                 (47)             (146)      (27)                (27)

           Share of reserves of interests in associates and joint
           ventures using the equity method
           Balance at the beginning of the financial year                            30                 (6)        –                   –
           Share of reserves during the financial year                              (29)                36         –                   –
           Balance at the end of the financial year                                   1                 30         –                   –

           Reserves arising from group restructure of combining entities
           under common control
           Balance at the beginning of the financial year                (266)                        (65)     (61)                 (61)
           Arising from acquisition of entities of the
           Non–Banking Group (note 44)                                      5                        (201)        –                    –
           Balance at the end of the financial year                      (261)                       (266)     (61)                 (61)
           Total reserves at the end of the financial year               (170)                       (201)     251                  (32)

           Retained earnings
           Balance at the beginning of the financial year                         1,250             1,374     1,099               1,226
           Profit attributable to equity holders of Macquarie Bank Limited          684               609       584                 620
           Distributions paid or provided on Macquarie Income Securities
           (note 5)                                                                  (21)              (33)         –                   –
           Distributions paid or provided on convertible debentures (note 5)            –                 –      (15)                (47)
           Dividends paid on ordinary share capital (note 5)                       (380)             (700)     (380)               (700)
           Balance at the end of the financial year                               1,533             1,250     1,288               1,099




102
                                                                 Consolidated       Consolidated           Bank             Bank
                                                                         2010              2009            2010             2009
                                                                          $m                 $m             $m                $m


     Note 32
     Reserves, retained earnings and minority interests continued
     Minority interests
     Macquarie Income Preferred Securities1
     Proceeds on issue of Macquarie Income Preferred Securities2            107              894                –               –
      Less issue costs                                                       (1)              (10)              –               –
                                                                            106              884                –               –
      Less securities financed                                                 –            (382)               –               –
                                                                            106              502                –               –
     Current year profit                                                      8                45               –               –
     Distribution provided on Macquarie Income Preferred Securities
     (note 5)                                                                 (8)             (45)              –               –
     Foreign currency translation reserve                                   (39)            (104)               –               –
     Total Macquarie Income Preferred Securities                             67              398                –               –

     Other minority interests
     Ordinary share capital                                                    9               6                –               –
     Retained earnings                                                         9               6                –               –
     Total other minority interests                                           18              12                –               –
     Total minority interests                                                 85             410                –               –
 1
     On 22 September 2004, Macquarie Capital Funding LP, a subsidiary of the Bank, issued £350 million of Macquarie
     Income Preferred Securities (the Securities). The Securities – guaranteed non-cumulative step-up perpetual preferred
     securities – currently pay a 6.177 per cent (2009: 6.177 per cent) semi-annual non-cumulative fixed rate distribution.
     They are perpetual securities and have no fixed maturity but may be redeemed on 15 April 2020, at the Bank’s discretion.
     If redemption is not elected on this date, the distribution rate will be reset to 2.35 per cent (2009: 2.35 per cent) per
     annum above the then five-year benchmark sterling gilt rate. The Securities may be redeemed on each fifth anniversary
     thereafter at the Bank’s discretion. The instruments are reflected in the consolidated entity’s financial statements as a
     minority interest, with distribution entitlements being included with the minority interest share of profit after tax.
 2
     On 11 September 2009, the various interests in the Securities held by Macquarie Capital Finance (Dubai) Limited were
     redeemed.


     Note 33
33   Notes to the statements of cash flows
                                                                  Consolidated      Consolidated           Bank             Bank
                                                                          2010             2009            2010             2009
                                                                           $m                $m             $m                $m

     Reconciliation of cash and cash equivalents
     Cash and cash equivalents at the end of the financial year
     as shown in the statements of cash flows are reconciled
     to related items in the statement of financial position as
     follows:
     Cash and balances with central banks                                      –             141                –            141
     Due from other financial institutions
       Due from banks1                                                    6,459          10,127            5,023           9,026
       Trading securities2                                                4,706           9,604            3,209           9,605
     Cash and cash equivalents at the end of the financial year          11,165          19,872            8,232          18,772
 1
     Includes cash at bank, overnight cash at bank, other loans to banks and amounts due from clearing houses as per
     note 1(xxi) – Summary of significant accounting policies.
 2
     Includes certificates of deposit, bank bills and other short–term debt securities as per note 1(xxi) – Summary of significant
     accounting policies.




                                                                                                                                     103
      Macquarie Bank Limited and its subsidiaries               2010 Annual Report                                     macquarie.com.au

      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued


                                                                         Consolidated      Consolidated      Bank                Bank
                                                                                 2010             2009       2010                2009
                                                                                  $m                $m        $m                   $m


      Note 33
      Notes to the statements of cash flows continued
      Reconciliation of profit from ordinary activities after
      income tax to net cash flows from operating activities
      Profit from ordinary activities after income tax                            697              657         584                 620
      Adjustments to profit from ordinary activities
        Depreciation and amortisation                                             266              139          24                  20
        Dividends received from associates                                         96              200           –                   –
        Fair value changes on financial assets and liabilities at fair
        value through profit or loss and realised investment
        securities available for sale                                             192             (102)        177               (140)
        Gain on acquiring, disposing and change in ownership
        interest in subsidiaries and businesses held for sale                    (138)            (298)      (141)               (402)
        Gain on repurchase of subordinated debt                                    (55)               –        (55)                  –
        Impairment charge on financial and non-financial assets                   422            1,036        288                 879
        Interest on available for sale financial assets                           244             (651)       250                (821)
        Loss on disposal of property, plant and equipment                            5              11            –                  –
        Net gains on sale of associates (including associates held
        for sale) and joint ventures                                                 (9)           (29)           –              (124)
        Net losses/(gains) on sale of investment securities
        available for sale                                                        (42)                6      (117)                  (1)
        Share based payment expense (note 31)                                      30                39        23                   32
        Share of net (losses)/profits of associates and joint
        ventures accounted for using the equity method                               (7)           (98)           –                   1
      Changes in assets and liabilities
        Change in dividends receivable                                             25                41         23                  45
        Change in fees and non-interest income receivable                         226               (32)       227               (108)
        Change in fees and commissions payable                                      9                 (6)        (6)                 (2)
        Change in tax balances                                                    (66)              (66)      (129)                (55)
        Change in provisions for employee entitlements                              5               (14)           –                 (7)
        Change in loan assets granted/(repaid)                                  3,738             (565)      2,750            (11,269)
        Change in loan receivable from ultimate parent entity                   2,551            5,000       2,551              5,000
        Change in debtors, prepayments, accrued charges
        and creditors                                                             (14)          (1,246)         (3)                101
        Change in net trading portfolio assets and liabilities and
        net derivative financial instruments                                    1,122            4,526      (1,710)             7,178
        Change in net interest payable, amounts due to other
        financial institutions, deposits and other borrowings                 (10,192)          (7,529)     (5,156)             1,519
        Change in life investment contract receivables                          (1,117)           (254)           –                 –
      Net cash flows from operating activities                                 (2,012)             765        (420)             2,466
      Non-cash investing activity
      Acquisition of subsidiaries by means of equity issue                        200                  –       200                    –

      During the financial year, the Bank acquired certain subsidiaries of the Non-Banking Group (see note 44 – Acquisitions
      and disposals of subsidiaries and businesses) with the issue of new shares. This increased the Bank’s cost of investment
      in subsidiaries without any corresponding outflow of cash and cash equivalents.




104
     Note 34
34   Related party information
     Ultimate and immediate parent entities
     The Bank's ultimate parent entity is MGL. The Bank's immediate parent entity is Macquarie B.H. Pty Ltd. Both MGL and
     Macquarie B.H. Pty Ltd are incorporated in Australia. MGL produces financial statements that are available for public use.
     Transactions between the consolidated entity and the ultimate and immediate parent entities principally arise from the
     provision and repayment of loans and the provision of management and administration services.
     In the financial year ended 31 March 2008 the Bank provided a $10.1 billion intra-group loan to MGL of which
     $1,249 million (2009: $3,800 million) remained outstanding at the balance sheet date. This facility is an unsecured
     term loan to be repaid by December 2012.
     MGL as the ultimate parent entity of the Macquarie Group is the head entity of the Australian tax consolidated group.
     The terms and conditions of the tax funding agreement are set out in note 1 (vii) – Summary of significant accounting
     policies. During the year ended 31 March 2010, current tax liabilities of the consolidated entity and the Bank attributed
     to MGL as the head entity of the tax consolidated group amounted to $494 million (2009: $584 million) and $442 million
     (2009: $572 million), respectively.
     Balances outstanding with MGL are included in Due from related body corporate entities and Due to related body
     corporate entities, as appropriate, in the statement of financial position. The following balances with the ultimate parent
     entity were outstanding as at the financial year end:
                                                                    Consolidated      Consolidated         Bank             Bank
                                                                            2010             2009          2010             2009
                                                                             $m                $m           $m                $m

     Amounts receivable                                                      1,071          3,797          1,325           3,801

     Subsidiaries
     Transactions between the Bank and its subsidiaries principally arise from the provision of banking and other financial
     services, the granting of loans and acceptance of funds on deposit, derivative transactions, the provision of management
     and administration services and the provision of guarantees.
     All transactions with subsidiaries are in accordance with regulatory requirements, the majority of which are on
     commercial terms. All transactions undertaken during the financial year with subsidiaries are eliminated in the
     consolidated financial statements. Amounts due from and due to subsidiaries are presented separately in the statement
     of financial position of the Bank except when offsetting reflects the substance of the transaction or event.
     Balances arising from lending and borrowing activities between the Bank and subsidiaries are typically repayable on
     demand, but may be extended on a term basis and where appropriate may be either subordinated or collateralised.
     The Bank has entered into derivative transactions with its subsidiaries to hedge their operations. The fair value of
     derivative financial instruments relating to transactions between the Bank and its subsidiaries at 31 March 2010 are
     $136 million (2009: $860 million) positive value and $597 million (2009: $445 million) negative value.
     A list of material subsidiaries is set out in note 18 – Investments in subsidiaries.




                                                                                                                                   105
          Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                       macquarie.com.au

          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued




          Note 34
          Related party information continued
          Subsidiaries continued
          During the financial year, the following transactions occurred with subsidiaries:
                                                                       Consolidated       Consolidated          Bank                Bank
                                                                               2010              2009           2010                2009
                                                                                $m                 $m            $m                   $m

          Interest income received/receivable (note 2)                                –               –           419                529
          Interest expense paid/payable (note 2)                                      –               –          (252)              (785)
          Fee and commission income                                                   –               –           100                 57
          Other operating (expense)/income                                            –               –             (4)                9
          Dividends and distributions received/receivable (note 2)                    –               –           491                325
          Management fees, group service charges and cost
          recoveries                                                                  –               –           482                525
          The following balances with subsidiaries were outstanding
          at the year end:
          Amounts receivable                                                          –               –       16,361              15,045
          Amounts payable1                                                            –               –       (9,596)             (8,849)
      1
          As described in note 1(xx) – Summary of significant accounting policies, the Bank has recognised a liability of $18 million
          (2009: $nil) for amounts received in advance from subsidiaries for MEREP offered to their employees and yet to be
          recognised as a share based payment expense by the subsidiary. To the extent that the awards vest, this amount will be
          retained by the Bank as compensation for issuing and releasing the shares to the subsidiary employees.
          Other related body corporate entities
          Transactions between the consolidated entity and other related body corporate entities under common control principally
          arise from the provision of banking and other financial services, the granting of loans and acceptance of funds on deposit,
          the provision of management and administration services, facilities and accommodation and the provision of guarantees.
          Balances arising from lending and borrowing activities between the consolidated entity and other related body corporate
          entities are typically repayable on demand, but may be extended on a term basis and where appropriate may be either
          subordinated or collateralised.
          During the financial year, the following transactions occurred with other related body corporate entities:
                                                                       Consolidated       Consolidated          Bank                Bank
                                                                               2010              2009           2010                2009
                                                                                $m                 $m            $m                   $m

          Interest income received/receivable (note 2)                           155              607            155                 585
          Interest expense paid/payable (note 2)                                (167)            (525)          (164)               (472)
          Management fees, group service charges and cost
          recoveries                                                              (27)             (37)           (17)                (13)
          Fee and commission expense                                            (310)            (205)          (326)               (185)
          Other operating expenses                                                (49)             (34)           (55)                (33)
          The following balances with other related body corporate
          entities were outstanding at the year end:
          Amounts receivable                                                   1,320              850          1,132                 787
          Amounts payable                                                     (8,008)          (3,332)        (8,044)             (2,876)




106
    Note 34
    Related party information continued
    Associates and joint ventures
    Transactions between the consolidated entity and its associates and joint ventures principally arise from the provision of
    corporate advisory services, the granting of loans, derivative transactions and the provision of management services. All
    transactions undertaken with associates and joint ventures are eliminated where they are unrealised, to the extent of
    ownership interests held by the consolidated entity, in the consolidated income statement.
    During the financial year, the following transactions occurred with associates and joint ventures:
                                                                Consolidated      Consolidated           Bank             Bank
                                                                        2010             2009            2010             2009
                                                                         $m                $m             $m                $m

    Interest income received/receivable                                      6              19              10              16
    Fee and commission income/(expense)1                                    76             104             (21)             17
    Other income                                                             2               6               2               6
    Gains on sale of securities2                                             8               2                –              1
    Dividends and distributions3 (note 16)                                  96             200               1               8
    Brokerage and commission expense                                         –             (12)               –            (12)
1
    Fee and commission income includes all fees charged to associates.
2
    Gains on sale of securities are shown after elimination of unrealised profits/losses calculated by reference to the
    consolidated entity’s ownership interest in the associate.
3
    Dividends and distributions are shown as gross amounts. Under the equity method, these amounts are not taken up as
    profit but are recorded as a reduction of the carrying amount of the investment.
    The following balances with associates and joint ventures were outstanding as at financial year end (these exclude
    amounts which in substance form part of the consolidated entity's net investment in associates, disclosed in note 16 –
    Interests in associates and joint ventures accounted for using the equity method):
                                                                Consolidated      Consolidated           Bank             Bank
                                                                        2010             2009            2010             2009
                                                                         $m                $m             $m                $m

    Amounts receivable                                                     189             635             214             545
    Amounts payable                                                         (2)              -             (26)              -

    Balances arising from lending and borrowing activities between the consolidated entity and its associates and joint
    ventures are typically repayable on demand, but may be extended on a term basis and where appropriate may be either
    subordinated or collateralised.




                                                                                                                                  107
           Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                 macquarie.com.au

           Notes to the financial statements
           for the financial year ended 31 March 2010
           continued




           Note 35
      35   Key Management Personnel disclosure
           Key Management Personnel
           The following persons were Voting Directors of MBL during the financial years ended 31 March 2010 and 31 March 2009,
           unless indicated:
           Executive Directors
           L.G. Cox, AO                (retired 29 July 2009)
           N.W. Moore1                 (ceased to be a Key Management Person on 12 November 2007, reappointed 24 May 2008)
           A.E. Moss, AO               (retired 24 May 2008)
           W.R. Sheppard1              Managing Director and Chief Executive Officer
           Non–Executive Directors
           D.S. Clarke, AO2            Non–Executive Chairman
           M.J. Hawker                 (appointed 22 March 2010)
           P.M. Kirby
           C.B. Livingstone, AO
           H.K. McCann, AM3
           J.R. Niland, AC
           H.M. Nugent, AO
           P.H. Warne4
           In addition to the Executive Directors listed above, the following persons also had authority and responsibility for planning,
           directing and controlling the activities of the consolidated entity during the past two financial years ended 31 March 2010
           and 31 March 2009, unless otherwise indicated.
           Executives
           S.D. Allen1                     Group Head, Risk Management Group (appointed 28 September 2009)
           J.K. Burke                      Former Joint Group Head, Macquarie Securities Group (retired 26 February 2009)
           A.J. Downe1                     Group Head, Fixed Income, Currencies and Commodities Group
           R. Laidlaw1                     Group Head, Macquarie Securities Group (appointed 10 June 2008)
           P.J. Maher1                     Group Head, Banking and Financial Services Group
           N.R. Minogue                    Former Group Head, Risk Management Group (retired 30 November 2009)
           G.C. Ward1                      Chief Financial Officer
           S Wikramanayake1                Group Head, Macquarie Funds Group (appointed 10 June 2008)
       1
           Members of the Bank's Executive Committee as at 29 April 2010.
       2
           On 31 August 2009, Mr Clarke resumed full duties as Chairman following a leave of absence which commenced on
           27 November 2008.
       3
           Mr McCann was appointed Acting Chairman in Mr Clarke’s absence (from 27 November 2008 to 30 August 2009).
       4
           Mr Warne was appointed Acting Chairman of the Board Risk Committee in Mr Clarke’s absence (from 27 November
           2008) and was appointed Chairman on 27 August 2009.
           It is important to note that the Bank’s Non–Executive Directors are specifically required to be categorised as Key
           Management Personnel for the purposes of the disclosures in the Remuneration Report. However, the Non–Executive
           Directors do not consider that they are part of ‘management’.
           The remuneration arrangements for all of the persons listed above are described in Appendix 2 of the Remuneration
           Report, contained in the Directors' Report pages 7 to 44.




108
    Note 35
    Key Management Personnel disclosure continued
    Key Management Personnel remuneration
    The following table details the aggregate remuneration for Key Management Personnel:
                                                                         Short-term     Long-term          Share
                                                                          employee       employee          based
                                                                           benefits       benefits1     payments
                                                                               Total
                      Salary and fees Performance                        short-term
                            (including      related             Other     employee       Restricted      Shares/        Total
                     superannuation) remuneration             benefits     benefits     profit share     Options remuneration
                                     $            $                  $            $                $           $            $

    Executive Remuneration
    2010               2,536,908         11,835,914                 –    14,372,822   2,318,765        8,070,467    24,762,054
    2009               2,900,365         10,565,085                 –    13,465,450 (11,495,262)       5,342,793     7,312,981

    Non-Executive Remuneration
    2010               631,747                      –               –      631,747                –             –      631,747
    2009               628,000                      –          10,487      638,487                –             –      638,487
1
    Includes earnings or losses on restricted profit share.

    Loans to Key Management Personnel and their related parties
    Details of loans provided by the consolidated entity to Key Management Personnel and their related parties are disclosed
    in the following tables:
                                                          Opening                                         Closing   Number in
                                                        balance at         Interest                    balance at consolidated
                                                            1 April       charged      Write-down       31 March         entity
                                                             $’000           $’000           $’000          $’000    31 March

    Total for Key Management
                                               2010           42,861         3,045                –       31,691            11
    Personnel and their related
    parties                                    2009           57,176         4,501                –       42,861            10
    Total for Key Management                   2010           22,729           863                –       12,422             5
    Personnel                                  2009           39,164         2,493                –       22,729             5

    Loans and other financial instrument transactions are made by the consolidated entity in the ordinary course of business
    with related parties.
    Certain loans are provided under zero cost collars and secured over MGL shares under normal terms and conditions
    consistent with other customers and employees.




                                                                                                                                  109
          Macquarie Bank Limited and its subsidiaries          2010 Annual Report                                    macquarie.com.au

          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued




          Note 35
          Key Management Personnel disclosure continued
          Key Management Personnel including their related parties with loans above $100,000 at any time during the financial
          year are as follows:
          For the financial year ended 31 March 2010
                                                                                                                             Highest
                                                                                                                             balance
                                                         Balance at                                     Balance at             during
                                                             1 April        Interest                     31 March           financial
                                                              20091        charged2       Write-down         20103               year
          Name and position                                   $’000           $’000             $’000        $’000              $’000

          Executive Directors
          N.W. Moore                                           5,313                330             –         5,274            5,313

          Non-Executive Directors
          D.S. Clarke                                         37,290           2,700                –       26,160           38,975

          Executives
          R. Laidlaw                                             238                 14             –           238              238
      1
          Or date of appointment if later.
      2
          All loans provided by the consolidated entity to Directors and Executives are made in the ordinary course of business on
          an arm’s length basis and are entered into under normal terms and conditions consistent with other customers and
          employees. There have been no write-downs or allowances for doubtful debts.
      3
          Or date of retirement if earlier.

