Macquarie Group Limited

Quarterly Report • Sep 30, 2010

Cover image: A stylised contemporary version of the Holey Dollar

In 1813 Governor Lachlan Macquarie overcame an acute currency shortage by purchasing Spanish silver dollars (then worth five shillings), punching the centres out and creating two new coins – the 'Holey Dollar' (valued at five shillings) and the 'Dump' (valued at one shilling and three pence).

This single move not only doubled the number of coins in circulation but increased their worth by 25 per cent and prevented the coins leaving the colony. Governor Macquarie's creation of the Holey Dollar was an inspired solution to a difficult problem and for this reason it was chosen as the symbol for Macquarie Group.

This interim financial report has been prepared in accordance with Australian Accounting Standards and does not include all the notes of the type normally included in an annual financial report.

The material in this report has been prepared by Macquarie Group Limited ABN 94 122 169 279 ("Macquarie") and is current at the date of this report. It is general background information about Macquarie's activities, is given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate.

The Macquarie name and holey dollar device are registered trade marks of Macquarie Group Limited ACN 122 169 279.

Financial report

for the half-year ended 30 September 2010 Contents

	Directors' report	1
	Auditor's independence declaration	3
	Consolidated income statement	4
	Consolidated statement of comprehensive income	5
	Consolidated statement of financial position	6
	Consolidated statement of changes in equity	8
	Consolidated statement of cash flows Notes to the consolidated financial statements	9 11
1	Basis of preparation	11
2	Profit for the period	12
3	Segment reporting	15
4	Income tax expense	19
5	Dividends and distributions paid or provided	20
6	Earnings per share	21
7	Trading portfolio assets	23
8	Loan assets held at amortised cost	23
9	Impaired financial assets	24
10	Investment securities available for sale	25
11	Interests in associates and joint ventures accounted for using the equity method	25
12	Non-current assets and disposal groups classified as held for sale	27
13	Trading portfolio liabilities	28
14	Debt issued at amortised cost	28
15	Other financial liabilities at fair value through profit or loss	28
16	Contributed equity	29
17	Reserves, retained earnings and non-controlling interests	31
18	Notes to the consolidated statement of cash flows	33
19	Contingent liabilities and commitments	34
20	Acquisitions and disposals of subsidiaries and businesses	35
21	Events occurring after balance sheet date	36
	Directors' declaration	37
	Independent auditor's review report	38
	Ten year history	39

Financial report

for the half-year ended 30 September 2010

This page has been intentionally left blank.

Directors' report

for the half-year ended 30 September 2010

In accordance with a resolution of the Voting Directors (the Directors) of Macquarie Group Limited (MGL or the Company), the Directors submit herewith the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the half-year ended 30 September 2010, and the consolidated statement of financial position as at 30 September 2010, of the Company and its subsidiaries (the consolidated entity) for the half-year ended on that date (the period) and report as follows:

Directors

At the date of this report, the Directors of MGL are:

Non-Executive Director

D.S. Clarke, AO, Chairman

Executive Director

N.W. Moore, Managing Director and Chief Executive Officer

Independent Directors

M.J. Hawker, AM

P.M. Kirby

C.B. Livingstone, AO

H.K. McCann, AM

J.R. Niland, AC

H.M. Nugent, AO

P.H. Warne

The Directors each held office as a Director of the Company throughout the period and until the date of this report.

Those Directors listed as Independent Directors have been independent throughout the period.

Result

The financial report for the half-year ended 30 September 2010, and the results herein, are prepared in accordance with Australian Accounting Standards.

The consolidated profit attributable to ordinary equity holders of the Company, in accordance with Australian Accounting Standards, for the period was \$403 million (half-year to 31 March 2010: \$571 million; half-year to 30 September 2009: \$479 million).

Review of operations

Consolidated profit after income tax attributable to ordinary equity holders of \$403 million for the half-year ended 30 September 2010 decreased 16 per cent from \$479 million in the prior corresponding period primarily due to increased net interest income and reduced charges for impairments and write-downs, offset by increased costs arising from headcount growth, including staff in recently acquired businesses as well as continued investment in our global platform.

The results for the half-year to 30 September 2010 continued to be affected by challenging trading and market conditions.

Net operating income of \$3,661 million for the half-year ended 30 September 2010 increased 18 per cent from \$3,105 million in the prior corresponding period. The main drivers of this increase were:

• a 42 per cent increase in net interest income to \$605 million for the half-year ended 30 September 2010 from \$425 million in the prior corresponding period, primarily due to growth in the higher yielding lending portfolio and the acquisitions of the Ford Credit and GMAC lease portfolios;
• a 6 per cent increase in fee and commission income to \$1,995 million for the half-year ended 30 September 2010 from \$1,882 million in the prior corresponding period, mainly driven by the acquisition of Delaware Investments in January 2010, partially offset by a reduction in mergers and acquisitions, advisory and underwriting income;
• net gains from equity accounting of investments in associates and joint ventures of \$85 million for the half-year ended 30 September 2010, up from a net loss of \$197 million in the prior corresponding period driven by an improvement in the underlying results of investments;
• a gain on reclassification of retained investments of \$114 million which predominantly relates to the reclassification of an investment in MAp from an associate to available for sale due to loss of significant influence. On reclassification the retained stake was required to be re-measured to fair value; and
• a 2 per cent increase in other operating income to \$370 million for the half-year ended 30 September 2010 from \$362 million in the prior corresponding period, primarily due to an overall reduction in the level of write-downs and impairment charges (net expense of \$130 million, decreased 78 per cent from a net expense of \$602 million in the half-year ended 30 September 2009). The prior corresponding period also included income from listed fund initiatives that were significantly lower in the half-year ended 30 September 2010.

Directors' report

for the half-year ended 30 September 2010 continued

Review of operations continued

Total operating expenses of \$3,165 million for the halfyear ended 30 September 2010 increased 23 per cent from \$2,573 million in the prior corresponding period. The increase was largely driven by:

• a 26 per cent increase in employment expenses to \$1,896 million for the half-year ended 30 September 2010 from \$1,509 million in the prior corresponding period, which was primarily due to a 22 per cent increase in headcount mainly from recent acquisitions and continued investment in our global platform;
• a 34 per cent increase in brokerage and commission expenses to \$441 million from \$329 million in the prior corresponding period primarily due to the acquisition of Delaware Investments and growth in futures execution and clearing volumes; and
• a 20 per cent increase in other operating expenses to \$432 million from \$359 million in the prior corresponding period primarily due to the contribution of recent acquisitions.

The compensation ratio of 47.9 per cent for the half-year ended 30 September 2010 increased from 45.2 per cent in the prior corresponding period due to increased employment expenses as described above.

Income tax expense for the half-year ended 30 September 2010 of \$85 million increased significantly from \$36 million in the prior corresponding period, as a result of lower levels of write-downs and impairment charges. As a result, the effective tax rate was 17 per cent, up from 7 per cent in the prior corresponding period.

Assets under management (AUM) of \$317 billion at 30 September 2010 decreased 3 per cent from \$326 billion at 31 March 2010. The overall net decrease in AUM was driven by the combined impact of the conversion of Cash Management Trust accounts to Cash Management Accounts and the strengthening of the Australian dollar.

Events occurring after balance sheet date

There were no material events subsequent to 30 September 2010 that have not been reflected in the financial statements.

Interim dividend

The Directors have resolved to pay an interim dividend for the half-year ended 30 September 2010 of \$0.86 per fully paid ordinary MGL share on issue at 12 November 2010. The dividend will be unfranked.

Auditor's independence declaration

A copy of the auditor's independence declaration, as required under section 307C of the Corporations Act 2001, is set out on page 3.

Rounding of amounts

In accordance with Australian Securities and Investments Commission Class Order 98/100 (as amended), amounts in the Directors' report and the half-year financial report have been rounded off to the nearest million dollars unless otherwise indicated.

This report is made in accordance with a resolution of the Directors.

a~îáÇ=pK=`ä~êâÉI=^l=

Non-Executive Director and Chairman

káÅÜçä~ë=jççêÉ=

Managing Director and Chief Executive Officer

Sydney 28 October 2010

Auditor's independence declaration

for the half-year ended 30 September 2010

As lead auditor for the review of Macquarie Group Limited for the half-year ended 30 September 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 review; and
• (b) no contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Macquarie Group Limited and the entities it controlled during the period.

DH Armstrong

Partner

PricewaterhouseCoopers

Sydney 28 October 2010

Consolidated income statement

for the half-year ended 30 September 2010

	Notes	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Interest and similar income		2,637	2,436	2,155
Interest expense and similar charges		(2,032)	(1,781)	(1,730)
Net interest income	2	605	655	425
Fee and commission income	2	1,995	1,839	1,882
Net trading income	2	606	666	633
Share of net profits/(losses) of associates and joint ventures
accounted for using the equity method	2	85	(33)	(197)
Other operating income and charges	2	370	406	362
Net operating income		3,661	3,533	3,105
Employment expenses	2	(1,896)	(1,592)	(1,509)
Brokerage and commission expenses	2	(441)	(316)	(329)
Occupancy expenses	2	(237)	(231)	(251)
Non-salary technology expenses	2	(159)	(158)	(125)
Other operating expenses	2	(432)	(474)	(359)
Total operating expenses		(3,165)	(2,771)	(2,573)
Operating profit before income tax		496	762	532
Income tax expense	4	(85)	(165)	(36)
Profit after income tax		411	597	496
(Profit)/loss attributable to non-controlling interests:
Macquarie Income Preferred Securities	5	(2)	(2)	(6)
Macquarie Income Securities	5	(13)	(11)	(10)
Other non-controlling interests		7	(13)	(1)
Profit attributable to non-controlling interests		(8)	(26)	(17)
Profit attributable to ordinary equity holders of Macquarie Group Limited		403	571	479
			Cents per share
Basic earnings per share	6	119.2	169.5	150.2
Diluted earnings per share	6	117.1	167.7	149.6

The above consolidated income statement should be read in conjunction with the accompanying notes.

