Macquarie Group Limited (MQG) Earnings Call Transcript & Summary

Welcome to Macquarie Group's [indiscernible] here today. Before we begin, I would like to acknowledge the traditional custodians of this land and pay my respects to their elders past, present and emerging. I would ask everyone to turn their mobile phones to silent, which is a new thing for the last 2 years. As is customary, we'll hear today from our CEO, Shemara Wikramanayake; and our CFO, Alex Harvey, to go through the detailed results. And with that, I will hand over to Shemara. Thank you.

Thank you, Sam, and welcome, everyone, from me as well. And there's a lot to celebrate this morning beyond just the great Sydney weather because it's been more than 2 years since we've been able to have you all in the room with us. So it's great to have you here in person. And also fantastic to have the whole of our executive committee here in person sitting in the front row, particularly Ben Way from Asia, Michael Silverton from the Americas and to actually be together in person has been fantastic after a very long time. We also have a few of our executive committee and senior leadership colleagues, my direct reports for whom and colleagues for whom it will be their last results. So Michael Herring, thank you so much for everything as our General Counsel and welcome Evie who's taking over. And Peter Warne is with us and as I'll mention later, this will be Peter's last set of results. And it's also our CFO's birthday today. So hopefully, thank you, Alex, for spending your birthday with us. Hopefully, we'll have a few presents for you and everyone this morning. So kicking off as we usually do, just reflecting on the 4 operating businesses that make up our overall business. And across them, these deep franchises that we've built in these 4 areas that are structurally well positioned for the medium term. They give us very good diversification through cycles as well. So we've got the Australian Banking and Financial Services business, BFS, which Greg Ward has been leading for quite some time and he's sitting here in the front row. We've got the global asset manager and Ben has taken over its group head in the last year and a bit been and that obviously operates in private markets as well as public investments, built great global franchise there. The Global Commodities and Global Markets business, which Nick O'Kane heads here and asset leasing business, but also operates in financial markets and commodity markets around the world. And lastly, Macquarie Capital, where Michael Silverton has just stepped up this year as the sole group head. And that is a services business across advisory, equity capital markets, debt capital markets that we bring our balance sheet alongside the expertise of our people for credit and equity investing. And supporting those 4 groups, there are 4 very important support areas. So the risk management group where Andrew Cassidy has just stepped up to take over from Patrick Upfold as Group Head. The legal and governance group, where I mentioned that Evie [indiscernible] is taking over from Michael Herring. Financial Management Group, Birthday boy's group and the corporate operations group, just in case someone forgets [indiscernible] Nicole Sorbara here, the Head of Corporate Operations and has been leading that for some time. So turning to the results for the most recent financial year. You will probably all have seen, we delivered a result of $4.706 billion. That was up 56% on last year's just over $3 billion figure, which also was a record result, and the return on equity is 18.7% for the full year. In terms of the half-on-half, I won't dwell on this, but this was also a very strong half, the second half of this year, up 38% on the first half of this year and up 43% on the prior comparable period, second half of last year. And at the operating group level in terms of the operating contribution of the group's, $9.462 billion, up 55% and on the year before, which is reflected in the net bottom line figure. Now before I go through each of the groups, a few overall things to touch on, you can see the record results that operating income, the figure I just mentioned, up 36% -- sorry, the revenue equivalent operating income up 36%. Net profit up 56%, earnings per share up 51% and I'll come to the dividend at the end, but the dividend is up 32% on last year as well. Also, our assets under management are at record results at nearly $775 billion. The big drivers there, obviously, during this year, we had 3 acquisitions of -- in the public investments area and in a distribution area with Waddell & Reed, AMP Capital Public Investments business and the Central Park Group. But in addition to that, we also had net -- positive net flows into the public investments business, and we had investments made by the private markets lifting the assets under management. And then looking at the regional spread of our income and the diversification geographically, Australia contributed 25%. I've been saying for some time that the share contributed by Australia is likely to reduce this year, impacted quite a bit by the very strong figure out of the Americas, 48%. And that was due to a large amount of realizations in Macquarie Capital in the Americas and also in commodities and global markets. This is our largest contributing area, particularly the North American power and gas. Despite that on this next page, you can see if you look at Australia, even though it's a mature market, it continues to grow year-on-year-on-year. 2019, which is a black bar spiked up a little bit because we had a lot of realizations, Pixar Quadrant, et cetera. Some of you may recall, but underlying just continuing this steady organic growth. But because we're so big here and this is such a small market relative to particularly North America and EMEA, as we grow there, the percentage composition of our income is becoming much heavier weighted to those regions. So turning then to our operating groups and starting with Macquarie Asset Management. Macquarie Asset Management was up 4% to $2.15 billion, and that comprised 23% of our operating income. And some of the features of this year's strong results from both the private markets and the public investments. In private markets, record equity under management of just over $158 billion. We also raised $27 billion, which is quite a step up from what we've been raising over recent years, and we invested over $30 billion. The dry powder is down to $19.9 billion, so we are getting some of that invested. As well as great results in our infrastructure funds and very good raisings. We're continuing the adjacent growth in private markets into the key areas of real estate, private credit, agriculture and nature-based solutions and into transportation. And in addition to that, this year, as of the first of April, the Green Investment Group has now transferred into the Asset Management business, expanding the offering of real assets in the private market. In the public investments, we're again at record assets under management at $535 billion plus, that was driven mostly by the 3 acquisitions, but also positive net flows, as I mentioned. And we've got 71% of our assets under management in that division, outperforming benchmark on a 3-year basis. Then turning to Banking and Financial Services, as has been the trend for some time now, up in all of our lending portfolios and our funds on platform. So the home loan portfolio is up 31% to nearly $90 billion. Business Banking, up 21% at $11.5 billion, and the funds on platform also a big step up 17% at $118 billion, so it's starting to get close to $120 billion there, all supported by the strong deposit growth, $98 billion, up 21% and we continue to streamline down our -- growing our book. We're really focused on credit quality, and that's going to be an important feature, I think, as we potentially come into the cycle that we're heading to. That, as we grow, may step up a bit, but it's still well within peers. The Commodities and Global Markets business then is up 50% to $3.911 billion after a big result last year, and that's making up 41%, the timing of recognition of incoming transportation and storage contracts. And then the financial markets businesses inside CGM, making up about -- making up 26% of their income. And really good results there in the foreign exchange and interest rates and credit area, where we had increased client activity also in futures where we had improved commission and interest revenues and in the equity derivatives and trading area where we had improved results from equity finance. And then Macquarie Capital, $2.4 billion, up 269% on roughly $650 million last year and contributing 25% of our results. Now that business, as I said, focuses on an advisory services business in all of our 4 main regions: North America, Europe, Asia and Australia. We had record revenue across that business, which reflects a strong performance here in Australia, but also the growth of our specialist sectors in North America. And then in EMEA, we've been growing from the U.K. and Germany into France, Benelux, Spain, Italy, all going nicely, so record revenues there. In Australia, we remain the #1 M&A financial adviser. Now alongside that and also our equities franchise doing very well in Australasia and North America and Europe, where we still have presence. Alongside that, we bring the balance sheet to bear, as I said, and we've got $15 billion of investments there, $13 billion in credit, the balance in equity. And we've continued to deploy as you'll see in Alex's numbers, we said that we wanted to grow the credit part of that, and we're growing in a very disciplined way. And the team have done a great job investing and realizing. You'll see a number of realizations there across our specialist sectors, government services, technology, the Green Investment Group renewable area. So -- and I should say over 90% of the investments that we've realized this year, the 90% of the profits we've generated from realizing -- from investments the team have been making 2019 onwards in what are challenging markets to get well invested in. So it speaks well to the expertise of our team, and they're able to source, add value and realize. So then looking at some broader numbers beyond the group earnings. The funded balance sheet remains strong with our term liabilities comfortably exceeding our term assets. Indeed, over this period, Alex and the team were able to raise another $48.3 billion of term funding, another record. And we also did the equity raising late last year, as you will recall, at $2.8 billion. And Greg and team in terms of deposits as well at a record overall for Macquarie Group at $101.5 billion, up 21%. And with capital as well, very strong position. So at the half year, we had an $8.4 billion surplus over the APRA Basel III minimums at the end of the full year, that has grown to $10.7 billion. And the main contributors there, obviously, the earnings that we had in the second half, offset by the first half dividend. The capital issuance that we talked about and then offsetting that the absorption of capital into the business, $2.2 billion that you can see there in the half. But over the full year, there was a $5.4 billion absorption of capital. So the businesses are still finding good opportunity to invest. In Macquarie Asset Management then, we're mostly putting the balance sheet, the acquisitions were the year before in terms of use of balance sheet. This year, it was in co-investments and also underwriting to seed assets as we grow new strategies and funds in areas where our teams see opportunity and need to move quickly and see the positions for our investors to come in subsequently. In BFS, as I mentioned, the ongoing growth in our home loans, our business banking book, partially offset by the sale of the dealer finance portfolio. In CGM, the market movements in commodities there and the increased client hedging and trading activity in commodities and the hedging activity in [indiscernible] we were holding more capital for market and credit risk. And then in Macquarie Capital, we continue to deploy actively, particularly in private credit and in equity offset by those realizations that we just had. We also have strong regulatory ratios sitting well above the APRA Basel III minimums there, as you can see in relation to these four factors that we typically share with you. So funding and capital in a good position as we come into the new year in addition to the good earnings we've delivered. And with that, the Board has declared a second half dividend of $3.50, 40% franked, resulting in a full year dividend of $6.22, again, 40% franked. And the result represents -- or the payout represents a 50% payout ratio. And before I hand over to Alex, I just wanted to touch on some board changes we have coming. First of all, as we previously noted, we've been working with APRA to strengthen the voice of MBL within the group, following the remediation plan that we undertook together with APRA after the actions taken by APRA 1st of April last year. And we're making good progress on that. There's a strong focus on our regulatory reporting, our prudential risk management and together, we did also things like governance, remuneration and risk culture. And as part of that, we are bringing on 3 bank-only nonexecutive directors at the MBL level. And we're very pleased that we have managed to find the first of those who is [indiscernible]. I don't know if he's known to any of you, but he started his career at the Reserve Bank. He worked at Bankers Trust with some of our Board members as well and many of our colleagues for many years and then went to Zurich when Bankers Trust came to us, had a long period at Commonwealth Bank of Australia and then at Challenger. So he has a strong background in both financial markets but also highly regulated environment, and we think he will add a lot of value and basically be joining us shortly subject to completion of necessary approvals we're hoping by early June that will be done. Then at the Macquarie Group level, we're very pleased to have Michelle Hinchliffe, who's in the back row joining us. Welcome, Michelle. And Michael Coleman, who's done wonderful work on our Board for us for 10 years, including as the Chair of the Audit Committee and oversaw this last set of results as many others and is technically so well across everything needed in our account. So he's been huge value to us, but he will be retiring at the conclusion of the Annual General Meeting. And I mentioned he's Chaired the Board Audit Committee so well. And one of the great things he's done for us as well he has helped us in finding Michelle who has been at KPMG in audit for many, many years, including auditing several banks here in Australia and also in the U.K. and audited the Bank of England, indeed, so she'll be great value add to our Board. And then also, as I mentioned, Peter Warne stepping down, Glenn Stevens will step in from a Governor at the Reserve Bank. We're very fortunate to have Glenn step up for that role as of Peter stepping down. Peter's last day, very sadly for all of us is next Monday, and it's been 15 years, Peter, has it? With us, and Peter did extend for a year last year, which we very much appreciate. He -- we first courted him when we bought the Bankers Trust team across Peter didn't elect to come across [indiscernible] in 2007, came over on to our Board. And David Clark was Chair still at that time at MBL with the head company. So Peter has seen through many things, the global financial crisis, the European debt crisis, the recent COVID pandemic and has been really incredibly sharp understanding our business available to all of us, dedicated working around the clock and he's also seen through 3 CEOs from Allan Moss to Nicholas Moore, and now myself and sadly, I end up outlasting Peter, but I want to say a big thank you to Peter. And with that, I will hand over to Alex to go through the numbers in more detail.

