Good morning, everyone, and welcome to Macquarie Group's FY 2022 results presentation. Great to see some of you 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 that everyone turn their mobile phones to silent, which is a new thing for the last two years. As is customary, we'll hear today from our CEO, Shemara Wikramanayake, and our CFO, Alex Harvey, to go through the detailed results. With that, I will hand over to Shemara. Thank you.
Thank you, Sam, and welcome everyone from me as well. There's a lot to celebrate this morning beyond just the great Sydney weather, because it's been more than two years since we've been able to have you all in the room with us. It's great to have you here in person. Also fantastic to have the whole of our executive committee here in person, sitting in the front row, particularly Ben Way here from Asia, Michael Silverton from the Americas. 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 and senior leadership colleagues for whom it will be their last result. Michael Herring, thank you so much for everything as our General Counsel, and welcome, Evie, who's taking over.
Peter Warne is with us, and as I'll mention later, this will be Peter's last set of results. It's also our CFO's birthday today. Hopefully, thank you, Alex, for spending your birthday with us. Hopefully, we'll have a few presents for you and everyone this morning. Kicking off as we usually do, just reflecting on the four operating businesses that make up our overall business. Across them, these deep franchises that we've built in these four areas that are structurally well-positioned for the medium term, they give us very good diversification through cycles as well. 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 as group head in the last year and a bit. Ben 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, an asset leasing business, but also operates in financial markets and commodity markets around the world. Lastly, Macquarie Capital, where Michael Silverton has just stepped up this year as the sole group head. That is a services business across advisory, equity capital markets, debt capital markets, but we bring our balance sheet alongside the expertise of our people for credit and equity investing. Supporting those four groups, there are four very important support areas.
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 Evie Bruce is taking over from Michael Herring. Financial Management Group, Banking and Financial Services Group, and the corporate operations group, just in case someone forgets Alex. Nicole Sorbara here, the head of corporate operations, and has been leading that for some time. Turning to the results for the most recent financial year, you will probably all have seen we delivered a result of AUD 4.706 billion. That was up 56% on last year's just over AUD 3 billion figure, which also was a record result. 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. At the operating group level, in terms of the operating contribution of the groups, AUD 9.462 billion, up 55%, 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 their record results at operating income, the figure I just mentioned, up 36%. The revenue equivalent operating income up 36%, net profit up 56%, earnings per share up 51%.
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 three acquisitions in the public investments area and in a distribution area with Waddell & Reed, AMP Capital's public investments business, and the Central Park Group. But in addition to that, we also had positive net flows into the public investments business, and we had investments made by the private markets lifting the assets under management. 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 was 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 the black bar, spiked up a little bit because we had a lot of realizations, PEXA, Quadrant, et cetera. Some of you may recall. Underlying, just continuing this steady organic growth.
Because we're so big here and then 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. Turning then to our operating groups and starting with Macquarie Asset Management, Macquarie Asset Management was up 4% to AUD 2.15 billion, and that comprised 23% of our operating income. Some of the features of this year, strong results from both the private markets and the public investments. In private markets, record equity under management of just over AUD 158 billion. We also raised AUD 27 billion, which is quite a step up from what we've been raising over recent years, and we invested over AUD 30 billion.
The dry powder is down to AUD 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. In addition to that, this year, as of of April 1st, the Green Investment Group has now transferred into the asset management business, expanding the offering of real assets in the private markets. In the Public Investments, we're again at record assets under management at AUD 535 billion plus. That was driven mostly by the three acquisitions, but also positive net flows, as I mentioned. We've got 71% of our assets under management in that division outperforming benchmark on a three-year basis.
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. The home loan portfolio is up 31% to nearly AUD 90 billion. Business banking up 21% at AUD 11.5 billion. The funds on platform also a big step up 17% at AUD 118 billion. It's starting to get close to AUD 120 billion there. All supported by the strong deposit growth, AUD 98 billion up 21%. We continue to grow our book. We're really focused on credit quality, and that's gonna 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 up 50% to AUD 3.911 billion after a big result last year, and that's making up 41%. The timing of recognition of income in transportation and storage contracts. The Financial Markets businesses inside CGM making up about 26% of their income. Really good results there in the foreign exchange and interest rates and credits 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.
Macquarie Capital, AUD 2.4 billion up 269% on roughly AUD 650 million we earned last year and contributing 25% of our result. Now that business, as I said, focuses on an advisory services business in all of our four 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. In EMEA, we've been growing from the U.K. and Germany into France, Benelux, Spain, Italy, all growing nicely. Record revenues there. In Australia, we remain the number one M&A financial advisor. 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 AUD 15 billion of investments there, AUD 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. 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. I should say, over 90% of the investments that we've realized this year, or 90% of the profits we've generated from realizing are from investments the team have been making 2019 onwards in what are challenging markets to get well invested in.