Consolidated statement of comprehensive income

for the half-year ended 30 September 2010

	Notes	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Profit after income tax for the period		411	597	496
Other comprehensive (expense)/income:
Available for sale investments, net of tax	17	108	(52)	181
Cash flow hedges, net of tax	17	33	41	137
Share of other comprehensive income/(expense) of associates and joint ventures, net of tax	17	21	38	(2)
Exchange differences on translation of foreign operations, net of tax		(284)	(200)	(42)
Total other comprehensive (expense)/income for the period		(122)	(173)	274
Total comprehensive income for the period		289	424	770
Total comprehensive income for the period is attributable to:
Ordinary equity holders of Macquarie Group Limited		277	410	697
Macquarie Income Preferred Securities holders		1	(5)	78
Macquarie Income Securities holders		13	11	10
Other non-controlling interests		(2)	8	(15)
Total comprehensive income for the period		289	424	770

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Consolidated statement of financial position as at 30 September 2010

	Notes	As at 30 Sep 2010 \$m	As at 31 Mar 2010 \$m	As at 30 Sep 2009 \$m
Assets
Cash and balances with central banks		9	–	3
Due from banks		9,757	8,251	8,936
Cash collateral on securities borrowed and reverse
repurchase agreements		9,266	7,149	4,493
Trading portfolio assets	7	15,938	12,138	14,502
Loan assets held at amortised cost	8	45,130	44,267	42,504
Other financial assets at fair value through profit or loss		11,025	9,172	5,249
Derivative financial instruments – positive values		23,430	21,561	21,441
Other assets		13,862	13,096	13,791
Investment securities available for sale	10	18,576	18,221	23,152
Intangible assets		1,411	1,456	715
Life investment contracts and other unitholder investment assets		5,047	4,846	5,066
Interests in associates and joint ventures accounted for using
the equity method	11	2,719	3,927	4,931
Property, plant and equipment		708	605	647
Deferred income tax assets		1,107	1,124	1,401
Non-current assets and assets of disposal groups classified as held for sale	12	75	127	100
Total assets		158,060	145,940	146,931
Liabilities Due to banks Cash collateral on securities lent and repurchase agreements Trading portfolio liabilities	13	9,981 6,482 5,811	9,927 7,490 5,432	10,284 5,328 7,368
Derivative financial instruments – negative values		24,326	21,706	21,552
Deposits		35,047	22,484	20,692
Debt issued at amortised cost	14	39,955	42,614	44,896
Other financial liabilities at fair value through profit or loss	15	3,710	4,413	5,037
Other liabilities		12,973	12,679	12,871
Current tax liabilities		94	119	103
Life investment contracts and other unitholder liabilities		5,069	4,864	5,062
Provisions		221	191	184
Deferred income tax liabilities Liabilities of disposal groups classified as held for sale	12	235 –	235 9	210 –
Total liabilities excluding loan capital		143,904	132,163	133,587
Loan capital
Macquarie Convertible Preference Securities		593	593	591
Subordinated debt at amortised cost		1,483	916	1,011
Subordinated debt at fair value through profit or loss		487	499	522
Total loan capital		2,563	2,008	2,124
Total liabilities		146,467	134,171	135,711
Net assets		11,593	11,769	11,220

	Notes	As at 30 Sep 2010 \$m	As at 31 Mar 2010 \$m	As at 30 Sep 2009 \$m
Equity
Contributed equity
Ordinary share capital	16	7,063	6,990	6,267
Treasury shares	16	(719)	(443)	(2)
Exchangeable shares	16	129	137	159
Reserves	17	263	280	276
Retained earnings	17	4,325	4,268	3,984
Total capital and reserves attributable to ordinary equity holders of Macquarie Group Limited		11,061	11,232	10,684
Non-controlling interests
Macquarie Income Preferred Securities	17	66	67	74
Macquarie Income Securities	17	391	391	391
Other non-controlling interests	17	75	79	71
Total equity		11,593	11,769	11,220

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

Consolidated statement of changes in equity

for the half-year ended 30 September 2010

	Notes	Contributed equity \$m	Reserves \$m	Retained earnings \$m	Total \$m	Non controlling interests \$m	Total equity \$m
Balance at 1 April 2009		5,020	17		3,627 8,664	896	9,560
Total comprehensive income for the period		–	218	479	697	73	770
Transactions with equity holders in their capacity as
equity holders:
Contributions of equity, net of transaction costs	16	1,344	–		– 1,344	–	1,344
Dividends paid	5	–	–	(122)	(122)	–	(122)
Non-controlling interests: Contributions/distributions of equity, net of
transaction costs		–	–	–	–	(20)	(20)
Cancellation of Macquarie Income Preferred
Securities		–	–	–	–	(396)	(396)
Distributions paid or provided		–	–	–	–	(17)	(17)
Other equity movements:
Net movement on exchangeable shares	16	43	–	–	43	–	43
Share based payments		17	41	–	58	–	58
		1,404	41		(122) 1,323	(433)	890
Balance at 30 September 2009		6,424	276		3,984 10,684		536 11,220
Total comprehensive (expense)/income for the period		–	(161)	571	410	14	424
Transactions with equity holders in their capacity as
equity holders:
Contributions of equity, net of transaction costs	16	722	–	–	722	–	722
Issue of shares to Macquarie Group Employee
Retained Equity Plan Trust (MEREP Trust)	16	(438)	–	–	(438)	–	(438)
Dividends paid	5	–	–	(287)	(287)	–	(287)
Non-controlling interests:
Contributions/distributions of equity, net of
transaction costs		–	–	–	–	13	13
Distributions paid or provided		–	–	–	–	(26)	(26)
Other equity movements:
Net movement on exchangeable shares	16	(22)	–	–	(22)	–	(22)
Share based payments		1	165	–	166	–	166
Net purchase of treasury shares	16	(3)	–	–	(3)	–	(3)
		260	165	(287)	138	(13)	125
Balance at 31 March 2010		6,684	280		4,268 11,232		537 11,769
Total comprehensive (expense)/income for the period		–	(126)	403	277	12	289
Transactions with equity holders in their capacity as
equity holders:
Contributions of equity, net of transaction costs	16	64	–	–	64	–	64
Issue of shares to MEREP Trust	16	(19)	–	–	(19)	–	(19)
Dividends paid or provided	5	–	–	(346)	(346)	–	(346)
Non-controlling interests:
Contributions/distributions of equity, net of
transaction costs		–	–	–	–	(9)	(9)
Distributions paid or provided		–	–	–	–	(8)	(8)
Other equity movements: Net movement on exchangeable shares	16	(8)	–	–	(8)	–	(8)
Share based payments		9	109		118		118
Net purchase of treasury shares	16	(257)	–	–	(257)	–	(257)
		(211)	109	(346)	(448)	(17)	(465)
Balance at 30 September 2010		6,473	263		4,325 11,061		532 11,593

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Consolidated statement of cash flows

for the half-year ended 30 September 2010

	Notes	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Cash flows from operating activities
Interest received		2,378	2,247	2,028
Interest and other costs of finance paid		(2,104)	(1,830)	(1,842)
Dividends and distributions received		153	289	283
Fees and other non-interest income received		2,477	2,281	2,189
Fees and commissions paid		(439)	(285)	(339)
Net (payments for)/receipts from trading portfolio assets and other financial assets/liabilities		(4,682)	(20)	2,646
Payments to suppliers		(1,923)	(838)	(462)
Employment expenses paid		(2,339)	(1,159)	(1,703)
Income tax paid		(72)	(131)	(157)
Life investment contract income/(expense)		67	(60)	(77)
Life investment contract premiums received and other unitholder contributions		1,283	1,146	1,149
Life investment contract payments		(1,151)	(1,911)	(1,315)
Non-current assets and disposal groups classified as held for sale – net receipts from operations		38	–	–
Net loan assets (granted)/repaid		(924)	(2,689)	3,025
Recovery of loans previously written off		6	8	11
Net increase/(decrease) in amounts due to other financial
institutions, deposits and other borrowings		8,858	(1,589)	(6,854)
Net cash flows from/(used in) operating activities	18	1,626	(4,541)	(1,418)
Cash flows from investing activities
Net payments for financial assets available for sale and at fair value through profit or loss		(833)	(1,867)	(6,274)
Payments for interests in associates		(155)	(489)	(398)
Proceeds from the disposal of associates		284	503	119
Proceeds from the disposal of non-current assets and disposal groups classified as held for sale, net of cash disposed		–	3	9
Payments for the acquisition of subsidiaries and businesses, excluding disposal groups, net of cash acquired		1,445	(296)	(13)
Proceeds from the disposal of subsidiaries and businesses, excluding disposal groups, net of cash deconsolidated		17	95	342
Payments for life investment contracts and other unitholder investment assets		(3,714)	(1,993)	(3,724)
Proceeds from the disposal of life investment contracts and other unitholder investment assets		3,567	2,872	3,978
Payments for property, plant and equipment, lease assets and intangible assets		(1,009)	(228)	(170)
(Payments for)/proceeds from the disposal of property, plant and equipment, leased assets and intangible assets		–	(1)	1
Proceeds from the disposal of management rights		–	428	–
Net cash flows used in investing activities		(398)	(973)	(6,130)

Consolidated statement of cash flows

for the half-year ended 30 September 2010 continued

	Notes	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Cash flows from financing activities
Proceeds from the issue of ordinary shares		42	5	1,307
Payments to non-controlling interests		–	(4)	(234)
Proceeds from/(repayment of) subordinated debt		598	46	(452)
Dividends and distributions paid		(361)	(205)	(123)
Financing of treasury shares		(255)	–	–
Net cash flows from/(used in) financing activities		24	(158)	498
Net increase/(decrease) in cash and cash equivalents		1,252	(5,672)	(7,050)
Cash and cash equivalents at the beginning of the period		11,773	17,445	24,495
Cash and cash equivalents at the end of the period	18	13,025	11,773	17,445

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

for the half-year ended 30 September 2010

Note 1

Basis of preparation

This general purpose financial report for the half-year reporting period ended 30 September 2010 has been prepared in accordance with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting.