          For the financial year ended 31 March 2009
                                                                                                                            Highest
                                                                                                                            balance
                                                         Balance at                                     Balance at            during
                                                             1 April        Interest                     31 March          financial
                                                              20081        charged2       Write-down         20093              year
          Name and position                                   $’000           $’000             $’000        $’000             $’000

          Executive Directors
          N.W. Moore4                                          6,985                376            –         5,313           12,570

          Non-Executive Directors
          D.S. Clarke5                                        34,826           3,352               –        37,290           37,798

          Executives
          A.J. Downe                                           1,847                105            –             –            1,847
          R. Laidlaw                                             238                  –            –           238              238
          P.J. Maher                                           4,878                499            –            20            5,572
          N.R. Minogue                                         4,234                 42            –             –            4,339
          G.C. Ward                                            4,406                127            –             –            4,406
      1
          Or date of appointment if later.
      2
          All loans provided by the consolidated entity to Directors and Executives are made in the ordinary course of business on
          an arm’s length basis and are entered into under normal terms and conditions consistent with other customers and
          employees. There have been no write-downs or allowances for doubtful debts.
      3
          Or date of retirement if earlier.
      4
          Mr Moore ceased being a member of the Executive Committee on 12 November 2007. Mr Moore was reappointed on
          24 May 2008.
      5
          Mr Clarke sought and was granted leave from 27 November 2008 to 30 August 2009.




110
Note 35
Key Management Personnel disclosure continued
Other transactions and balances of Key Management Personnel and their related parties:
The following Key Management Personnel have acquired Infrastructure Bonds and similar products from subsidiaries
within the Bank which have been financed with limited recourse loans and are subject to forward sale agreements. The
loan repayments and proceeds arising from the forward sale agreements are subject to legal right of set-off and as such
are not recognised for financial reporting purposes. The only amounts recognised by the consolidated entity in respect of
these transactions are the annual payments from the relevant Key Management Personnel which are brought to account
as fee revenue. These transactions have been undertaken on terms and conditions consistent with other customers and
employees.
                                                                                           Consolidated     Consolidated
                                                                                                   2010            2009
                                                                                                    $m               $m

Total annual contributions from Key Management Personnel and their related parties in
respect of Infrastructure Bonds and similar products                                               7,772          10,823

The annual contributions in respect of Infrastructure Bonds and similar products relate to the following Key Management
Personnel:
Executive Directors
N.W. Moore
Non-Executive Directors
P.M. Kirby
Executives
S.D. Allen (2010 only), A.J. Downe, R. Laidlaw, P.J. Maher, W.R. Sheppard, G.C. Ward, S. Wikramanayake (2010 only)
Former Directors
L.G. Cox, N.R. Minogue
The following Key Management Personnel (including related parties) have entered a zero cost collar transaction with the
Bank and other non-related entities in respect of fully paid ordinary MGL shares. This has the effect of acquiring cash-
settled put options against movements in the MGL share price below current levels and disposing of the benefit of any
share price movement above the nominated level.

Transactions with the consolidated entity
                                                                                             Number of        Number of
                                                                                                shares           shares
Name and position                                                            Description          2010            2009

Non-Executive Directors
D.S. Clarke                                                          Maturing May 2009                –          361,163
                                                                   Maturing August 2009               –           25,196
                                                                    Maturing June 2010          213,517          213,517

Executives
A.J. Downe                                                            Maturing July 2010          21,905                   –

All other transactions with Key Management Personnel (including their personally related parties) were conducted on an
arm’s length basis in the ordinary course of business and under normal terms and conditions for customers and
employees. These transactions were trivial or domestic in nature and consisted principally of normal personal banking
and financial investment services.




                                                                                                                               111
           Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                  macquarie.com.au

           Notes to the financial statements
           for the financial year ended 31 March 2010
           continued




           Note 36
      36   Employee equity participation
           Option Plan
           In November 1995, MBL introduced an Employee Share Option Plan, as a replacement for its now closed partly paid
           share scheme. On 13 November 2007, the date of the Macquarie Group Restructure, all MBL options were cancelled
           and replacement options over shares in the new ultimate parent entity, MGL, were issued on the same terms on a one-
           for-one basis under the Macquarie Group Employee Share Option Plan (MGESOP). MGL has suspended new offers
           under the MGESOP under the new remuneration arrangements which were the subject of shareholder approvals
           obtained at a General Meeting of MGL in December 2009. The last Grant of Options under the MGESOP was on
           8 December 2009. Currently MGL does not expect to issue any further Options under the MGESOP.
           Previously, the staff eligible to participate in the MGESOP were those of Associate Director level and above and
           consultants to the consolidated entity. At 31 March 2010 there were 949 (2009: 988) participants of the MGESOP.
           The fair value of each option is estimated on the date of grant using standard option pricing techniques based on the
           Black-Scholes theory. The following key assumptions have been adopted for grants made in the current financial year:
           –   risk free interest rate: 5.35 per cent (weighted average) (2009: 6.77 per cent);
           –   expected life of options: four years (2009: four years);
           –   volatility of share price: 44 per cent (2009: 24 per cent); and
           –   dividend yield: 3.47 per cent per annum (2009: 3.47 per cent per annum).
           Options now on issue are all five year options over fully paid unissued ordinary shares in MGL and were granted to
           individuals or the individual’s controlled Company or an entity approved under the MGESOP to hold options.
           The options are issued for no consideration and are granted at prevailing market prices. The exercise price of recent
           options granted was generally based on the weighted average market price during the one week up to and including the
           date of grant of the options.
           The following is a summary of options which have been granted pursuant to the MGESOP:
                                                                                              Weighted                        Weighted
                                                                                                average                         average
                                                                            Number of          exercise   Number of             exercise
                                                                              options        price 2010     options          price 2009
                                                                                2010                  $       2009                     $

           Outstanding at the beginning of the financial year               13,887,171            59.01   11,654,102              60.50
           Granted during the financial year                                   176,000            35.50    4,939,313              52.99
           Forfeited during the financial year                                (689,361)           58.92   (1,273,535)             65.18
           Exercised during the financial year                              (1,056,432)           33.80     (872,179)             30.48
           Transfers from related body corporate entities                      593,840            59.85     (429,008)             76.08
           Lapsed during the financial year                                   (704,448)           59.39     (131,522)             56.92
           Outstanding at the end of the financial year                     12,206,770            60.88   13,887,171              59.01
           Exercisable at the end of the financial year                      4,812,226            64.80    3,734,170              54.51

           For options exercised during the financial year the weighted average share price at the date of exercise was $41.34
           (2009: $50.52).
           The range of exercise prices for options outstanding at the end of the financial year was $17.10 to $94.48 (2009: $17.10
           to $94.48).




112
Note 36
Employee equity participation continued
Option Plan continued
The weighted average remaining contractual life for the share options outstanding as at 31 March 2010 is 2.22 years
(2009: 2.96 years). The weighted average remaining contractual life when analysed by exercise price range is:
                                                               Number of Remaining life          Number of Remaining life
                                                                 options       (years)             options       (years)
Exercise price range ($)                                           2010          2010                2009          2009

10 – 20                                                           18,000              3.94          18,000              4.94
20 – 30                                                          110,500              3.91          27,500              4.79
30 – 40                                                          171,332              3.57       1,160,332              0.89
40 – 50                                                           99,668              3.12         236,054              2.17
50 – 60                                                        4,435,286              3.35       4,587,876              4.35
60 – 70                                                        4,650,726              0.96       5,021,098              1.97
70 – 80                                                        2,465,906              2.31       2,586,808              3.34
80 – 90                                                          174,417              2.18         167,368              3.20
90–100                                                            80,935              2.25          82,135              3.25
                                                              12,206,770              2.22      13,887,171              2.96
The weighted average fair value of options granted during the financial year ended 31 March 2010 was $10.80 (2009: $10.64).
The market value of shares issued during the year as a result of the exercise of these options was $44 million
(2009: $44 million).
The market value of shares which would be issued from the exercise of the outstanding options at 31 March 2010 was
$577 million (2009: $383 million). No unissued shares, other than those referred to above, are under option under the
MGESOP as at the date of this report.
The options are measured at their grant dates based on their fair value and the number expected to vest. This amount is
recognised as an expense evenly over the respective vesting periods and the equity provided is treated as a capital
contribution. For the year ended 31 March 2010, compensation expense relating to the MGESOP totalled $31 million
(2009: $32 million).
Options granted vest as to one third of each tranche after the second, third and fourth anniversaries of the date of
commencement of employment for new starters and, for existing employees, on 1 July, two, three and four years after
the allocation of the options. Subject to the MGESOP Rules and Macquarie Group’s personal dealing policy, options can
be exercised after the vesting period during an options exercise period up to expiry. In individual cases, such as where an
employee leaves with the Bank’s agreement towards the end of a vesting period, the Bank’s Executive Committee has
the power to waive the remainder of any vesting period and allow exercise of some or all of the relevant options.
For options granted to the members of MBL’s Executive Committee, Executive Voting Directors and other Executive
Directors where the invitation to apply for the options was sent to the Executive on or after 30 June 2006, in respect of
each tranche of vested options, options will only be exercisable if MGL’s average annual return on ordinary equity for the
three previous financial years is above the 65th (Executive Committee and Executive Voting Directors) and 50th (other
Executive Directors) percentiles, of the corresponding figures for all companies in the then S&P/ASX 100 Index, with the
conditions to be examined only upon vesting.
The MGESOP Rules provide that the total number of options which can be on issue at any one time is limited such that
the number of shares resulting from exercise of all unexercised options does not exceed 20 per cent of the number of
MGL’s then issued ordinary shares plus the number of shares which MGL would have to issue if all rights to require MGL
to issue shares, which MGL has then granted (including options) were then enforced or exercised to the greatest extent
permitted. The Board has applied a second limitation on the number of options, being effectively the same calculation as
in the MGESOP Rules except that any exercised options granted less than five years ago, where the Executive is still with
the Bank, will be treated as still being unexercised.
Fully paid ordinary shares issued on the exercise of options rank pari passu with all other fully paid ordinary shares then
on issue.




                                                                                                                               113
      Macquarie Bank Limited and its subsidiaries               2010 Annual Report                                  macquarie.com.au

      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




                                                                         – Executive Directors with retained DPS (‘Director Profit
      Note 36                                                              Share’) from 2009, a proportion of which was allocated
      Employee equity participation continued                              in the form of MEREP Awards (Retained DPS Awards).
                                                                           See the Remuneration Report for more information on
      Option Plan continued                                                the allocation of DPS to Executive Directors;
      On 25 May 2000, the MBL Board approved amendments                  – Executive Directors with pre-2009 retained DPS which
      to the Macquarie Bank Employee Share Option Plan Rules               they have elected to transition into the MEREP under
      referred to as the Deferred Exercise Share Option Plan               the new remuneration arrangements (Transition
      (DESOP). Shares resulting from the exercise of options               Awards);
      since then have been placed under the DESOP, unless                – staff other than Executive Directors with retained profit
      option holders request otherwise. Unless the Bank is                 share, which from 2009 is to be delivered in the form of
      aware of circumstances which, in the reasonable opinion              MEREP Awards under the new remuneration
      of the Bank, indicate that the relevant Executive may have           arrangements (Retained Profit Share Awards);
      acted fraudulently, dishonestly or in a manner which is in         – staff who are promoted to Associate Director, Division
      breach of his/her obligations to the Bank or any                     Director or Executive Director, who receive a fixed
      associated entity, then such a request will be granted.              allocation of MEREP awards (Promotion Awards);
      These amendments were rolled forward into the current
                                                                         – new Macquarie Group staff who commence at
      MGESOP approved by the MGL Board.
                                                                           Associate Director, Division Director or Executive
      Shares acquired under DESOP cannot be sold,                          Director level. Option grants to these staff have now
      transferred or disposed of for a period of six months from           been replaced with a fixed number of MEREP awards
      the date that the shares are transferred into a participating        depending on level (New Hire Awards); and
      employee’s name and are also subject to forfeiture by an           – in limited circumstances, Macquarie staff who may
      employee in a number of circumstances including theft,               receive an equity grant instead of a remuneration or
      fraud, dishonesty, or defalcation in relation to affairs of the      consideration payment in cash. Current examples
      Bank or a related entity or if they carry out or fail to carry       include individuals who become employees of
      out an act which brings the Bank or an associated entity             Macquarie on the acquisition of their employer by a
      into disrepute.                                                      Macquarie Group entity or who receive an additional
      Shares held in the DESOP will be withdrawn on the earlier            award at the time of joining Macquarie (also referred to
      of:                                                                  below as New Hire Awards).
      – an employee’s resignation from the Bank or a related             For Retained Profit Share Awards representing 2009
        Bank;                                                            retention, Transition Awards and Retained DPS Awards
      – upon request from the employee (after the expiration of          relating to 2009 retained DPS, the conversion price was
        the non-disposal period); and                                    publicly announced by Macquarie on 1 May 2009 to be
                                                                         the volume weighted average price from 4 May 2009 up
      – ten years from the date that the options were originally
                                                                         to and including the date of the 2009 AGM which was
        granted.
                                                                         held on 29 July 2009. That price was calculated to be
      Options carry no dividend or voting rights but have                $36.36.
      standard adjustment clauses for bonus and rights issues
                                                                         The number of Awards granted was calculated by
      and reconstructions.
                                                                         adjusting the employee’s relevant retained profit share
      Macquarie Group Employee Retained Equity Plan                      amount, or retained DPS, for any applicable on-costs,
      In December 2009 MGL shareholders approved the                     dividing this amount by $36.36, and rounding down to the
      implementation of the Macquarie Group Employee                     nearest whole number. The grant of Awards to Eligible
      Retained Equity Plan (MEREP) in conjunction with new               Employees working in Australia is subject to payroll tax,
      remuneration arrangements. These new arrangements                  calculated based on the market value of shares on the
      included a decrease in the portion of staff profit share paid      Acquisition Date.
      in cash and an increase in the portion delivered as equity,        For most New Hire and Promotion Awards, a standard
      an increase in the proportion of deferred remuneration,            number of Awards was offered, depending on the level at
      and cessation of new option grants under the Macquarie             which the employee was hired at or promoted to. In
      Group Employee Share Option Plan. Participation in the             limited cases, there are variations to these fixed amounts
      MEREP is currently provided to the following staff (Eligible       for specific individuals.
      Employees):




114
Note 36
Employee equity participation continued
Macquarie Group Employee Retained Equity Plan continued
Award Types under the MEREP
Restricted Share Units (RSUs)
A RSU is a beneficial interest in a Macquarie share held on behalf of a MEREP participant by the plan trustee (Trustee).
The participant is entitled to receive dividends on the share and direct the Trustee how to exercise voting rights in the
share. The participant also has the right to request the release of the share from the Trust, subject to the vesting and
forfeiture provisions of the MEREP.
Deferred Share Units (DSUs)
A DSU is a right to receive on exercise of the DSU either a share held in the Trust or a newly issued share (as determined
by Macquarie in its absolute discretion) for no cash payment, subject to the vesting and forfeiture provisions of the
MEREP. A MEREP participant holding a DSU has no right or interest in any share until the DSU is exercised. Macquarie
may issue shares to the Trustee or procure the Trustee to acquire shares on-market for potential future allocations to
holders of DSUs. Generally DSUs will provide for cash payments in lieu of dividends paid on Macquarie shares before the
DSU is exercised. Further, the number of shares underlying a DSU will be adjusted upon any bonus issue or other capital
reconstruction of Macquarie in accordance with the ASX Listing Rules, so that the holder of a DSU does not receive a
benefit that holders generally of Macquarie shares do not receive. These provisions are intended to provide the holders of
DSUs, as far as possible, with the same benefits and risks as are provided to holders of RSUs. However, holders of
DSUs will have no voting rights as to any underlying Macquarie shares. DSUs will only be offered in jurisdictions where
legal or tax rules make the grant of RSUs impractical, or where PSUs are structured as DSUs (see PSUs below).
Performance Share Units (PSUs)
PSUs are structured as DSUs or RSUs with performance hurdles that must be met before the underlying share or cash
equivalent (as the case may be) will be delivered. Where PSUs are structured as DSUs, holders have no right to dividend
equivalent payments before the PSUs vest. In all other respects, holders of these PSUs will have the same rights as
holders of DSUs. For 2009 the PSUs granted to the Executive Committee, including the CEO, are structured as DSUs
with performance hurdles. The rights under any future PSUs structured as RSUs will generally be the same as the rights
under RSUs, except for the PSU performance hurdles which will not apply to RSUs.




                                                                                                                             115
      Macquarie Bank Limited and its subsidiaries            2010 Annual Report                              macquarie.com.au

      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 36
      Employee equity participation continued
      Macquarie Group Employee Retained Equity Plan continued
      The following is a summary of Awards which have been granted pursuant to the MEREP:
                                                                                                                 Number of
                                                                                                                RSU Awards
                                                                                                                      2010

      RSUs on issue at the beginning of the financial year                                                                  –
      Granted during the financial year                                                                            2,548,361
      Forfeited during the financial year                                                                            (10,400)
      Transfers from related body corporate entities                                                                  65,250
      RSUs on issue at the end of the financial year                                                               2,603,211

      The weighted average fair value of the RSU Awards granted during the financial year was $46.35.
      During the financial year no RSU Awards were exchanged for MGL shares.
      The market value of shares which may be issued on the exercise of the outstanding RSUs as at 31 March 2010 was
      $119 million.


                                                                                                                 Number of
                                                                                                                DSU Awards
                                                                                                                      2010

      DSUs on issue at the beginning of the financial year                                                                 –
      Granted during the financial year                                                                              442,080
      Transfers from related body corporate entities                                                                   5,189
      DSUs on issue at the end of the financial year                                                                 447,269

      The weighted average fair value of the DSU Awards granted during the financial year was $46.35.
      During the financial year no DSU Awards were exchanged for MGL shares.
      The market value of shares which may be issued on the exercise of the outstanding DSUs as at 31 March 2010 was
      $21 million.


                                                                                                                 Number of
                                                                                                                PSU Awards
                                                                                                                      2010

      PSUs on issue at the beginning of the financial year                                                                 –
      Granted during the financial year                                                                               28,400
      PSUs on issue at the end of the financial year                                                                  28,400

      The weighted average fair value of the PSU Awards granted during the financial year was $46.35.
      During the financial year no PSU Awards were exchanged for MGL shares.
      The market value of shares which may be issued on the exercise of the outstanding PSUs as at 31 March 2010 was
      $1 million.
      The awards are measured at their grant dates based on their fair value and for each PSU the number expected to vest.
      This amount is recognised as an expense evenly over the respective vesting periods and the equity provided is treated
      as a capital contribution. For the year ended 31 March 2010, compensation expense relating to the MEREP totalled
      $35 million.




116
    Note 36
    Employee equity participation continued
    Vesting of Retained DPS Awards
    The Vesting Periods that apply to Retained DPS Awards representing 2009 retention are set out below for all Executive
    Directors:
    First staff trading day after1                                                                    % of Awards released

    1 July 2012                                                                                                                  20
    1 July 2013                                                                                                                  20
    1 July 2014                                                                                                                  20
    1 July 2015                                                                                                                  20
    1 July 2016                                                                                                                  20
1
    Vesting will occur on the first day of a staff trading window following 1 July of the specified year. If an Executive Director
    has been on leave without pay (excluding leave to which the Executive Director may be eligible under local laws) for
    12 months or more, the vesting period may be extended accordingly.

    Vesting of Transition Awards
    The Vesting Periods that apply to Transition Awards are set out below:
                                                                                                % of Awards          % of Awards
                                                                                                released for         released for
                                                                                                  Executive       Other Executive
    First staff trading day after2                                                               Committee              Directors

    1 July 2010                                                                                   14.28 (1/7th)                  20
    1 July 2011                                                                                   14.28 (1/7th)                  20
    1 July 2012                                                                                   14.28 (1/7th)                  20
    1 July 2013                                                                                   14.28 (1/7th)                  20
    1 July 2014                                                                                   14.28 (1/7th)                  20
    1 July 2015                                                                                   14.28 (1/7th)                 N/A
    1 July 2016                                                                                   14.28 (1/7th)                 N/A
2
    Vesting will occur on the first day of a staff trading window following 1 July of the specified year. If an Executive Director
    has been on leave without pay (excluding leave to which the Executive Director may be eligible under local laws) for
    12 months or more, the vesting period may be extended accordingly.