It speaks well to the expertise of our team in being able to source at value and realize. 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 AUD 48.3 billion of term funding, another record. We also did the equity raising late last year, as you'll recall, of AUD 2.8 billion. Greg and team in terms of deposits as well at a record overall for Macquarie Group at AUD 101.5 billion up 21%. With capital as well, very strong position. At the half year, we had an AUD 8.4 billion surplus over the APRA Basel III minimum.
At the end of the full year, that has grown to AUD 10.7 billion. 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, AUD 2.2 billion that you can see there in the half. Over the full year, there was a AUD 5.4 billion absorption of capital. The businesses are still finding good opportunity to invest in Macquarie Asset Management. 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 in funds in areas where our teams see opportunity and need to move quickly and seed 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 FICC meant we were holding more capital for market and credit risk. 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. Funding and capital in a good position as we come into the new year, in addition to the good earnings we've delivered. With that, the board has declared a second half dividend of AUD 3.50, 40% franked, resulting in a full year dividend of AUD 6.22, again, 40% franked, and the result represents a, or the payout represents a 50% payout ratio. 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, first of April last year. We're making good progress on that. There's a strong focus on our regulatory reporting, our prudential risk management, and together with it also things like governance, remuneration, and risk culture. As part of that, we are bringing on three bank-only non-executive directors at the MBL level. We're very pleased that we have managed to find the first of those who is Ian Saines. 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. He has a strong background in both financial markets, but also highly regulated environments, 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. At the Macquarie Group level, we're very pleased to have Michelle Hinchliffe, who's in the back row, joining us. Welcome, Michelle.
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 accounts. It's been huge value to us. He will be retiring at the conclusion of the annual general meeting. I mentioned he's chaired the board audit committee so well, and one of the great things he's done for us as well is 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. Should be great value add to our board. Also, as I mentioned, Peter Warne stepping down.
Glenn Stevens will step in, former governor of 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 been with us, and Peter did extend for a year last year, which we very much appreciate. We first courted him when we bought the Bankers Trust team across. Peter didn't elect to come across, but then in 2007 came over onto our board. David Clarke was Chair still at that time, and MBL was the head company.
Peter has seen through many things, the global financial crisis, the European debt crisis, the recent COVID pandemic, and has been, you know, really incredibly sharp, understanding our business available to all of us, dedicated, working around the clock. He's also seen through three CEOs, from Allan Moss to Nicholas Moore and now myself. Sadly, I end up outlasting Peter, but wanna say a big thank you to Peter. With that, I will hand over to Alex to go through the numbers in more detail.
Thanks, Shemara. Thanks very much for the best wishes for my birthday. Good morning, ladies and gentlemen. It's obviously great to see everyone 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. 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. If you look at the operating income for the second half, it was up 22% from the first half of 2022.
Expenses up just under AUD 650 million for the half. Tax rate was up a little bit for the second half, just reflecting the geographic composition of income. The bottom line net profit result up at AUD 2.66 billion, up 30% from the first half of 2022, and about 30% up on the second half of 2021's financial result as well. If you put that second half together with the first half, and we'll talk a little bit more in detail about the income statement overall, you can see operating income just at AUD 17.3 billion, up 36% on the operating income for FY 2021. The key drivers there were a 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 AUD 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 is largely wound up now. We also saw an increase in M&A advisory and DCM activity through Macquarie Capital coming through in that fee and commission line.
If you look at the investment income line, up AUD 1.3 billion, and one of the things we said, obviously, over the course of the year, the environment for realizations has been strong. We saw that environment reflected in disposal proceeds coming through that investment income line, and particularly reflected in Macquarie Capital's result. We also see in that investment income line the disposal proceeds and profit from the disposal of the industrial and commercial meters in CGM, which completed in April 2021. Net operating income up 36% for the year. In terms of operating expenses, up 22% at AUD 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. The other thing that's in employment expenses, of course, is the increase in profit share, consistent with the underlying performance of the group over the past twelve 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 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 twelve months.
The bottom line at AUD 4.7 billion, up 56% from where we were this time last year, and delivering a return on equity of 18.7%. I'll now turn to the operating groups and just give a little more detail around the drivers of the performance for the year. Starting with the Macquarie Asset Management business, up 4% for the year at AUD 2.15 billion. Starting on the left-hand side of the chart, you can see the base fee is up AUD 185 million, about 9%, just over 9% for the year. That reflects an increase in contribution in the private markets business. We saw particularly good investing conditions in Europe and the US and across Asia.
It was great to see that base fee coming through on the private markets 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 AUD 258 million, just reflecting a lower period of realization of assets in the public markets part of MAM. In the middle of the slide there, you can see the contribution from the wind down of MIC, which is largely complete. There's one asset left in MIC that'll be completed this year.