Thanks, Shemara, and thanks very much for the best wishes for my birthday. And good morning, ladies and gentlemen. It's obviously great to see you back here in person. As is usually the case, I'll now go through more of the detail for the financial results for the year ended March 2022. So starting with the income statement. We talked at the operational briefing in early February about the strength that we were seeing coming through, particularly in the third quarter. Obviously, that extended out for the balance of the half, and we had a really -- a very strong half, obviously. So if you look at the operating income for the second half, it was up 22% from the first half of '22. Expenses up just under $650 million for the half. Tax rate was up a little bit for the second half, just reflecting the geographic composition of income. So the bottom line net profit result up at $2.66 billion, up 30% from the first half of '22 and about 30% up on the second half of '21 financial results as well. So if you put that second half together with the first half, and we'll talk at a little bit more detail on the income statement overall. You can see operating income just at $17.3 billion, up 36% on the operating income for FY '21. The key drivers there were 21% increase in net interest and trading income. That largely reflects the growth in the loan books that we saw coming through over the year, together with the trading environment that CGM particularly in particular, experienced. We see fee and commission income up about $1.7 billion for the year. There's a couple of drivers there. One is the base fees in Macquarie Asset Management, both in the private market side and the public investment side. We also saw a disposal fee, a disposition fee for MIC in the United States. That portfolio was largely wound up now. And we also saw an increase in M&A advisory and DCM activity through Macquarie Capital coming through in that fee and commission line. And then if you look at the investment income line up $1.3 billion. And one of the things we said, obviously, over the course of the year, the environment for realizations has been strong, and we saw that, that environment reflected in disposal proceeds coming through that investment and income line, particularly reflected in Macquarie Capital's result. And we also see that investment income line, the disposal proceeds profit from the disposal of the industrial and commercial meters in CGM, which are completed in April of 2021. So net operating income up 36% for the year. In terms of operating expenses, up 22% at $10.8 billion for the year. You can see the step-up in employment expenses. That largely reflects an increase in average headcount over the year, an increase in salary expense during the year. Also the acquisition of Waddell & Reed coming through that line. [indiscernible] employment expenses, of course, is the increase in profit share, consistent with the underlying performance of the group over the past 12 months. In relation to the other expenses, you see a step up in expenses largely associated with the acquisition of Waddell & Reed, both ongoing expenses, together with one-off acquisition expenses that we incurred during the year. The income tax. Effective income tax rate for the year was 25.2%, up from 23% last year, again, largely reflecting the geographic composition of income coming through the group over the past 12 months. So the bottom line at $4.7 billion, up 56% from where we were this time last year and delivering a return on equity of 18.7%. So I'll now turn to the operating groups and just give a little more detail around the drivers of the performance for the year. And starting with the Macquarie Asset Management business, up 4% for the year at $2.15 billion. Starting on the left-hand side of the chart, you can see the base fees up $185 million, about 9%, just over 9% for the year. That reflects an increasing contribution in the private markets business. We saw particularly good investing conditions in Europe and the U.S. and across Asia. So it was great to say that base fee coming through on the private market side. We also saw benefits coming through from market movements in the public investments part of that business. Performance fees for the year were down $258 million, just reflecting a lower period of realization of assets in the public markets part of MAM. Then in the middle of the slide there, you can see the other contribution from the one down of MIC, which is largely complete. There's one asset left in MIC that will be completed this year. So MIC this year contributed an additional $523 million. And you can see that coming through the income statement. In terms of our disposition fee and fees and commission, we also saw a share of joint venture profits from the profits from the disposal as underlying assets and a re-accretion of the impairment that we had taken on the group's interest in MIC in prior periods. So that gain was partly offset by the non-recurrence of the European [indiscernible] disposal last year. And on the right-hand side, you can see the contributions from the acquisitions coming through the public investment side, the ongoing acquisitions generating -- ongoing contribution of about $287 million step-up largely from Waddell & Reed and then an increase in acquisition, one-off costs of $316 million, largely reflecting with Waddell & Reed, but also including a component of the expenses associated with AMP Capital acquisition and with the acquisition of Central Park Group. The integration with Waddell & Reed continues to proceed well. It's an ongoing process. There will be more integration work to do over the course of the next month. So you'll see some additional costs continuing into next year. And the other thing the team is doing is actually integrating the underlying fund portfolio. So you'll see normalization of fee rates coming through into future periods. In terms of the underlying drivers, Shemara touched on this, obviously, assets under management, which is, I guess, a key driver of the business going forward, up to just over $773 million, a record amount of assets under management. Notably, on the private market side, you see an increase of $51 million -- just over $51 billion in private market acquisitions this year. That really reflects the significant period of investing, $31 billion of equity invested in new assets around the world through the private markets part of that business this year. On the public market side, you can see the benefit of the acquisitions, nearly $150 billion of assets under management coming through together with the net flows of just under $11 billion over the course of the year. Turning now to the Banking and Financial Services business, up $230 million on where we were last year. And you can see the drivers that the Personal Banking business up $206 million, and that reflects largely a 27% growth in average home loan portfolio balances across the year. You can see the business banking up 26%, and that reflects a 20% growth in outstanding business loans, a 21% growth in business deposits, partly offset by that reduction in car loans that Shemara talked about earlier. Really pleasingly, we saw a step-up in the wealth management contribution to the business this year. That reflects the growth in assets under administration on the platform. It also reflects the continuing growth of deposits in our CMA account coming through that line this year. Our Credit and other impairment charges were a release of $140 million or a step-up in the release of $140 million. Largely, that reflects the partial overlay release that we talked in relation -- talked about last year in relation to the Asset Finance business, partly offset by, I guess, improved macroeconomic environment in general, but a higher weighting to the combined downside case that we're now running through our expected credit loss models. Expenses up $190 million. And again, we talked about that this time last year and through the year. We see investment the team is making in terms of adding people to support the growth of the business, also the digitization of the platforms that the BFS are using together with an increased investment in regulation and compliance coming through that group. Underlying drivers of the business are all moving in the right direction. Car loans were a continuing trend from prior years, and that's really a deliberate strategy that Greg and the team have had to actually improve the profitability, improve the return on capital. We're seeing that coming out of that car loans portfolio. The other thing we saw this year, of course, is the disposal of the wholesale portfolio in November of last year. Turning now to the first of our market-facing businesses, the Commodities and Global Markets business, up 50% as Shemara talked about before. One of the things that I think stands out to me in terms of this result is just the diversity. And we've talked about this over recent results. It is a very diverse business, a growing customer franchise. Obviously, the trading environment for CGM was generally strong throughout the year. So you saw that coming through in terms of increased customer numbers and increased profitability. In terms of the breakdown, just on commodities, commodities were up 25% from this time last year. And you can see that step up in risk management income and trading income associated with that $572 million coming through or a step-up of $572 million coming through that risk management line. That really reflects particularly strong contributions across oil, across gas and power, agriculture and resources. And I think as everyone would be aware, obviously, it's been a very challenging and volatile market and the team has been able to service customers really effectively throughout the year. We saw a 10% step-up in inventory management and trading. And this largely reflects the dynamics we've seen over the last few years, the mismatches between supply and demand, largely in North America. You will notice, there is some variation between the first half and second half, and they're largely reflective of differences in the income timing recognition for storage and transport contracts over the year. Financial markets up 18%, $195 million, again, servicing clients being able to extend credit over the course of the last 12 months. You can see our investment income, up $479 million. Largely, that reflects the proceeds or the profit from the disposal of the industrial and commercial meters in April of '21. And again, we saw a release of credit provisions for similar reasons that I talked about earlier. So a really strong result from CGM. Some familiar slides. We've talked -- we've had these up for the last few results presentations, we thought it would be useful, I guess, including and updating them for this result. And you can see on the left-hand side, operating income -- the key thing to draw out of this chart really is that 70% to 80% of CGM's income is really client -- driven from underlying client businesses. On the right-hand side, you can see the continuing growth in customer numbers over the last few years, which is obviously driving the franchise value in CGM. And then on this slide, on the left-hand side, you can see the step-up in regulatory capital. That's largely credit capital, supporting the activities of CGM, supporting the increased customer base. Obviously, we have seen significant mark-to-market activity over the course of the year. A little bit of a step-up in market risk over the period, again, reflecting volatility of underlying markets. And then on the right-hand side, the daily P&L, the daily profit and loss it's an important chart, obviously, repeated from '18 all the way forward. What you can see here, obviously, is skewing slightly to the right-hand side of the Y-axis, and a reasonably narrow distribution of sort of 0 to $10 million on most days. And that's really reflected the fact that it's a customer-orientated business and risk is managed very tightly within market risk limits. And turning finally to Macquarie Capital, up at $2.4 billion, up from $651 million last year. Very strong year across the board. Investment-related income up nearly $900 million, reflecting the investment -- the period or the conditions for disposal of assets over the course of the year, particularly in Green Energy, particularly in business and government services and technology, those core areas where Macquarie Capital has been building expertise now for many years, obviously paying off in terms of disposals over the course of the year. Fee and commission, up $506 million, really a record result from M&A, a doubling of our contribution from DCM in the United States, really reflecting, I think, the quality of the franchise that Michael and the team are building in Macquarie Capital. And then we see a step-up in the contribution from net income on the principal debt portfolio. As Shemara mentioned this before. We've obviously been growing the principal debt business in Macquarie Capital, now for a number of years, ending balance of -- on balance sheet of just under $12 billion, contributing an additional $302 million over the course of the last 12 months. So $2.4 billion, out of which about $850 million it was contributed by the Green Investment Group, which from the 1st of April this year has moved into Macquarie Asset Management. Turning to the underlying drivers. Obviously, capital against -- alongside Macquarie Capital's clients is a really important aspect of the business. You can see a growth of 25% over the year. You can see really where that stepped up. The growth in the private debt business, that dark green, and a continuing investment in the green energy space also coming through over the course of the last 12 months. So now turning to some of the other aspects of the financial management of the group. Cost of compliance. This is a chart we've had for some time. You can see the compound growth rate in cost of compliance over the last few years about 14%. This year, we're up 22%. Obviously, an important aspect of how we run the organization, making sure that we're meeting all of our compliance and regulatory obligations all around the world. A lot of projects underway. And of course, those projects are also making their way into business as usual, compliance spend. And we'd expect to see this continuing into future periods. In terms of the balance sheet highlights, a really busy period for the team in Group Treasury. In addition, obviously, to the equity we raised in November last year, we've raised just over $48 billion worth of long-term funding. So we've been very active over the period of time and well supported by investors all throughout the world. The other thing the team has been able to do is extend the maturity of the long-term funding out to 5.1 years as at the balance date and continue to diversify the sources of funding. And so this year, we raised money from 10 different markets and about 700 investors are actually participating in debt issues for Macquarie. So it's great to see all that support and continuing to diversify the source of funding for the group. And that's obviously really important. The strong capital position, the funding position has enabled us to step up and support clients all around the world, particularly during periods of high volatility that we've seen in the last 6 or so months. In terms of customer growth, Greg and the team at BFS are doing a fabulous job, I think, of creating products that are attractive to the customers of BFS. So we saw a step-up of $16.5 billion over the course of the last 12 months and a continuation of that trend we've seen in recent times. The loan and lease portfolio up 29%. You can see the key drivers there. BFS was up about $22 billion in terms of their overall loan portfolio. You can see CGM in the middle of the page, they're up from 11.9% to 15.4%. That largely reflects the increase in credit that we provided to the fund finance clients through [indiscernible] business. And then Macquarie Capital down the bottom there, the Principal Finance business growing from $6 billion to just under $12 billion, generating that net interest income that I talked about earlier. The equity investment is up $600 million, largely reflecting the increased support alongside Macquarie Asset Management fund growth aspirations. One of the things we talked about, obviously at the time of the capital raising is we were seeing opportunities to put capital alongside new fund strategies and help to expand the fund footprint of Macquarie Asset Management. Second thing we've seen is an increase in the Green Investment at green energy investing, again, continuing to really develop those platforms that we've talked about previously. From a regulatory perspective, there's a lot going on. There remains a lot going on in the Australian market. So we've set out some of the key aspects here. I thought I'd just highlight 2 things on this page. Firstly, during the year, we saw the APRA completed its review of the new capital standards. Those capital standards will come in from the first of January 2023. So we're in the process of implementing those standards. As we said at the time, from a Macquarie viewpoint that will reduce our capital surplus by about $2.2 billion. The other thing we've said for some time is obviously, we've been holding capital back to support those new capital standards when they're introduced. And the other thing I'd note is just that the point around the remuneration framework, obviously, during the course of the year, the Macquarie's Board has had the opportunity to review our remuneration framework, having taken into consideration, I guess, the competitive dynamics for talent all around the world. Together with stakeholders and expectations changing of stakeholders and, of course, the upcoming introduction of CPS [indiscernible] I thought I'd draw that out the details of those changes, which will come into effect from progressively from FY '22 as set out in the remuneration report in the annual report. In terms of the regulatory ratio is very strong CET1 ratio for the bank of 11.5% at 31 March. A strong liquidity position in terms of nearly $65 billion of unencumbered liquid assets and a very strong LCR position, as you've seen from us in prior reporting periods. And finally, for me, from a capital management viewpoint, it's obviously been a busy year. I'd point 2 things out. Firstly, the Board has resolved this year to acquire shares to [indiscernible]. The Board has also, in addition to declaring the final dividend has also retained the dividend reinvestment plan and has decided to purchase -- to issue shares for that DRP at a 1.5% discount to the prevailing market price. So with that, I'll hand back to Shemara. Thank you.