This half-year financial report comprises the consolidated financial report of Macquarie Group Limited (MGL or the Company) and the entities it controlled at the end of, or during, the period (the consolidated entity).

This half-year financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual financial report for the year ended 31 March 2010 and any public announcements made by MGL during the half-year reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The consolidated entity is of a kind referred to in Australian Securities and Investments Commission Class Order 98/100 (as amended), relating to the rounding off of amounts in the financial report for a financial year or halfyear. Amounts in the Directors' report and the half-year financial report have been rounded off in accordance with that Class Order to the nearest million dollars unless otherwise indicated.

The accounting policies and methods of computation adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the annual financial report of MGL for the year ended 31 March 2010. Certain comparatives have been restated for consistency in presentation at 30 September 2010.

Accounting standards effective in the current period

AASB 3 Business Combinations, AASB 127 Consolidated and Separate Financial Statements and AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 were issued in March 2008 and became applicable in the current period. These Standards amend the accounting for certain aspects of business combinations and changes in ownership interests in subsidiaries. Consequential amendments were also made to AASB 128 Investments in Associates and AASB 131 Interests in Joint Ventures.

As a result of these revised Standards:

• transaction costs are recognised as an expense at the acquisition date, unless the cost relates to issuing debt or equity securities;
• contingent obligations are measured at fair value at the acquisition date (allowing for a 12 month period postacquisition to affirm fair values) without regard to the probability of having to make a future payment, and all subsequent changes in fair value are recognised in profit or loss;
• changes in control are considered significant economic events, thereby requiring ownership interests to be remeasured to their fair value (and the gain/loss recognised in profit or loss) when control of a subsidiary is gained or lost; and
• changes in a parent's ownership interest in a subsidiary that do not result in a loss of control (e.g. dilutionary gains) are recognised directly in equity.

The application of these revised Standards in the current period has resulted in the recognition of a gain in profit or loss as a result of the re-measurement of our retained ownership interest to fair value, on the loss of significant influence of an investment in an associate. This retained interest is accounted for as an available for sale investment.

As a result of now applying the revised AASB 3, the definition of a business is now modified: a) to require inputs and processes to always exist, but not necessarily include all inputs or processes that the seller used; b) to clarify the meanings of inputs and processes; and c) for the integrated activities and assets to only be capable of being conducted and managed for the purpose. Distinguishing between whether assets or a business is acquired therefore involves more judgement. Some of the factors that the consolidated entity uses in identifying a business combination are:

• the nature of the consolidated entity's industry and business model, which affects the nature of an input, process or output;
• whether the acquisition included at least a majority of the critical inputs (e.g. tangible or intangible assets, and intellectual property) and processes (e.g. strategic processes, skilled and experienced workforce);
• the relative ease of replacing critical processes not acquired by either integrating within the consolidated entity's existing processes or sub-contracting them to third parties; and
• the presence of goodwill.

for the half-year ended 30 September 2010 continued

	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Note 2 Profit for the period
Net interest income
Interest and similar income received/receivable	2,637	2,436	2,155
Interest expense and similar charges paid/payable	(2,032)	(1,781)	(1,730)
Net interest income	605	655	425
Fee and commission income
Base fees	496	484	442
Performance fees	15	5	52
Mergers and acquisitions, advisory and underwriting fees	402	489	596
Brokerage and commissions	582	531	546
Other fee and commission income	454	299	233
Income from life investment contracts and other unitholder investment assets	46	31	13
Total fee and commission income	1,995	1,839	1,882
Net trading income1
Equities	178	183	407
Commodities	156	312	353
Foreign exchange products	83	37	108
Interest rate products	189	134	(235)
Net trading income	606	666	633
Share of net profits/(losses) of associates and joint ventures
accounted for using the equity method	85	(33)	(197)

Included in net trading income are fair value losses of \$202 million (half-year to 31 March 2010: \$354 million loss; half-year to 30 September 2009: \$66 million gain) relating to financial assets and financial liabilities designated as held at fair value through profit or loss. This includes \$1 million loss (half-year to 31 March 2010: \$65 million gain; half-year to 30 September 2009: \$320 million loss) 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.

1

	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Note 2
Profit for the period continued
Other operating income and charges
Net gains on sale of investment securities available for sale	105	61	35
Impairment charge on investment securities available for sale	(3)	(8)	(69)
Net gains on sale of associates (including associates held for sale) and joint ventures	9	1	49
Impairment (charge)/write-back on investments in associates (including associates held for sale) and joint ventures1	(46)	2	(359)
Gain on acquiring, disposing and change in ownership interest in subsidiaries and businesses held for sale	33	133	260
Gain on reclassification of retained investments2	114	–	–
Impairment (charge)/write-back on non-financial assets	(4)	7	(43)
Sale of management rights3	–	83	345
Gain on repurchase of subordinated debt	–	–	55
Net operating lease income4	76	62	76
Dividends/distributions received/receivable:
Investment securities available for sale	66	1	21
Collective allowance for credit losses written back/(provided for) during the period (note 8)	9	(1)	3
Specific provisions:
Loan assets provided for during the period (note 8)	(66)	(72)	(105)
Other receivables provided for during the period	(3)	(29)	(16)
Recovery of loans previously provided for (note 8)	9	29	8
Recovery of other receivables previously provided for	–	12	5
Loan losses written off	(32)	(32)	(37)
Recovery of loans previously written off	6	8	11
Other income	97	149	123
Total other operating income and charges	370	406	362
Net operating income	3,661	3,533	3,105

¹ Includes impairment reversals of \$nil (half-year to 31 March 2010: \$43 million; half-year to 30 September 2009: \$nil).

² Includes gain on re-measurement of retained ownership interest to fair value on the loss of significant influence of an investment in an associate.

³ Sale of management rights to Macquarie Airports, Macquarie Media Group and Macquarie Infrastructure Group as part of the internalisation of the management of these funds.

⁴ Includes rental income of \$161 million (half-year to 31 March 2010: \$195 million; half-year to 30 September 2009: \$175 million) less depreciation of \$85 million (half-year to 31 March 2010: \$133 million; half-year to 30 September 2009: \$99 million) in relation to operating leases where the consolidated entity is the lessor.

for the half-year ended 30 September 2010 continued

	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Note 2
Profit for the period continued
Employment expenses
Salary and salary related costs including commissions, superannuation
and performance-related profit share	(1,596)	(1,262)	(1,333)
Share based payments	(125)	(166)	(58)
Provision for annual leave	(25)	(11)	(10)
Provision for long service leave	(8)	(7)	(1)
Total compensation expenses	(1,754)	(1,446)	(1,402)
Other employment expenses including on-costs, staff procurement and staff training	(142)	(146)	(107)
Total employment expenses	(1,896)	(1,592)	(1,509)
Brokerage and commission expenses
Brokerage expenses	(273)	(220)	(281)
Other fee and commission expenses	(168)	(96)	(48)
Total brokerage and commission expenses	(441)	(316)	(329)
Occupancy expenses
Operating lease rentals	(150)	(134)	(153)
Depreciation: furniture, fittings and leasehold improvements	(59)	(67)	(57)
Other occupancy expenses	(28)	(30)	(41)
Total occupancy expenses	(237)	(231)	(251)
Non-salary technology expenses
Information services	(73)	(68)	(60)
Depreciation: computer equipment	(27)	(24)	(26)
Other non-salary technology expenses	(59)	(66)	(39)
Total non-salary technology expenses	(159)	(158)	(125)
Other operating expenses
Professional fees	(124)	(149)	(116)
Auditor's remuneration	(9)	(10)	(12)
Travel and entertainment expenses	(92)	(92)	(68)
Advertising and promotional expenses	(33)	(33)	(18)
Communication expenses	(25)	(21)	(20)
Amortisation of intangibles	(28)	(23)	(9)
Depreciation: communication equipment	(3)	(3)	(4)
Other expenses	(118)	(143)	(112)
Total other operating expenses	(432)	(474)	(359)
Total operating expenses	(3,165)	(2,771)	(2,573)

Note 3

Segment reporting

(i) Operating segments

For internal reporting and risk management purposes, the consolidated entity is divided into six operating groups, one operating division and a corporate group. These segments have been set up based on the different core products and services offered.

Since 31 March 2010 there have been the following restructures of operating groups and divisions:

Macquarie Infrastructure and Real Assets (MIRA) (formerly Macquarie Capital Funds) – this division of Macquarie Capital was transferred to Macquarie Funds Group.

Real Estate Structured Finance (RESF) – this division of the Real Estate Banking Division was transferred to Corporate and Asset Finance.

All restructures are effective from 1 April 2010. 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.

Macquarie Securities Group activities include institutional and retail derivatives, structured equity finance, arbitrage trading, synthetic products, capital management, collateral management and securities borrowing and lending. It is a fullservice institutional cash equities broker in the Asia Pacific region and South Africa, and offers specialised services in other regions. It also 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 debt structuring and distribution businesses.

Macquarie Funds Group is Macquarie Group's funds management business. It is a full-service asset manager, offering a diverse range of products including securities investment management, infrastructure and real asset management and fund and equity based structured products.