    Vesting of 2009 Retained Profit Share and 2009 Promotion Awards
    The Vesting Periods that apply to 2009 Retained Profit Share and 2009 Promotion Awards are set out below for all
    Eligible Employees:
                                                                                                                    Proportion of
    First staff trading day after3                                                                                 Awards vested
    1 July 2011                                                                                                         one third
    1 July 2012                                                                                                         one third
    1 July 2013                                                                                                         one third
3
    Vesting will occur on the first day of a staff trading window following 1 July of the specified year.
    In limited cases, the Application Form for 2009 Retained Profit Share Awards and 2009 Promotion Awards may set out a
    different Vesting Period, in which case that period will be the Vesting Period for the Award.




                                                                                                                                      117
      Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                   macquarie.com.au

      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 36                                                            Performance Hurdle 2
                                                                         50 per cent of the PSUs, based solely on compound
      Employee equity participation continued                            average annual growth (CAGR) in earnings per share
                                                                         (EPS) over the vesting period.
      Vesting of New Hire Awards
      For New Hire Awards to staff who commenced                         Awards will vest on a sliding scale with 50 per cent
      employment with the Macquarie Group prior to 31                    vesting at EPS CAGR of 9.0 per cent and 100 per cent
      December 2009, the Vesting Period for the Awards will              vesting at EPS CAGR of 13.0 per cent. For example, if
      commence on the 15th day of the month following their              EPS CAGR were 11 per cent, 75 per cent of the Award
      commencement with MGL (Vesting Start Date). The                    would vest.
      Awards will then vest in three equal tranches on the first         Under both performance hurdles, the objective is to be
      day of the first staff trading period following the second,        examined once only, effectively at the calendar quarter
      third and fourth anniversary of the Vesting Start Date.            end immediately before vesting. If the condition is not
      New Hire Awards to Eligible Employees who commence                 met when examined, the PSUs due to vest will lapse.
      employment with the Macquarie Group on or after 1                  Employee Share Plan
      January 2010 will vest progressively over four years as
                                                                         Following shareholder approval at the 1997 Annual
      follows:
                                                                         General Meeting, MBL introduced the Macquarie Bank
      – as to one third of the Awards, on the first day of the           Employee Share Plan whereby each financial year,
         first staff trading window following the second                 eligible employees are offered up to $1,000 worth of fully
         Anniversary of the Acquisition Date;                            paid ordinary Bank shares for no cash payment. MGL
      – as to one third of the Awards, on the first day of the           has since introduced the Macquarie Group Employee
         staff trading window following the third Anniversary of         Share Plan (ESP) on the same terms.
         the Acquisition Date; and
                                                                         Shares issued under the ESP cannot be sold until the
      – as to one third of the Awards, on the first day of the
                                                                         earlier of three years after issue or the time when the
         first trading window following the fourth Anniversary of
                                                                         participant is no longer employed by the Bank or a
         the Acquisition Date.
                                                                         subsidiary of the Bank. In all other respects, shares
      Vesting of Performance Share Units                                 issued rank equally with all other fully paid ordinary
      PSUs will only be released or become exercisable upon              shares then on issue.
      the achievement of certain performance hurdles.
                                                                         The latest offer under the ESP was made during
      Currently, only members of the MGL and MBL Executive
                                                                         December 2009. A total of 1,635 staff participated in this
      Committee are eligible to receive PSUs. For the PSUs
                                                                         offer. On 25 January 2010, the participants were each
      allocated to Executive Committee Members in respect of
                                                                         issued with 19 fully paid ordinary shares based on the
      the 2009 remuneration year, two performance hurdles
                                                                         offer amount of $1,000 and the then calculated average
      have been determined and each will apply individually to
                                                                         market share price of $52.04, a total of 31,065 shares
      50 per cent of the total number of PSUs awarded, these
                                                                         were issued. The shares were issued for no cash
      hurdles are set out below. The BRC will periodically
                                                                         consideration.
      review the performance hurdles, including the reference
      group, and has the discretion to change the performance            Staff Share Acquisition Plan
      hurdles in line with regulatory and remuneration trends.           Following shareholder approval at the 1999 Annual
      Any change will be disclosed in Macquarie’s Annual                 General Meeting, MBL introduced the Macquarie Bank
      Report.                                                            Staff Share Acquisition Plan (MBSSAP) whereby each
      Performance Hurdle 1                                               financial year, Australian based eligible employees were
      50 per cent of the PSUs, based solely on the relative              given the opportunity to nominate an amount of their pre-
      average annual return on ordinary equity (ROE) over the            tax available profit share or future commission to
      vesting period compared to a reference group of                    purchase fully paid ordinary MGL shares on-market. MGL
      domestic and international financial institutions.                 has since introduced the Macquarie Group Staff Share
                                                                         Acquisition Plan (MGSSAP) on the same terms. In early
      Vesting is on a sliding scale with 50 per cent vesting
                                                                         2010, MGL suspended new offers under the MGGSAP
      above the 50th percentile and 100 per cent vesting at the
                                                                         following Australian taxation changes implemented in late
      75th percentile. For example, if ROE achievement is at
                                                                         2009 which would have significantly limited the future
      the 60th percentile, 70 per cent of the Award would vest.
                                                                         participation in the plan. MGL does not expect it will
      The reference group comprises significant Australian
                                                                         make any future allocations under MGSSAP.
      financial companies within the ASX100 as well as
      Macquarie’s major international investment banking                 The total number of shares purchased under the
      competitors with whom Macquarie competes and                       MGSSAP was limited in any financial year to three per
      frequently compares its performance. The reference                 cent of MGL’s shares as at the beginning of that financial
      group for this year’s PSU allocation comprised of ANZ              year.
      Group, Commonwealth Bank, National Australia Bank,                 The shares allocated under the MGSSAP were either
      Westpac, Suncorp, Bank of America, Citigroup, Credit               newly issued shares or shares acquired on-market by the
      Suisse, Deutsche Bank, Goldman Sachs, JP Morgan,                   MGSSAP Plan Bank, at the direction of MGL.
      Morgan Stanley and UBS.
118
Shares acquired under the MGSSAP cannot be sold,                Non-Executive Director Share Acquisition Plan
transferred or disposed of for a period of six months from      Following shareholder approval at the 1999 Annual
the date that the shares are transferred into a                 General Meeting, MBL also introduced the Macquarie
participating employee’s name except in special                 Bank Non-Executive Director Share Acquisition Plan
circumstances if the employee resigns. The shares held          whereby each financial year Australian based Non-
in the MGSSAP are also subject to forfeiture by an              Executive Directors (NEDs) of the Macquarie Group of
employee in a number of circumstances including theft,          companies were given the opportunity to contribute
fraud, dishonesty, or defalcation in relation to the affairs    some or all of their future pre-tax remuneration from the
of the Bank or a related Bank or if they carry out an act or    Macquarie Group to acquire Macquarie Bank Limited
fail to do an act which brings the Bank or a related Bank       shares (shares). MGL has since introduced a Macquarie
into disrepute.                                                 Group Non-Executive Director Share Acquisition Plan
Shares held in the MGSSAP will be withdrawn on the              (NEDSAP) on the same terms. The Australian taxation
earlier of:                                                     changes referred to above in respect of the MGSSAP
                                                                also apply to the NEDSAP. Accordingly, MGL has
– an employee’s resignation from the Bank or a related
                                                                currently suspended new offers under the NEDSAP and
  entity;
                                                                does not expect to make any future allocations under the
– upon request by the employee (after the expiration of         plan.
  the non-disposal period); and
– ten years from the date that the shares are registered        Previously, NEDs could elect to participate in the
  in an employee’s name.                                        NEDSAP by nominating a minimum of $1,000 of their
                                                                NED remuneration per buying period to go towards the
In all other respects, the shares rank equally with all other   NEDSAP. Participating NEDs could also subsequently
fully paid ordinary shares then on issue.                       apply to reduce their previously nominated contribution
Previously, the eligible employees were Australian based        provided that the relevant buying period has not
permanent full-time or part-time employees or fixed term        commenced. The shares were acquired at prevailing
contract employees of the Bank or a related Bank who            market prices. Brokerage fees were applied to the NED's
either received available profit share in the relevant year     account.
of at least $1,000 in total or allocated at least $1,000 in     Shares acquired under the NEDSAP cannot be sold,
available commission towards the MGSSAP.                        transferred or disposed of for a period of six months from
The Macquarie Bank Executive Director Share Acquisition         the date that the shares were transferred into a NED’s
Plan (MBEDSAP) was a sub-plan of the MBSSAP which               name except in special circumstances if the NED resigns.
was created in 2003 and was open to eligible Executive          The shares held in the NEDSAP are also subject to
Directors. The disposal and forfeiture restrictions in the      forfeiture by a NED in a number of circumstances
MBEDSAP differ to those in the MBSSAP. MGL                      including theft, fraud, dishonesty, or defalcation in relation
subsequently introduced a Macquarie Group Executive             to the affairs of the Bank or a related Bank or if they carry
Director Share Acquisition Plan (MGEDSAP) on the same           out an act or fail to do an act which brings the Bank or a
terms but no offers have been made under the plan.              related Bank into disrepute.
In April 2008 a further sub-plan of the MGSSAP was              Shares held in the NEDSAP will be withdrawn on the
created, the Macquarie Group Executive Committee                earlier of:
Acquisition Plan, whereby members of the MGL                    – the participant ceasing to be a NED of MGL;
Executive Committee were required to contribute certain         – upon request by the NED (after the expiration of the
proportions of their annual profit share to acquire MGL           non-disposal period); and
shares, which must be held for at least three years.
                                                                – ten years from the date that the shares are registered
Further information on this is provided in the
                                                                  in a NED’s name.
Remuneration Report. The first offers under this sub-plan
were made in May 2008. MGL does not intend making               In all other respects, shares rank equally with all other
any further allocations under this sub-plan, as Executive       fully paid ordinary shares then on issue.
Committee members now receive the equity component              Shares resulting from participation in the NEDSAP may
of their retained profit share under the new Macquarie          count towards meeting the minimum shareholding
Group Employee Retained Equity Plan (see above).                requirements of NEDs.
Offers under the MGSSAP (including the Macquarie                Offers under the NEDSAP were made during May 2009
Group Executive Committee Acquisition Plan) were made           and one NED participated in the NEDSAP. In July 2009
during May 2009. A total of 106 staff participated in the       3,639 MGL shares were acquired on-market.
MGSSAP. In July 2009, 27,391 MGL shares were issued
based on the issue price of $33.49 and in December
2009, 1,194 MGL shares were issued.




                                                                                                                                 119
           Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                      macquarie.com.au

           Notes to the financial statements
           for the financial year ended 31 March 2010
           continued


                                                                         Consolidated         Consolidated        Bank               Bank
                                                                                 2010                2009         2010               2009
                                                                                  $m                   $m          $m                  $m


           Note 37
      37   Contingent liabilities and commitments
           The following details of contingent liabilities and assets
           exclude derivatives.
           Contingent liabilities exist in respect of:
           Guarantees                                                               755                858           938              1,125
           Indemnities                                                                7                  8            72                 77
           Letters of credit                                                        170                166           773                536
           Performance related contingents                                           95                101            95                101
           Total contingent liabilities1                                          1,027              1,133         1,878              1,839

           Commitments exist in respect of:
           Undrawn credit facilities                                              3,818              2,554         2,810              1,928
           Forward asset purchase                                                   172                251           108                218
           Total commitments2                                                     3,990              2,805         2,918              2,146
           Total contingent liabilities and commitments                           5,017              3,938         4,796              3,985
       1
           Contingent liabilities exist in respect of claims and potential claims against the consolidated entity. They are reported as
           the maximum potential liability without considering the value of recovery of assets. Where necessary, appropriate
           provisions have been made in the financial statements. The Directors do not consider that the outcome of any such
           claims known to exist at the date of this financial report, either individually or in aggregate, is likely to have a material
           effect on the results of its operations or its financial position.
       2
           Total commitments also represent contingent assets. Such commitments to provide credit may convert to loans and
           other assets in the ordinary course of business.


           Note 38
      38   Capital and other expenditure commitments
           Not later than one year                                                       15              6             8                  4
           Later than one year and not later than five years                             25             18            25                  9
           Later than five years                                                          –              9             –                  2
           Total capital and other expenditure commitments                               40             33            33                 15



           Note 39
      39   Lease commitments
           Non-cancellable operating leases expiring:
           Not later than one year                                                    49               72               –                  –
           Later than one year and not later than five years                         130              205               –                  1
           Later than five years                                                      33               71               –                  –
           Total operating lease commitments                                         212              348               –                  1

           Operating leases relate to commercial buildings. The future lease commitments disclosed are net of any rental incentives
           received.




120
     Note 40
40   Derivative financial instruments
     Objectives of holding and issuing derivative financial instruments
     The consolidated entity is an active price maker in derivatives on interest rates, foreign exchange, commodities and
     equities. Its objective is to earn profits from the price making spread and from managing the residual exposures on
     hedged positions. Proprietary position taking is a small part of the consolidated entity’s trading activities. Risks on
     derivatives are managed together with all other trading positions in the same market. All trading positions, including
     derivatives, are marked to fair value daily.
     The consolidated entity also uses derivatives to hedge banking operations and for asset/liability management. Certain
     derivative transactions may qualify as cash flow, fair value or net investment in foreign operations hedges, if they meet the
     appropriate strict hedge criteria outlined in note 1(xii) – Summary of significant accounting policies:
     Cash flow hedges               The consolidated entity is exposed to volatility in future interest cash flows arising from
                                    the consolidated mortgage securitisation vehicles and other structured products which
                                    are subject to variable interest rates. The aggregate principal balances and interest cash
                                    flows across these portfolios form the basis for identifying the non-trading interest rate
                                    risk of the consolidated entity, which is hedged with interest rate swaps and cross-
                                    currency swaps.
                                    In addition to this, the interest rate swaps used to hedge the MIPS securities have been
                                    designated as cash flow hedges of an intercompany loan by the Bank in its separate
                                    financial statements. Changes in the fair value of these interest swaps are deferred in
                                    equity and subsequently released to earnings as the interest on the intercompany loan is
                                    accrued.
                                    At 31 March 2010, the fair value of outstanding derivatives held by the Bank and
                                    designated as cash flow hedges was $8 million negative value (2009: $165 million
                                    negative value).
                                    In 2010, the consolidated entity recognised a $2 million loss (2009: $5 million loss) in the
                                    income statement due to hedge ineffectiveness on cash flow hedges. At 31 March 2010,
                                    the fair value of outstanding derivatives held by the consolidated entity and designated as
                                    cash flow hedges was $86 million negative value (2009: $75 million negative value).
     Fair value hedge               The consolidated entity’s fair value hedges consist of:
                                    – interest rate swaps used to hedge against changes in the fair value of fixed rate issued
                                      debt as a result of movements in benchmark interest rates; and
                                    – foreign exchange forward contracts used to hedge against changes in the fair value of
                                      foreign denominated equity instruments as a result of movements in market foreign
                                      exchange rates.
                                    As at 31 March 2010, the fair value of outstanding derivatives held by the consolidated
                                    entity and designated as fair value hedges was $11 million negative value
                                    (2009: $100 million negative value).
                                    During the period fair value losses on the hedging instruments of $111 million have been
                                    recognised (2009: $212 million), offset by $107 million (2009: $196 million) of gains on the
                                    hedged item.
     Net investment in foreign      The consolidated entity has applied net investment hedging for foreign exchange risk
     operations hedges              arising from its non-core foreign operations.
                                    At 31 March 2010, the fair value of outstanding derivatives held by the consolidated entity
                                    and designated as net investment in foreign operations hedges was $18 million negative
                                    value (2009: $24 million positive value). In 2010, the consolidated entity recognised $nil
                                    (2009: $nil) in the income statement due to hedge ineffectiveness on net investment
                                    hedges.




                                                                                                                                     121
      Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                   macquarie.com.au

      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 40
      Derivative financial instruments continued
      The types of contracts which the consolidated entity trades and uses for hedging purposes are detailed below:
      Futures: Futures contracts provide the holder with the obligation to buy a specified financial instrument or commodity at
      a fixed price and fixed date in the future. Contracts may be closed early via cash settlement. Futures contracts are
      exchange traded.
      Forwards and forward rate agreements: Forward contracts, which resemble futures contracts, are an agreement
      between two parties that a financial instrument or commodity will be traded at a fixed price and fixed date in the future.
      A forward rate agreement provides for two parties to exchange interest rate differentials based on an underlying principal
      amount at a fixed date in the future.
      Swaps: Swap transactions provide for two parties to swap a series of cash flows in relation to an underlying principal
      amount, usually to exchange a fixed interest rate for a floating interest rate. Cross-currency swaps provide a tool for two
      parties to manage risk arising from movements in exchange rates.
      Options: Option contracts provide the holder the right to buy or sell financial instruments or commodities at a fixed price
      over an agreed period or on a fixed date. The contract does not oblige the holder to buy or sell, however the writer must
      perform if the holder exercises the rights pertaining to the option.




122
Note 40
Derivative financial instruments continued
The following table provides details of the consolidated entity’s outstanding derivatives used for trading and in some cases for
hedging purposes as at 31 March.

                                                       Consolidated 2010                                      Consolidated 2009
                             Notional     Asset      Liability    Net fair          Notional     Asset       Liability   Net fair
                             amount revaluations revaluations       value           amount revaluations revaluations       value
                                  $m         $m           $m          $m                 $m         $m           $m          $m

Interest rate contracts
Exchange traded               13,135             46           50           (4)       28,427           126          141              (15)
Forwards                       2,060             52           69          (17)       19,678             8            8                 –
Swaps                        157,358          3,065        3,224         (159)      172,050         4,781        4,271              510
Options                        1,939              5            4            1           321             6            –                6
Total interest rate
contracts                    174,492          3,168        3,347         (179)      220,476         4,921        4,420              501

Foreign exchange
contracts
Forwards                       16,552          258           391         (133)       78,023         2,084        1,969              115
Swaps                          59,283          742           884         (142)       16,601           539          957             (418)
Options                           656          314           342          (28)        2,600           773          759               14
Total foreign exchange
contracts                      76,491         1,314        1,617         (303)       97,224         3,396        3,685             (289)

Equity contracts
Exchange traded                12,779           176          181           (5)       17,196           354          145           209
Swaps                           3,036           128          228         (100)        1,780           294        1,292          (998)
Options                        35,749           986          810          176         8,540           686        1,173          (487)
Other                             675             –            4           (4)        3,020            25           51            (26)
Total equity contracts         52,239         1,290        1,223           67        30,536         1,359        2,661        (1,302)

Commodity contracts
Exchange traded                36,045         4,142        4,446         (304)       55,902         3,361        3,469             (108)
Forwards                       60,804         5,173        4,851          322        44,396         4,234        3,384              850
Swaps                          40,764         4,141        3,826          315        39,692         5,625        4,828              797
Options                        86,167         2,312        2,324           (12)      70,912         4,439        4,826             (387)
Total commodity
contracts                    223,780        15,768        15,447           321      210,902        17,659       16,507         1,152
Total derivatives
contracts outstanding        527,002        21,540        21,634           (94)     559,138        27,335       27,273               62




                                                                                                                             123
Macquarie Bank Limited and its subsidiaries                                 2010 Annual Report                                   macquarie.com.au

Notes to the financial statements
for the financial year ended 31 March 2010
continued




Note 40
Derivative financial instruments continued
The following table provides details of the Bank’s outstanding derivatives used for trading and in some cases for hedging purposes as at
31 March.