MIC this year contributed an additional $523 million, and you can see that coming through the income statement in terms of that disposition fee and fees and commission. We also saw a share of joint venture profits from the disposal of those underlying assets, and a reaccretion of the impairment that we had taken on the group's interest in MIC in prior periods. That gain was partly offset by the non-recurrence of the European rail disposal last year. 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.
An increase in acquisition one-off costs of AUD 316 million, largely reflecting Waddell & Reed, but also including a component of the expenses associated with AMP Capital acquisition and with the acquisition of Central Park Group. Integration of Waddell & Reed continues to proceed well. It's an ongoing process. There'll be more integration work to do over the course of the next month. You'll see some additional costs continuing into next year. The other thing the team is doing is actually integrating the underlying fund portfolio. You'll see a 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 AUD 773 billion, a record amount of assets under management. Notably, on the private market side, you see an increase of just over AUD 51 billion in private market acquisitions this year. That really reflects the significant period in investing. AUD 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 AUD 150 billion of assets under management coming through, together with the net flows of just under AUD 11 billion over the course of the year. Turning now to the Banking and Financial Services business. Up AUD 230 million on where we were last year. You can see the drivers there. The personal banking business up AUD 206 million, and that reflects largely a 27% growth in average portfolio, home loan portfolio balances across the year.
You can see the business banking up 26%, and that reflects the 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 AUD 140 million, or a step up in the release of AUD 140 million. Largely, that reflects the partial overlay release that we 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. Expense is up AUD 190 million. Again, we talked about that this time last year and through the year. We see investment the team's 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 all moving in the right direction. Car loans are 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 some of 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 are 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 AUD 572 million coming through, or a step up of AUD 572 million coming through that risk management line. That really reflects particularly strong contributions across oil, across gas and power, agriculture, and resources. I think as everyone would be aware, obviously, it's been a very challenging and volatile market, and the team's 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%, AUD 195 million. Again, servicing clients, being able to extend credit over the course of the last twelve months. You can see that investment income up AUD 479 million. Largely, that reflects the proceeds or the profit from the disposal of the industrial and commercial meters in April 2021. We saw a release of credit provisions for similar reasons that I talked about earlier. A really strong result from CGM. Some familiar slides.
We've had these up for the last few results presentations. We thought it'd be useful, I guess, including and updating them for this result. You can see on the left-hand side, operating income. The key thing to draw out of this chart really is that 70%-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. 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. Then on the right-hand side, the daily P&L, the daily profit and loss. This is an important chart, obviously repeated from 2018 all the way forward. What you can see here, obviously, is a skewing slightly to the right-hand side of the Y-axis, and a reasonably narrow distribution of sort of AUD 0-AUD 10 million on most days. That's really reflective of the fact that it's a customer-oriented business and risk is managed very tightly within market risk limits. Turning finally to Macquarie Capital, up at AUD 2.4 billion, up from AUD 651 million last year. A very strong year across the board.
Investment-related income up nearly AUD 900 million, reflecting 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 AUD 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. Then we see a step up in the contribution from net income on the principal debt portfolio. Shemara mentioned this before.
We've obviously been growing the principal debt business in Macquarie Capital now for a number of years, ending balance on balance sheet of just under AUD 12 billion, contributing an additional AUD 302 million over the course of the last twelve months. AUD 2.4 billion , out of which about AUD 850 million, it was contributed by the Green Investment Group, which from April 1st this year has moved into Macquarie Asset Management. In terms of the underlying drivers, obviously, capital 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 twelve months. 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 also making their way into business as usual compliance spend.
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 AUD 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's 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.
This year we raised money from 10 different markets, and about 700 investors are actually participating in debt issues for Macquarie. It's great to see all that support and continuing to diversify the source of funding for the group. 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 six or so months. In terms of customer growth, Greg and the team at BFS doing a fabulous job, I think, of creating products that are attractive to the customers of BFS.
We saw a step up of AUD 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 AUD 22 billion in terms of their overall loan portfolio. You can see CGM in the middle of the page there, up from AUD 11.9 billion to AUD 15.4 billion. That largely reflects the increase in credit that we provided to the fund finance clients through Nick's FICC business.
Macquarie Capital down the bottom there, the principal finance business growing from AUD 6 billion to just under AUD 12 billion, generating that net interest income that I talked about earlier. The equity investment's up AUD 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. Excuse me. The second thing we've seen is an increase in the green investment. 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's 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 two things on this page. Firstly, during the year, we saw APRA completed its review of the new capital standards. Those capital standards will come in from the January 1st,2023, so we're in the process of implementing those standards. As we said at the time, from a Macquarie viewpoint, that'll reduce our capital surplus by about AUD 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.
The other thing I'd note is just that, the point around the remuneration framework. Obviously, during the course of the year, 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 511. I thought I'd draw that out, the details of those changes, which will come into effect from progressively from FY 2022, are set out in the remuneration report in the annual report.