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 is the balance sheet lending and leasing business of Macquarie Group.

Banking and Financial Services Group is the primary relationship manager for Macquarie Group's retail client base. The group brings together Macquarie'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.

Real Estate Banking Division activities include real estate investment, development management and asset management.

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 non-controlling interests. Corporate is not considered an operating group.

Any transfers between segments are determined on an arm's length basis and eliminate on consolidation.

for the half-year ended 30 September 2010 continued

	Macquarie Securities Group \$m	Macquarie Capital \$m	Macquarie Funds Group \$m
Note 3
Segment reporting continued
(i) Operating segments ÅçåíáåìÉÇ
The following is an analysis of the consolidated entity's revenue and results by reportable segment for the period:
Revenues from external customers	694	555	961
Inter-segmental (expense)/revenue1	(10)	(129)	(57)
Interest revenue	119	30	89
Interest expense	(64)	(31)	(32)
Depreciation and amortisation	(3)	(32)	(13)
Share of net profits/(losses) of associates and joint ventures accounted for using the equity method	–	30	35
Reportable segment profit/(loss)	94	85	335
Reportable segment assets	26,433	3,634	12,678
Revenues from external customers Inter-segmental revenue/(expense)1	712 58	651 (143)	900 (57)
Interest revenue	113	32	81
Interest expense	(71)	(37)	(22)
Depreciation and amortisation	(9)	(41)	(17)
Share of net profits/(losses) of associates and joint ventures accounted for using the equity method	1	2	(33)
Reportable segment profit/(loss)	261	67	316
Reportable segment assets	20,926	4,076	10,909
Revenues from external customers	803	788	1,528
Inter-segmental revenue/(expense)1	74	(117)	(74)
Interest revenue	122	38	86
Interest expense	(96)	(38)	(12)
Depreciation and amortisation Share of net profits/(losses) of associates and joint	(7)	(32)	(6)
ventures accounted for using the equity method	1	(24)	(153)
Reportable segment profit/(loss)	319	(123)	492
Reportable segment assets	23,899	4,653	10,885

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.

Total	Financial Real Estate Services Group Banking Division Corporate		Corporate and Asset Finance	Currencies and Commodities
\$m	\$m	\$m	\$m	\$m	\$m
	Half-year to 30 September 2010
5,861	856	25	1,206	761	803
–	313	(21)	265	(280)	(81)
2,637 (2,032)	573 (877)	9 –	801 (734)	719 (95)	297 (199)
(202)	(57)	–	(13)	(48)	(36)
85	–	(1)	–	6	15
403	(623)	(25)	137	233	167
158,060	24,222	752	29,246	17,216	43,879
	Half-year to 31 March 2010
5,575	515	30	1,132	595	1,040
–	290	(30)	104	(199)	(23)
2,436	519	8	741	616	326
(1,781)	(810)	(1)	(555)	(96)	(189)
(250)	(36)	(1)	(21)	(49)	(76)
(33)	(3)	(4)	2	(6)	8
571	(697)	(85)	124	126	459
145,940	21,445	814	29,843	15,539	42,388
	Half-year to 30 September 2009
6,153	408	83	1,101	505	937
–	329	(41)	18	(138)	(51)
2,155	376	5	753	450	325
(1,730)	(799)	(3)	(499)	(89)	(194)
(195)	(45)	(1)	(11)	(60)	(33)
(197)	(4)	(21)	–	1	3
479	(785)	(58)	137	129	368
146,931	24,439	1,310	29,571	13,433	38,741

Banking and

Fixed Income,

for the half-year ended 30 September 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 Management \$m	Financial Markets \$m	Capital Markets \$m	Lending \$m	Total \$m
				Half-year to 30 September 2010
Revenues from external customers	1,156	1,791	1,217	1,697	5,861
				Half-year to 31 March 2010
Revenues from external customers	1,283	1,682	1,312	1,298	5,575
				Half-year to 30 September 2009
Revenues from external customers	1,862	1,735	1,222	1,334	6,153

(iii) Geographical areas

Geographical segments have been determined based upon where the transactions have been booked. The operations of the consolidated entity are headquartered in Australia.

	Revenues from	Non-current assets1 \$m
	external customers \$m
		Half-year to 30 September 2010
Australia	3,320	337
Asia Pacific	548	73
Europe, Middle East and Africa	714	256
Americas	1,279	1,453
Total	5,861	2,119
	Half-year to 31 March 2010
Australia	2,937	318
Asia Pacific	667	75
Europe, Middle East and Africa	773	236
Americas	1,198	1,432
Total	5,575	2,061

Note 3

Segment reporting continued

(iii) Geographical areas ÅçåíáåìÉÇ

	Revenues from external customers \$m	Non-current assets1 \$m
	Half-year to 30 September 2009
Australia	3,501	300
Asia Pacific	769	92
Europe, Middle East and Africa	1,086	191
Americas	797	779
Total	6,153	1,362

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.

	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Note 4 Income tax expense
(i) Numerical reconciliation of income tax expense to prima facie tax payable
Prima facie income tax expense on operating profit1	(149)	(228)	(160)
Tax effect of amounts which are non-assessable/(not deductible) in calculating taxable income:
Rate differential on offshore income	73	136	121
Distribution provided on Macquarie Income Preferred Securities and related distributions	1	1	2
Share based payments expense	(14)	(15)	(19)
Other items	4	(59)	20
Total income tax expense	(85)	(165)	(36)
(ii) Tax benefit/(expense) relating to items of other comprehensive income
Available for sale investments	(43)	31	(34)
Cash flow hedges	(13)	(22)	(55)
Share of other comprehensive income of associates and joint ventures	(9)	(19)	4
Foreign currency translation reserve	69	(151)	–
Total tax benefit/(expense) relating to items of other comprehensive income	4	(161)	(85)

¹ Prima facie income tax expense on operating profit is calculated at the rate of 30 per cent (half-year to 31 March 2010: 30 per cent; half-year to 30 September 2009: 30 per cent). The Australian tax consolidated group has a tax year ending on 30 September.

for the half-year ended 30 September 2010 continued

	Half-year to 30 Sep 2010	Half-year to 31 Mar 2010	Half-year to 30 Sep 2009
	\$m	\$m	\$m
Note 5 Dividends and distributions paid or provided
(i) Dividends paid or provided
Ordinary share capital
Interim dividend paid (half-year to 31 March 2010: \$0.86 per share)1	–	287	–
2010 final dividend paid (\$1.00 per share; half-year to 30 September 2009: \$0.40 per share)1	344	–	122
Dividends provided2	2	–	–
Total dividends paid or provided (note 17)	346	287	122

¹ Dividend paid by the consolidated entity includes \$1 million (half-year to 31 March 2010: \$1 million; half-year to 30 September 2009: \$1 million) of dividends paid to holders of the exchangeable shares as consideration for the acquisition of Orion Financial Inc. as described in note 16 – Contributed equity.

The final dividend was unfranked (half-year to 30 September 2009: 60 per cent franked at the 30 per cent corporate tax rate). The interim dividend paid during the half-year to 31 March 2010 was unfranked. The dividends paid to the holders of the exchangeable shares were not franked.

The Company's Dividend Reinvestment Plan (DRP) remains activated. The DRP is optional and offers ordinary shareholders in Australia and New Zealand the opportunity to acquire fully paid ordinary shares without transaction costs. A shareholder can elect to participate in or terminate their involvement in the DRP at any time. Details of fully paid ordinary shares issued pursuant to the DRP are included in note 16 – Contributed equity.

(ii) Dividends not recognised at the end of the period

Since the end of the period the Directors have recommended the payment of an interim dividend for the half-year ended 30 September 2010 of \$0.86 per fully paid ordinary MGL share on issue at 12 November 2010, unfranked. The aggregate amount of the proposed dividend expected to be paid on 15 December 2010 from retained profits at 30 September 2010, but not recognised as a liability at the end of the period, is \$297 million.

	Half-year to 30 Sep 2010	Half-year to 31 Mar 2010	Half-year to 30 Sep 2009
		Dividend per ordinary share
Cash dividend per ordinary share (distribution of current year profits)	\$0.86	\$1.00	\$0.86
	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
(iii) Distributions paid or provided
Macquarie Income Preferred Securities
Distributions paid (net of distributions previously provided)	–	–	4
Distributions provided	2	2	2
Total distributions paid or provided (note 17)	2	2	6

The Macquarie Income Preferred Securities (MIPS) represent the non-controlling interest of a subsidiary. Accordingly, the distributions paid/provided in respect of the MIPS are recorded as movements in non-controlling interests, as disclosed in note 17 – Reserves, retained earnings and non-controlling interests. Macquarie Bank Limited (MBL), a subsidiary, can redirect the payments of distributions under the convertible debentures to be paid to itself. For each debenture 500 MBL preference shares may be substituted at MBL's discretion at any time, in certain circumstances (to meet capital requirements), or on maturity. Refer to note 17 – Reserves, retained earnings and non-controlling interests for further details on these instruments.

² Dividends provided by the consolidated entity relates to the dividend on the exchangeable shares issued as consideration for the acquisition of Tristone Capital Global Inc. as described in note 16 – Contributed equity. The dividends are payable within 60 days following the second anniversary of the closing date of acquisition.

	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Note 5 Dividends and distributions paid or provided continued
Macquarie Income Securities
Distributions paid (net of distributions previously provided)	7	6	6
Distributions provided	6	5	4
Total distributions paid or provided	13	11	10

The Macquarie Income Securities (MIS) represent the non-controlling interest of a subsidiary. Accordingly, the distributions paid or provided in respect of the MIS are recorded as movements in non-controlling interests, as disclosed in note 17 – Reserves, retained earnings and non-controlling interests. No dividends are payable under the preference shares until MBL 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 MBL Directors' discretion. Refer to note 17 – Reserves, retained earnings and non-controlling interests for further details on these instruments.