                                                                             Bank 2010                                                Bank 2009
                                        Notional     Asset      Liability       Net fair         Notional     Asset       Liability      Net fair
                                        amount revaluations revaluations          value          amount revaluations revaluations          value
                                             $m         $m           $m             $m                $m         $m           $m             $m

Interest rate contracts
Exchange traded                           12,816          46          50               (4)        26,837          100          141           (41)
Forwards                                   2,060          52          69             (17)         19,678            8            8              –
Swaps                                    146,788       3,014       2,863             151         167,807        4,479        4,162           317
Options                                    1,939           5           4                1            321            6            –             6
Total interest rate contracts            163,603       3,117       2,986             131         214,643        4,593        4,311           282
Foreign exchange
contracts
Forwards                                  16,151        254          391            (137)         77,655        2,082        1,969          113
Swaps                                     59,283        783          883            (100)         15,914          421          956         (535)
Options                                      656        314          342             (28)          2,600          773          759           14
Total foreign exchange
contracts                                 76,090       1,351       1,616            (265)         96,169        3,276        3,684         (408)
Equity contracts
Exchange traded                           12,779         176         181              (5)         17,196          354          145           209
Swaps                                      3,036         128         228            (100)          1,777          295        1,291          (996)
Options                                   34,721       1,217         810             407           8,536          686        1,173          (487)
Other                                        675           –           4               (4)         3,020           25            –            25
Total equity contracts                    51,211       1,521       1,223             298          30,529        1,360        2,609        (1,249)
Commodity contracts
Exchange traded                           34,773       2,190       2,300            (110)         43,290        2,216        3,329        (1,113)
Forwards                                  53,630       3,739       3,796             (57)         41,106        3,700        3,211           489
Swaps                                     20,197         767         693              74          20,986        2,728        2,122           606
Options                                   86,090       2,270       2,252              18          63,222        3,545        4,640        (1,095)
Total commodity contracts                194,690       8,966       9,041             (75)        168,604       12,189       13,302        (1,113)
Total derivatives contracts
outstanding                              485,594     14,955       14,866              89         509,945       21,418       23,906        (2,488)




124
                                                                         Credit limits and exposures are also allocated a Loss
     Note 41                                                             Given Default (LGD) ratio reflecting the estimated
41   Financial risk management                                           economic loss in the event of default occurring.
     Risk Management Group                                               No material credit exposures are assumed without
     Risk is an integral part of the consolidated entity’s               appropriate analysis. After this analysis is undertaken,
     businesses. The main risks faced by the consolidated                limits are set for an acceptable level of potential exposure.
     entity are market risk, equity risk, credit risk, liquidity risk,   All limits and ratings are reviewed at least once a year, or
     operational risk, legal and compliance risk. Responsibility         more frequently if necessary, to ensure that the most
     for management of these risks lies with the individual              current information available on counterparties is taken
     businesses giving rise to them. It is the responsibility of the     into account.
     Risk Management Group (RMG) to ensure appropriate                   All credit exposures are monitored regularly against limits.
     assessment and management of these risks.                           Credit exposures which fluctuate through the duration of
     RMG is independent of all other areas of the Macquarie              the transaction are monitored daily. These include
     Group. The Head of RMG, as Macquarie’s Chief Risk                   exposures such as swaps, forward contracts and options,
     Officer, is a member of the Executive Committee of MGL              which are assessed using sophisticated valuation
     and MBL and reports directly to the Managing Director               techniques.
     and Chief Executive Officer with a secondary reporting line         Where counterparties are under stress they are monitored
     to the Board Risk Committee. RMG authority is required              on a more frequent basis and counterparties with a
     for all material risk acceptance decisions. RMG identifies,         deteriorating credit risk profile are monitored formally on a
     quantifies and assesses all material risks and sets                 monthly basis through Creditwatch and Irregulars
     prudential limits. Where appropriate, these limits are              reporting. The business remains responsible for the
     approved by the Executive Committee and the Board.                  management of the counterparty and of the risk position,
                                                                         but RMG oversight is increased to ensure that positions
     kçíÉ=QNKN                                                           are managed for optimal outcomes. When counterparties
                                                                         default, RMG and the business work together to resolve
     Credit risk                                                         the issues and to manage the facilities through the
     Credit risk is the risk of financial loss as a result of failure    impairment and provisioning process.
     by a client or counterparty to meet its contractual                 To mitigate credit risk, the consolidated entity makes use
     obligations. Credit risk arises from both lending and               of margining and other forms of collateral or credit
     trading activities. In the case of trading activity, credit risk    enhancement techniques (including guarantees, letters of
     reflects the possibility that the trading counterparty will not     credit, the purchase of credit default swaps and mortgage
     be in a position to complete the contract once the                  insurance) where appropriate.
     settlement becomes due. In that situation, the credit
     exposure is a function of the movement of prices over the           The consolidated entity’s policies to control credit risk
     period of the contract.                                             include avoidance of unacceptable concentrations of risk
                                                                         either to any economic sector or to an individual
     The consolidated entity’s philosophy on credit risk                 counterparty. Policies are in place to regulate large
     management reflects the principle of separating prudential          exposures to single counterparties or groups of
     control from operational management. The responsibility             counterparties.
     for approval of credit exposures is delegated to specific
     individuals. All approvals reflect two principles: a                The consolidated entity has a country risk framework
     requirement for dual sign-off and a requirement that,               which covers the assessment of country risk and the
     above specified limits, all credit exposures must be                approval of country risk limits. Where appropriate the
     approved outside the business line proposing to                     country risk is covered by political risk insurance.
     undertake them. Most credit decisions are therefore taken           The balances disclosed in the credit risk tables below
     within RMG.                                                         exclude financial assets that are subject to risks other than
     All customers’ counterparty limits and exposures are                credit risk, such as equity investments, interests in
     allocated an MGL rating on a 1 – 13 scale which broadly             associates and joint ventures or banknotes and coin.
     correspond with Standard & Poor's (S&P) and Moody's
     Investor Services (Moody's) credit ratings. Each MGL
     rating is assigned a Probability of Default (PD) estimate.




                                                                                                                                         125
          Macquarie Bank Limited and its subsidiaries             2010 Annual Report                                    macquarie.com.au


          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued




          Note 41.1
          Credit risk continued
          Maximum exposure to credit risk
          The tables below detail the concentration of credit exposure of the consolidated entity's assets to significant
          geographical locations and counterparty types. The amounts shown represent the maximum credit risk of the
          consolidated entity's assets.
                                                                 Cash collateral
                                                                   on securities                                       Other financial
                                                                  borrowed and                         Loan assets          assets at
                                                                         reverse          Trading            held at        fair value
                                                     Due from       repurchase           portfolio       amortised through profit
                                                         banks     agreements1            assets2               cost           or loss
                                                             $m               $m               $m                $m                $m



          Australia
          Governments                                         –                668           3,540              278               1,478
          Financial institutions                          1,850                349             247            2,986                 687
          Other                                               –                  –             133           23,763               2,682
          Total Australia                                 1,850              1,017           3,920           27,027               4,847

          Asia Pacific
          Governments                                         –                  2             245                  3                 –
          Financial institutions                            547                309              32                 97                50
          Other                                               –                  5               –                325                 1
          Total Asia Pacific                                547                316             277                425                51

          Europe, Middle East and Africa
          Governments                                         –                 46               –                –                   –
          Financial institutions                          2,126              3,651              35              886                 686
          Other                                               –                228              55            2,882                   –
          Total Europe, Middle East and
          Africa                                          2,126              3,925              90            3,768                 686

          Americas
          Governments                                         –                436             167               21                   –
          Financial institutions                          1,967                225             235            1,910                 284
          Other                                               –                165           1,910           10,643                  67
          Total Americas                                  1,967                826           2,312           12,574                 351
          Total                                           6,490              6,084           6,599           43,794               5,935
          Total gross credit risk
      1
          Classified based on the exposure to the underlying security borrowed.
      2
          Included in Australia – Governments are holdings of $4,496 million (2009: $1,458 million) issued by Australian Banks
          which are subject to the Australian Government Guarantee.
          The following provides detail around the active management of credit risk by the consolidated entity:
          The consolidated entity enters into master netting agreements with certain counterparties to manage the credit risk
          where it has trading derivatives in Macquarie Securities Group and Fixed Income, Currencies and Commodities. Stock
          borrowing and reverse repurchase arrangements entered into by the consolidated entity with external counterparties
          normally require collateral in excess of 100 per cent (which is consistent with industry practice). Mortgage insurance
          contracts are entered into in order to manage the credit risk around the mortgage portfolios. Other risk mitigation
          measures include blocked deposits, bank guarantees and letters of credit.




126
                                                                      Life
                                                              investment
    Derivative                     Debt                     contracts and           Credit
      financial            investment          Due from         other unit   commitments
instruments –                securities    related body            holder               and
       positive    Other      available       corporate       investment       contingent
         values   assets       for sale2         entities          assets        liabilities         Total
            $m       $m             $m                $m               $m                $m           $m

                                                                                         Consolidated 2010


          548       126          3,716                –                 –                 –        10,354
          371         –          7,159                –               685                99        14,433
          479     2,131            394            1,282                35             1,278        32,177
        1,398     2,257         11,269            1,282               720             1,377        56,964


            4         6               –               –                 –                 –            260
          244         –              41               –                 –                91          1,411
          105        27               –             223                 –               114            800
          353        33              41             223                 –               205          2,471


           85       391             86                 –                –                 –           608
        7,869         –          2,611                 –                –               248        18,112
        3,373       917            499                97                –             1,156         9,207

       11,327      1,308         3,196                97                –             1,404        27,927


           88       183            159                –                 –                11         1,065
        6,329         7            718                –                 –               156        11,831
        2,045     1,683            717              789                 –             1,864        19,883
        8,462     1,873          1,594              789                 –             2,031        32,779
       21,540     5,471         16,100            2,391               720             5,017       120,141
                                                                                                  120,141




                                                                                                             127
          Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                   macquarie.com.au


          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued




          Note 41.1
          Credit risk continued
          Maximum exposure to credit risk continued


                                                                 Cash collateral
                                                                  on securities                                          Other financial
                                                                 borrowed and                         Loan assets             assets at
                                                                        reverse          Trading           held at            fair value
                                                        Due from    repurchase           portfolio      amortised        through profit
                                                          banks   agreements1             assets             cost                or loss
                                                              $m            $m                $m              $m                     $m



          Australia
          Governments                                          –              1,433         4,001               74                    –
          Financial institutions                           2,437                587           666            2,735                  560
          Other                                                –                  –           137           27,794                2,525
          Total Australia                                  2,437              2,020         4,804           30,603                3,085

          Asia Pacific
          Governments                                         –                    –            –                   4                 –
          Financial institutions                            777                   54           32                 119                 –
          Other                                               –                    –           31                 165                 1
          Total Asia Pacific                                777                   54           63                 288                 1

          Europe, Middle East and Africa
          Governments                                          –                  2           462                1                    –
          Financial institutions                           5,067              1,900             –            2,325                  369
          Other                                                –                219             –            1,199                    –
          Total Europe, Middle East and Africa             5,067              2,121           462            3,525                  369

          Americas
          Governments                                         –                 282            14               25                    –
          Financial institutions                          1,888                  36           359            1,662                    –
          Other                                               –                  21            13            7,819                    –
          Total Americas                                  1,888                 339           386            9,506                    –
          Total                                          10,169               4,534         5,715           43,922                3,455
          Total gross credit risk
      1
          Classified based on the exposure to the underlying security borrowed.
      2
          Included in Australia – Governments, are holdings of $1,458 million issued by Australian banks which are subject to the
          Australian Government Guarantee.
          The following provides detail around the active management of credit risk by the consolidated entity:
          The consolidated entity enters into master netting agreements with certain counterparties to manage the credit risk
          where it has trading derivatives in Macquarie Securities Group and Fixed Income, Currencies and Commodities. Stock
          borrowing and reverse repurchase arrangements entered into by the consolidated entity with external counterparties
          normally require collateral in excess of 100 per cent (which is consistent with industry practice). Mortgage insurance
          contracts are entered into in order to manage the credit risk around the mortgage portfolios. Other risk mitigation
          measures include blocked deposits, bank guarantees and letters of credit.




128
                                                                      Life
                                                              investment
                                   Debt                     contracts and
     Derivative             investment         Due from         other unit        Credit
       financial              securities   related body            holder  commitments
 instruments –      Other      available      corporate       investment and contingent
positive values    assets      for sale2         entities          assets      liabilities          Total
            $m        $m             $m              $m               $m              $m             $m

                                                                                        Consolidated 2009


           411        99         2,060                –                –                8          8,086
         4,718         6         8,334                –              739              408         21,190
           651     1,144           114            4,090               81            1,197         37,733
         5,780     1,249        10,508            4,090              820            1,613         67,009


            53         3              –                –                –               –             60
           342         –              –                –                –               –          1,324
           229        27              –               22                –              90            565
           624        30              –               22                –              90          1,949


             –       220             –                 –                –               –            685
         6,811         –         2,305                 –                –             145         18,922
         1,833     1,132            93                18                –             859          5,353
         8,644     1,352         2,398                18                –           1,004         24,960


            18        55             –                –                –                –            394
         3,630        23           802                –                –              236          8,636
         8,639       207           425              517                –              995         18,636
        12,287       285         1,227              517                –            1,231         27,666
        27,335     2,916        14,133            4,647              820            3,938        121,584
                                                                                                 121,584




                                                                                                            129
          Macquarie Bank Limited and its subsidiaries               2010 Annual Report                              macquarie.com.au


          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued




          Note 41.1
          Credit risk continued
          Maximum exposure to credit risk continued
          The tables below detail the concentration of credit exposures of the Bank’s assets to significant geographical locations
          and counterparty types. The amounts shown represent the maximum credit risk of the Bank’s assets.
                                                                Cash collateral
                                                                  on securities                                      Other financial
                                                                 borrowed and                        Loan assets          assets at
                                                          Due          reverse            Trading        held at          fair value
                                                         from      repurchase            portfolio     amortised      through profit
                                                        banks     agreements1             Assets2           cost             or loss
                                                           $m               $m                $m             $m                  $m



          Australia
          Governments                                       –              668              3,540            199              1,478
          Financial institutions                        1,336              349                247          2,950                687
          Other                                             –                –                132          6,733              2,743
          Total Australia                               1,336            1,017              3,919          9,882              4,908

          Asia Pacific
          Governments                                       –                2                245              –                      –
          Financial institutions                          429              309                 31             91                     50
          Other                                             -                5                  –            249                      1
          Total Asia Pacific                              429              316                276            340                     51

          Europe, Middle East and
          Africa
          Governments                                       –               46                  –              –                   –
          Financial institutions                        1,915            3,651                 35            687                 686
          Other                                             –              228                 55          2,624                   –
          Total Europe, Middle East
          and Africa                                    1,915            3,925                 90          3,311                 686

          Americas
          Governments                                       –              436                153              –                  –
          Financial institutions                        1,440              119                229            762                252
          Other                                             –              165              1,908          1,867                 53
          Total Americas                                1,440              720              2,290          2,629                305
          Total                                         5,120            5,978              6,575         16,162              5,950
          Total gross credit risk
      1
          Classified based on the exposure to the underlying security borrowed.
      2
          Included in Australia – Governments are holdings of $4,496 million (2009: $1,458 million) issued by Australian Banks
          which are subject to the Australian Government Guarantee.
          The following provides detail around the active management of credit risk by the Bank:
          The Bank enters into master netting agreements with certain counterparties to manage the credit risk where it has
          trading derivatives in Macquarie Securities Group and Fixed Income, Currencies and Commodities. Stock borrowing and
          reverse repurchase arrangements entered into by the Bank with external counterparties normally require collateral in
          excess of 100 per cent (which is consistent with industry practice). Mortgage insurance contracts are entered into in
          order to manage the credit risk around the mortgage portfolios. Other risk mitigation measures include blocked deposits,
          bank guarantees and letters of credit.




130
                                    Debt
     Derivative             investment          Due from                         Credit
       financial              securities    related body                  commitments
 instruments –      Other      available       corporate       Due from and contingent
positive values    assets       for sale2         entities   subsidiaries     liabilities       Total
            $m        $m             $m                $m             $m              $m         $m

                                                                                            Bank 2010


            548       77          3,715                –               –               –       10,225
            462        –          6,895                –               –              99       13,025
            706    2,229            368            1,448          11,338           1,352       27,049
          1,716    2,306         10,978            1,448          11,338           1,451       50,299


              4        –               –               –               –               –          251
            244        –              41               –               –              91        1,286
            105        2               –             219             631             103        1,315
            353        2              41             219             631             194        2,852



              6        9             86                –               –               –          147
          5,456        –          2,611                –               –             244       15,285
          3,221      702            453              104           2,214           1,182       10,783

          8,683      711          3,150              104           2,214           1,426       26,215


             3          9           159                –               –              11          771
         3,772          7           718                –               –             156        7,455
           428          –           541              686           2,178           1,558        9,384
         4,203         16         1,418              686           2,178           1,725       17,610
        14,955      3,035        15,587            2,457          16,361           4,796       96,976
                                                                                               96,976




                                                                                                        131
          Macquarie Bank Limited and its subsidiaries               2010 Annual Report                              macquarie.com.au


          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued




          Note 41.1
          Credit risk continued
          Maximum exposure to credit risk continued

                                                                Cash collateral
                                                                 on securities                                       Other financial
                                                                borrowed and                         Loan assets          assets at
                                                                       reverse           Trading          held at         fair value
                                                    Due from       repurchase            portfolio     amortised     through profit
                                                      banks      agreements1              assets            cost             or loss
                                                          $m               $m                 $m             $m                  $m



          Australia
          Governments                                       –            1,433             4,000               2                  –
          Financial institutions                        1,737              587               664           3,876                560
          Other                                             –                –               137           5,190              2,525
          Total Australia                               1,737            2,020             4,801           9,068              3,085

          Asia Pacific
          Governments                                      –                 –                  –              –                    –
          Financial institutions                         658                54                 30            108                    –
          Other                                            –                 –                  –             99                    1
          Total Asia Pacific                             658                54                 30            207                    1

          Europe, Middle East and
          Africa
          Governments                                       –                2               462               –                  –
          Financial institutions                        4,915            1,900                 –           2,155                369
          Other                                             –              219                 –           1,108                  –
          Total Europe, Middle East
          and Africa                                    4,915            2,121               462           3,263                369

          Americas
          Governments                                       –              282                14              –                   –
          Financial institutions                        1,722               36               317            938                   –
          Other                                             –               21                12          1,762                   –
          Total Americas                                1,722              339               343          2,700                   –
          Total                                         9,032            4,534             5,636         15,238               3,455
          Total gross credit risk
      1
          Classified based on the exposure to the underlying security borrowed.
      2
          Included in Australia – Governments, are holdings of $1,458 million issued by Australian Banks which are subject to the
          Australian Government Guarantee.
          The following provides detail around the active management of credit risk by the Bank:
          The Bank enters into master netting agreements with certain counterparties to manage the credit risk where it has
          trading derivatives in Macquarie Securities Group and Fixed Income, Currencies and Commodities. Stock borrowing and
          reverse repurchase arrangements entered into by the Bank with external counterparties normally require collateral in
          excess of 100 per cent (which is consistent with industry practice). Mortgage insurance contracts are entered into in
          order to manage the credit risk around the mortgage portfolios. Other risk mitigation measures include blocked deposits,
          bank guarantees and letters of credit.