In terms of the regulatory ratios, very strong CET1 ratio for the bank of 11.5% at March 31. A strong liquidity position in terms of, you know, nearly AUD 65 billion of unencumbered liquid assets and a very strong LCR position, as you've seen from us, in prior reporting periods. Finally from me, from a capital management viewpoint, it's obviously been a busy year. I'd point two things out. Firstly, the board has resolved this year to acquire shares to satisfy the current year MEREP grant.
The board has also, in addition to declaring the final dividend, has also retained the dividend reinvestment plan, and has decided to issue shares for that DRP at a 1.5% discount to the prevailing market price. With that, I'll hand back to Shemara. Thank you.
Great. Thanks, Alex. I'll just take you through. 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 APRA in terms of strengthening the voice of the bank, and certainly strengthening the office of the CEO and the resource you have to discharge your role, Stuart. Now turning to the outlook, as usual, we will cover this by each of our operating groups, and first of all, Macquarie Asset Management.
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 Corporation. In addition to that, we mentioned the Green Investment Group as of April 1st this year will be moving to sit alongside Macquarie Asset Management.
In Alex's numbers, you will have seen the Green Investment Group delivered about AUD 850 million in this FY 2022 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 deposits 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.
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 AUD 137 million of provisions. The 771 we reported in FY 2021, if you add the 137 to it, we're at AUD 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 2022, I mentioned, in terms of fee revenue.
We have a solid pipeline of investment realizations going into FY 2023. We also expect to continue to deploy our balance sheet, both in debt and equity investments. The Green Investment Group, as I mentioned, has now moved to Macquarie Asset Management. In Commodities and Global Markets, our commodities income is expected to be significantly down following the very strong result in FY 2022. Albeit volatility may create opportunities, we have a very uncertain year ahead of us. 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 its sectors, excluding that one-off gain of about AUD 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. 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, 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. 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. 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. That has served us well, clearly, over the medium term, as well as this year. 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.
The market-facing businesses are very strong, 30% this financial year, but an average over the last 16 years of 16%, giving us, for this financial year, as I mentioned, a net return on equity after taking into account our AUD 10.7 billion of surplus capital, 18.7% return on equity. With that, I'll hand back to Sam to take your questions. Thanks.
Great. All right. Thanks, Shemara. 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. Andre, we'll start with just in the front here.
A microphone.
Just wait for the microphone.
Good morning. Thank you for taking my question. I just wanted to ask around capital deployment, because it looks like this was a very deliberate strategy to use the bumper result to increase the capital levels. You're also maintaining the DRP. That seems to indicate a very confidence 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 will be looking at?
Yeah, the thing that gives us the confidence is the same thing that helped us deploy AUD 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, good investment opportunities. You know, in Macquarie Capital, we did obviously have in the Green Investment Group area, we've, you know, 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 sub-regional market. The same, Michael Silverton sitting here in the front row, but, across areas like technology, government services, EdTech.
It's a wide range of sectors in which we have people with expertise. Equally, you know, other businesses are able to use capital. Macquarie Asset Management, we bought the National Grid assets. We're, you know, 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.
That's mostly market and credit risk capital where we're using up 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. In BFS, as you've seen, Greg and the team have just consistently been growing the books there, a very high quality book in a very disciplined way, but it's been growing and growing for many years now, so the capital invested keeps stepping up. Anything to add, Alex?
No, that's a good summary. Yep. On the capital, Macquarie Capital side, just mentioning the principal finance book as well. Andre, obviously, that's grown from AUD 6 billion to AUD 11.9 billion over the year, and you know, the team, I think, is confident they've got good opportunity to deploy at good margins.
Jonathan Mott.
Jonathan 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?
Yeah, look, the first thing I'd say is it's taken us two 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. 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 grab the mic and comment on that at all?
Sure. Thanks for the question. Yeah, 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. Also, the maturity of the business is at different stages of development. Our customer franchise across the MA 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. 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.
That really has nothing to do with the current situation. That's actually been the case for quite some time. That's why we deliberately built our business in terms of looking at our customers' financial risk management challenges, as opposed to the physical challenges in that market.
Yeah.
All right. 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 'cause the structure of the market? You've had a great period in Europe, volatility's been good, but North America is gonna be the key market for you for indefinite future given the structure of the market.
I think I'd probably answer the question slightly differently in that the opportunities are different rather than them being just a North American-focused opportunity for Macquarie. 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. You know, 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. Thanks.
Thank you. Andrew Triggs from JP Morgan. Just a question on GIG. Nice to see that earnings disclosure for the first time. I'm just interested in a couple of things there. Of the, I think, AUD 4.9 billion of MacCap Basel III capital in that division, how much of that relates to GIG? Just interested also what you're thinking about long-term return prospects of that business, how those would compare to the broader MAM business, and just any progress on your efforts to bring in, you know, third-party capital to that business too.