	Half-year to	Half-year to	Half-year to
	30 Sep 2010	31 Mar 2010	30 Sep 2009
Note 6
Earnings per share
			Cents per share
Basic earnings per share	119.2	169.5	150.2
Diluted earnings per share	117.1	167.7	149.6
Reconciliation of earnings used in the calculation of basic and diluted earnings per share	\$m	\$m	\$m
Profit after income tax	411	597	496
(Profit)/loss attributable to non-controlling interests:
Macquarie Income Preferred Securities	(2)	(2)	(6)
Macquarie Income Securities	(13)	(11)	(10)
Other non-controlling interests	7	(13)	(1)
Total earnings used in the calculation of basic earnings per share	403	571	479
Add back adjusted interest expense on Macquarie Convertible Preference
Securities	16	16	16
Total earnings used in the calculation of diluted earnings per share	419	587	495
			Number of shares
Total weighted average number of ordinary shares used
in the calculation of basic earnings per share	338,006,008	336,949,981	318,880,002
Weighted average number of shares used in the
calculation of diluted earnings per share
Weighted average fully paid ordinary shares	338,006,008	336,949,981	318,880,002

Weighted average options 173,222 287,623 594,180 Weighted average MEREP awards 2,577,335 554,861 – Weighted average retention securities and options 217,074 99,132 30,942 Macquarie Convertible Preference Securities 16,742,601 12,237,648 11,396,270

ordinary shares used in the calculation of diluted earnings per share 357,716,240 350,129,245 330,901,394

Potential ordinary shares:

Total weighted average number of ordinary shares and potential

21

<-- PDF CHUNK SEPARATOR -->

for the half-year ended 30 September 2010 continued

Note 6

Earnings per share continued

Options

Options granted to employees under the Macquarie Group Employee Share Option Plan (MGESOP) are considered to be potential ordinary shares and have been included in the calculation of diluted earnings per share to the extent to which they are dilutive. The issue price, which is equivalent to the fair value of the options granted, and exercise price used in this assessment incorporate both the amounts recognised as an expense up to the reporting date as well as the fair value of options yet to be recognised as an expense in the future.

Included in the balance of weighted average options are 9,706 (31 March 2010: 16,427; 30 September 2009: 159,333) options that were converted, lapsed or cancelled during the period. There are a further 33,385,892 (31 March 2010: 42,886,737; 30 September 2009: 45,123,915) options that have not been included in the balance of weighted average options on the basis that their adjusted exercise price was greater than the average market price of the Company's fully paid ordinary shares for the half-year ended 30 September 2010 and consequently, they are not considered to be dilutive.

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.

Macquarie Group Employee Retained Equity Plan

In December 2009 MGL shareholders approved the implementation of the Macquarie Group Employee Retained Equity Plan (MEREP). Awards granted under MEREP are considered to be potential ordinary shares and have been included in the calculation of diluted earnings per share to the extent to which they are dilutive. Included in the balance of weighted average shares are 390,105 (31 March 2010: nil; 30 September 2009: nil) awards that were converted, lapsed or cancelled during the period. As at 30 September 2010, a further 825,500 (31 March 2010: nil; 30 September 2009: nil) MEREP awards have not been included in the balance of weighted average awards on the basis that they are not considered to be dilutive.

Exchangeable Shares

The exchangeable shares on issue (refer to note 16 – Contributed equity) are considered to be ordinary shares and have been included in the determination of basic and diluted earnings per share from their date of issue.

Retention Securities and Options

Retention securities and options are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share from their date of issue. The fair value of these securities and options is amortised over the vesting period.

Macquarie Convertible Preference Securities

Macquarie Convertible Preference Securities have the potential to be ordinary shares and have been included in the determination of diluted earnings per share from their date of issue to the extent to which they are dilutive. These securities have not been included in the determination of basic earnings per share.

	As at 30 Sep 2010 \$m	As at 31 Mar 2010 \$m	As at 30 Sep 2009 \$m
Note 7 Trading portfolio assets
Equities
Listed	7,759	5,212	8,551
Unlisted	1	28	30
Commonwealth government bonds	3,131	2,455	2,948
Corporate bonds	2,789	2,699	1,565
Commodities	1,478	131	126
Foreign government bonds	413	305	209
Other government securities	209	1,063	943
Promissory notes	72	1	–
Treasury notes	58	73	3
Bank bills	20	89	50
Certificates of deposit	8	82	77
Total trading portfolio assets	15,938	12,138	14,502
Note 8 Loan assets held at amortised cost
		2,288	1,851
Due from clearing houses Due from governments1	2,162 154	336	138
Due from other entities
Other loans and advances	39,479	38,482	37,591
Less specific provisions for impairment	(377)	(347)	(387)
	39,102	38,135	37,204
Lease receivables	3,937	3,742	3,539
Less specific provisions for impairment	(3)	(5)	(12)
Total due from other entities	43,036	41,872	40,731
Total loan assets before collective allowance for credit losses	45,352	44,496	42,720
Less collective allowance for credit losses	(222)	(229)	(216)
Total loan assets held at amortised cost2	45,130	44,267	42,504
Governments include federal, state and local governments and related enterprises in Australia.

Governments include federal, state and local governments and related enterprises in Australia.

² Included within this balance are loans of \$14,390 million (31 March 2010: \$15,998 million; 30 September 2009: \$18,004 million) held by consolidated SPEs, which are available as security to note holders and debt providers.

for the half-year ended 30 September 2010 continued

	Half-year to	Half-year to	Half-year to
	30 Sep 2010 \$m	31 Mar 2010 \$m	30 Sep 2009 \$m
Note 8 Loan assets held at amortised cost continued
Specific provisions for impairment
Balance at the beginning of the period	352	399	431
Provided for during the period (note 2)	66	72	105
Loan assets written off, previously provided for	(20)	(80)	(63)
Recovery of loans previously provided for (note 2)	(9)	(29)	(8)
Attributable to foreign currency translation	(10)	(10)	(66)
Balance at the end of the period	379	352	399
Specific provisions as a percentage of total gross loan assets	0.83%	0.78%	0.93%
Collective allowance for credit losses
Balance at the beginning of the period	229	216	225
(Written back)/provided for during the period (note 2)	(9)	1	(3)
Attributable to acquisitions during the period	3	11	–
Attributable to foreign currency translation	(1)	1	(6)
Balance at the end of the period	222	229	216

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

	As at 30 Sep 2010 \$m	As at 31 Mar 2010 \$m	As at 30 Sep 2009 \$m
Note 9 Impaired financial assets
Impaired debt investment securities available for sale before specific provisions for impairment	109	143	196
Less specific provisions for impairment	(84)	(115)	(166)
Debt investment securities available for sale after specific provisions for impairment	25	28	30
Impaired loan assets and other financial assets with specific provisions for impairment	944	1,090	1,256
Less specific provisions for impairment	(482)	(443)	(463)
Loan assets and other financial assets after specific provisions for impairment	462	647	793
Total impaired financial assets	487	675	823

Impaired financial 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 (31 March 2010: \$nil; 30 September 2009: \$31 million)).

	As at 30 Sep 2010 \$m	As at 31 Mar 2010 \$m	As at 30 Sep 2009 \$m
Note 10 Investment securities available for sale
Equity securities
Listed	2,417	1,001	333
Unlisted	320	344	388
Debt securities1, 2	15,839	16,876	22,431
Total investment securities available for sale	18,576	18,221	23,152

¹ Includes \$3,682 million (31 March 2010: \$2,382 million; 30 September 2009: \$4,967 million) of Negotiable Certificates of Deposit (NCD) due from financial institutions and \$115 million (31 March 2010: \$20 million; 30 September 2009: \$129 million) of bank bills.

Note 11

Interests in associates and joint ventures accounted for using the equity method

Loans and investments without provisions for impairment	1,768	2,990	2,978
Loans and investments with provisions for impairment	1,605	1,533	3,267
Less provisions for impairment	(654)	(596)	(1,314)
Loans and investments at recoverable amount	951	937	1,953
Total interests in associates and joint ventures accounted for using the equity method	2,719	3,927	4,931

The fair values of certain interests in material associates and joint ventures, for which there are public quotations, are below their carrying value by \$115 million (31 March 2010: \$1 million; 30 September 2009: \$291 million).