Great. Thanks, Alex. And I'll just take you through the outlook. Before I do, I should just note as well that we have as well as our operating and support group head, Stuart Green in the front row here for questions afterwards as well. Stuart took over from Mary Reemst, CEO of Macquarie Bank Limited in the middle of last calendar year and is working actively on the remediation program I referred to with [indiscernible] strengthening the voice of the bank and certainly strengthening the office of the CEO and the resource, you have to discharge your roles to it. So now turning to the outlook. As usual, we will cover this by each of our operating groups and first of all, Macquarie Asset Management. And in Macquarie Asset Management, our base fees are expected to be up, driven by principally the acquisitions that we've made in the public investments business, but also the deployment that we referred to in the private markets. Having said that, the net other operating income is expected to be down on last year because we won't have a repeat of the large gain on the Macquarie Infrastructure Company. And in addition to that, we mentioned the Green Investment Group as of the 1st of April this year, we'll be moving to sit alongside Macquarie Asset Management. In Alex's numbers, you will have seen the Green Investment Group delivered about $850 million in this FY '22 financial year, and we're expecting that to be significantly down, given the strong realization period we had in the Green Investment Group. Banking and Financial Services, you've seen the ongoing momentum in our loan portfolio across home loans and business banking, the funds on the platform volume growing, the deposit is growing. We expect that to continue, as Greg and the team continue this customer-focused digital banking offering that they are delivering now and have been for a long time. Having said that, we expect that market dynamics will continue to drive margin pressure. And I think others of our peers have noted that as well. And in addition to that, we expect ongoing increase in expenses to support volume growth. And part of that is in response to regulatory requirements but also technology investment where we continue to have to upgrade our offering in terms of the services we're delivering to our customers. Now we'll have an ongoing monitoring of provisions. You saw this year, we released $137 million of provisions. So the $771 million we reported in FY '21, if you had the $137 million to it, we're at $908 million in BFS stepping up to the $1 billion number that we had this year. We will have to keep monitoring those provisions, obviously, as time progresses. Macquarie Capital, subject to market conditions, we're expecting transaction activity to be down on the record FY '22, I mentioned in terms of fee revenue. But we have a solid pipeline of investment realizations going into FY '23. And we also expect to continue to deploy our balance sheet both in debt and equity investments. Green Investment Group, as I mentioned, is now moved to Macquarie Asset Management. And then in Commodities and Global Markets, our commodities income is expected to be significantly down following the very strong result in FY '22, albeit volatility may create opportunities. We have a very uncertain year ahead of us. And we expect a consistent contribution from client and trading activity across the whole financial markets platform and a continued contribution from the asset finance across all sectors, excluding that one-off gain of about $450 million that Alex referred to from the realization of the U.K. commercial industrial meters. At the overall central corporate level, we expect compensation expense to be within our historical levels, and we also expect our tax rate to be within the range of recent historical outcomes. Now as ever, there are many factors which could impact our short-term outlook, and these include market conditions, including significant volatility, events, global inflation and interest rates and also the impact of geopolitical events. And then also, as usual, potential tax or regulatory changes and tax uncertainties, completion of period-end reviews and completion rate of transactions and the geographic composition of our income and the impact of foreign exchange with that. But we continue to maintain a cautious stance with a conservative approach to capital funding and liquidity that we think will position us to respond well to the environment we may have. Over the medium term, as we always say, we think we are well positioned with a diverse group of businesses in which we have very deep expertise and complementarity. And those are supported, obviously, by our ongoing program to identify cost savings, however, acknowledging the ongoing technology spend across the whole group. And our strong and conservative balance sheet and our proven risk management framework and culture. And that has served us well, clearly over the medium term as well as this year. And you can see our return on equity there for the annuity-style businesses at 21% this financial year following an average of 22% over the previous 16 years. And the market-facing business was a very strong 30% this financial year, but on average over the last 16 years of 16%, giving us for this financial year, as I mentioned, the net return on equity after taking into account $10.7 billion of surplus capital, an 18.7% return on equity. So with that, I'll hand back to Sam to take your questions.