Yeah. 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, but,
Yeah.
You had if we put it up on screen, Andrew, if you give us a minute, that shows where the capital is invested across the group and how that's moved. It was page 34. You can see 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. We have still a meaningful multi-billion AUD position of investments, 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. 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.
The returns have generally been very good because we're catalyzing a new space here. The 50 GW that we have been responsible for bringing into development and operation are about to date 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. The big thing we do is go in early, manage these things, de-risk them, then bring in other 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 two things have happened. One, a lot of these investments have become de-risked more. As, possibly as a result, the appetite of our fiduciary investors to invest in this space has stepped up a lot more as well.
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 our. You know, we would grow the business for Macquarie, but also for our investors, bring them something that they're very keen to access. Ben Way's 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 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 April 1st, but we do have an energy transition fund in the market. We have seed assets for that asset, and we're very confident in terms of that fundraise, which is a good example in terms of, I think, of the appetite of investors. Putting those teams together have been. We've got really complementary strengths.
We think that'll allow us to find more opportunities for our existing businesses that have pools of capital, particularly as it relates to renewable energy, but it's also allowing us to move into a new space and launch new funds, and that initiative already has good momentum. I think the answer is, you know, our clients see the opportunity, they see the skill sets of both the MAM and the GIG teams, and they're excited about matching their capital with that opportunity.
I don't wanna over-create expectation, Ben, but the teams have been working together for six months now, and we had the MGREF series 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 funds invested, we've already seen accelerate materially just in that six months with the two teams working together. 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.
Thanks, Shemara. The embedded gains, I guess, on the existing development pipeline, you think, how do we think about the timing of realization of those? They are likely quite front-end loaded in 2023 and 2024.
They'll run off over a few years, those. They're at various stages, the projects, so certainly will run off over few years. 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 interests of the fiduciary investors in the funds, as well as, you know, what's best for, you know, realizing the assets.
If we don't have any other questions in the room, we might go to the line.
Please.
Thank you. Your first question comes from Ed Henning with CLSA. Please go ahead.
Hi. Thanks for taking my questions. 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, you know, in the year to date to start with.
Yeah. I can let Nick comment further, but yeah, we're only one month into a 12-month period, and it varies by each commodity sector. Clearly in energy, we've had, you know, a lot of volatility. 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 and that, you know, very tragic incident that we're dealing with there. 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. Commodities generally, you know, we're facing a challenging period.
There are also supply chain bottlenecks playing into all of that. It's hard to call at this stage, I think. 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. 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. Nick, any comments on volatility for this year?
Yeah, just to perhaps reiterate your comment on the diversity of the business and the diversity of the business lines. We've structured it not to be reliant on any one business line, and we really focus on building that out over time. Particularly focused on where our customers need 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. Overall, I think it has subdued a little bit from very elevated levels of last year.
Just further on that, you know, while you know, you talked about supply chain issues there, and that'll 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?
Yeah, I don't think that's gonna be a particular impact on that part of our business. There's still movements of commodities that are happening regularly, and that part we haven't actually seen it be impacted by other parts of the supply chain, which I think Shemara might have been referring to earlier. From the financing side of the business, it shouldn't be impacted materially.
Okay, that's helpful. Thank you. Just a second question on CGM. You know, you touched on the gas storage and transport contracts and the mismatch of all the difference of the income recognition, the timing. If prices were to hold today, and I know that's a big if, is that a headwind or a tailwind into 2023, just for the contracts you got on the book at the moment?
Yeah. Do you want me to take that, Nick? Yeah, thanks, Ed. Yeah, I mean, obviously, as we've talked about before, you know, you get variation, you know, from one period to the next. We saw quite a big drawdown from that timing of income recognition in the first half. You recall we had about AUD 376 million effectively holdback of income from that. Some of that was released into the second half just because, you know, the spreads narrowed, I guess, as the year proceeded from September all the way through to March.
Yeah, generally speaking, that ACEV, that variation between accounting and economic, you know, will unwind over, you know, sort of two to three years, something like that. Obviously, yeah, 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 two to years. You know, absent anything else, you probably see the unwind over a couple of years. You know, plainly, it's a function of a daily, you know, price change that actually determines, you know, the profile of that, the timing of income recognition on those contracts.
Okay. Thank you. I'll leave it there.
Thank you. Your next question comes from Brian Johnson with Jefferies. Please go ahead.
Thanks 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. I can also see 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?
Maybe I'll take that one, Shem. In terms of the balance sheet, yeah, we did obviously see a step up in short-term funding and in liquid assets this year. There's a few reasons for that, Brian. I mean, obviously, you know, some of the activity, the trading activity requires short-term funding, so we're supporting that with issuance into the market. That's the first thing. The second thing is that, you know, one of the things we've seen obviously in the last recent while is, I guess, getting prepared for the withdrawal of the committed liquidity facility.
