– a reduction in impairment charges on equity investments (including investment securities available for sale and associates and joint ventures) of 37 per cent to $A243 million for the year ended 31 March 2014 from $A388 million in the prior year. While mining equity markets remain subdued, investor sentiment and confidence in these markets appear to have stabilised in the second half of the year, resulting in significantly lower levels of equity impairments for Fixed Income, Currencies and Commodities for both the year and the second half compared to the prior year and first half; 

– an increase in net operating lease income of 27 per cent from $A417 million in the prior year to $A529 million for the year ended 31 March 2014 driven by the full year contribution of Corporate and Asset Finance’s European Rail operating lease business acquired in January 2013 and the depreciation of the Australian dollar, which favourably impacted earnings from the aircraft, rail and UK Energy Leasing operating lease portfolios. 

Total operating expenses increased 15 per cent from $A5,252 million in the prior year to $A6,026 million for the year ended 31 March 2014 mainly reflecting the impact of the depreciation of the Australian dollar on offshore expenses in addition to the following key drivers: 

– a 14 per cent increase in employment expenses to $A3,736 million for the year ended 31 March 2014 from $A3,273 million in the prior year primarily due to higher staff compensation due to the improved performance of the Group. Headcount increased 2 per cent from 13,663 at 31 March 2013 to 13,913 at 31 March 2014. The compensation ratio of 43.1 per cent for the year ended 31 March 2014 decreased from 46.1 per cent in the prior year; 

– a 29 per cent increase in brokerage, commission and trading-related expenses from $A604 million in the prior year to $A779 million for the year ended 31 March 2014 mainly due to growth of physical metals financing activities; 

– a 24 per cent increase in non-salary technology expenses from $A260 million in the prior year to $A323 million for the year ended 31 March 2014 mainly driven by an increase in information technology development activity largely in response to increased regulatory requirements; and 

– an 11 per cent increase in other operating expenses from $A725 million in the prior year to $A806 million for the year ended 31 March 2014 mainly driven by an increase in business activity. 

Income tax expense for the year ended 31 March 2014 was $A827 million, up 55 per cent from $A533 million in the prior year mainly due to the 50 per cent increase in operating profit before income tax from $A1,405 million in the prior year to $A2,106 million for the year ended 31 March 2014. The effective tax rate for the year ended 31 March 2014 of 39.5 per cent was slightly up on the prior year reflecting the geographic mix of income and tax uncertainties. 

The Consolidated Entity’s liquidity risk management framework operated effectively throughout the year ensuring funding requirements were met and sufficient liquidity was maintained. Cash and liquid assets were $A19.1 billion at 31 March 2014 representing approximately 12 per cent of the Consolidated Entity's total assets, or 21 per cent of the Consolidated Entity’s net funded assets. 

Retail deposits increased by 7 per cent from 31 March 2013 to $A33.3 billion at 31 March 2014, while total deposits increased from $A36.2 billion at 31 March 2013 to $A36.9 billion at 31 March 2014. During the year ended 31 March 2014, $A17.4 billion of new term funding was raised and $A3.1 billion of government guaranteed debt was repurchased. 

As an Australian Prudential Regulation Authority (APRA) authorised and regulated NOHC, MGL is required to hold adequate regulatory capital to cover the risks for the whole Macquarie Group, including the Non-Bank Group. Macquarie and APRA have agreed a capital adequacy framework for MGL, based on Macquarie’s Board-approved Economic Capital Adequacy Model (ECAM) and APRA’s capital standards for authorised deposit-taking institutions (ADIs). 

MGL’s capital adequacy framework requires it to maintain minimum regulatory capital requirements calculated as the sum of: 

– the Bank Group’s minimum Tier 1 capital requirement, based on a percentage of risk-weighted assets plus Tier 1 deductions using prevailing APRA ADI Prudential Standards; and 

– the Non-Bank Group's capital requirement, calculated using Macquarie’s ECAM. Transactions internal to the Macquarie Group are eliminated. 

The Consolidated Entity has satisfied its regulatory capital requirements throughout the year. At 31 March 2014, the Macquarie Bank Group had a Common Equity Tier 1 Capital Ratio of 9.6 per cent and a Tier 1 Capital Ratio of 10.6 per cent. The Consolidated Entity remains well capitalised with $A2.7 billion of eligible capital in excess of the minimum regulatory capital requirements$^{(1)}$. 

Macquarie’s capital management strategy is outlined in Note 26 to the financial statements contained within the 2014 Financial Report. 