Included within this balance are debt securities of \$197 million (31 March 2010: \$316 million; 30 September 2009: \$250 million) which are recognised as a result of total return swaps which meet the pass through test of AASB 139 Financial Instruments: Recognition and Measurement. The consolidated entity does not have legal title to these assets but has full economic exposure to them.

for the half-year ended 30 September 2010 continued

Note 11

Interests in associates and joint ventures accounted for using the equity method continued Summarised information of interests in material associates and joint ventures accounted for using the equity method is as follows:

			Ownership interest
Name of entity	Country of incorporation	Reporting date	As at 30 Sep 2010 %	As at 31 Mar 2010 %	As at 30 Sep 2009 %
Brisconnections Unit Trusts 1, a	Australia	30 June	46	46	43
Charter Hall Retail REIT 2, 3, 4, b	Australia	30 June	–	–	12
Charter Hall Office REIT 2, 3, 5, b	Australia	30 June	–	–	14
Diversified CMBS Investments Inc. 6, c	USA	31 March	57	57	57
European Directories SA 1, d	Luxembourg	31 December	14	14	14
Macquarie AirFinance Limited 1, a	Bermuda	31 December	38	38	38
Macquarie Goodman Japan Limited b	Singapore	31 March	50	50	50
Macquarie Infrastructure Group 2, 3, a	Australia	30 June	–	–	15
MAp 2, 7, 8, a	Australia	31 December	–	22	21
MGPA Limited 1, b	Bermuda	30 June	56	56	56
Miclyn Express Offshore Limited 1, 9, e	Bermuda	30 June	34	34	59
New World Gaming Partners Holdings British Columbia Limited 1, f	Canada	31 December	–	31	31
Redford Australian Investment Trust 1, a	Australia	31 December	25	25	29
Southern Cross Media Group 1, 10, g	Australia	30 June	26	25	26

• 1 Significant influence arises due to the consolidated entity's voting power and board representation.
• 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 Previously known as Macquarie Countrywide Trust.
• 5 Previously known as Macquarie Office Trust.
• 6 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.
• 7 Previously known as Macquarie Airports.
• 8 During the period significant influence was lost and the investment is now classified as an investment security available for sale.
• 9 Miclyn Express Offshore Limited was listed on the Australian Securities Exchange during the half-year ended 31 March 2010. Prior to that it was known as MEO Holdings Limited.
• 10 Previously known as Macquarie Media Group.
• a Infrastructure
• b Property development/management entity
• c Funds management and investing
• d Directories business
• e Metals, mining and energy
• f Gaming infrastructure
• g Media, television, gaming and internet investments

	As at 30 Sep 2010 \$m	As at 31 Mar 2010 \$m	As at 30 Sep 2009 \$m
Note 12 Non-current assets and disposal groups classified as held for sale
Non-current assets and assets of disposal groups classified as held for sale
Associates	75	76	45
Other non-current assets	–	4	55
Assets of disposal groups classified as held for sale1	–	47	–
Total non-current assets and assets of disposal groups classified as held for sale	75	127	100
Liabilities of disposal groups classified as held for sale
Total liabilities of disposal groups classified as held for sale1	–	9	–

¹ The balance as 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 assets.

Summarised information of interests in material associates and joint ventures classified as held for sale is as follows:

			Ownership interest
Name of entity	Country of incorporation	Reporting date	As at 30 Sep 2010 %	As at 31 Mar 2010 %	As at 30 Sep 2009 %
Retirement Villages Group 1, a	Australia	30 June	10	10	10
US Senior Living Trust a	USA	31 December	–	–	50

All associates and joint ventures classified as held for sale are unlisted entities.

Voting power is equivalent to ownership interest unless otherwise stated.

The consolidated entity's interest in this entity was reclassified from interests in associates and joint ventures to held for sale during the half-year to 31 March 2010.

a Retirement homes

for the half-year ended 30 September 2010 continued

	As at 30 Sep 2010	As at 31 Mar 2010	As at 30 Sep 2009
	\$m	\$m	\$m
Note 13 Trading portfolio liabilities
Listed equity securities	4,058	3,892	6,875
Commonwealth government securities	642	434	305
Corporate securities	621	819	51
Other government securities	490	287	137
Total trading portfolio liabilities	5,811	5,432	7,368
Note 14 Debt issued at amortised cost
Debt issued at amortised cost1	39,955	42,614	44,896
Total debt issued at amortised cost	39,955	42,614	44,896

Included within this balance are amounts payable to SPE note holders of \$12,679 million (31 March 2010: \$14,419 million; 30 September 2009: \$17,004 million).

Note 15

1

Other financial liabilities at fair value through profit or loss
------------------------------------------------------------------	--

Debt issued at fair value	1,249	1,691	2,146
Total other financial liabilities at fair value through profit or loss	3,710	4,413	5,037
Reconciliation of debt issued at amortised cost and other financial liabilities at fair value through profit or loss by major currency:
Australian dollars	15,729	18,428	21,154
United States dollars	15,629	16,847	16,978
Canadian dollars	6,830	5,789	4,189
Euro	1,635	1,654	2,640
Japanese yen	1,442	1,350	1,471
South African rand	1,381	1,565	2,007
Korean won	348	196	100

Hong Kong dollars 279 386 526 Great British pounds 214 547 350 Singapore dollars 81 177 423 Other currencies 97 88 95 Total by currency 43,665 47,027 49,933

Equity linked notes 2,461 2,722 2,891

The consolidated entity's primary sources of domestic and international debt funding are its multi-currency, multijurisdictional Debt Instrument Program and domestic NCD issuance. Securities can be issued for terms varying from one day to 30 years.

The consolidated entity has not had any defaults of principal, interest or other breaches with respect to its debt during the periods reported.

Note 16 Contributed equity Ordinary share capital 6,267 4,906 6,990 (NEDSAP) – – – Allocation of 3,639 shares pursuant to the NEDSAP – – – Issue of shares (31 March 2010: 1,194; 30 September 2009: 27,391) per share – 1 – Issue of 6,013 shares (31 March 2010: 118,127; 30 September 2009: 3,175,683) on exercise of options 5 106 – Issue of 2,864 shares on exercise of MEREP awards – – – Issue of 31,065 shares on 28 January 2010 pursuant to the Macquarie 2 – – Issue of 912,835 shares (31 March 2010: 1,987,325; 30 September 2009: 750,811) pursuant to the Macquarie Group Dividend Reinvestment Plan (DRP) at \$45.55 (31 March 2010: \$47.77; 30 September 2009: \$33.24) per share 95 25 42 – – 533 (31 March 2010: \$26.60; 30 September 2009: \$26.60) per share – 668 – Issue of 40,964 shares (31 March 2010: 23,313; 30 September 2009: 138,366) on retraction of exchangeable shares at \$80.30 per share 2 11 3 key Orion Financial Inc. employees – – – Issue of 394,354 (31 March 2010: 9,395,660) shares to MEREP Trust within the range of \$38.42 and \$50.40 (31 March 2010: \$46.60) per share 438 – 19 Transfer from Directors' Profit Share (DPS) liability on settlement of 180 – – have vested 9 – – Transfer from share based payments reserve for employee options that have been exercised 1 17 – Closing balance of 345,601,301 (31 March 2010: 344,244,271; 6,990 6,267 7,063 As at As at As at 30 Sep 2010 31 Mar 2010 30 Sep 2009 \$m \$m \$m Total treasury shares1 (443) (2) (719)		Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
	Opening balance of 344,244,271 (1 October 2009: 332,683,024; 1 April 2009: 283,438,000) fully paid ordinary shares
	On-market purchase of 3,639 shares on 4 June 2009 pursuant to the Macquarie Group Non-Executive Director Share Acquisition Plan
	pursuant to the MGSSAP (31 March 2010: within the range of \$33.49 and \$47.99; 30 September 2009: within the range of \$25.61 and \$56.40)
	Group Employee Share Plan (ESP) at \$52.04 per share
	Issue of 20,000,000 shares on 8 May 2009 pursuant to an institutional
	private placement at \$27.00 per share
	Issue of shares (31 March 2010: 563; 30 September 2009: 25,150,773) pursuant to the Macquarie Group Share Purchase Plan (SPP) at
	Issue of shares (31 March 2010: 4,000; 30 September 2009: 2,000) for nil
	cash consideration pursuant to the retention agreements entered into with
	obligation with own equity
	Transfer from share based payments reserve for employee awards that
	30 September 2009: 332,683,024) fully paid ordinary shares

¹ During the half-year to 31 March 2010, the Company introduced the Macquarie Group Employee Retained Equity Plan (MEREP). Under MEREP the staff retained profit share will be held in the shares of the Company by MEREP Trust and presented as treasury shares.

for the half-year ended 30 September 2010 continued

	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Note 16
Contributed equity ÅçåíáåìÉÇ
Exchangeable shares Opening balance of 2,935,489 (1 October 2009: 3,499,929; 1 April 2009: 1,450,584) exchangeable shares	137	159	116
Issue of 2,036,705 exchangeable shares at \$50.80 per share, exchangeable to shares in Macquarie Group Limited on a one-for-one basis1, 2	–	–	54
Issue of 152,472 exchangeable shares with retention conditions at \$50.80 per share, exchangeable to shares in Macquarie Group Limited on a one for-one basis1	5	2	–
Retraction of 40,964 (31 March 2010: 23,313; 30 September 2009: 138,366) exchangeable shares at \$80.30 per share, exchangeable to shares in Macquarie Group Limited on a one-for-one basis3	(3)	(2)	(11)
Cancellation of 62,874 (31 March 2010: 140,920; 30 September 2009: 1,466) exchangeable shares at \$80.30 per share	(5)	(11)	–
Cancellation of 270,254 (31 March 2010: 345,148) exchangeable shares at \$50.80 per share	(5)	(11)	–
Cancellation of exchangeable shares (31 March 2010: 55,059) with retention conditions at \$50.80 per share	–	–	–
Closing balance of 2,561,397 (31 March 2010: 2,935,489; 30 September 2009: 3,499,929) exchangeable shares	129	137	159

• The exchangeable shares were issued by a subsidiary in August 2009 as consideration for the acquisition of Tristone Capital Global Inc. and are classified as equity in accordance with AASB 132 Financial Instruments: Presentation. They are eligible to be exchanged on a one-for-one basis for shares in Macquarie Group Limited (subject to staff trading restrictions) or cash at the Company's discretion and will pay dividends equal to Macquarie Group Limited dividends during their legal life. The exchangeable shares must be exchanged by August 2019 and carry no Macquarie Group Limited voting rights.
• There are also retention agreements in place with key former Tristone employees, under which new Macquarie Group Limited shares may be allocated within five years from the date of acquisition. As at 30 September 2010, the total number of retention options remaining is 87,530.
• The value of the exchangeable shares at reporting date includes a fair value adjustment due to an earn out mechanism. The number of exchangeable shares exercisable by the holders will expand (to a maximum of 4 million shares) or contract, based on the performance of the acquired business against pre-determined financial performance measures until the adjustment date (a date between the second anniversary of closing and not later than 60 days after the second anniversary of closing).
• 3 The exchangeable shares were issued by a subsidiary in November 2007 as consideration for the acquisition of Orion Financial Inc. and are classified as equity in accordance with AASB 132 Financial Instruments: Presentation. They are eligible to be exchanged on a one-for-one basis for shares in Macquarie Group Limited (subject to staff trading restrictions) or cash at the Company's discretion and will pay dividends equal to Macquarie Group Limited dividends during their legal life. The exchangeable shares will expire in November 2017 and carry no Macquarie Group Limited voting rights.