132
                                         Debt
     Derivative                    investment         Due from                             Credit
       financial                     securities   related body                     commitments
 instruments –                    available for      corporate       Due from     and contingent
positive values    Other assets          sale2          entities   subsidiaries         liabilities       Total
            $m              $m             $m               $m             $m                  $m          $m

                                                                                                      Bank 2009


           411              58          2,060                –               –                  –         7,964
         4,540               5          7,764                –               –                408        20,141
           651           1,243             64            4,065           7,498              1,296        22,669
         5,602           1,306          9,888            4,065           7,498              1,704        50,774


            53               –               –                –              –                  –            53
           342               –               –                –              –                  –         1,192
           229               –               –               10            770                130         1,239
           624               –               –               10            770                130         2,484



             –              27              –                 –              –                  –           491
         6,663               –          2,433                 –              –                145        18,580
         1,543             463              –                21          4,011                946         8,311

         8,206             490          2,433                21          4,011              1,091        27,382


            13               9              –                –              –                   –           318
         3,368               –            802                –              –                 174         7,357
         3,605               5            100              492          2,766                 886         9,649
         6,986              14            902              492          2,766               1,060        17,324
        21,418           1,810         13,223            4,588         15,045               3,985        97,964
                                                                                                         97,964




                                                                                                                  133
      Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                   macquarie.com.au


      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 41.1
      Credit risk continued
      Credit quality of financial assets
      The tables below show the credit quality by class of financial asset (based upon ultimate risk counterparty) for credit
      exposures, based on the consolidated entity’s credit rating system.
      Credit Quality – Consolidated 2010
                                                             Neither past due nor impaired
                                                                     Below                         Past due or
                                                    Investment Investment                          individually
                                                         Grade       Grade      Default    Unrated    impaired                  Total
                                                            $m          $m          $m         $m          $m                    $m
      Due from banks                                     6,482              8            –            –             –       6,490
      Cash collateral on securities borrowed
      and reverse repurchase agreements                                                                                     6,084
      Governments                                          924           228            –             –             –       1,152
      Financial institutions                             4,507            27            –             –             –       4,534
      Other                                                316            72           10             –             –         398
      Trading portfolio assets                                                                                              6,599
      Governments                                        3,894            58            –             –             –       3,952
      Financial institutions                               454            64           31             –             –         549
      Other                                                218         1,824           56             –             –       2,098
      Loan assets held at amortised cost                                                                                   43,794
      Governments                                          250            2             –             –           50          302
      Financial institutions                             5,381          470             –             –           28        5,879
      Other                                             23,589       11,718           161             –        2,145       37,613
      Other financial assets at fair value
      through profit or loss                                                                                                5,935
      Governments                                        1,478             –             –            –            –        1,478
      Financial institutions                             1,707             –             –            –            –        1,707
      Other                                                822         1,889             –            –           39        2,750
      Derivative financial instruments –
      positive values                                                                                                      21,540
      Governments                                          697            28            –             –            –          725
      Financial institutions                            14,165           648            –             –            –       14,813
      Other                                              4,423         1,525           27             –           27        6,002
      Other assets                                                                                                          5,471
      Governments                                          706             –             –            –            –          706
      Financial institutions                                 –             –             –            –            7            7
      Other                                              3,047         1,512             –          162           37        4,758
      Debt investment securities available for
      sale                                                                                                                 16,100
      Governments                                        3,961             –             –            –            –        3,961
      Financial institutions                            10,483            46             –            –            –       10,529
      Other                                                739           843             –            –           28        1,610
      Due from related body corporate entities                                                                              2,391
      Other                                              1,074              –            –        1,317             –       2,391
      Life investment contracts and other
      unitholder investment assets                                                                                           720
      Financial institutions                               685              –            –            –             –        685
      Other                                                 35              –            –            –             –         35
      Total                                                                                                              115,124
      Included in the past due category are balances in which an amount was overdue by one day or more.

134
Note 41.1
Credit risk continued
Credit quality of financial assets continued
Credit Quality – Consolidated 2009
                                                        Neither past due nor impaired
                                                                Below                           Past due or
                                               Investment Investment                             individually
                                                    Grade       Grade       Default     Unrated    impaired       Total
                                                      $m           $m          $m           $m           $m        $m
Due from banks                                    10,161            8            –            –            –     10,169
Cash collateral on securities borrowed
and reverse repurchase agreements                                                                                 4,534
Governments                                        1,522          195            –            –            –      1,717
Financial institutions                             2,492           85            –            –            –      2,577
Other                                                221           19            –            –            –        240
Trading portfolio assets                                                                                          5,715
Governments                                        4,477            –            –            –            –      4,477
Financial institutions                             1,018           39            –            –            –      1,057
Other                                                 82           99            –            –            –        181
Loan assets held at amortised cost                                                                               43,922
Governments                                           50            –           –             –          54         104
Financial institutions                             5,047        1,651          36             –         107       6,841
Other                                             23,951        9,654         864             –       2,508      36,977
Other financial assets at fair value
through profit or loss                                                                                            3,455
Financial institutions                               929            –            –            –            –        929
Other                                              1,898          568            –            –           60      2,526
Derivative financial instruments –
positive values                                                                                                  27,335
Governments                                          478            4            –            –            –        482
Financial institutions                            14,801          700            –            –            –     15,501
Other                                              9,295        2,057            –            –            –     11,352
Other assets                                                                                                      2,916
Governments                                          377            –            –            –            –        377
Financial institutions                                 –            –           24            –            5         29
Other                                              1,505          912           11           25           57      2,510
Debt investment securities available for
sale                                                                                                             14,133
Governments                                        2,060            –            –            –            –      2,060
Financial institutions                            11,407           34            –            –            –     11,441
Other                                                430          151            –            –           51        632
Due from related body corporate entities                                                                          4,647
Other                                              3,797            –            –          850            –      4,647
Life investment contracts and other
unitholder investment assets                                                                                        820
Financial institutions                               739            –            –            –            –        739
Other                                                 81            –            –            –            –         81
Total                                                                                                           117,646
Included in the past due category are balances in which an amount was overdue by one day or more.




                                                                                                                          135
      Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                   macquarie.com.au


      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 41.1
      Credit risk continued
      Credit quality of financial assets continued
      The tables below show the credit quality by class of financial asset (based upon ultimate risk counterparty) for credit
      exposures, based on the Bank’s credit rating system.
      Credit Quality – Bank 2010
                                                             Neither past due nor impaired
                                                                      Below                             Past due or
                                                  Investment Investment                                 individually
                                                        Grade         Grade       Default     Unrated      impaired           Total
                                                            $m           $m          $m             $m           $m            $m
      Due from banks                                     5,117              3            –             –            –       5,120
      Cash collateral on securities borrowed
      and reverse repurchase agreements                                                                                     5,978
      Governments                                          924           228             –             –            –       1,152
      Financial institutions                             4,402            26             –             –            –       4,428
      Other                                                316            72            10             –            –         398
      Trading portfolio assets                                                                                              6,575
      Governments                                        3,880            58             –             –            –       3,938
      Financial institutions                               449            62            31             –            –         542
      Other                                                217         1,822            56             –            –       2,095
      Loan assets held at amortised cost                                                                                   16,162
      Governments                                          199             –             –             –           –          199
      Financial institutions                             4,079           386             –             –          25        4,490
      Other                                              4,613         5,809            87             –         964       11,473
      Other financial assets at fair value
      through profit or loss                                                                                                5,950
      Governments                                        1,478             –             –             –           –        1,478
      Financial institutions                             1,675             –             –             –           –        1,675
      Other                                                882         1,876             –             –          39        2,797
      Derivative financial instruments –
      positive values                                                                                                      14,955
      Governments                                          561             –             –             –            –         561
      Financial institutions                             9,605           329             –             –            –       9,934
      Other                                              2,969         1,437            27             –           27       4,460
      Other assets                                                                                                          3,035
      Governments                                           95             –             –            –            –           95
      Financial institutions                                 –             –             –            –            7            7
      Other                                              1,899           989             –           29           16        2,933
      Debt investment securities available for
      sale                                                                                                                 15,587
      Governments                                        3,960             –             –             –            –       3,960
      Financial institutions                            10,219            46             –             –            –      10,265
      Other                                                556           806             –             –            –       1,362
      Due from related body corporate entities                                                                              2,457
      Other                                              1,325              –            –        1,132             –       2,457
      Due from subsidiaries                                                                                                16,361
      Other                                                   –             –            –       16,361             –      16,361
      Total                                                                                                                92,180
      Included in the past due category are balances in which an amount was overdue by one day or more.




136
Note 41.1
Credit risk continued
Credit quality of financial assets continued
Credit Quality – Bank 2009
                                                    Neither past due nor impaired
                                                            Below                           Past due or
                                           Investment Investment                             individually
                                                Grade       Grade       Default     Unrated    impaired      Total
                                                  $m           $m           $m          $m           $m       $m

Due from banks                                  9,029            3           –            –            –     9,032
Cash collateral on securities borrowed
and reverse repurchase agreements                                                                            4,534
Governments                                     1,522         195            –            –            –     1,717
Financial institutions                          2,492          85            –            –            –     2,577
Other                                             221          19            –            –            –       240
Trading portfolio assets                                                                                     5,636
Governments                                     4,476           –            –            –            –     4,476
Financial institutions                            998          13            –            –            –     1,011
Other                                              81          68            –            –            –       149
Loan assets held at amortised cost                                                                          15,238
Governments                                         2           –            –            –             –        2
Financial institutions                          5,396       1,605           27            –            49    7,077
Other                                           2,033       4,668          261            –         1,197    8,159
Other financial assets at fair value
through profit or loss                                                                                       3,455
Financial institutions                            929           –            –            –            –       929
Other                                           1,899         567            –            –           60     2,526
Derivative financial instruments –
positive values                                                                                             21,418
Governments                                       473           4            –            –            –       477
Financial institutions                         14,213         700            –            –            –    14,913
Other                                           4,780       1,248            –            –            –     6,028
Other assets                                                                                                 1,810
Governments                                        94           –            –            –            –        94
Financial institutions                              –           –            –            –            5         5
Other                                           1,005         660            3            9           34     1,711
Debt investment securities available for
sale                                                                                                        13,223
Governments                                     2,060            –           –            –            –     2,060
Financial institutions                         10,962           37           –            –            –    10,999
Other                                             161            3           –            –            –       164
Due from related body corporate entities                                                                     4,588
Other                                           3,801            –           –          787            –     4,588
Due from subsidiaries                                                                                       15,045
Other                                               –            –           –      15,045             –    15,045
Total                                                                                                       93,979
Included in the past due category are balances in which an amount was overdue by one day or more.




                                                                                                                     137
      Macquarie Bank Limited and its subsidiaries           2010 Annual Report                                     macquarie.com.au


      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 41.1
      Credit risk continued
      Financial assets whose terms have been renegotiated
      The table below includes the carrying value, as at the reporting date, of financial assets that would otherwise be past due
      or impaired whose terms have been renegotiated.
                                                                   Consolidated       Consolidated         Bank              Bank
                                                                           2010              2009          2010              2009
                                                                            $m                 $m           $m                 $m

      Loan assets held at amortised cost
      Other                                                                      84            14             84                14

      Ageing analysis of assets past due but not impaired and impaired assets
                                                             Past due but not impaired
                                                                                                                      Fair value
                                                           Less                              More                             of
                                                        than 30 31 to 60 61 to 90          than 90                    collateral
                                                           days    days     days              days Impaired     Total       held
      Class of financial asset                              $m       $m       $m               $m       $m       $m          $m

                                                                                                              Consolidated 2010
      Loan assets held at amortised cost
      Government                                             17         33             –        –        –          50          40
      Financial institutions                                  –          3             –        –       25          28           3
      Other                                               1,003        218            89      317      518       2,145       2,547
      Other financial assets at fair value through
      profit or loss
      Other                                                    –          3            2         –       34          39            –
      Derivative financial instruments – positive
      value
      Other                                                    –          –            –         –       27          27            –
      Other assets
      Financial institutions                                   –          –            –        –         7           7            –
      Other                                                    3          1            –       18        15          37            3
      Debt investment securities available for
      sale
      Other                                                   –          –             –        –       28          28          27
      Total                                               1,023        258            91      335      654       2,361       2,620

      A facility is considered to be past due when a contractual payment falls overdue by one or more days. When a facility is
      classified as past due, the entire facility balance is disclosed in the past due analysis.
      The factors taken into consideration by the consolidated entity when determining whether an asset is impaired are set
      out in note 1(xiv) – Summary of significant accounting policies.
      Of the collateral held against past due and impaired balances for loan assets held at amortised cost, $1,100 million
      (2009: $1,293 million) relates to collateral held against past due balances on residential mortgage facilities that are
      covered by mortgage insurance. A mortgage insurance claim will only be made in an instance where there is an
      outstanding balance on the mortgage facility after the receipt of proceeds on the disposal of the property held as security.
      The remaining collateral is made up of assets held as collateral against other loan and receivable balances.
      The collateral held against past due and impaired balances for other assets, represents equity securities held as security
      against failed trade settlements.




138
Note 41.1
Credit risk continued
Ageing analysis of assets past due but not impaired and impaired assets continued
Repossessed collateral
In the event of customer default on a residential mortgage facility, any loan security is usually held as mortgagee in
possession and therefore the consolidated entity does not usually hold any real estate or other assets acquired through
the enforcement of security.
In the event of customer default on corporate facilities, the consolidated entity may take possession of real estate or
other assets held as security. During the year the consolidated entity took possession of fixed assets and property assets
with a carrying value of $466 million (2009: $25 million).
                                                        Past due but not impaired
                                                                                                                 Fair value
                                                                                      More                               of
                                                Less than   31 to 60   61 to 90     than 90                      collateral
                                                 30 days        days       days        days Impaired       Total       held
Class of financial asset                              $m         $m         $m          $m       $m         $m          $m

                                                                                                        Consolidated 2009
Loan assets held at amortised cost
Government                                             16         14        15           9         –         54         13
Financial institutions                                 18         28         1          22        38        107         14
Other                                                 783        225       221         427       852      2,508      2,863
Other financial assets at fair value through
profit or loss
Other                                                  27         10          9         14          –         60          21
Other assets
Financial institutions                                  –          –          –          –          5          5             –
Other                                                  13          1          3         18         22         57             –
Debt investment securities available for
sale
Other                                                   –          –         –           –        51         51          –
Total                                                 857        278       249         490       968      2,842      2,911




                                                                                                                                 139
      Macquarie Bank Limited and its subsidiaries         2010 Annual Report                               macquarie.com.au


      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 41.1
      Credit risk continued
      Ageing analysis of assets past due but not impaired and impaired assets continued
                                                          Past due but not impaired
                                                                                                                      Fair
                                                         Less                          More                      value of
                                                      than 30 31 to 60 61 to 90      than 90                    collateral
                                                         days    days     days          days Impaired     Total      held
      Class of financial asset                            $m       $m       $m           $m       $m       $m          $m

                                                                                                               Bank 2010
      Loan assets held at amortised cost
      Financial institutions                               –           –        –           –       25      25            –
      Other                                              301          46        8         141      468     964        1,142
      Other financial assets at fair value through
      profit or loss
      Other                                                 –          3        2           –       34       39           –
      Derivative financial instrument – positive
      value
      Other                                                 –           –       –           –       27       27           –
      Other assets
      Financial institutions                               –           –        –           –        7        7           –
      Other                                                –           –        –           1       15       16           –
      Total                                              301          49       10         142      576    1,078       1,142

                                                           Past due but not impaired
                                                                                                                       Fair
                                                                                         More                     value of
                                                     Less than 31 to 60 61 to 90       than 90                   collateral
                                                      30 days      days     days          days Impaired    Total      held
      Class of financial asset                             $m       $m       $m            $m       $m      $m         $m

                                                                                                                  Bank 2009
      Loan assets held at amortised cost
      Financial institutions                                –          –         –         11       38       49           –
      Other                                                82         55       125        146      789    1,197       1,312
      Other financial assets at fair value through
      profit or loss
      Other                                                27         10         9         14        –       60         21
      Other assets
      Financial institutions                                –          –         –          –        5        5           –
      Other                                                 2          1         2          7       22       34           –
      Total                                               111         66       136        178      854    1,345       1,333




140
                                                                 To determine the minimum level of liquid assets, reference
kçíÉ=QNKO                                                        is made to the expected minimum cash requirement
Liquidity risk                                                   during a combined market-wide and firm-specific crisis
                                                                 scenario over a 12 month timeframe. This scenario
Liquidity management                                             assumes no access to new funding sources, a significant
The consolidated entity’s liquidity risk management              loss of deposits and contingent funding outflows resulting
framework ensures that the consolidated entity is able to        from undrawn commitments market moves on derivatives
meet its funding requirements as they fall due under a           and other margined positions. The size of the liquid asset
range of market conditions.                                      portfolio must always exceed the minimum cash
Liquidity management is performed centrally by Group             requirement as calculated in this model.
Treasury, with oversight from the Asset and Liability            Liquidity Contingency Plan
Committee, the MBL Board and the Risk Management                 Group Treasury maintains a liquidity contingency plan. The
Group (RMG). The consolidated entity’s liquidity policies        liquidity contingency plan defines roles and responsibilities
are approved by the Board after endorsement by the               and actions to be taken in a liquidity event. This includes
Asset and Liability Committee. The Asset and Liability           identification of key information requirements and
Committee includes the Chief Executive Officer, the Chief        appropriate communication plans with both internal and
Financial Officer, Head of RMG, Treasurer and Business           external parties.
Group Heads.
                                                                 Specifically, the plan details factors that may constitute a
RMG provides independent prudential oversight of liquidity       crisis, the officer responsible for enacting the contingency
risk management, including the independent validation of         management, a committee of senior executives who
liquidity scenario assumptions, liquidity policies and the       would be responsible for managing a crisis, the
required funding maturity profile.                               information required to effectively manage a crisis, a public
Liquidity policy                                                 relations strategy, a high level check list of actions to be
The key requirement of the consolidated entity’s liquidity       taken, and contact lists to facilitate prompt
policy is that the consolidated entity is able to meet all of    communication with all key internal and external
its liquidity obligations on a daily basis and during a period   stakeholders. The liquidity contingency plan is subject to
of liquidity stress: a 12 month period with no access to         regular review (at least annually) by both Group Treasury
funding markets and with only a limited reduction in             and RMG and is submitted to the Board for approval.
franchise businesses.                                            Funding transfer pricing
The consolidated entity is funded mainly by capital, long        An internal funding transfer pricing system is in place
term liabilities and deposits.                                   which aims to align businesses with the overall funding
                                                                 strategy of the consolidated entity. Under this system the
Scenario Analysis                                                costs of long- and short-term funding are charged out,
Scenario analysis is central to the liquidity risk               and credits are made to Business Units that provide long-
management framework. Group Treasury models a                    term stable funding.
number of liquidity scenarios covering both market-wide
crises and firm-specific crises. The objective of this           Contractual undiscounted cash flows
modelling is to ensure the consolidated entity is able to        The tables below summarise the maturity profile of the
meet all repayment obligations under each scenario and           consolidated entity’s financial liabilities as at 31 March
determine the capacity for asset growth. The modelling           based on contractual undiscounted repayment obligations.
includes 12 month liquidity scenarios significantly more         Repayments which are subject to notice are treated as if
severe than the conditions that have been experienced            notice were given immediately. However, the consolidated
since August 2007.                                               entity expects that many customers will not request
Scenarios are run over a number of timeframes and a              repayment on the earliest date the consolidated entity
range of conservative assumptions are used with regard           could be required to pay and the table does not reflect the
to access to capital markets, deposit outflows, contingent       expected cash flows indicated by the consolidated entity’s
funding requirements and asset sales.                            deposit retention history.

Liquid asset holdings                                            Derivatives (other than those designated in a hedging
                                                                 relationship) and trading portfolio liabilities are included in
Group Treasury maintains a portfolio of highly liquid            the less than 3 months column at their fair value. Liquidity
unencumbered assets in the consolidated entity to ensure         risk on these items is not managed on the basis of
adequate liquidity is available in all funding environments,     contractual maturity, since they are not held for settlement
including worst case conditions. The minimum liquid asset        according to such maturity and will frequently be settled in
requirement is calculated from internal scenario                 the short term at fair value. Derivatives designated in a
projections and also complies with regulatory minimum            hedging relationship are included according to their
requirements.                                                    contractual maturity.