You know, 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. They're the primary reasons. I guess the other thing is that, you know, we have externalized the liquidity for the non-bank as part of the work we're doing to, I guess, continue the distinction between the bank and the non-bank from a funding viewpoint. That's driving some of it. The other thing we did, obviously, is set up MBE.
A few of those things are driving the need for additional short-term liquidity. You know, from a capital viewpoint, I think it's the second part of your question. I think as we've said before, you know, the approach to capital hasn't changed. We obviously, you know, always maintain a cautious approach to capital and to funding and to liquidity. The reason for that is that, you know, what we wanna be able to do is obviously support the businesses in terms of their, you know, the capital needs to continue their client franchise and their activities.
Over the course of the last 12 months, we obviously saw, you know, big, you know, AUD 5.4 billion investment in capital over the last 12 months. We wanna make sure the businesses are positioned to be able to support clients around the world. You know, equally, obviously, we always maintain a cautious approach, but we're certainly not loading capital up for, you know, a major acquisition. It's part of the day-to-day management of capital and funding and liquidity that we've always done. Nothing new there.
I just
Alex, is it?
Go ahead, Brian.
No, no. Sorry. Sorry.
All I was gonna 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. You know, Nick spent a couple of decades in the U.S. buying things like Cook Inlet, Constellation, Cargill. That's all driven by the team coming and saying, "We see opportunity to grow our franchise," not a top-down. Nick, go and buy this thing. Sorry, Brian, back to you.
No worries. Just a second one, if I may, to Alex again. Alex, when we have a look at the kind of mystery of how the NOC works, if we have a look at the slide in the non-bank-
Yep.
You disclose the capital requirement.
Mm-hmm.
You disclose the note, the prescribed risk weighting, and the capital requirement just happens to always be 8%. It kinda looks like that's based on the equivalent of an 8% capital, 8% core equity. Sorry, 8% shareholder funds ratio or Tier 1 ratio, not even the core, in the non-bank. Does that potentially change under the amended Basel III? Or does it not get impacted?
No, no. I mean, obviously the non-bank capital framework is the economic capital adequacy model which we've had in place for some time, and obviously agreed many years ago with APRA. The changes 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.
Yeah.
Okay. 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. 2014, gigantic polar vortex, big profit surprise. March 2021, another polar vortex, big profit surprise. June 2021, the heat dome, basically over the northwest of the U.S., profit surprise. As we're sitting here today, it's bloody wet in Sydney.
Mm-hmm.
There's a drought in basically the US. It's stinking hot in India. I mean all of this is, all of this kind of like 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 vol? 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 for 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. We don't know when and where that will be.
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 it may be driven by volatility that's being driven by something else, then we'll see a lot of activity. 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. In terms of thinking about the future, it's just not really a consideration for us.
Nick, are clients asking for more hedging, you think because of this? It's just not impacting their forward thinking?
I don't think it's impacting their forward thinking.
Thank you very much.
Thank you. Once again, if you wish to ask a question on the phone, please press star one. Your next question comes from Brendan Sproules with Citi. Please go ahead.
Good morning. I just have a couple of questions on Macquarie Capital. Just looking at your asset realization income in the last 6 months, it's actually been more than what you've seen over the past 18 months. I just wanted to get a feel about how much the Green Investment Group contributed to the growth or the extraordinary half that you've had. You talk about in your charts and guides 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? Should I be looking at the last 18 months as a sort of guide for that?
Yeah. I'll make some brief comments and then hand over to Michael Silverton. You saw Macquarie Capital delivered, you know, AUD 2.5 billion, basically, and the Green Investment Group was AUD 800 million of that. In terms of step up from the previous year, the whole group stepped up from about AUD 650 million to where it is, and the Green Investment Group was a portion of that step up. A large part of it came from the rest of Macquarie Capital, and that legacy business is business that Michael has sat across. 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. Some may be held for two years, some for eight 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. Michael, we can pass to you.
Yes. 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. As Shemara said earlier, they were investments that we made over the past few years. In terms of the realizations going forward, we have identified several investments that we're working with our co-investors on, and we will decide the appropriate time to exit those together. We continue to find opportunities during the past six months that excite us, and we're seeing add-on opportunities to those businesses as well.
It's really driven by strategy, but also the sectors that we're investing in. Within technology, we've got software and services. We've got a lot of RegTech, regulatory technology, and education has been a big area for us as well.
The only last comment I'd make on that is just like in Nick's business where we're patiently building up expertise in each sector. We're also looking for diversification across those. As Michael said, we start at venture tech, we've got growth equity, we've got more mature equity, so we have infrastructure and energy investments at the end, then we have private credit as well. It's a whole diversification across.