There are also retention agreements in place with key former Orion employees, under which new Macquarie Group Limited shares may be allocated within five years from the date of acquisition. As at 30 September 2010, the total number of retention options remaining is 107,000.

	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Note 17
Reserves, retained earnings and non-controlling interests
Reserves
Foreign currency translation reserve
Balance at the beginning of the period	(320)	(132)	(34)
Currency translation differences arising during the period, net of hedge	(288)	(188)	(98)
Balance at the end of the period	(608)	(320)	(132)
Available for sale reserve
Balance at the beginning of the period	126	178	(3)
Revaluation movement for the period, net of tax	85	(51)	184
Transfer to income statement for impairment	(4)	(1)	2
Transfer to profit on realisation	27	–	(5)
Balance at the end of the period	234	126	178
Share based payments reserve
Balance at the beginning of the period	544	379	338
Option expense for the period	21	52	58
MEREP expense for the period	97	114	–
Transfer to share capital on exercise of options	–	(1)	(17)
Transfer to share capital on vesting of MEREP awards	(9)	–	–
Balance at the end of the period	653	544	379
Cash flow hedging reserve
Balance at the beginning of the period	(39)	(80)	(217)
Revaluation movement for the period, net of tax	33	41	137
Balance at the end of the period	(6)	(39)	(80)
Share of reserves of interests in associates and joint ventures accounted for using the equity method
Balance at the beginning of the period	(31)	(69)	(67)
Share of reserves during the period	21	38	(2)
Balance at the end of the period	(10)	(31)	(69)
Total reserves at the end of the period	263	280	276
Retained earnings
Balance at the beginning of the period	4,268	3,984	3,627
Profit attributable to ordinary equity holders of Macquarie Group Limited	403	571	479
Dividends paid on ordinary share capital (note 5)	(346)	(287)	(122)
Balance at the end of the period	4,325	4,268	3,984

for the half-year ended 30 September 2010 continued

	As at 30 Sep 2010 \$m	As at 31 Mar 2010 \$m	As at 30 Sep 2009 \$m
Note 17 Reserves, retained earnings and non-controlling interests continued
Non-controlling interests
Macquarie Income Preferred Securities1
Proceeds on issue of Macquarie Income Preferred Securities	107	107	107
Less issue costs	(1)	(1)	(1)
	106	106	106
Current period profit	2	2	6
Distribution provided on Macquarie Income Preferred Securities (note 5)	(2)	(2)	(6)
Foreign currency translation reserve	(40)	(39)	(32)
Total Macquarie Income Preferred Securities	66	67	74
Macquarie Income Securities2
4,000,000 Macquarie Income Securities of \$100 each	400	400	400
Less transaction costs for original placement	(9)	(9)	(9)
Total Macquarie Income Securities	391	391	391
Other non-controlling interests
Ordinary share capital	44	40	38
Preference share capital	–	–	5
Foreign currency translation reserve	(8)	(13)	(8)
Retained earnings	39	52	36
Total other non-controlling interests	75	79	71

¹ On 22 September 2004, Macquarie Capital Funding LP, a subsidiary of the Company, issued £350 million of MIPS. MIPS, guaranteed non-cumulative step-up perpetual preferred securities, currently pay a 6.177 per cent per annum semi-annual noncumulative fixed rate distribution. They are perpetual securities and have no fixed maturity but may be redeemed on 15 April 2020, at MGL's discretion. If redemption is not elected on this date, the distribution rate will be reset to 2.35 per cent per annum above the then five-year benchmark sterling gilt rate. MIPS may be redeemed on each fifth anniversary thereafter at MGL's discretion. The first coupon was paid on 15 April 2005. The instruments are reflected in the consolidated entity's financial statements as a non-controlling interest, with distribution entitlements being included in non-controlling interests' share of operating profit after income tax. Following the cancellation of £307.5 million MIPS in September 2009, £42.5 million MIPS remain on issue.

Total non-controlling interests 532 537 536

These instruments are classified as equity in accordance with AASB 132: Financial Instruments: Presentation and reflected in the consolidated entity's financial statements as a non-controlling interest, with distribution entitlements being included with noncontrolling interests' share of profit after tax.

Distribution policies for these instruments are included in note 5 – Dividends and distributions paid or provided.

The Macquarie Income Securities issued by MBL were listed for trading on the Australian Stock Exchange (now Australian Securities Exchange) on 19 October 1999 and became redeemable (in whole or in part) at MBL's discretion on 19 November 2004. Interest is paid quarterly at a floating rate of BBSW plus 1.7 per cent per annum (31 March 2010: 1.7 per cent per annum; 30 September 2009: 1.7 per cent per annum). Payment of interest to holders is subject to certain conditions, including the profitability of MBL. They are a perpetual instrument with no conversion rights.

As at	As at	As at
30 Sep 2010	31 Mar 2010	30 Sep 2009
\$m	\$m	\$m

Note 18

Notes to the consolidated statement of cash flows Reconciliation of cash and cash equivalents

Cash and cash equivalents at the end of the period as shown in the consolidated statement of cash flows is reconciled to related items in the consolidated statement of financial position as follows:

Cash and balances with central banks	9	_	3
Due from other financial institutions
Due from banks 1	9,484	7,940	8,893
Trading securities 2	3,532	3,833	8,549
Cash and cash equivalents at the end of the period	13,025	11,773	17,445

Includes cash at bank, overnight cash at bank, other loans to banks and amounts due from clearing houses.

Includes certificates of deposit, bank bills and other short-term debt securities.

	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Reconciliation of profit after income tax to net cash flows from/(used in) operating activities
Profit after income tax	411	597	496
Adjustments to profit:	411	597	490
Depreciation and amortisation	202	250	195
Dividends received/receivable from associates	149	159	253
Fair value changes on financial assets and liabilities at fair value through
profit or loss and realised investment securities available for sale	(96)	(43)	189
Gain on acquiring, disposing, and change in ownership interest in subsidiaries and businesses held for sale	(33)	(133)	(260)
Gain on repurchase of subordinated debt	_	_	(55)
Impairment charge on financial and non-financial assets	136	92	613
Interest on available for sale financial assets	(210)	(167)	(121)
(Gain)/loss on disposal of property, plant and equipment	-	(10)	10
Net gains on sale of investment securities available for sale and associates and joint ventures	(228)	(62)	(84)
Sale of management rights	(220)	(83)	(345)
Share based payments expense	118	166	58
Share of net (profits)/losses of associates and joint ventures accounted	110	100	30
for using the equity method	(85)	33	197
Changes in assets and liabilities:
Change in dividends receivable	(62)	129	9
Change in fees and non-interest income receivable	271	129	23
Change in fees and commissions payable	2	31	(10)
Change in tax balances	13	34	(121)
Change in provisions for employee entitlements	14	7	5
Change in loan assets granted	(924)	(2,689)	3,025
Change in debtors, prepayments, accrued charges and creditors	(1,617)	141	863
Change in net trading portfolio assets and liabilities and net derivative financial instruments	(5,324)	(606)	872
Change in net interest payable, amounts due to other financial institutions, deposits and other borrowings	8,737	(1,658)	(6,974)
Change in life investment contract receivables	152	(858)	(256)
Net cash flows from/(used in) operating activities	1,626	(4,541)	(1,418)

As at

As at

Notes to the consolidated financial statements

for the half-year ended 30 September 2010 continued

	30 Sep 2010 \$m	31 Mar 2010 \$m	30 Sep 2009 \$m
Note 19 Contingent liabilities and commitments
The following details of contingent liabilities and commitments exclude derivatives.
Contingent liabilities exist in respect of:
Guarantees	305	321	177

As at

Contingent liabilities exist in respect of:
Guarantees	305	321	177
Indemnities	3	6	6
Letters of credit	151	130	95
Performance related contingents	66	95	144
Total contingent liabilities1	525	552	422
Commitments exist in respect of:
Undrawn credit facilities	5,220	3,860	3,286
Forward asset purchase	1,728	1,087	1,642
Total commitments2	6,948	4,947	4,928
Total contingent liabilities and commitments	7,473	5,499	5,350

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 the half-year financial report, either individually or in aggregate, are 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 20

Acquisitions and disposals of subsidiaries and businesses

Significant businesses acquired or consolidated due to acquisition of control:

– Sal. Oppenheim

On 7 April 2010 a subsidiary of MGL acquired the equity derivatives, cash equities sales and research businesses of Sal. Oppenheim jr. & Cie.

Other entities acquired or consolidated due to acquisition of control during the period are as follows:

CMC Railroad Inc., Latitude FX Limited, Liberty Green Renewables Indiana LLC, Outplan Pty Ltd, Rismark Limited and Shinhan Macquarie Financial Advisory Co. Ltd.