Great. All right. Thanks, Shemara. So we'll start with questions in the room. We have got people on the line. So we'll go to the lines after that, and then we'll come back to the room. [indiscernible], just in the front.

Just wanted to ask around capital deployment because it looks like this result, a very deliberate strategy to use the bumper result to increase your capital levels, you also maintain [indiscernible]. So that seems indicated very confident in terms of your ability to deploy the capital. Can you talk a little bit about what gives you that confidence and what are some of the areas you would be looking at?

Yes. The thing that gives us the confidence is the same thing that helped us deploy $5.4 billion over this last year, which is really the specialist expertise, the deep expertise of our teams on the ground in their sub areas where they're working across very deep pools and wide markets. And they're able to go and identify through their relationships and their sector knowledge for the investment opportunities. So in Macquarie Capital, we did obviously have in the Green Investment Group area, we've been early into solar, into wind. Now we're investing into areas like charging, batteries, hydrogen, but it's driven by several hundred people on the ground in each subregional market, the same, Michael, sitting in front row but across areas like technology, government services, EduTech. It's a wide range of sectors in which we have people with expertise. And equally, other businesses are able to use capital to Macquarie Asset Management. We bought the National Grid assets then where we can move quickly and help seed funds or acquire public investment funds where we're getting scale where the team are looking in a very disciplined way at opportunities to grow the scale of that public investments. We've just absorbed a few acquisitions, so we may pace ourselves there. But certainly, in the Asset Management business, we're continually deploying capital to support growth. In commodities and global markets. As you've seen, the team are responding there. It's mostly market and credit risk capital where we're using our capital, but it's to respond quickly to customer needs where they feel very deep expertise, North American Gas and Power being probably the best example. And then in BFS, as you've seen, Greg and the team have just consistently been growing the book there, a very high-quality book in a very disciplined way, but it's been growing and growing for many years now and so the capital invested keeps stepping up. Anything to add?

It's a good summary.

On the Macquarie Capital side, just mentioning the principal finance book as well. [indiscernible], obviously, that's growing from $6 billion to $11.9 billion over the year. And the team, I think, is confident they've got a good opportunity to deploy at good margins.

Jon Mott.

Jon Mott from Barrenjoey. A question on the oil and gas business. Historically, it's been very weighted to North America, but you look like you've had an extremely good result in Europe this year. Given the ongoing issues with energy supply that you have in Europe, do you think you can replicate the transport and storage business that you have in North America to generate the inventory management gains that you're getting in North America? Can they be replicated in Europe? Or is it just too challenging given the geopolitical environment?

Yes. Look, the first thing I'd say is it's taken us 2 decades to build to where we are in North America, and it's taken us many years to build to where we are today in Europe and Asia was also a great contributor in Gas and Power and is starting to come through as well now. So it's patient adjacent growth. It's slightly different market in terms of the nuances on transportation, et cetera. Nick, would you like to [indiscernible] comment on that?

Sure. Thanks for the question. Yes, it's a good point that you make, Shemara, in terms of the differences to the way the market is structured in Europe versus the way the market is structured in North America. And also the maturity of the business is at different stages of development. And our customer franchise across the EMEA gas and power platform is a real strength of the business where we're helping our customers manage the underlying volatility in the markets that they're facing. And that's really the service that we're providing there. In terms of the opportunities in the movement of the underlying molecules, that's perhaps a little bit less prevalent across Europe as it is in North America, and that really has nothing to do with the current situation. That's actually been the case for quite some time. And so that's why we deliberately built our businesses in terms of looking at our customers' financial risk management, challenges as opposed to the physical challenges in that market.

Okay. Follow-up question. Does that actually mean over time, the opportunities in Europe just can't be the same as they are in the United States and North America just because of the structure of the market? So you've had a great period in Europe, volatility has been good. North America is going to be the key market for you for indefinite future, given the other -- given the structure of the market?

I think I'd probably answer the question slightly differently and that the opportunities are different rather than being just a North American focused opportunity for Macquarie. And as I said, we are in different stages of development of the business. And we still think there's tremendous amounts of growth over the medium term for us in Europe. And we've developed, particularly we've shown over the course of the last couple of years, we've been able to consistently grow the underlying client base, and I'd expect we'll be able to continue to do that.

Right, Andrew Triggs just over on the left-hand side.

Andrew Triggs from JPMorgan. Just a question on GIG. It's nice to see that earnings disclosure for the first time. I just mentioned a couple of things there. So of the, I think, the $4.9 billion of [indiscernible] capital in that division, how much of that relates to GIG? And just interested also what you're thinking about long-term return prospects of that business? How those would compare to the [indiscernible] business? And just any progress on your efforts to bring in third-party capital to that business, too?

Yes. So look, first of all, in terms of GIG, the footprint it has is big. There's quite a lot of balance sheet in there. Alex, I was trying to find the page that you had if we put it up on the screen, Andrew, if you give us a minute that shows the -- where the capital is invested across the group and how that's moved. It was Page 34. You can see there, there's a pale green-colored set of bars that shows we made slightly more investments than we realized in terms of balance sheet commitment in the GIG business. So we have still a meaningful multibillion position of investment, and we continue to invest. The returns on it vary a lot depending on there may be some small early-stage things on which we can get very high IRR, but low absolute numbers. And now we're investing in more mature offshore wind projects where the checks are a lot larger, but the returns may not be as big. But the returns have generally been very good because we're catalyzing a new space here, the 50 gigawatts that we have been responsible for bringing into development and operation are about, today, 5% of world renewable energy generation capacity. We don't expect that to persist, we expect to grow our book, but we expect the market to get bigger. But the big thing we do is going early, manage these things, derisk them, then bringing on the capital. I think, and I'll let Ben comment as well in terms of in the asset management world. But the reason we've moved it across now is that 2 things have happened: One, a lot of these investments have become de-risked more and possibly as a result, the appetite of our fiduciary investors to invest in this space has stepped up a lot more as well. And so that's why we thought it made sense that the demand has gone beyond our balance sheet. We may be happy to co-invest balance sheet along these investments, but it was a sensible time to have multiples of that money from a -- we would grow the business from Macquarie, but also for our investors, bring them something that they're very keen to access. Ben, just here in the front row and not often with us in the room, so I might let him add to that if that's fine.

Thanks for your question. I think in answer to the question about how are we making progress in bringing in fiduciary capital, the answer is yes. Remembering that it's only been part of the fiduciary business since the 1st of April. But we do have an energy transition fund in the market. We have seed assets for that. Asset, and we're very -- for that fund, and we're very confident in terms of that fund raise, which is a good example in terms of, I think, of the appetite of investors. So putting those teams together have been -- we've got really complementary strengths. We think that will allow us to find more opportunities for our existing businesses that have pools of capital, particularly as it relates to renewal energy, which is also allowing us to move into a new space and launch new funds. And that initiative already has good momentum. So I think the answer is our clients see the opportunity. They see the skill sets of both the MAM and the GIG teams, and they're excited about matching that capital with that opportunity.

And I don't want to over-create expectation, but the teams have been working together for 6 months now. And we have the [indiscernible] in Macquarie Asset Management, the Global Renewable Energy funds for the more traditional energy. Since the teams came together, the ability to get the dry powder, if we call it that in those ones invested as we've already seen accelerate materially just in that 6 months with the 2 teams working together. So we'll have to see over the coming period, but certainly, we're seeing peers raise large, mature and also transition climate change response funds.

And the embedded gains, I guess, on the existing development pipeline, you think -- how do we think about the timing of realization of those? They likely be quite front-end loaded in 2023?

They'll run off over a few years, those -- they're at various stages, the projects. So certainly, will run off few years. And Ben and the team in the Green Investment Group will make decisions as to whether some of the earlier stage assets are transferred to the funds or stay on the balance sheet. That will be made taking into account the interest of the fiduciary investors in the funds as well as what's best for realizing the assets.

We don't have any other questions in the room, we might go to the line.

Thank you. Your first question comes from Ed Henning with CLSA.

Firstly, just on the CGM business and looking at commodities obviously have been very strong. I know we're early in the year at the moment, but is volatility holding up at the moment? Or have you already seen it come off significantly? I'm just trying to get a feel of where you are and what you're seeing at the moment or in the year-to-date to start with?