Maybe one thing to add from me, Brendan, just a couple of points. Obviously, just the last six months, as we said at the operational briefing, we did see a, you know, strong period for asset realizations. In fact, we sort of used exceptional. You know, plainly, we saw some good realizations over the last six months. You know, the important thing for me, I think, when you think about the sort of medium-term prospect for the business is that capital that we have invested alongside the required capital clients. Obviously, you get some periodicity, you know, from one period to the next, and market conditions and what our partners, you know, want to achieve in an asset and where the business is up to, all that affects the decision as to whether you divest or not.
The key, I think, is that consistency of capital over a long period of time. Obviously, if you see capital being divested for the sake of the example and you're not growing it, you know, assuming you're growing well, you'll start to see that in a couple of years' time. The average age of the books, you know, the duration of the books is probably two to three years. You see them, you know, you see it come out over time if you're not investing. The important thing for me in terms of the medium term, you know, for the businesses, the team is, you know, 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 'cause that'll play into the medium term.
You know, one six-month period to the next will obviously vary, but the important thing is that underlying franchise that's being supported with the capital.
If I could just have a follow-up question on that. I mean, you obviously, naturally 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 has that fed into the current year guidance of, you know, potentially lower asset prices or lower transaction volumes? Or is that something that is more of a concern into the medium term?
Just to like go, and then-
You go, yeah.
Yeah. I was basically gonna say, you know, economic conditions, macroeconomic conditions are often hard to call, and 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 it was transitory. Some of it is now proving to be persistent. Central banks are responding. We don't know whether, you know, we could have a situation where they really tighten very strongly and we have a slowdown in global economies or where they pull back and we have stagflation. What we try to do is set up our businesses for a whole range of outcomes, and hence we sit with AUD 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.
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 you know real rates rising and other businesses are not as impacted. For example, Nick's business is driven by activity levels, so is Michael Silverton's in terms of the fee revenue. We don't really run the whole business on an inflation scenario, is all I'd say is preliminary comments. We basically position ourselves to be able to respond to a range of scenarios.
Yeah.
I'll hand over to Alex.
Yeah, 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. You know, we're making observations today around how we see things over the course of the next 12 months. Shemara just said, they're obviously changing rapidly. I think what is interesting from Macquarie Capital viewpoint is just, you know, the increasing diversity of the business. I think, you know, if you look over the last 12 months, you know, we saw record M&A volumes, you know, here in Australia, also in the U.S. and in Europe.
I think that reflects the business that Michael and team have been building and really the focus on those key areas which are, you know, not trying to be general market participants, probably with the exception of here, but actually focusing on where we've got deep expertise and bankers with real expertise in sectors and finding opportunities. I think that's the diversity point from an advisory perspective. I think it is really important. The other piece probably is that there are, as Shemara said, there's a couple of limbs, not only the advisory piece, but you've obviously got the principal investing piece. That tends to be focused on business services, government services, technology, where there's, you know, there's underlying sort of drivers for success in those areas.
Obviously bankers that we feel like, you know, have the capacity to go and find those opportunities. 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. 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 through Macquarie Capital. So I think that diversity story is a good one. Having said that, obviously, you know, market conditions are changing quite rapidly, and so I think, you know, I think appropriately, we're calling out that as a feature of the,
On the-
You know, the conditions going forward.
Thank you. That's very helpful.
Thank you. Your next question comes from Andrew Lyons with Goldman Sachs. Please go ahead.
Thanks and good morning. Alex, just a question on slide 35 of your, which is on your cost of compliance, which are up 22% in FY 2022. Your domestic bank peers are talking about these costs likely close to reaching a peak. 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?
Yeah. Thanks, Andrew, for the question. Look, I mean, obviously, we're putting a long-term trend there. You know, you can see over the course of the last, you know, seven or eight years, we've had, you know, compound annual growth of 14%. As I said in my remarks, my guess is you'll still see a step-up in that over the course of, you know, the next few years. There's a few reasons for that. You know, 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 is just, you know, the global footprint as well. That I think is meaning that there's a need to continue to invest. My guess, Andrew, is, you know, history's not always a good guide to the future, but, you know, over the course of the last seven or so years, you've seen a step-up in compliance. My guess is into the near term, that'll continue.
Thanks. Appreciate it.
Thank you. Your next question is a follow-up from Brian Johnson with Jefferies. Please go ahead.
Alex, you might wanna pull up slide 32. By the way, fantastic disclosure. When we have a look at that, I get the fact that the trading profits, the daily trading profits seem to be clustered around this AUD 10 million. As I read that chart, that looks to me as though you had something like 10 days where you made AUD 65 million bucks.
Mm-hmm.
Which kind of equates to a figure of around AUD 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? 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, I'd just be interested to see what is the downside on those numbers. Is it just that it goes to zero, or could we see just as many days negative if everything reverses?