                                                                                                                                   141
    Macquarie Bank Limited and its subsidiaries                                  2010 Annual Report                              macquarie.com.au

    Notes to the financial statements
    for the financial year ended 31 March 2010
    continued




    Note 41.2
    Liquidity risk continued
    Contractual undiscounted cash flows continued
                                                                      On       Less than        3 to 12       1 to 5    Over 5
                                                                  demand       3 months         months        years      years            Total
                                                                      $m             $m             $m           $m        $m              $m

                                                                                                                         Consolidated 2010
    Due to banks                                                       327             97              293       450     1,059       2,226
    Cash collateral on securities lent and repurchase
    agreements                                                         509         6,648                45         –         –            7,202
    Trading portfolio liabilities                                        –         4,921                 –         –         –            4,921
    Derivative financial instruments (trading)                           –        21,068                 –         –         –           21,068
    Derivative financial instruments (hedging relationship)
      Contractual amounts payable                                        –         1,586           1,793        2,550       17            5,946
      Contractual amounts receivable                                     –        (1,531)         (1,660)     (2,436)      (12)          (5,639)
    Deposits                                                        14,685         5,216           2,334           90         –          22,325
    Debt issued at amortised cost1                                       2         6,465           5,306      29,317     2,805           43,895
    Other liabilities2                                                   –         5,973                –           –         –           5,973
    Other financial liabilities at fair value through profit or
    loss                                                                 8         1,134                860      510       137            2,649
    Life investment contracts and other unitholder liabilities           –         4,864                  –        –         –            4,864
    Due to related body corporate entities                           5,933           878                558      705         –            8,074
    Subordinated debt                                                    –             8                 35      198     1,487            1,728
    Total undiscounted cash flows                                   21,464        57,327              9,564   31,384     5,493          125,232
    Contingent liabilities                                                –         1,027                –         –         –            1,027
    Commitments                                                           –         3,885              105         –         –            3,990
    Total undiscounted contingent liabilities and
    commitments3                                                          –         4,912              105         –         –            5,017

                                                                                                                          Consolidated 2009
    Due to banks                                                        957           169              547       703     1,216        3,592
    Cash collateral on securities lent and repurchase
    agreements                                                        1,858        1,650               509         –         –            4,017
    Trading portfolio liabilities                                          –       1,980                 –         –         –            1,980
    Derivative financial instruments (trading)                             –      26,363                 –         –         –           26,363
    Derivative financial instruments (hedging relationship)
      Contractual amounts payable                                        72        4,707           3,086       3,081        42           10,988
      Contractual amounts receivable                                    (68)      (4,827)         (2,907)     (2,973)      (23)         (10,798)
    Deposits                                                         13,064        6,821           1,637         165          –          21,687
    Debt issued at amortised cost1                                        1        6,944          11,377      31,051     4,895           54,268
    Other liabilities2                                                     –       3,346                –           –         –           3,346
    Life investment contracts and other unitholder liabilities             –       4,312                –           –         –           4,312
    Other financial liabilities at fair value through profit or loss    115        1,771           1,061       1,102     1,649            5,698
    Due to related body corporate entities                              748        1,108             797         755          –           3,408
    Subordinated debt                                                      –          15             276       1,797          –           2,088
    Total undiscounted cash flows                                    16,747       54,359          16,383      35,681     7,779          130,949
    Contingent liabilities                                                –         1,133                –         –         –            1,133
    Commitments                                                           –         2,732               73         –         –            2,805
    Total undiscounted contingent liabilities and
    commitments3                                                          –         3,865               73         –         –            3,938
1
    Included in this balance are amounts payable to SPE note holders. The contractual maturity of the notes are dependent on the repayment
    of the underlying loans. This has been reflected in the maturity analysis.
2
    Excludes items that are not financial instruments and non-contractual accruals and provisions.
3
    Cash flows on contingent liabilities and commitments are dependent on the occurrence of various future events and conditions, and may
    or may not result in an outflow of resources. These are reported in the ‘less than 3 months’ column unless contractual terms specify a
    cash flow date outside this bucket.


    142
Note 41.2
Liquidity risk continued
Contractual undiscounted cash flows continued
                                                                  On      Less than         3 to 12            1 to 5       Over 5
                                                              demand      3 months          months             years         years        Total
                                                                  $m            $m              $m                $m           $m          $m

                                                                                                                                      Bank 2010
Due to banks                                                        278             14               –             2          948         1,242
Cash collateral on securities lent and repurchase
agreements                                                          502      6,648                 45              –             –        7,195
Trading portfolio liabilities                                         –      4,910                  –              –             –        4,910
Derivative financial instruments (trading)                            –     14,752                  –              –             –       14,752
Derivative financial instruments (hedging relationship)
 Contractual amounts payable                                          –        463              373           837               17        1,690
 Contractual amounts receivable                                       –       (459)            (444)       (1,029)             (12)      (1,944)
Deposits                                                         14,436      5,216            2,334            90                 –      22,076
Debt issued at amortised cost1                                        –      4,880            1,699        14,169               65       20,813
Other liabilities2                                                    –      2,664                 –             –                –       2,664
Other financial liabilities at fair value through profit or loss      8        899              846           489              137        2,379
Due to related body corporate entities                            5,979        777              652           705                 –       8,113
Due to subsidiaries                                               8,759        336              137             9              388        9,629
Subordinated debt                                                     –          8               35           198            1,487        1,728
Total undiscounted cash flows                                    29,962     41,108            5,677        15,470            3,030       95,247
Contingent liabilities                                               –       1,878                   –             –             –        1,878
Commitments                                                          –       2,813                 105             –             –        2,918
Total undiscounted contingent liabilities and
commitments3                                                         –       4,691                 105             –             –        4,796

                                                                                                                                      Bank 2009
Due to banks                                                      902         30            109          129       1,093                  2,263
Cash collateral on securities lent and repurchase
agreements                                                      1,858      1,650            509            –            –                 4,017
Trading portfolio liabilities                                       –      1,977              –            –            –                 1,977
Derivative financial instruments (trading)                          –     23,494              –            –            –                23,494
Derivative financial instruments (hedging relationship)
  Contractual amounts payable                                      72      2,784          1,300       1,405           39                  5,600
  Contractual amounts receivable                                  (68)    (2,836)        (1,196)     (1,458)         (22)                (5,580)
Deposits                                                       12,729      6,814          1,637         165             –                21,345
Debt issued at amortised cost1                                      1      6,395         10,143      24,833        4,895                 46,267
Other liabilities2                                                   –     2,036               –           –            –                 2,036
Other financial liabilities at fair value through profit or
loss                                                              115      1,638            724         507          311                  3,295
Due to related body corporate entities                            457        912            797         755            –                  2,921
Due to subsidiaries                                             7,449      1,328            114           –            –                  8,891
Subordinated debt                                                   –         13            276       1,797            –                  2,086
Total undiscounted cash flows=                                 23,515     46,235         14,413      28,133        6,316                118,612
Contingent liabilities                                               –     1,839              –            –            –                 1,839
Commitments                                                          –     2,073             73            –            –                 2,146
Total undiscounted contingent liabilities and
commitments3                                                         –     3,912             73            –            –                 3,985




                                                                                                                                         143
      Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                    macquarie.com.au

      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 41.3
      Market risk
      Market risk is the exposure to adverse changes in the value of the consolidated entity’s trading portfolios as a result of
      changes in market prices or volatility. The consolidated entity is exposed to the following risks in each of the major
      markets in which it trades:
      – foreign exchange and bullion: changes in spot and forward exchange rates and bullion prices and the volatility of
        exchange rates and bullion prices;
      – interest rates and debt securities: changes in the level, shape and volatility of yield curves, the basis between different
        interest rate securities and derivatives and credit margins;
      – equities: changes in the price and volatility of individual equities, equity baskets and equity indices, including the risks
        arising from equity underwriting activity; and
      – commodities and energy: changes in the price and volatility of gold, silver and base metals, agricultural commodities
        and energy products;
      and to the correlation of market prices and rates within and across markets.
      It is recognised that trading activities which give rise to market exposures contain an element of risk taking. The
      consolidated entity is prepared to accept such risks provided they are within agreed limits, independently and correctly
      identified, calculated and monitored by RMG, and reported to senior management on a regular basis.
      RMG monitors positions within the consolidated entity according to a limit structure which sets limits for all exposures in
      all markets. Limits are for both individual trading desks and divisions as well as in aggregate. Trigger limits for the
      Macquarie Group as a whole ensure that if several trading book limits are being used simultaneously, the aggregate level
      of risk is in line with the global risk appetite articulated in the economic capital model.
      RMG sets three complementary limit structures:
      – Contingent Loss Limits: a wide range of price and volatility scenarios, including comprehensive worst case, or stress,
        scenarios. Worst case scenarios include market movements larger than have occurred historically. Multiple scenarios
        are set for each market to capture the non-linearity and complexity of exposures arising from derivatives. A wide range
        of assumptions about the correlations between markets is applied;
      – Position Limits: volume, maturity and open position limits are set on a large number of market instruments and
        positions in order to constrain concentration risk and to avoid the accumulation of risky, illiquid positions; and
      – Value-at-Risk (VaR) Limits: statistical measure based on a 10-day holding period and a 99 per cent confidence level,
        as stipulated by the APRA capital adequacy standard. The model is validated daily by back testing a 1-day VaR
        against hypothetical and actual daily trading profit or loss.
      Value-at-Risk (VaR) figures
      The tables below show the average, maximum and minimum VaR over the year for the major markets in which the
      consolidated entity operates. The VaR shown in the table is based on a one-day holding period. The aggregated VaR is
      on a correlated basis.
                                                       2010       2010          2010           2009            2009            2009
                                                    Average   Maximum       Minimum          Average       Maximum         Minimum
                                                        $m         $m            $m              $m              $m              $m

                                                                                                                       Consolidated
      Equities                                         6.27      12.46              2.20        4.90            8.32           3.15
      Interest rates                                   4.16       6.47              2.88        4.50            7.69           2.14
      Foreign exchange and bullion                     1.96       4.15              0.55        3.67            9.55           0.87
      Commodities                                     10.95      16.98              5.37        9.03           17.04           5.48
      Aggregate                                       13.06      21.62              5.62       11.69           18.35           7.90




144
Note 41.3
Market risk continued
                                          2010           2010            2010           2009            2009            2009
                                       Average       Maximum         Minimum          Average       Maximum         Minimum
                                           $m             $m              $m              $m              $m              $m

                                                                                                                        Bank
Equities                                    6.44          12.47            2.31           5.76          15.13            3.68
Interest rates                              4.14           6.45            2.66           4.42           7.59            2.11
Foreign exchange and bullion                2.13           8.61            0.86           4.59          13.34            0.73
Commodities                                 2.26           4.21            0.50           1.91           3.73            0.20
Aggregate                                   8.23          13.81            4.04           9.28          19.51            4.88

Value-at-Risk
The VaR model uses a Monte Carlo simulation to generate normally distributed price and volatility paths, based on three
to ten years of historical data. VaR focuses on unexceptional price moves, it does not account for losses that could
occur beyond the 99 per cent level of confidence. These factors can limit the effectiveness of VaR in predicting future
price moves when changes to future risk factors deviate from the movements expected by the above assumptions. For
capital adequacy purposes, debt-specific risk is measured using APRA’s standard method, whilst all other exposures are
captured by the VaR model. This combined approach has been approved by APRA and is subject to periodic review.
Interest rate risk
The consolidated entity also has exposure to non-traded interest rate risk generated by banking products such as loans
and deposits. Banking businesses have small limits to accumulate small levels of interest rate risk. Wherever possible,
these interest rate risks are transferred to the consolidated entity’s trading business and managed within traded market
risk limits and are included within the VaR figures presented above. Some residual interest rate risks remain in the
banking book as an unavoidable consequence of doing business. Residual risks have independent limits that are
monitored by RMG.
Certain interest rate derivative transactions are undertaken to economically hedge interest rate risk associated with the
MIPS. As the MIPS are classified as equity for accounting and the hedge accounting requirements cannot be met, the
volatility arising from recognising these derivatives at fair value is reflected in the income statement. Interest rate sensitivity
on these derivatives is not reflected in the VaR numbers above. Indicatively, a 50 basis point increase/decrease in interest
rates would result in a decrease/increase in profit before tax of $3 million (2009: $20 million) respectively.
Other than the volatility on the derivatives described above, there are no material interest rate risks within the
consolidated entity.
Foreign currency risk
The consolidated entity is exposed to foreign currency risk arising from transactions entered into in its normal course of
business and as a result of the consolidated entity’s investments in foreign operations. Movements in foreign currency
exchange rates will result in gains or losses in the income statement due to the revaluation of certain balances or in
movements in the Foreign Currency Translation Reserve due to the revaluation of foreign operations.
In order to appropriately manage this risk it is consolidated entity policy that non-trading foreign currency exposures are
appropriately hedged unless specifically approved by RMG, and trading foreign currency exposures remain within trading
limits set by RMG.
Forward foreign exchange contracts, or borrowings in the same currency as the exposure, are designated as hedges
under Australian accounting standards and offset movements on the net assets within foreign operations and are
transferred to the Foreign Currency Translation Reserve.




                                                                                                                                      145
      Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                    macquarie.com.au

      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 41.3
      Market risk continued
      Foreign currency risk continued
      Responsibility for monitoring and managing foreign currency exposures arising from transactions rests with individual
      businesses which will enter into internal transactions as necessary to transfer the underlying foreign exchange risk to our
      trading businesses. Any residual foreign exchange risk residing in non-trading business units is included in the internal
      model capital calculation by RMG, with the exception of specific investments in core foreign operations as discussed
      below.
      During the year the foreign currency hedging policy of the consolidated entity was reviewed with the effect of reducing
      the sensitivity of the group’s regulatory capital position to foreign currency movements. This is achieved by
      leaving specific investments in core foreign operations exposed to foreign currency translation movements. The resultant
      change in the Australian dollar value of the foreign investment is captured in the Foreign Currency Translation Reserve, a
      component of regulatory capital. This offsets the corresponding movement in the capital requirements of these
      investments.
      As a result of the consolidated entity’s foreign exchange policy, the consolidated entity is partially exposed to currency
      risk in relation to the translation of its net investment in foreign operations to Australian dollars.
      The table below indicates the sensitivity to movements in the Australian dollar rate against various foreign currencies at
      31 March 2010. The consolidated entity is active in various currencies globally – those with the most impact on the
      sensitivity analysis below are USD, GBP, HKD and CAD.


                                                                                                     Sensitivity     Sensitivity
                                                                                                      of equity        of profit
                                                                                  Movement in         after tax       after tax
                                                                                    exchange                $m              $m
                                                                                        rates
                                                                                           % Consolidated                   Bank

      Australian dollar                                                                     +10          (113.1)            (28.0)
      Australian dollar                                                                     –10           138.2              34.2




146
Note 41.3
Market risk continued
Equity price risk
The tables below indicate the equity markets to which the consolidated entity and the Bank had significant exposure at
31 March on its non-trading investment portfolio excluding interests in associates and joint ventures. The effect on equity
(as a result of a change in the fair value of equity instruments held as available for sale at 31 March) and the income
statement due to a reasonably possible change in equity prices, with all other variables held constant, is as follows:
                                                   2010                                          2009
                                                                                               Sensitivity of
                                 Movement Sensitivity of Sensitivity of          Movement      profit before     Sensitivity of
                                  in equity profit before equity after            in equity   tax and profit      equity after
                                      price           tax           tax               price            share                tax
Geographic region                        %            $m            $m                   %               $m                $m

                                                                                                                Consolidated
Listed
 Australia                               +10               2.6          21.0            +10              0.6               6.9
 Asia Pacific                            +10                 –           0.3            +10                –               0.2
 Europe, Middle East and
 Africa                                  +10               0.2           1.9            +10                –              0.9
 Americas                                +10               3.9           4.0            +10              2.1              1.7
Unlisted                                 +10               0.1          21.5            +10              0.1             18.7

Listed
 Australia                               –10              (2.2)       (21.0)            –10             (0.4)             (6.9)
 Asia Pacific                            –10                  –        (0.3)            –10                 –             (0.2)
 Europe, Middle East and
 Africa                                  –10                  –         (1.9)           –10                 –             (0.9)
 Americas                                –10              (3.9)         (4.0)           –10             (2.1)             (1.7)
Unlisted                                 –10              (0.1)       (21.5)            –10             (0.1)           (18.7)

                                                                                                                        Bank
Listed
 Australia                               +10               2.6          14.7            +10              0.6               5.9
 Asia Pacific                            +10                 –           0.3            +10                –               0.2
 Europe, Middle East and
 Africa                                  +10               0.2           1.8            +10                –               0.8
 Americas                                +10               3.9           3.4            +10              2.1               1.5
Unlisted                                 +10               0.1           4.3            +10              0.1               4.7

Listed
 Australia                               –10              (2.2)       (14.7)            –10             (0.4)             (5.9)
 Asia Pacific                            –10                  –        (0.3)            –10                 –             (0.2)
 Europe, Middle East and
 Africa                                  –10                  –         (1.8)           –10                 –             (0.8)
 Americas                                –10              (3.9)         (3.4)           –10             (2.1)             (1.5)
Unlisted                                 –10              (0.1)         (4.3)           –10             (0.1)             (4.7)




                                                                                                                                  147
           Macquarie Bank Limited and its subsidiaries               2010 Annual Report                                     macquarie.com.au

           Notes to the financial statements
           for the financial year ended 31 March 2010
           continued




           Note 42
      42   Fair value of financial assets and liabilities
           Fair value reflects the amount for which an asset could be         – Fair values of fixed rate loans and issued debt classified
           exchanged or a liability settled, between knowledgeable,             as at fair value through profit or loss is estimated by
           willing parties in an arm’s length transaction. Quoted               reference to current market rates offered on similar
           prices or rates are used to determine fair value where an            loans;
           active market exists. If the market for a financial instrument     – For financial instruments carried at fair value the
           is not active, fair values are estimated using present value         determination of fair value includes credit risk (i.e. the
           or other valuation techniques, using inputs based on                 premium over the basic interest rate). Counterparty
           market conditions prevailing on the measurement date.                credit risk inherent in these instruments is factored
           The values derived from applying these techniques are                into their valuations via credit valuation adjustments
           affected by the choice of valuation model used and the               (CVA). This amount represents the estimated market
           underlying assumptions made regarding inputs such as                 value of protection required to hedge credit risk from
           timing and amounts of future cash flows, discount rates,             counterparties, taking into account expected future
           credit risk, volatility and correlation.                             exposures, collateral, and netting arrangements. CVA is
                                                                                determined when the market price (or parameter) is not
           Financial instruments measured at fair value are                     indicative of the credit quality of the specific
           categorised in their entirety, in accordance with the levels         counterparty. Where financial instruments are valued
           of the fair value hierarchy as outlined below:                       using an internal model that utilise observable market
           Level 1 – quoted prices (unadjusted) in active markets for           parameters, market practice is to quote parameters
           identical assets or liabilities;                                     equivalent to an interbank credit rating (that is, all
           Level 2 – inputs other than quoted prices included within            counterparties are assumed to have the same credit
           level 1 that are observable for the asset or liability, either       quality). Consequently, a CVA calculation is necessary
           directly (i.e. as prices) or indirectly (i.e. derived from           to reflect the credit quality of each derivative
           prices);                                                             counterparty to arrive at fair value; and
           Level 3 – inputs for the asset or liability that are not based     – The consolidated entity’s own credit risk is factored into
           on observable market data (unobservable inputs).                     the valuation of liabilities measured at fair value via debit
           The appropriate level for an instrument is determined on             valuation adjustments (DVA). This is because credit
           the basis of the lowest level input that is significant to the       risk affects what the transaction price of
           fair value measurement.                                              the liability would have been in an arm's length
                                                                                exchange motivated by normal business considerations
           The following methods and significant assumptions have               (e.g. it affects the value at which liabilities could be
           been applied in determining the fair values of financial             repurchased or settled, the observed market price of
           instruments:                                                         quoted debt securities and the contract interest rate
           – Trading portfolio assets and liabilities, financial assets         offered when debt is initially raised). Consequently,
             and liabilities at fair value through profit or loss,              changes in the credit quality of the consolidated entity
             derivative financial instruments and other transactions            are reflected in valuations where the credit risk would
             undertaken for trading purposes are measured at fair               be considered by market participants and excludes fully
             value by reference to quoted market prices when                    collateralised transactions and other instruments for
             available (e.g. listed securities). If quoted market prices        which it is established market practice not to include an
             are not available, then fair values are estimated on the           entity-specific adjustment for own credit. The
             basis of pricing models or other recognised valuation              methodology to determine the adjustment is consistent
             techniques;                                                        with CVA and incorporates the consolidated entity’s
           – Investment securities classified as available for sale are         credit spread, for the term of the liability measured, as
             measured at fair value by reference to quoted market               observed through the credit default swap market. This
             prices when available (e.g. listed securities). If quoted          amount represents the estimated difference in the
             market prices are not available, then fair values are              market value of identical obligations.
             estimated on the basis of pricing models or other
             recognised valuation techniques. Unrealised gains and
             losses, excluding impairment write-downs, are recorded
             in the Available For Sale Reserve in equity until the asset
             is sold, collected or otherwise disposed of;