Yes. And I can let Nick comment further. But yes, we're only 1 month into 12-month period and it varies by each commodity sector. Clearly, in energy, we've had a lot of volatility through first -- first of all, we had the recovery out of COVID where the demand for goods surged, and we also had some challenges on the supply side, and those things together really exacerbated the volatility in the commodity price. We've then had the Russia-Ukraine issues happen in that very tragic incident that we're dealing with there. And that also, particularly in things like European gas exacerbated the volatility. That's come off a little bit. The European gas volatility that we had right at the beginning of this financial year, but commodities generally, we're facing a challenging period. There are also supply chain bottlenecks playing into all of that. So it's hard to call at this stage, I think. And I'll let Nick comment, but broadly, I'll say the way we set up our business is we're really building our franchises for whatever environment we face. And for us, it's trying to really build out those customer relationships, the deep analytics and knowledge of the submarkets, patiently adjacently into new areas, and then we respond for whatever we see. But Nick, any comments on volatility for this?

Yes, just sort of perhaps reiterate your comment on the diversity of the business and the diversity of the business lines and -- we've structured it not to be reliant on any one business line, and we're really focused on building that out over time, particularly focused on where our customers need to help whether that be in deployment of capital, risk management or physical logistics solutions. In terms of what we've seen over the course of the last month or so, actually, volatility has subdued a little bit, albeit still at relatively elevated levels from what we would have expected, say, a couple of years ago. With the possible exception of Henry Hub in North America where we're seeing some strong prices as of the last couple of days. But overall, I think it has subdued a little bit from very elevated levels of last year.

And just further on that, while you talked about supply chain issues there, and that will help the logistics or the physical side, does that do anything on the financial side? Can that potentially slow it? Or not really because you're dealing with producers and utilities as your main clients?

Yes. I don't think that's going to be a particular impact on that part of our business, and there's still movements of commodities that are happening regularly. And that part, we haven't actually seen it'd be impacted by other parts of the supply chain, which I think Shemara might have been referring to earlier. So from the financing side of the business, it shouldn't be impacted materially.

Okay. That's helpful. And then just a second question on CGM. You touched on the gas storage and transport contracts and the mismatch of all the difference of the income recognition of timing, if prices were to hold today, and I know that's a big if, is that a headwind or a tailwind into '23, just for the contracts you got on the book at the moment?

Yes, do you want me to take that, Nick?

Yes.

Thanks, Ed. Yes. I mean, obviously, as we've talked about before, you get variation from 1 period to the next. So we saw quite a big drawdown from that timing of income recognition in the first half. You saw -- if you recall, we had about $376 million effectively a hold back of income from that. Some of that was released into the second half just because the spreads narrowed, I guess, as the year proceeded from September all the way through to March. Generally speaking, that [indiscernible] variation between accounting and economic, we unwind over sort of 2 to 3 years, something like that. But obviously, the question, implicit in the question, I know you framed it this way is stable prices. And we don't often see stable prices for 2 to 3 years. So absent anything else, you'd probably see the unwind over a couple of years. But plainly, it's a function of a daily price change that actually determines the profile of that timing of income recognition on those contracts.

Your next question comes from Brian Johnson with Jefferies.

Thank you for the opportunity to ask a question, but I'd also just like to express my gratitude to Peter, who I think has done a phenomenal job. Just when we actually have a look at the funding chart, we can see that the proportion of short-term funding has gone up a little, not dramatically so, but it certainly is up, but I can also see the balance sheet -- the balance sheet liquidity is up a lot. I also see that you're actually issuing shares in respect of the DRP. Are we seeing you positioning for another acquisition?

In terms of -- maybe I'll take that one, Shemara. In terms of the balance sheet, yes, we did obviously see a step-up in short-term funding and in liquid assets this year. And there's a few reasons for that, Brian. I mean, obviously, some of the activity -- the trading activity requires short-term funding. So we're supporting that with issuance into the market. So that's the first thing. The second thing is that one of the things we've seen, obviously, in the last recent while is the -- I guess, getting prepared for the withdrawal of the committed liquidity facility. So ahead of the withdrawal of the CLF, we're obviously issuing funding to support that and make sure the liquidity ratios stay high going forward too. They are the primary reasons you obviously -- I guess the other thing is that we have created, I guess, externalized the liquidity for the nonbank as part of the work we're doing to, I guess, continue the distinction between the bank and the nonbank from a funding viewpoint. So that's driving some of it. And the other thing we did, obviously, is set up MBE. So a few of those things are driving the need for additional short-term liquidity. From a capital viewpoint, I think it's the second part of your question, I think as we've said before, the approach to capital hasn't changed. We obviously always maintain a cautious approach to capital and to funding and to liquidity. And the reason for that is that what we want to be able to do is obviously support the businesses in terms of their -- the capital needs to continue their client franchise and their activities. And over the course of the last 12 months, we obviously saw big $5.4 billion investment in capital over the last 12 months. So we want to make sure the businesses are positioned to be able to support clients around the world. Equally, obviously, we always maintain a cautious approach, but we're certainly not loading capital up for a major acquisition. It's part of the day-to-day management of capital and funding and liquidity that we've always done. So nothing new there.

And I just -- go ahead...

No, no, no, sorry, sorry.

All I was going to say just to reinforce what Alex said is we tend not to drive acquisitions from the center of a big top-down, take the business somewhere. It's really driven by the leaders of our businesses all over the world, seeing opportunity and patiently adjacently using the balance sheet behind their expertise. So Nick spent a couple of decades in the U.S. buying things like [indiscernible]. That's all driven by the team coming and saying, we see opportunity to grow our franchise, not a top-down [indiscernible].

Just a second one, if I might, Alex, again. Alex, when we have a look at the kind of mystery of how the [indiscernible] works, if we have a look at the slide in the nonbank, you disclosed the capital requirement. You disclosed the pretend risk weighting and the capital requirement just happens to always be 8%. So it kind of looks like that's based on the equivalent of an 8% capital -- 8% core equity -- sorry, 8% shareholder funds or Tier 1 ratio, not even the core in the nonbank. Does that potentially change under the amended [indiscernible]? Or does it not get impacted?

No. No. I mean, obviously, the non-bank capital framework is the equity -- the economic capital adequacy model, which we've had in place for some time and obviously agreed many years ago with APRA. So the change is to, I guess, the new capital regime are bank-related changes. So nothing in that particular regime changes the capital footprint of the non-bank.

Okay. And then the final one, if I may, just a question for Nick. Nick, if we go back and we kind of think about the history of weather impacting Macquarie. So 2014, gigantic polar vortex, big profit surprise. March 2021, another polar vortex, big profit surprise. June 2021, the heat dome basically of the Northwest of the U.S., profit surprise. As we're sitting here today, [indiscernible] Sydney, there's a drought in basically the U.S. It's stinking hot in India. I mean all of this kind of weather-related commodity volatility is probably not helping things. I'm just intrigued, are you sensing that, that fundamental increase in volatility drives increased customer hedging? Or does it just mean we get basically trading opportunities on the wall? It's one or the other, isn't it?

Well, thanks for the question. Look, in terms of how I look at the business and what drives the results of the business, it's looking at underlying customer activity. That's what primarily drives the business. That's how we've structured it. And that's how we've built it. But we've also built the business so that there are embedded options within some of the contracts that we've entered into that gives us the opportunity to take advantage of volatility when it presents itself. And we don't know when and where that will be. But what we do know is that if we're able to service customers and be able to provide solutions to their problems, and that may be driven by a weather event or may be driven by volatility that's being driven by something else, then we'll be -- we'll see a lot of activity. So we don't spend a lot of time thinking about the weather, to be honest, Brian, at all in terms of forecasting. Certainly, on a day-to-day basis, we do, but in terms of thinking about the future, it's just not really a consideration for us.