Yeah. Well, I mean, I'll, I-
It's kind of like the central issue. I apologize for the question, but.
No
It's gotta be asked.
Don't need to apologize. That's what you're there to do, Brian. Just in terms of the charts, I mean, obviously, here's a distribution of P&L over days, and there are obviously some larger days in the you know in over the course of a 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.
You know, 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 in any given year, somewhere between 70%-80% of the operating revenue of CGM is you know 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 very granular way and in very tight market risk limits. You know, that's sort of the first part of the first part of the answer.
The second part is the point that Nick mentioned, you know, more broadly across the group. I mean, 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. You know, a series of relatively low-cost options that have the potential to pay off in periods of time where there's significant volatility. I think those two things are worthwhile mentioning.
The other thing that, you know, 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 it's changing prices between different times, for the sake of example. It's not directionally having a view as to whether gas or oil or something else is gonna go up or down. I think the combination of those three things are what gives you that skewing to the right of the y-axis. Obviously, you know, subject to us doing all of that well, you don't have those significant down days.
Nonetheless, it is a, you know, it's a market-facing business. You know, we're very focused, and Nick may wanna comment, I'm not sure, but very focused obviously on how you make sure you're managing risk really effectively in that business.
Well, I was just gonna, 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 of, is it a huge proportion of the revenue? You know, the 3.911 is after expenses. Pre-expenses, it's obviously much higher than that. 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 five years, and so if you have a look at the year before, it included FY 2017 or the year before, FY 2016, but that positive skew is always there, basically driven by the deep knowledge people have of the markets in which they're operating. As Alex says, this is not just making a call on a proprietary trading position. It's basis risk, et cetera, where people have insights. You know, there are negative days as well, as you can see, but the main thing is it's skewed to the positive, the curve. You know, it's basically concentrated also in a small area, typically.
Is there a particular condition? If we kinda think about those $65 million days. What should we be looking for that generates those? I mean, this will save Sam Dobson 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 should we be looking for those super days?
I don't think I'll make Sam's life any easier by my answer. I mean, the whole point here, this is a really important point, Brian. It is a very diverse business. 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, you know, there's obviously oil and gas. You know, it's a very broad business, and there's different geographies around the world. It's diverse from a product viewpoint, and it's very diverse from a geographic perspective.
On top of that, obviously you get, you know, the FICC business, which is operating in credit markets, operating in interest rate markets, in FX markets. I can't point to one single sort of condition or even two conditions that will drive the P&L, you know, one day versus the next. I think the real point of the slide really is just to say that the business. I mean, 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 in more geography, more solutions. You know, that drives the underpinning, you know, value of the business.
Obviously, you know, on top of that, you get market conditions that are more favorable or less favorable, and that'll generate sort of outperformance opportunities. The underlying story is diverse business and a very diverse business, even within commodities, that's driving a, you know, a more consistent result, you know, over the medium term.
I think, Brian, the underlying message also in this slide is you look at a five-year picture. You know, if you look at AUD 10 million days in FY 2022, we had about 60 less of those than FY 2018. That's AUD 600 million off on the other side. You know, 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 now that has always been disrespectful, I think it's just 'cause you do a very good job. Just a final one from me, and I'm staggered no one's asked it. If we have a look at your deposits business in BFS, as I look at 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 kinda 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?
Yeah. I'll let Greg comment on that in a minute. Basically, you know, in BFS, there's gonna be a number of factors. There's compression from competitive dynamics that peers have talked about. There's a cost investment, et cetera. But Greg. Also the spreads will vary in your home loan book and your business banking book. Why don't I let Greg comment, given he's with us?
Yeah. Thanks, Brian. We've got a tremendous suite of deposit products now. We have a very large business deposit book, and some of that are nil interest deposits or regulated deposits. There is a, all things being equal, there is a benefit there in a rising rate environment. We also have a 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. Of course, the biggest deposit base is the cash management account, which is primarily a transaction facility. For larger amounts of money, there's an accelerator account there that people can get a higher yield, but that's a transaction account.
Overall, in the portfolio, there should be some benefit, all things being equal, 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.
Thanks, Greg.
Just briefly, Nick, did you wanna comment at all on the trading? Do you wanna go?
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. That customer business is generating income for the business. Then there may be market risk that the business is taking either as a result of trades that customers give us or we may be entering into ourselves, which is then impacting the result after that. 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. Then just to answer your question on what might be driving the income on a AUD 65 million day, I think I'd go back to the diversity of the portfolio.
It is highly likely that there isn't one thing that's driving it.
Mm-hmm.
There'll be a lot of customer activity that will be happening, and then there may be one or two or three or four or five or six other things that happen on that given day. That just comes down to the amount of different business lines that we've built over time.
Great.
Thanks, Nick.
Thank you. 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? All 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.