148
Where valuation techniques are used to determine fair          – The fair value of fixed rate loans and debt carried at
values, they are validated and periodically reviewed by          amortised cost is estimated by reference to current
qualified personnel independent of the area that created         market rates offered on similar loans and the credit
them. All models are certified before they are used, and         worthiness of the borrower;
models are calibrated periodically to test that outputs        – The fair value of debt issues and subordinated debt is
reflect prices from observable current market transactions       based on market prices where available. Where market
in the same instrument or other available observable             prices are not available the fair value is based on
market data. To the extent possible, models use only             discounted cash flows using rates appropriate to the
observable market data (e.g. for OTC derivatives),               term and issue and incorporates changes in the
however management is required to make assumptions               consolidated entity’s own credit spread;
for certain inputs that are not supported by prices from       – Substantially all of the consolidated entity’s
observable current market transactions in the same               commitments to extend credit are at variable rates.
instrument, such as volatility and correlation.                  As such, there is no significant exposure to fair value
The following methods and significant assumptions have           fluctuations resulting from interest rate movements
been applied in determining the fair values of financial         relating to these commitments; and
instruments which are carried at amortised cost:               – The fair values of balances due from/to subsidiaries (in
                                                                 the Bank’s separate financial statements) and balances
– The fair values of liquid assets and other instruments
                                                                 due from/to related body corporate entities (in the
  maturing within 3 months approximate their carrying
                                                                 Bank’s and consolidated financial statements) are
  amounts. This assumption is applied to liquid assets
                                                                 approximated by their carrying amount as the balances
  and the short-term elements of all other financial assets
                                                                 are generally receivable/payable on demand.
  and financial liabilities;
– The fair value of demand deposits with no fixed maturity
  is approximately their carrying amount as they are short
  term in nature or are payable on demand;
– The fair values of variable rate financial instruments,
  including loan assets and liabilities carried at amortised
  cost, cash collateral on securities borrowed/cash
  collateral on securities lent and reverse
  repurchase/repurchase agreements, are approximated
  by their carrying amounts. The fair value of loan assets
  repayable without penalty is approximated by their
  carrying value;




                                                                                                                            149
      Macquarie Bank Limited and its subsidiaries              2010 Annual Report                                      macquarie.com.au

      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 42
      Fair value of financial assets and liabilities continued
      The tables below summarise the carrying value and fair value of all financial assets and financial liabilities held at
      amortised cost of the consolidated entity and the Bank at 31 March 2010

                                                                             2010             2010            2009               2009
                                                                          Carrying             Fair         Carrying              Fair
                                                                           amount             value         amount               value
                                                                               $m               $m               $m                $m

                                                                                                                        Consolidated
      Assets
      Due from banks                                                         6,490            6,490           10,169           10,169
      Loan assets held at amortised cost                                    43,794           44,012           43,922           44,049
      Due from related body corporate entities                               2,391            2,459            4,647            4,488
      Total financial assets                                                52,675           52,961           58,738           58,706

      Liabilities
      Due to banks                                                           2,167            2,200            3,264            3,267
      Deposits                                                              22,288           22,295           21,603           21,603
      Debt issued at amortised cost                                         39,408           39,375           48,270           47,687
      Due to related body corporate entities                                 8,008            8,008            3,332            3,332
      Subordinated debt at amortised cost                                      905              899            1,491              720
      Total financial liabilities                                           72,776           72,777           77,960           76,609


                                                                                                                                 Bank
      Assets
      Due from banks                                                         5,120            5,120            9,032            9,032
      Loan assets held at amortised cost                                    16,162           16,147           15,238           15,197
      Due from related body corporate entities                               2,457            2,525            4,588            4,429
      Due from subsidiaries                                                 16,361           16,361           15,045           15,045
      Total financial assets                                                40,100           40,153           43,903           43,703

      Liabilities
      Due to banks                                                           1,238            1,238            2,009            2,009
      Deposits                                                              22,043           22,051           21,270           21,270
      Debt issued at amortised cost                                         19,170           19,429           23,776           23,588
      Due to related body corporate entities                                 8,044            8,044            2,876            2,876
      Due to subsidiaries                                                    9,596            9,596            8,849            8,849
      Subordinated debt at amortised cost                                      905              899            1,488              717
      Total financial liabilities                                           60,996           61,257           60,268           59,309




150
Note 42
Fair value of financial assets and liabilities continued
The following tables summarise the levels of the fair value hierarchy for financial instruments measured at fair value at
31 March 2010:

                                                                    Level 1         Level 2          Level 3            Total
                                                                       $m              $m               $m               $m

                                                                                                               Consolidated

Assets
Trading portfolio assets                                             8,505            2,395              424          11,324
Other financial assets at fair value through profit or loss          3,265            3,573              287           7,125
Derivative financial instruments – positive values                   3,260           18,004              276          21,540
Investment securities available for sale                            15,182            1,168              411          16,761
Life investment contracts and other unitholder investment
assets                                                                 941            3,913                –           4,854
Total assets                                                        31,153           29,053            1,398          61,604
Liabilities
Trading portfolio liabilities                                         3,839           1,079                3           4,921
Derivative financial instruments – negative values                    3,857          17,361              416          21,634
Other financial liabilities at fair value through profit or loss         85           2,483               57           2,625
Life investment contracts and other unitholder liabilities              944           3,920                –           4,864
Subordinated debt at fair value through profit or loss                    –             499                –             499
Total liabilities                                                     8,725          25,342              476          34,543


                                                                                                                       Bank

Assets
Trading portfolio assets                                             8,470            2,257              424          11,151
Other financial assets at fair value through profit or loss          3,213            3,459              277           6,949
Derivative financial instruments – positive values                   3,467           11,308              180          14,955
Investment securities available for sale                            15,080              645              212          15,937
Total assets                                                        30,230           17,669            1,093          48,992

Liabilities
Trading portfolio liabilities                                         3,829           1,078                3           4,910
Derivative financial instruments – negative values                    3,827          10,787              252          14,866
Other financial liabilities at fair value through profit or loss         85           2,213               57           2,355
Subordinated debt at fair value through profit or loss                    –             499                –             499
Total liabilities                                                     7,741          14,577              312          22,630




                                                                                                                                151
          Macquarie Bank Limited and its subsidiaries             2010 Annual Report                                    macquarie.com.au

          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued




          Note 42
          Fair value of financial assets and liabilities continued
          Reconciliation of balances in Level 3 of the fair value hierarchy
          The following tables reconcile the balances in Level 3 of the fair value hierarchy for the consolidated entity and for the
          Bank for the financial year ended 31 March 2010:

                                                                                                                         Other financial
                                                                                                      Trading                 assets at
                                                                                                     portfolio       fair value through
                                                                                                       assets              profit or loss
                                                                                                          $m                          $m


          Balance at the beginning of the financial year                                                  755                          100
          Purchases                                                                                       503                          145
          Sales                                                                                          (752)                         (13)
          Issues                                                                                              –                           –
          Settlements                                                                                         –                           –
          Transfers into Level 3                                                                              –                         42
          Transfers out of Level 3                                                                         (83)                           –
          Fair value gains/(losses) recognised in the income statement1                                      1                          13
          Fair value gains/(losses) recognised in other comprehensive income1                                 –                           –
          Balance at the end of the financial year                                                        424                          287

          Fair value gains/( losses) for the period included in the income statement
          for assets and liabilities held at the end of the financial year end1                            19                           14
      1
          The consolidated entity employs various economic hedging techniques in order to manage risks, including risks in level 3
          positions. Such techniques may include the purchase or sale of financial instruments that are classified in levels 1
          and/or 2. The realised and unrealised gains and losses for assets and liabilities in level 3 presented in the table above
          do not reflect the related realised or unrealised gains and losses arising on economic hedging instruments classified in
          levels 1 and/or 2.
      2
          The derivative financial instruments in the table above are represented on a net basis. On a gross basis, Derivative financial
          instruments – positive values are $276 million and Derivative financial instruments – negative values are $416 million.




152
Investment                       Other financial     Derivative financial
  securities     Trading            liabilities at          instruments
   available    portfolio    fair value through       (net replacement
    for sale   liabilities         profit or loss                values)2             Total
         $m            $m                     $m                     $m                $m

                                                                             Consolidated
       571               –                       –                  (88)            1,338
       196           (25)                    (54)                    (43)             722
        (73)          27                         –                    15             (796)
           –             –                       –                     (6)               (6)
        (11)             –                       –                    31                20
           –             –                       –                   (30)               12
      (138)              –                       –                    49             (172)
        (75)           (5)                     (3)                   (68)            (137)
        (59)             –                       –                       –             (59)
       411             (3)                   (57)                  (140)              922


        (15)          (2)                      (3)                   (87)              (74)




                                                                                               153
          Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                   macquarie.com.au

          Notes to the financial statements
          for the financial year ended 31 March 2010
          continued




          Note 42
          Fair value of financial assets and liabilities continued
          Reconciliation of balances in Level 3 of the fair value hierarchy continued




                                                                                                                       Other financial
                                                                                                   Trading                  assets at
                                                                                                  portfolio        fair value through
                                                                                                    assets               profit or loss
                                                                                                       $m                           $m


          Balance at the beginning of the financial year                                               711                         91
          Purchases                                                                                    505                        142
          Sales                                                                                       (707)                       (13)
          Issues                                                                                            –                        –
          Settlements                                                                                       –                        –
          Transfers into Level 3                                                                            –                      42
          Transfers out of Level 3                                                                      (83)                         –
          Fair value gains/(losses) recognised in the income statement1                                   (2)                      15
          Fair value gains/(losses) recognised in other comprehensive income1                               –                        –
          Balance at the end of the financial year                                                     424                        277
          Fair value gains/(losses) for the period included in the income statement
          for assets and liabilities held at the end of the financial year end1                          16                         13
      1
          The consolidated entity employs various economic hedging techniques in order to manage risks, including risks in level 3
          positions. Such techniques may include the purchase or sale of financial instruments that are classified in levels 1 and/or 2.
          The realised and unrealised gains and losses for assets and liabilities in level 3 presented in the table above do not reflect
          the related realised or unrealised gains and losses arising on economic hedging instruments classified in levels 1 and/or 2.
      2
          The derivative financial instruments in the table above are represented on a net basis. On a gross basis, Derivative
          financial instruments – positive values are $180 million and Derivative financial instruments – negative values are
          $252 million.




154
Investment                        Other financial     Derivative financial
  securities      Trading            liabilities at          instruments
   available     portfolio    fair value through       (net replacement
    for sale    liabilities         profit or loss                values)2    Total
         $m             $m                     $m                     $m       $m

                                                                              Bank
        114               –                       –                   (94)     822
        183           (25)                    (54)                    (42)     709
        (73)           27                         –                    15     (751)
            –             –                       –                     (6)       (6)
            –             –                       –                    42        42
            –             –                       –                   (30)       12
          (7)             –                       –                    49       (41)
        (14)            (5)                     (3)                     (6)     (15)
           9              –                       –                       –        9
        212             (3)                   (57)                    (72)     781

        (14)           (2)                      (3)                 (123)     (113)




                                                                                        155
      Macquarie Bank Limited and its subsidiaries            2010 Annual Report                                       macquarie.com.au

      Notes to the financial statements
      for the financial year ended 31 March 2010
      continued




      Note 42
      Fair value of financial assets and liabilities continued
      Significant transfers between levels of the fair value hierarchy
      During the financial year the consolidated entity and the Bank did not have significant transfers between Level 1 and
      Level 2.
      Transfers into Level 3 were due to the lack of observable valuation inputs for certain securities and investments. Transfers
      out of Level 3 were principally due to valuation inputs becoming observable during the year.
      Unrecognised gains
      For financial assets and financial liabilities measured at fair value through profit or loss, when the transaction price in a
      non-active market is different to the fair market value from other observable current market conditions in the same
      instrument or based on valuation techniques whose variables include other data from observable markets, the
      consolidated entity and the Bank recognises the difference between the transaction price and the fair value in the income
      statement. In cases where use is made of data which is not observable, profit or loss is only recognised in the income
      statement when the inputs become observable, or over the life of the instrument.
      The table below summarises the deferral and recognition of profit or loss where a valuation technique has been applied
      for which not all inputs are observable in the market:
                                                                                                    Consolidated                Bank
                                                                                                            2010                2010
                                                                                                             $m                  $m
      Balance at the beginning of the period                                                                   55                 47
      Deferral on new transactions                                                                             19                  9
      Amounts recognised in the income statement during the year                                              (40)               (38)
      Balance at the end of the period                                                                         34                 18

      Sensitivity analysis of valuations using unobservable inputs
      The table below shows the sensitivity in changing assumptions to reasonably possible alternative assumptions, for those
      financial instruments for which fair values are determined in whole or in part using valuation techniques based on such
      assumptions.
                                                                      Favourable changes               Unfavourable changes
                                                                    Profit & loss           Equity Profit & loss          Equity
                                                                               $m              $m             $m             $m
                                                                                                             Consolidated 2010
      Product type
      Equity and equity linked products                                           32            2             (32)                 (2)
      Asset backed products                                                       30            –             (28)                   –
      Commodity products                                                          24            –             (24)                   –
      Credit products                                                              3            –               (3)                  –
      FX products                                                                  2            –               (2)                  –
      Interest rate products                                                       1            –               (1)                  –
      Total                                                                       92            2             (90)                 (2)

                                                                      Favourable changes              Unfavourable changes
                                                                                 Profit & loss                    Profit & loss
                                                                                           $m                               $m
                                                                                                                          Bank 2010
      Product type
      Equity and equity linked products                                                        31                                (31)
      Commodity products                                                                       10                                (10)
      Credit products                                                                           3                                  (3)
      FX products                                                                               2                                  (2)
      Interest rate products                                                                    1                                  (1)
      Total                                                                                    47                                (47)


156
     Note 43
43   Audit and other services provided by PricewaterhouseCoopers
     During the financial year, the auditor of the Bank and consolidated entity, PricewaterhouseCoopers (PwC), and its related
     practices earned the following remuneration:


                                                                  Consolidated      Consolidated            Bank             Bank
                                                                          2010             2009             2010             2009
                                                                         $’000             $’000            $’000            $’000

     PwC Australian Firm
     Audit and review of financial reports of the Bank or any
     subsidiary of the Bank                                                4,099             3,208          3,465            2,071
     Other audit-related work                                                506             1,405            454            1,239
     Other assurance services                                                655               395            655              395
     Total audit and other assurance services                              5,260             5,008          4,574            3,705
     Other advisory services                                                 566             1,004            495            1,004
     Taxation                                                                333               230            270              230
     Total remuneration paid to PwC – Australian Firm                      6,159             6,242          5,339            4,939

     Related practices of PwC Australian Firm
     (including PwC – Overseas Firms)
     Audit and review of financial reports of the Bank or
     any subsidiary of the Bank                                            2,832             3,955               –               –
     Other audit-related work                                                 85                20              10              20
     Other assurance services                                                171               245               –               –
     Total audit and other assurance services                              3,088             4,220              10              20
     Other advisory services                                                 266               129               –               –
     Taxation                                                                520               528               –               –
     Total remuneration paid to related practices of PwC
     – Australian Firm                                                     3,874             4,877             10               20
     Total remuneration paid to PwC                                       10,033            11,119          5,349            4,959

     Use of PwC’s services for engagements other than audit and assurance is restricted in accordance with the Bank’s
     Auditor Independence policy. These assignments are principally tax compliance and agreed upon assurance procedures
     in relation to acquisitions.
     Certain fees for advisory services are in relation to Initial Public Offerings and due diligence services for new funds. These
     fees may be recovered by the consolidated entity upon the successful establishment of the funds.
     It is the Bank’s policy to seek competitive tenders for all major advisory projects.




                                                                                                                                      157
           Macquarie Bank Limited and its subsidiaries                  2010 Annual Report                                macquarie.com.au

           Notes to the financial statements
           for the financial year ended 31 March 2010
           continued




           Note 44
      44   Acquisitions and disposals of subsidiaries and businesses
           In accordance with AASB 3 Business Combinations, provisional amounts for the initial accounting of acquisitions made
           during the period have been reported in this Financial Report.
           Significant entities and businesses acquired or consolidated due to acquisition of control:
           – Subsidiaries of the Non-Banking Group (comprising Macquarie Financial Holdings Limited and its subsidiaries)
           Pursuant to an internal reorganisation, 100 per cent interest in certain subsidiaries of the Non-Banking Group were
           acquired by entities of the Banking Group. These acquisitions were at fair value.
           – Blackmont Capital
           On 31 December 2009, a subsidiary of MGL acquired a 100 per cent interest in Blackmont Capital Inc, a full service
           wealth management and investment dealer business.
           – Delaware Investments
           On 5 January 2010, a subsidiary of MGL acquired a 100 per cent interest in Delaware Investments, a leading US-based
           diversified asset management firm.
           Other entities and businesses acquired or consolidated due to acquisition of control during the financial year are
           as follows:
           Telbane 2 Pty Limited, BE Geothermal GmbH, Advanced Markets Holdings LLC and Relational Technology Services Inc.
           Aggregate details of the above entities and businesses (including disposal groups) acquired or consolidated due to
           acquisition of control are as follows:
                                                                                                              2010            2009
                                                                                                                 $m             $m

           Fair value of net assets acquired1
           Cash, other financial assets and other assets                                                       1,286               5,551
           Goodwill and other intangible assets                                                                  567                 139
           Property, plant and equipment                                                                             9               247
           Assets of disposal groups classified as held for sale                                                   48                 44
           Payables, provisions, borrowings and other liabilities                                               (986)             (5,574)
           Liabilities of disposal groups classified as held for sale                                             (43)                  –
           Minority interests                                                                                       (2)                 –
           Total fair value of net assets acquired                                                               879                 407

           Purchase consideration
           Cash consideration and costs directly attributable to acquisition                                     620                  534
           Deferred consideration                                                                                  –                   74
           Equity issued (note 33)                                                                               200                    –
           Extinguishment of loan asset                                                                           56                    –
           Total purchase consideration                                                                          876                  608

           Net cash outflow
           Cash consideration and costs directly attributable to acquisition                                    (620)               (534)
           Less: cash and cash equivalents acquired                                                              365                 298
           Net cash outflow                                                                                     (255)               (236)
       1
           In relation to the acquisition of certain subsidiaries of the Non-Banking Group, assets and liabilities acquired were
           recognised at carrying amounts. In accordance with the consolidated entity’s accounting policy, the difference between
           the fair value of the consideration given over the carrying amounts recognised is recorded directly in reserves. For the
           year ended 31 March 2010, $5 million (2009: $201 million) was recognised in reserves – Reserves arising from Group
           restructure of combining entities under common control.
           Included in the current year results for the consolidated entity is profit of $14 million and revenue of $89 million from
           Delaware Investments since the date of acquisition. If this acquisition had taken place on 1 April 2009 the impact on the
           current year results for the consolidated entity would have been profit of $33 million and revenue of $462 million. The
           operating results of the other acquisitions did not have a material impact on the results of the consolidated entity.