And Nick, are clients asking for more hedging you think because of this? Or it's just not impacting the forward thinking?

I don't think it's impacting the forward thinking.

[Operator Instructions] Your next question comes from Brendan Sproules with Citi.

I just have a couple of questions on Macquarie Capital. Just looking to asset realization income in the last 6 months, it's actually been more than what you've seen over the past 18 months. So I just want to get a feel about how much the Green Investment corporation, investment group contributed to the growth of the extraordinary half that you've had? And you talked about in your short-term guidance about a solid pipeline of realizations for the coming financial year. How does that relate to what you've seen in the last 6 months? Or should I be looking at the last 18 months as sort of a guide for that?

Yes. I'll make some brief comments and then hand over to Michael Silverton, but you saw Macquarie Capital delivered $2.5 billion basically, and the Green Investment Group was $800 million of that. And in terms of step-up from the previous year, the whole group stepped up from about $650 to where it is in the Green Investment Group as a portion of that step-up. But a large part of it came from the rest of Macquarie Capital. And that legacy business is business that Michael has set across. So I'll let him comment, but the advisory revenue stepped up a lot and then we had principal gains from a whole range of assets across a number of sectors. The other comment I'd make is the timing of the realization of those assets is really driven by the best time to get the best return for the asset. So some may be held for 2 years, some for 8 years. And the same applies to the book we have. The last point I'd make is we're also moving much more to holding now a private credit book, which gives more annuity-style return to Macquarie Capital's principal investing, but Mike, [indiscernible].

Sure. Thanks for the question. Firstly, we're still seeing opportunity in the market. We have different strategies on the equity side. We have private equity control. We have minority equity. We have real estate and we have venture and growth equity around technology. What you saw in the last half was activity around business services and technology. And as Shemara said earlier, there were investments that we've made over the past few years. In terms of the realizations going forward, we have identified several investments that we're working with our coinvestors on and we will decide the appropriate time to exit those together. And we continue to find opportunities during the past 6 months that excite us. And we're seeing add-on opportunities to those businesses as well. And so it's really driven by strategy, but also the sectors that we're investing in. So within technology, we've got software and services. We've got a lot of regulatory technology and education has been a big area for us as well.

And the only last comment I'd make on that is just like in Nick's business, where we're patiently building up expertise, et cetera. We're also looking for diversification across those. So as Michael said, we start at Venturetec. We've got gross equity. We've got more mature equity, so we have infrastructure and energy investments at the end, then we have private credit as well. So it's a whole diversification.

Maybe one thing to add from me, Brendan. Just a couple of points. Obviously, just the last 6 months, as we said at the operational briefing, we did see a strong period for asset realizations. In fact, we sort of used exceptional. So plan that we saw some good realizations over the last 6 months. The important thing for me, I think, when you think about the sort of medium-term prospects for the business is that capital that we have invested alongside the Macquarie Capital clients. And obviously, you get some periodicity from one period to the next and market conditions and what our partners want to achieve in an asset where the business is up to or that affects the decision as to whether you divest or not. But the key, I think, is that consistency of capital over a long period of time because, obviously, if you see capital being divested for the sake of the example, and you're not growing it, assuming you're growing well, you'll start to see that in a couple of years' time because the average age of the duration of the book is probably 2 or 3 years. So you see them, you see it come out over time if you're not investing. So important thing for me in terms of the medium term for the businesses and the team is leveraging its expertise, getting positioned in sectors where we have a long track record of successful investing, but continuing to see opportunities over the course of time because that will play into the medium term, one 6-month period to the next will obviously vary, but the important thing is that underlying franchise that's been supportive with the capital.

And if I could just have a follow-up question on that. I mean obviously, naturally, you have to have all this guidance subject to market conditions, but central banks around the world are all rushing to push up rates very quickly. To what extent does that fed into the current year guidance of potentially lower asset prices or lower transaction volumes? Or is that something that is more of a concern into the medium term?

I was basically going to say economic conditions, macroeconomic conditions are often hard to call. I think at the moment, they're particularly hard to call because we're seeing a resurgence in global growth. We're seeing inflation pick up. There was a view of this transitory. Some of it is now proving to be persistent. Central banks are responding. We don't know whether we could have a situation where they really tightened very strongly, and we have a slowdown in global economies or where they pull back and we have a inflation. What we try to do is set up our businesses for a whole range of outcomes. And hence, we sit with $10.7 billion of surplus capital, we sit with our term funding exceeding our term assets and we sit with a very diverse spectrum of businesses. So if inflation surges, some businesses will actually benefit. And I think we did detailed work on the real assets -- asset management business showing how it typically does well in that sort of environment, assuming it's not real rates rising and other benefits could suffer and other benefits are not -- other businesses are not as impacted. For example, Nick's business is driven by activity levels, so as Michael Silverton's in terms of the fee revenue. So we don't really run the whole business on an inflation scenario. It is all I'd say is preliminary comments, we basically position ourselves to be able to respond to a range of scenarios, and then I'll hand it over to Alex.

Yes. I mean I agree with all that. I guess I'd make just a couple of points. I mean, obviously, the market conditions are changing quite rapidly. So we're making observations today around how we see things over the course of the next 12 months. And as Shemara just said, they're obviously changing rapidly. I think what is interesting from a Macquarie Capital viewpoint, is just the increasing diversity of the business. So I think if you look over the last 12 months, we saw record M&A volumes here in Australia, also in the U.S. and in Europe. So I think that reflects the business that Michael and team have been building and really the focus on those key areas, which are trying to be general market participants, probably with the exception of here, but actually focusing on when we've got deep expertise and bankers with real expertise in sectors and finding opportunities. So I think that diversity point from advisory perspective, I think, is really important. The other piece probably is that there are, as Shemara said, there's a couple of limbs, not only advisory piece, but you've obviously got the principal investing piece. And again, that tends to be focused on business services, government services, technology, where there's underlying sort of drivers for success in those areas. And obviously, bankers that we feel like have the capacity to go and find those opportunities. And again, that's quite diverse. If you look at the realizations over the last 12 months, they were actually throughout the world, which I think is also an encouraging feature. And then the other point that I'd say just in terms of the outlook is Shemara's point that we've been building the principal finance book, which gives you that more annuity-style income coming from Macquarie Capital. So I think that diversity story is a good one. Having said that, obviously, market conditions are changing quite rapidly. And so I think appropriately, we're calling out that as a feature of the conditions going forward.

Your next question comes from Andrew Lyons with Goldman Sachs.

Alex, just a question on Slide 35 of -- which is on your cost of compliance, which were up 22% in FY '22. Domestic bank peers are talking to these costs likely close to reaching a peak. And while I clearly recognize the different levels of complexity in your business. I'd be keen to hear how you see these costs playing out over the next few years?

Yes. The -- thanks, Andrew, for the question. Look, I mean, obviously, we're putting a long-term trend there. You can see over the course of the last 7 or 8 years, we've had compound annual growth of 14%. And as I said in my remarks, my guess is you'll still see a step up in that over the course of the next few years. And there's a few reasons for that. One is things like the work that Shemara referred to in terms of making sure that the foundations around reg reporting and compliance and so forth are in good shape. The other thing that, obviously, we have that is perhaps less relevant to some others. It's just the global footprint as well that I think is meaning that there's a need to continue to invest. So my guess, Andrew, is history is not always a good guide to the future, but over the course of the last 7 or 8 years, you've seen a step-up in compliance and my guess is into the near term that will continue.