Aggregate details of the above entities and businesses acquired or consolidated due to acquisition of control are as follows:

	Half-year to 30 Sep 2010	Half-year to 31 Mar 2010	Half-year to 30 Sep 2009
	\$m	\$m	\$m
Fair value of net assets acquired
Cash, other financial assets and other assets	4,778	1,072	119
Goodwill and other intangible assets	30	676	62
Property, plant and equipment	113	16	–
Assets of disposal groups classified as held for sale	5	48	–
Payables, provisions, borrowings and other liabilities	(4,834)	(1,001)	(20)
Liabilities of disposal groups classified as held for sale	(4)	(43)	–
Non-controlling interests	(4)	–	(2)
Total fair value of net assets acquired1	84	768	159
Purchase consideration
Cash consideration and costs directly attributable to acquisition	26	695	53
Deferred consideration	–	70	55
Extinguishment of loan asset	–	–	56
Total purchase consideration	26	765	164
Net cash flow
Cash consideration and costs directly attributable to acquisition	(26)	(695)	(53)
Less cash and cash equivalents acquired	1,471	399	40
Net cash inflow/(outflow)	1,445	(296)	(13)

¹ In connection with the acquisition of Sal. Oppenheim, the business was acquired at a \$59 million discount to fair value, which included amounts received to cover expenses relating to integrating the business. The actual incurred expenses have been offset against the amount received within note 2 – Profit for the period.

The operating results of the acquisitions have not had a material impact on the results of the consolidated entity.

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 period 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 the consolidated entity expects to realise from the acquisitions.

The 31 March 2010 and 30 September 2009 comparatives relate principally to Tristone Capital Global Inc., Fox-Pitt Kelton Group, Blackmont Capital and Delaware Investments, being the significant entities acquired or consolidated due to acquisition of control.

for the half-year ended 30 September 2010 continued

Note 20

Acquisitions and disposals of subsidiaries and businesses continued

Significant entities and businesses disposed of or deconsolidated due to loss of control:

There were no significant disposals during the period.

Other entities and businesses disposed of or deconsolidated during the period are as follows:

Advanced Markets Holdings LLC, Everest Absolute Return II Limited, Latitude FX Limited, LexMac Energy Oil & Gas, SiCURAnt InvestCo LP SPRL and Turramurra Limited.

Aggregate details of the above entities and businesses disposed of or deconsolidated are as follows:

	Half-year to 30 Sep 2010 \$m	Half-year to 31 Mar 2010 \$m	Half-year to 30 Sep 2009 \$m
Carrying value of assets and liabilities disposed of or deconsolidated
Cash, other financial assets and other assets	4	71	244
Goodwill and other intangible assets	–	18	–
Property, plant and equipment	–	89	–
Non-current assets and assets of disposal groups classified as held for
sale	45	15	–
Payables, provisions, borrowings and other liabilities	(2)	(81)	(31)
Liabilities of disposal groups classified as held for sale	(40)	–	–
Total carrying value of assets and liabilities disposed of or deconsolidated	7	112	213
Consideration received
Consideration received in cash and cash equivalents	18	129	344
Consideration received in equity	–	91	–
Deferred consideration	–	14	–
Total consideration received	18	234	344
Net cash flow
Cash received	18	129	344
Less:
Investment retained	(1)	–	–
Cash and cash equivalents disposed of or deconsolidated	–	(34)	(2)
Net cash inflow	17	95	342

The 30 September 2009 comparatives relate principally to Macquarie Communications Infrastructure Management Limited, being the significant entity disposed of or deconsolidated due to loss of control. There were no significant disposals during the half-year to 31 March 2010.

Note 21

Events occurring after balance sheet date

There were no material events subsequent to 30 September 2010 that have not been reflected in the financial statements.

Macquarie Group Limited

Directors' declaration

In the Directors' opinion

• (a) the financial statements and notes set out on pages 4 to 36 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 consolidated entity's financial position as at 30 September 2010 and of its performance, as represented by the results of its operations and its cash flows, for the half-year ended on that date; and
• (b) there are reasonable grounds to believe that Macquarie Group Limited will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Directors.

a~îáÇ=pK=`ä~êâÉI=^l=

Non-Executive Director and Chairman

káÅÜçä~ë=jççêÉ=

Managing Director and Chief Executive Officer

Sydney 28 October 2010

Independent auditor's review report

To the members of Macquarie Group Limited

Report on the half-year financial report

We have reviewed the accompanying half-year financial report of Macquarie Group Limited, which comprises the statement of financial position as at 30 September 2010, and the income statement, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, selected explanatory notes and the directors' declaration for the Macquarie Group (the consolidated entity). The consolidated entity comprises both Macquarie Group Limited (the company) and the entities it controlled during that half-year.

Directors' responsibility for the half-year financial report

The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 and for such control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity's financial position as at 30 September 2010 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Macquarie Group Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. It also includes reading the other information included with the financial report to determine whether it contains any material inconsistencies with the financial report.

A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our review was not designed to provide assurance on internal controls.

Our review did not involve an analysis of the prudence of business decisions made by directors or management.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Macquarie Group Limited is not in accordance with the Corporations Act 2001 including:

• (a) giving a true and fair view of the consolidated entity's financial position as at 30 September 2010 and of its performance for the half-year ended on that date; and
• (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001.

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Partner

Sydney

28 October 2010

Macquarie Group Limited

Ten year history

With the exception of 31 March 2005, the financial information presented below has been based on the Australian Accounting Standards adopted at each balance sheet date. The financial information for the full years ended 31 March 2005-2010 and half-year ended 30 September 2010 is based on the reported results using the Australian Accounting Standards that also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

	2002	2003	2004	2005	2006	2007	2008	2009	2010	First Half 2011
Income statement (\$ million)
Total income	1,822	2,155	2,823	4,197	4,832	7,181	8,248	5,526	6,638	3,661
Total expenses	(1,467)	(1,695)	(2,138)	(3,039)	(3,545)	(5,253)	(6,043)	(4,537)	(5,344)	(3,165)
Operating profit before income tax	355	460	685	1,158	1,287	1,928	2,205	989	1,294	496
Income tax expense	(76)	(96)	(161)	(288)	(290)	(377)	(317)	(15)	(201)	(85)
Profit for the year	279	364	524	870	997	1,551	1,888	974	1,093	411
Macquarie Income Preferred Securities
distributions	–	–	–	(28)	(51)	(54)	(50)	(45)	(8)	(2)
Macquarie Income Securities distributions	(29)	(28)	(27)	(29)	(29)	(31)	(34)	(33)	(21)	(13)
Other non-controlling interests	–	(3)	(3)	(1)	(1)	(3)	(1)	(25)	(14)	7
Profit attributable to ordinary equity holders	250	333	494	812	916	1,463	1,803	871	1,050	403
Statement of financial position (\$ million)
Total assets	30,234	32,462	43,771	67,980	106,211	136,389		167,250 149,144 145,940		158,060
Total liabilities	27,817	29,877	40,938	63,555	100,874	128,870		157,189 139,584 134,171		146,467
Net assets	2,417	2,585	2,833	4,425	5,337	7,519	10,061	9,560	11,769	11,593
Total loan assets	9,209	9,839	10,777	28,425	34,999	45,796	52,407	44,751	44,267	45,130
Impaired loan assets (net of provisions)	49	16	61	42	85	88	165	952	647	462
Share information1
Cash dividends per share (cents per share)
Interim	41	41	52	61	90	125	145	145	86	86
Final	52	52	70	100	125	190	200	40	100	n/a
Special2	–	50	–	40	–	–	–	–	–	n/a
Total	93	143	122	201	215	315	345	185	186	n/a
Basic earnings per share
(cents per share)	132.8	164.8	233.0	369.6	400.3	591.6	670.6	309.6	320.2	119.2
Share price at 31 March (\$)1, 3	33.26	24.70	35.80	48.03	64.68	82.75	52.82	27.05	47.25	36.27
Ordinary share capital (million shares)4	198.5	204.5	215.9	223.7	232.4	253.9	274.6	283.4	344.2	345.6
Market capitalisation at 31 March
(fully paid ordinary shares) (\$ million)	6,602	5,051	7,729	10,744	15,032	21,010	14,503	7,667	16,266	12,535
Net tangible assets per ordinary share
(\$)5	7.94	8.23	10.72	13.97	16.63	22.86	28.18	23.72	25.82	25.21
Ratios
Return on average ordinary
shareholders' funds	18.7%	18.0%	22.3%	29.8%	26.0%	28.1%	23.7%	9.9%	10.0%	7.1%
Dividend payout ratio	73.6%	87.4%2	53.2%	53.2%	54.4%	54.3%	52.2%	60.2%	60.4%	73.8%
Expense/income ratio	80.5%	78.7%	75.7%	72.4%	73.4%	73.2%	73.3%	82.1%	80.5%	86.5%
Net loan losses as % of loan assets
(excluding securitisation SPVs and
segregated futures funds)	0.2%	0.0%	0.3%	0.2%	0.2%	0.1%	0.3%	1.9%	0.8%	0.3%
Assets under management (\$ billion) 6	41.3	52.3	62.6	96.7	140.3	197.2	232.0	243.1	325.7	317.0
Staff numbers7	4,726	4,839	5,716	6,556	8,183	10,023	13,107	12,716	14,657	15,533

Macquarie Bank Limited (now Macquarie Group Limited) ordinary shares were quoted on the Australian Stock Exchange (now Australian Securities Exchange) on 29 July 1996.

The special dividend for 2003 was paid to release one-off franking credits to shareholders on entry into tax consolidation. Excluding the special dividend of \$0.50 per share, the payout ratio would have been 56.8 per cent.

³ At 30 September for the first half 2011.

⁴ Number of fully paid ordinary shares at 30 September, excluding exchangeable shares, options and partly paid shares.

Net tangible assets include intangibles (net of associated deferred tax assets and deferred tax liabilities) within assets and disposal groups held for sale.

The methodology used to calculate assets under management was revised in September 2005. Comparatives at 31 March 2005 have been restated in accordance with methodology.

Includes both permanent staff (full time, part time and fixed term) and contractors (including consultants and secondees).

Financial report

For the half-year ended 30 September 2010

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