Macquarie provides update on hybrid capital

Further to the announcement on 28 October 2011and at the Operational Briefing on 7 February 2012, Macquarie Group Limited (MQG) and Macquarie Bank Limited (MBL) today provide an update on its hybrid capital, including the proposed issue of a new hybrid security (exchangeable capital securities, or ECS) and the likely regulatory capital treatment of the existing Macquarie Income Securities (MIS) under APRA’s Basel III rules.

Further to the announcement on 6 March 2012, MBL, acting through its London Branch, has priced its proposed issue of $US250 million of ECS. The ECS are expected to be issued to sophisticated and institutional investors on 26 March 2012 and will be quoted on the Singapore Stock Exchange.

The ECS, being unsecured subordinated notes, are to be issued by MBL acting through its London Branch (Issuer). They will pay interest of 10.25 per cent per annum, payable semi-annually in
arrears, with the rate to be reset on 20 June 2017 (and each fifth anniversary thereafter) if the ECS remain outstanding after this time. The interest payments are subject to payment tests, including
the discretion of the Issuer as to whether payments should be made. If interest is not paid on the ECS on an interest payment date, MBL and MQG will be restricted from paying dividends or
returning capital on their ordinary shares until the next interest payment date.

APRA has confirmed that the ECS meet the requirements of Innovative Tier 1 Capital under the current regulatory framework of MBL. In addition, APRA has confirmed that, at a minimum, the
ECS will be eligible for transitional relief from 1 January 2013 under the new Basel III standards. On the information available at this time, MBL expects that the ECS will fully qualify as additional Tier 1 capital under the new Basel III standards.

Further conditions for the ECS are attached.

With regard to the MIS, APRA has indicated that the MIS is likely to be eligible for transitional relief under its Basel III rules. At the Operational Briefing, it was noted that the MIS hybrid securities currently on issue may not receive transitional relief under APRA’s Basel III rules. However following further discussions with APRA, it is likely that the MIS will receive transitional relief.

Commenting on hybrid capital, Macquarie Group Limited’s Chief Financial Officer Patrick Upfold said: "The proposed issue of ECS, together with the likely inclusion of the MIS, as regulatory capital under Basel III means that we have been able to further strengthen Macquarie’s capital base.”

THIS STATEMENT DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES FOR SALE IN ANY JURISDICTION. THERE IS NO PUBLIC OFFER OF THE ECS.

THE ECS HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. THE ECS MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT) UNLESS THE ECS ARE REGISTERED UNDER THE U.S. SECURITIES ACT OR OFFERED AND SOLD PURSUANT TO AND IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

Appendix – further ECS conditions

Subject to certain conditions, the $US250 million of ECS will be exchanged for a variable number of fully paid MQG ordinary shares on 20 June 2017. The ECS may also be exchanged earlier on an acquisition event, where MBL’s common equity Tier 1 capital ratio falls below 5.125 per cent or where APRA determines MBL would be non-viable without an exchange or a public sector injection of capital (or equivalent support). If exchange occurs, the MQG ordinary shares issued as a result will be issued at a 5 per cent discount to the market price determined over a period immediately prior to the time of that exchange.

The ECS will only be redeemable, subject to APRA’s written approval, at the discretion of the Issuer in limited circumstances, including following a change in law that has an impact on the tax or regulatory treatment of the ECS.

The issue of ECS does not require the approval of MQG or MBL shareholders. ECS will not be quoted on ASX. ASX has granted a waiver to MQG that permits the issue of MQG ordinary shares to directors of MQG and their associates on exchange of ECS on the condition that no more than 0.2 per cent of the ECS be issued to directors and their associates collectively.