158
Note 44
Acquisitions and disposals of subsidiaries and businesses continued
Significant entities and businesses acquired or consolidated due to acquisition of control continued
There are no significant differences between the fair value of net assets acquired and their carrying amounts, other than
goodwill and other intangible assets as noted above. The goodwill acquired during the current financial year has arisen
due to the value of the businesses acquired over their individual asset values, the employees acquired as part of the
business and synergies Macquarie expects to realise from the acquisitions.
The 31 March 2009 comparatives relate to subsidiaries of the Non-Banking Group (comprising Macquarie Financial
Holdings Limited and its subsidiaries) and Constellation Energy, being the significant entities acquired or consolidated
due to acquisition of control.
Significant entities and businesses disposed of or deconsolidated due to loss of control:
There were no significant entities or businesses disposed of during the financial year.
Other entities or businesses disposed of or deconsolidated during the financial year are as follows:
Shanghai Chengli Properties Co Ltd, Lachlan Wealth Management Limited, Equinox Investment Holdings Pty Ltd,
Macquarie CountryWide Management Limited (sold to the Non-Banking group), Vow Financial Holdings Pty Limited,
Macquarie Real Estate Investments Pty Limited and Macquarie Office Management Limited (sold to the Non-Banking
group).
Aggregate details of the above entities and businesses disposed of or deconsolidated are as follows:

                                                                                                     2010            2009
                                                                                                      $m               $m

Carrying value of assets and liabilities disposed of or deconsolidated
Cash, other financial assets and other assets                                                          154          4,059
Goodwill and other intangible assets                                                                     7               –
Property, plant and equipment                                                                             –             4
Non-current assets and assets of disposal groups classified as held for sale                            15               –
Payables, provisions, borrowings and other liabilities                                                 (89)          (410)
Total carrying value of assets and liabilities disposed of or deconsolidated                            87          3,653

Net cash inflow
Cash received                                                                                           81          3,513
Less:
Investment retained                                                                                       –             (1)
Cash and cash equivalents disposed of or deconsolidated                                                 (2)          (106)
Net cash inflow                                                                                         79          3,406

The 31 March 2009 comparatives relate to Macquarie Asset Leasing Trust, MQ Japan Market Neutral Fund (Cayman
Islands), Macquarie Infrastructure Opportunities Fund Ltd, the Italian mortgages business, the margin lending business
and entities of the MBL Group sold to the Non-Banking Group (Real Estate Group), being the significant entities and
businesses disposed of or deconsolidated due to loss of control.




                                                                                                                              159
           Macquarie Bank Limited and its subsidiaries             2010 Annual Report                                     macquarie.com.au

           Notes to the financial statements
           for the financial year ended 31 March 2010
           continued




           Note 45
      45   Events occurring after balance sheet date
           Following approval by unitholders on 22 April 2010, investments in the Macquarie Cash Management Trust (CMT) will be
           converted to an at call account with Macquarie Bank. The conversion is scheduled to take place in July 2010. At the
           current time, total funds under management in the Macquarie CMT are $10 billion. The funds transferred to the
           consolidated entity will form part of the consolidated entity’s overall funding pool.
           At the date of this report, the Directors are not aware of any other matter or circumstance which has arisen that has
           significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or
           the state of affairs of the consolidated entity in the financial years subsequent to 31 March 2010 not otherwise disclosed
           in this report.




160
Macquarie Bank Limited
Directors’ declaration
Directors’ declaration




In the Directors’ opinion
a) the financial statements and notes set out on pages
   55 to 160 are in accordance with the Corporations Act
   2001, including:
          (i) complying with Australian Accounting Standards, the
              Corporations Regulations 2001 and other mandatory
              professional reporting requirements; and
          (ii) giving a true and fair view of the Bank and
               consolidated entity’s financial position as at 31 March
               2010 and of their performance, as represented by the
               results of their operations and its cash flows, for the
               financial year ended on that date; and
b) there are reasonable grounds to believe that Macquarie
   Bank Limited will be able to pay its debts as and when
   they become due and payable; and
c) the audited remuneration disclosures set out on pages
   7 to 44 of the Directors’ Report comply with Australian
   Accounting Standards AASB 124 Related Party
   Disclosures and the Corporations Regulations 2001.
d) at the date of this declaration, there are reasonable
   grounds to believe that the members of the Extended
   Closed Group identified in note 19 will be able to meet
   any obligations or liabilities to which they are, or may
   become, subject by virtue of the deed of cross
   guarantee described in note 19.
The Directors have been given the declarations by the
Chief Executive Officer and Chief Financial Officer required
by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of
the Directors.




David S. Clarke, AO
Non-Executive Director and
Chairman




Richard Sheppard
Managing Director and
Chief Executive Officer
Sydney
29 April 2010




                                                                         161
      Macquarie Bank Limited and its subsidiaries                    2010 Annual Report                                    macquarie.com.au

      Independent audit report
      To the members of Macquarie Bank Limited



      Independent audit report




      Report on the financial report                                          In making those risk assessments, the auditor considers
      We have audited the accompanying financial report of                    internal control relevant to the entity’s preparation and fair
      Macquarie Bank Limited (the Company), which comprises                   presentation of the financial report in order to design audit
      the balance sheet as at 31 March 2010, and the income                   procedures that are appropriate in the circumstances, but
      statement, the statement of comprehensive income,                       not for the purpose of expressing an opinion on the
      statement of changes in equity and statement of cash                    effectiveness of the entity’s internal control. An audit also
      flows for the year ended on that date, a summary of                     includes evaluating the appropriateness of accounting
      significant accounting policies, other explanatory notes                policies used and the reasonableness of accounting
      and the directors’ declaration for both Macquarie Bank                  estimates made by the directors, as well as evaluating the
      Limited and the Macquarie Bank Group (the Consolidated                  overall presentation of the financial report.
      Entity). The Consolidated Entity comprises the Company                  Our procedures include reading the other information in
      and the entities it controlled at the year's end or from time           the Annual Report to determine whether it contains any
      to time during the financial year.                                      material inconsistencies with the financial report.
      Directors’ responsibility for the financial report                      Our audit did not involve an analysis of the prudence of
      The directors of the company are responsible for the                    business decisions made by directors or management.
      preparation and fair presentation of the financial report in            We believe that the audit evidence we have obtained is
      accordance with Australian Accounting Standards                         sufficient and appropriate to provide a basis for our audit
      (including the Australian Accounting Interpretations) and               opinions.
      the Corporations Act 2001. This responsibility includes
      establishing and maintaining internal controls relevant to              Independence
      the preparation and fair presentation of the financial report           In conducting our audit, we have complied with the
      that is free from material misstatement, whether due to                 independence requirements of the Corporations Act 2001.
      fraud or error; selecting and applying appropriate                      Auditor’s opinion
      accounting policies; and making accounting estimates
      that are reasonable in the circumstances. In note 1, the                In our opinion:
      directors also state, in accordance with Accounting                     a) the financial report of Macquarie Bank Limited is in
      Standard AASB 101 Presentation of Financial Statements,                    accordance with the Corporations Act 2001, including:
      that the financial statements comply with International                   (i) giving a true and fair view of the Company’s and
      Financial Reporting Standards.                                                Consolidated Entity’s financial position as at
      Auditor’s responsibility                                                      31 March 2010 and of their performance for the year
      Our responsibility is to express an opinion on the financial                  ended on that date; and
      report based on our audit. We conducted our audit in                      (ii) complying with Australian Accounting Standards
      accordance with Australian Auditing Standards. These                           (including the Australian Accounting Interpretations)
      Auditing Standards require that we comply with relevant                        and the Corporations Regulations 2001; and
      ethical requirements relating to audit engagements and
                                                                              b) the financial report also complies with International
      plan and perform the audit to obtain reasonable assurance
                                                                                 Financial Reporting Standards as disclosed in note 1.
      whether the financial report is free from material
      misstatement.
      An audit involves performing procedures to obtain audit
      evidence about the amounts and disclosures in the
      financial report. The procedures selected depend on the
      auditor’s judgement, including the assessment of the risks
      of material misstatement of the financial report, whether
      due to fraud or error.




      Liability is limited by a scheme approved under Professional
      Standards Legislation
162
Independent audit report




Report on the Remuneration Report
We have audited the remuneration report included in
pages 7 to 44 of the directors’ report for the year ended
31 March 2010. The directors of the Company are
responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of
the Corporations Act 2001. Our responsibility is to express
an opinion on the remuneration report, based on our audit
conducted in accordance with Australian Auditing
Standards.
Auditor’s opinion
In our opinion, the remuneration report of Macquarie Bank
Limited for the year ended 31 March 2010, complies with
section 300A of the Corporations Act 2001.




PricewaterhouseCoopers




DH Armstrong
Partner
Sydney
29 April 2010




                                                              163
      Macquarie Bank Limited and its subsidiaries           2010 Annual Report                                     macquarie.com.au

      Investor information




      Securityholder calendar                                          Macquarie Income Securities
      Securityholders may wish to note the following dates:            Holders of Macquarie Income Securities, as holders
                                                                       of a stapled security that includes a preference share,
      2010                                                             have:
      Date                   Event                                     (a) the right to vote at any general meeting of
      15 July                MIS distribution                              Macquarie Bank only in one or more of the
      30 July                2010 Annual General Meeting                   following circumstances:
      30 September           First half financial year end                  i) during a period when two consecutive
      15 October             MIS distribution, MIPS distribution                Semi-annual Dividends (as defined in the
                                                                                preference share terms) due and payable on
      2011                                                                      the preference shares have not been paid in
      Date                   Event                                              full, and no Optional Dividend (as defined in the
      17 January             MIS distribution                                   preference share terms) has been paid
      31 March               Full-year financial year end                   ii) on any proposal to reduce Macquarie Bank’s
      15 April               MIS distribution, MIPS distribution                share capital
                                                                           iii) on any resolution to approve the terms of a
      Distribution details – Macquarie Finance Limited
                                                                                buy-back agreement
      Macquarie Finance Limited makes interest payments
                                                                           iv) on any proposal that affects the rights attaching
      quarterly in arrears in respect of the Macquarie Income
                                                                                to the preference shares
      Securities (MIS) on or about the 15th of January, April,
      July and October each year. Dates and payment rates                  v) on a proposal to wind up Macquarie Bank
      are listed at www.macquarie.com.au/shareholdercentre                 vi) on any proposal for the disposal of the whole
                                                                                of Macquarie Bank’s property, business and
      Stock Exchange Listing                                                    undertaking
      Macquarie Income Securities are quoted on the ASX                    vii) during the winding up of Macquarie Bank
      and trade under the code MBLHB.
                                                                       (b) the same voting rights, in those circumstances, as
      Macquarie Bank also has debt securities quoted on                    holders of ordinary shares (as set out above).
      the Luxembourg Stock Exchange.
                                                                       Macquarie Income Preferred Securities
      2010 Annual General Meeting
                                                                       Unpaid preference shares were issued by Macquarie
      This year’s meeting will be held on Friday, 30 July
                                                                       Bank to a trustee as part of the Macquarie Income
      2010 in the Macquarie Auditorium, Level 3, No. 1
                                                                       Preferred Securities issue. The preference shares
      Martin Place, Sydney NSW after the Macquarie Group
                                                                       will only be paid up in certain limited circumstances
      Limited AGM but not earlier than 2.00 pm. Details
                                                                       where they may be substituted for Macquarie Income
      of the business of the meeting will be forwarded to
                                                                       Preferred Securities. Whilst these preference shares
      securityholders separately.
                                                                       remain unpaid, they have no voting rights. If paid up,
      Voting rights                                                    they will have the same voting rights as holders of
                                                                       Macquarie Income Securities (see above), except that
      At meetings of members or classes of members each
                                                                       instead of having a right to vote in situation (a) i) above,
      member may vote in person or by proxy, attorney
                                                                       they have a right to vote at any general meeting of
      or (if the member is a body corporate) corporate
                                                                       Macquarie Bank during a period in which a dividend
      representative.
                                                                       has been declared on the preference shares but the
      On a show of hands every person present who is a                 dividend has not been paid in full by the relevant
      member or a representative of a member has one vote              dividend payment date.
      and on a poll every member present in person or by
      proxy or attorney has:
      i) one vote for each fully paid ordinary share held;
          and
      ii) that proportion of a vote for any partly paid ordinary
          share held that the amount paid on the partly paid
          share bears to the total issue price of the share.




164
Macquarie Income Securities
                                                                                                           % of
                                                                                  Macquarie           Macquarie
                                                                                    Income              Income
Twenty largest Macquarie Income Securities holders at 19 April 2010:              Securities          Securities
J P Morgan Nominees Australia Limited                                               198,265                4.96
HSBC Custody Nominees (Australia) Limited                                           186,419                4.66
RBC Dexia Investor Services Australia Nominees Pty Limited – MLCI A/C               138,924                3.47
MF Custodians Ltd                                                                   100,479                2.51
Questor Financial Services Limited – TPS RF A/C                                      90,005                2.25
ANZ Nominees Limited – Cash Income A/C                                               55,076                1.38
Citicorp Nominees Pty Ltd                                                            46,011                1.15
National Nominees Limited                                                            34,414                0.86
Mr John Coreaux Bowden                                                               33,000                0.82
Temple Society Central Fund (Aust)                                                   25,500                0.64
UBS Wealth Management Australia Nominees Pty Ltd                                     21,524                0.54
Australian Executor Trustees Limited – No 1 Account                                  18,477                0.46
RBC Dexia Investor Services Australia Nominees Pty Limited – NMSMT A/C               16,457                0.41
Argo Investments Limited                                                             15,000                0.37
Catholic Church Endowment Society Incorporated                                       15,000                0.37
Carmichael Group Investments Pty Ltd                                                 14,220                0.36
Questor Financial Services Limited – TPS PIP A/C                                     12,768                0.32
Investment Custodial Services Limited                                                10,669                0.27
Mr Victor Allan Whitby and Ms Lorraine Joyce Whitby - VA and LJ Whitby               10,330                0.26
Superfund AC
Albert Investments Pty Ltd                                                            10,000                 0.25
Total                                                                              1,052.538                26.31


Spread of Macquarie Income Securities
Details of the spread of Macquarie Income Securities holders at 19 April 2010 are as follows:

Range                                                                                Holders           Securities
1–1,000                                                                                6,680           1,889,082
1,001–5,000                                                                              439             864,764
5,001–10,000                                                                              27             203,616
10,001–100,000                                                                            15             418,451
100,001 securities and over                                                                 4            624,087
                                                                                       7,165           4,000,000
Nine securityholders (representing 31 Macquarie Income Securities) held less than a marketable parcel.
Macquarie Income Preferred Securities
As at 19 April 2010, the £850 million convertible debentures and all 42,500 unpaid preference shares, issued
by Macquarie Bank as part of the Macquarie Income Preferred Securities, were held by one holder, Macquarie
Capital Funding LP. The registers in respect of the preference shares and the convertible debentures are kept at
Macquarie Bank’s principal administrative office at No.1 Martin Place, Sydney NSW 2000; telephone number
+61 2 8232 3333.




                                                                                                                    165
      Macquarie Bank Limited and its subsidiaries      2010 Annual Report   macquarie.com.au

      Investor information
      continued




      Website
      To view the Annual Reports, presentations, distribution
      information and other investor information, visit
      macquarie.com.au/shareholdercentre
      Enquiries
      Investors who wish to enquire about any administrative
      matter relating to their Macquarie Income Securities
      securityholding are invited to contact the Share
      Registry office below.
      Computershare Investor Services Pty Limited
      GPO Box 2975
      Melbourne Victoria 8060 Australia
      Telephone: +61 3 9415 4137
      Freecall: 1300 554 096
      Facsimile: +61 3 9473 2500
      Email: web.queries@computershare.com.au
      Website: www.computershare.com.au
      All other enquiries relating to a Macquarie Bank Income
      Security holding can be directed to:
      Investor Relations
      Macquarie Group
      Level 7, No. 1 Martin Place
      Sydney New South Wales 2000 Australia
      Telephone: +61 2 8232 5006
      Facsimile: +61 2 8232 6346
      Email: macquarie.shareholders@macquarie.com
      Website: macquarie.com.au/shareholdercentre
      Macquarie Bank’s Company Secretary, Dennis Leong,
      may be contacted on the above numbers.




166
Glossary




AASB                 Australian Accounting Standards      Directors          the Directors of Macquarie
                     Board                                                   Group Limited (unless the
the Act              Corporations Act 2001 (Cth)                             context indicates otherwise)
ADI                  authorised deposit-taking            DPS                Directors’ Profit Share
                     institution                          DRP                Dividend Reinvestment Plan
                                                          DSU                Deferred Share Unit issued
AGM                  Annual General Meeting
                                                                             under the MEREP
                                                          DVA                debit valuation adjustments
AIFRS                Australian International Financial   ECAM               Economic Capital Adequacy
                     Reporting Standards                                     Model
APRA                 Australian Prudential Regulatory     EPS                earnings per share
                     Authority                            ERL                Equity Risk Limit
APS                 Annual Profit Share                    ESP                Macquarie Group Employee
ASIC                Australian Securities &                                  Share Plan
                    Investments Commission                Equity Plan        Macquarie Group Employee
ASX                 Australian Securities Exchange                           Retained Equity Plan
                    or ASX Limited ABN 98 008 624         FIRB               Foundation Internal Ratings
                    691 and the market operated by                           Based Approach
                    ASX Limited                           FSF                Financial Stability Forum
ASX                 ASX Corporate Governance              FX, Forex          Foreign Exchange
Recommendations Council Principles &                      IASB               International Accounting
                    Recommendations                                          Standards Board
BACC                Board Audit and Compliance            IFRS               International Financial Reporting
                    Committee                                                Standards
BBSW                Australian Financial Association’s    IPO                Initial Public Offering
                    bank-bill rate, published daily
                                                          Macquarie,         Macquarie Group Limited and its
                    on AAP Reuters page. The
                                                          Macquarie Group    subsidiaries
                    Australian equivalent of LIBOR,
                                                          or Group
                    SIBOR etc.
                                                          Macquarie Bank     Macquarie Bank Limited ABN 46
BCGC                Board Corporate Governance
                                                                             008 583 542
                    Committee
                                                          Macquarie Board/ the Board of Directors of
BORM                Business Operational Risk             the Board          Macquarie Group Limited
                    Manager
                                                          Macquarie CPS      Macquarie Convertible
BRC                 Board Remuneration Committee                             Preference Securities
CFO                 Chief Financial Officer                Macquarie ordinary Macquarie Group Limited fully
the Company         Macquarie Group Limited               shares             paid ordinary shares
consolidated entity Macquarie Group Limited and its       MBL                Macquarie Bank Limited
                    subsidiaries                          MCR                minimum capital ratio
CRO                 Chief Risk Officer                     MEL                Macro-Economic-Linkages
CVA                 credit valuation adjustments          MEREP              Macquarie Group Employee
DESOP               Deferred Exercise Share Option                           Retained Equity Plan
                    Plan                                  MGESOP             Macquarie Group Employee
                                                                             Share Option Plan




                                                                                                                 167
      Macquarie Bank Limited and its subsidiaries            2010 Annual Report   macquarie.com.au

      Glossary
      continued




      MGL                        Macquarie Group Limited ABN
                                 94 122 169 279
      MGSSAP                     Macquarie Group Staff Share
                                 Acquisition Plan
      MIPS                       Macquarie Income Preferred
                                 Securities
      MIS                        Macquarie Income Securities
      NCD                        negotiable certificates of deposit
      NEDSAP                     Non-Executive Director Share
                                 Acquisition Plan
      NOHC                       non-operating holding company
      NPAT                       net profit after tax
      ORMF                       Operational Risk Management
                                 Framework
      PSU                        Performance Share Unit issued
                                 under the MEREP
      RMG                        Risk Management Group
      ROE                        return on equity
      RPS                        retained profit share
      RSU                        Restricted Share Unit issued
                                 under the MEREP
      RWA                        risk-weighted assets
      SPE                        special purpose entity
      TSR                        total shareholder returns
      VaR                        Volume at Risk




168
                     Macquarie Bank Head Office
                     no.1 Martin place
                     Sydney nSW 2000
                     Australia
                     tel: +61 2 8232 3333

                     Registered Office
                     Macquarie Bank limited
                     level 3, 25 national Circuit
                     Forrest ACt 2603
                     Australia
                     tel: +61 2 6225 3000
Designed by Frost*
macquarie.com.au
ISSUER’S PRINCIPAL PLACE OF BUSINESS                         ISSUER'S AUDITORS

          No. 1 Martin Place                              PricewaterhouseCoopers
          Sydney NSW 2000                                    Darling Park Tower 2
               Australia                                      201 Sussex Street
                                                              Sydney, NSW 1171
                                                                   Australia

                                   LEGAL ADVISERS
                                  (as to Singapore law)

                                  Allen & Gledhill LLP
                               One Marina Boulevard #28-00
                                    Singapore 018989



                                   WARRANT AGENT

                  Macquarie Capital Securities (Singapore) Pte. Limited
                                    23 Church Street
                                6th Floor, Capital Square
                                    Singapore 049481

				
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