Your next question is a follow-up from Brian Johnson with Jefferies.

Alex, you might want to pull up Slide 32. And by the way, fantastic disclosure. But when we have a look at that, I get the fact that the trading profit -- the daily trading profits seem to be clustered around this $10 million. But as I read that chart, that looks to me as though you had something like 10 days where you made $65 million, which kind of equates to a figure of around $650 million over those 10 days. If I then have a look at Slide 55, I mean that looks to me to be those 10 days look to be absolutely phenomenal relative to the income overall, if we strip out the risk management revenues we see in the business. I suppose is my logic correct that those 10 days were that big? And what are -- how do you manage the risk that we don't see 10 days where it's just as negative? Because when we think about it, just be interested to see what is the downside on those numbers? Is it just that it goes to zero? Or can we see just as many days negative if everything reverses?

Yes. Well, maybe just...

[indiscernible] I apologize for the question, but...

You don't need to apologize. That's what you're there to do, Brian. Just in terms of the charts, I mean, obviously, is the distribution of P&L over days and there are obviously some larger days in the -- over the course of the year. I mean, I guess, just to the point you're making about the downside. If you look at the other end, it's obviously pretty flat. So I mean I think that the whole point here is that the business is very much skewed to client revenue, Brian. So as we've said before, if you look at the operating income of the group on the slide before this one, you can see that on every -- in any given year, somewhere between 70% and 80% of the operating revenue of CGM is driven from underlying client business. Now within that underlying client business, obviously, we're providing product to clients. So we're managing risk on our own balance sheet to support the capabilities that we're offering to clients. But that risk is managed in a very granular way and in very tight market risk limits. So that's sort of the first part of the answer. The second part is the point that Nick mentioned more broadly across the group. I mean the way we've tried to Nick and the team have tried to position that business is really, I guess, client orientation, firstly, and then managing that risk within tight market risk limits. But then a series of relatively low-cost options that have the potential to pay off in periods of time where there's -- where there's significant volatility. So I think those 2 things are worthwhile mentioning. And then the other thing that we've said before that I think sort of is a good answer or at least part of the answer to your question is that a lot of the principal risk, if you like, is basis type risk. It's changing prices between different locations or is changing prices between different times for the sake of the example. It's not directionally having a view as to whether gas or oil or something else is going to go up or down. So I think the combination of those 3 things are what gives you that skewing to the right of the Y-axis and obviously, subject to us doing all that well, you don't have those [indiscernible]. But nonetheless, it is a -- it's a market-facing business. And so we're very focused and Nick may want to comment, I'm not sure, but very focused obviously on how you make sure you're managing risk really effectively in that business.

Yes, I was just going to -- I mean highlight a couple of other things that reinforce what you're saying, Brian, if you have a look at Page 31 on the left side, Alex has got a graph there that shows you how much the inventory management and trading revenue is as a proportion of the revenue in that business because we also have OpEx there, of course, but it's generally a small proportion and even in a big year like this. It's a very small proportion to your point, and it isn't a huge proportion of the revenue. The $3.911 million is after expenses, pre-expenses. It's obviously much higher than that. And the second thing I'd say is to your chart on Page 32, you can see the positive skew there year-on-year-on-year. We typically go back 5 years. And so if you have a look at the year before we included FY '17 or the year before FY '16, but that positive skew is always there basically driven by the deep knowledge people have with the markets in which they're operating. And as Alex said, this is not just making a call on a proprietary trading position. Its basis risk, et cetera, where people have insights. And there are negative days as well, as you can see, but the main thing is it's skewed to the positive, the curve, and it's basically concentrated also in a small area typically.

And is there a particular condition, if we kind of think about those $65 million days, what should we be looking for that generates those? [indiscernible] a hell of a lot of time. What are the conditions that generate the $65 million days, if you can name the commodities or what, what should we be looking for those super days?

[indiscernible] by my answer. I mean the whole point here, and this is a really important point, Brian, it is a very diverse business. So we obviously get a lot of questions on the energy business. But there's a huge range of activity that sits within CGM. I mean, obviously, within the commodities complex alone, there's resources more generally, there's metals, there's agriculture. There's obviously oil and gas. So it's a very broad business, and there's different geographies around the world. So it's diverse from a product viewpoint, and it's diverse from a geographic perspective. And then on top of that, obviously, you get the FICC business, which is operating in credit markets, operating in interest rate markets and FX markets. And so I can't point to one single sort of condition or even 2 conditions that will drive the P&L one day versus the next. I think the real point of the slide really is just to say that the business -- and I think if you look over time, it's a diverse business, we keep emphasizing the customer base and the whole point about the customer base is more customers, more products and more geography, more solutions. That drives the underpinning value of the business. Obviously, on top of that, you get market conditions that are more favorable or less favorable, and that will generate sort of outperformance opportunities, but the underlying story is diverse business and a very diverse business even within commodities, that's driving a more consistent result over the medium term.

And I think, Brian, the underlying stage also in this slide is you look at a 5-year picture. So if you look at $10 million days in FY '22, we had about 60 less of those than FY '18. That's $600 million up on the other side. So the curve basically is skewed to the positive and concentrated in an area and it can vary intra-year, but that isn't really what's driving the CGM business.

Look, Shemara. My question come out that has always been disrespectful. I think it's just because you do a very good job. Just a final one from me, and I'm [indiscernible] no one's asked it. If we have a look at your deposit business in BFS, as I look at it, it seems to me you've got more kind of like quite expensive deposits, which I suspect means that you haven't got this great kind of pool of leverage to rising rates. If that is not the case, could you give us a feeling on what happens as rates rise, what happens to basically the margin in BFS?

Yes. I'll let Greg comment on that in a minute, but basically, in BFS, there's going to be a number of factors as compression from competitive dynamics that peers have talked about. There's a cost investment, et cetera. But -- and also the spreads will vary in your home loan book and business banking book. So why don't I let Greg comment given he's with us.

Yes. Thanks, Brian. We've got a tremendous suite of deposit products now. So we have a very large business deposit book and some of that mill interest deposits or regulated deposits. And so there is -- all things being equal, there is a benefit there in a rising rate environment. We also have an expanding transaction account portfolio, which has a very low interest rate at this point. That may change. But that's sort of skewed to the positive. And of course, the biggest deposit base is the cash management account, which is primarily a transaction facility and for larger amounts of money, there's an accelerator account there that people can get a higher yield, but that's a transaction account. So overall in the portfolio, there should be some benefit, all things being well on the deposit side as rates increase. Now of course, that doesn't mean that translates to the bottom line because there's a whole range of other factors on the loan side that will come into play.

Just briefly, Nick, did you want to comment at all on the trading?

Yes, thank you. I was just going to add. I think what that chart reflects, the one that's skewed to the right is that the amount of customer business that we're doing every single day. And that customer business is generating income for the business. And then there may be market risk that the business is taking as a result of trades that customers give us or we may be entering to ourselves, which is then impacting the result after that. But the point of this graph is to say that, look, every single day, the business is generating income from that customer activity, and that's what's skewing the outcome for the business. And then just to answer your question on what might be driving the income on a $65 million a day. I think I'd go back to the diversity of the portfolio, and it is highly likely that there isn't one thing that's driving it. There will be a lot of customer activity that will be happening and then there may be 1 or 2 or 3 or 4 or 5 or 6 other things that happen on that given day. And that just comes down to the amount of different business lines that we've built over time.

There are no further questions at this time. I'll now hand back to Mr. Dobson.

Thank you. Are there any further questions in the room before we wrap up? No? Right. Well, thank you all for your interest, for your support, and we look forward to catching up over the next couple of weeks. Thank you very much.