Good morning, everyone, and welcome to Macquarie's FY 2020 results presentation, in a virtual sense, at least. Today you'll hear from our CEO, Shemara Wikramanayake, and our CFO, Alex Harvey. Also on the line today we've got our group heads who'll be available for questions after the presentation. With that, I'll hand over to Shemara.
Thanks, Sam, and good morning, everyone, and welcome from me as well. I'm sorry we can't have many of you that usually join us in the room here with us today, but we're very pleased with today's technology to be able to bring you our results in this virtual format. While we're talking about responding to the current environment and how we all are dealing with it, let me just start, before going into the results, by mentioning a few things Macquarie is doing in terms of responding. First of all, in relation to our employees, we've had now about 98% of our staff working remotely for seven weeks, and people in Asia a little bit longer, but we've managed to continue business with no material interruption.
Importantly, we've been able to support our employee well-being through that period as they work in greater isolation, like many of you are having to deal with. Turning to our clients, we've also been able to continue to support our retail and our small business clients through hardship support, deferred payments, access to finance, and also providing them the equipment they need to get on with keeping cash flows in small businesses through our leasing operations. With the larger businesses, we've been through Macquarie Capital providing a lot of help on capital raisings and other financing solutions.
Looking at our portfolio companies on the balance sheet and also in our funds, there, again, we've been focusing on employee well-being, 240,000 people that work for us and our contractors there, and also financial and operational resilience of the assets providing these essential community services, as well as repurposing assets like airport car parks to do COVID testing, etc. Lastly, in terms of our communities, we have allocated another AUD 20 million to our foundation this year to help combat the impacts of COVID-19, and those grants are already starting to roll out. In addition, our businesses are also helping where they can, so the BFS team, with the increased demand in call centers, has managed to train furloughed employees and offer employment to them. These are some of the things we're doing more broadly, but also we've been very focused on our shareholders.
Turning to the results, you'll see there, as usual, we started with a page that outlines the operations of our four operating groups and shows the mix shaded in blue of our annuity-style activities versus market-facing. This varies depending on the external environment, and this year we had a 63% contribution from the annuity-style businesses. Looking then at the half-on-half numbers, the second-half result was down 13% in terms of profit attributable to shareholders on the first half, and it was down pretax 12%. What I'd note on the top line of that slide is that our operating income was basically up 7%, and our operating expenses were down 2%. The thing that drove that net drop was really the increase in credit and other impairment charges, which were about AUD 140 million in the first half and close to AUD 900 million in the second.
A AUD 750 million increase in credit and impairment charges in the second half over the first. Taking into account those credit and impairment charges, the net profit contribution from the operating groups was down 10% on the first half and down 27% on what was a very strong half in the second half of last year, where we had big gains on investment realizations in Macquarie Capital and positive results out of North American Gas in the Commodities and Global Markets business. Now, looking at the full-year result versus last year, you see a similar story to the half-on-half, where the profit attributable to shareholders was down 8% after tax and the EPS down 10%. On a pretax basis, it was down 11%.
If you look at the top line, the operating income was broadly flat, slightly up on last year, and the operating expenses, which is three lines down from there, the fourth line down, was down slightly or broadly flat as well. The big driver of the change in the result was, again, the increase in credit and impairment charges, which was about AUD 450 million-AUD 500 million up. Given the impacts of this, we thought this year we'd show you the results of the groups excluding that credit and impairment charge, other impairment charge, which is isolated on this slide in front of you now. You'll see that three of our groups had record results: Macquarie Asset Management up about AUD 530 million, BFS slightly up, and CGM also up on a strong result last year.
Macquarie Capital was down because of that very large amount of investment realizations we had in the second half of last financial year. The net profit contribution from the operating groups after those provisions was down 11% on FY 2019. Putting all that together, looking at the full-year operating income post the credit and other impairment charges was down 3%, and as I mentioned, profit was down 8% on FY 2019 and earnings per share down 10%. The dividend, the board has declared a dividend that will give us a full-year dividend of AUD 4.30, which is down 25% on last year. I'll talk about that a little bit more at the end of my first section of comments.
Before I do that and before we dive into the results from each operating group, as usual, I'll make some comments on the contribution by business mix and also by geography. In terms of business mix, you see on this slide here the five-year history of the contribution of the various operating groups. This year we had 63% from the annuity-style, but you can see on that slide we've had good growth over the last five years in Macquarie Asset Management at the bottom of those bar charts, BFS just above it, Commodities and Global Markets. Macquarie Capital impacted very much by market conditions, timing of realizations, etc., with a big year last year in FY 2018 and FY 2019, apologies, and a step down this year with those investment realizations having happened in the third quarter of last year.
The assets under management are up to AUD 606 billion, and that's up 10% on where we were at the end of FY 2019. The big drivers there are the investments in the managed funds, net of divestments, and then also the FX movements contributed positively, and that was partially offset by the recent market movements and also the reduction in our contractual insurance assets. Looking at the mix by geography, the main thing to note on this slide is that we had a step up in the contribution from Asia, which meant the relative contribution was slightly down from North America and EMEA, and in Asia, basically all three of our businesses that operate there. BFS is the only one not active in Asia, but they've all had pleasing growth in terms of their earnings, but also their business footprint and platform.
You can see here a five-year history in terms of the geographic mix, as well as we showed on the business mix. This year, the two regions where we had a step down in earnings were in Australia, which is where we had two of the large three realizations last year, and the Americas where CGM had that strong result in North American Gas last year. Turning then to looking at each of our four businesses and starting with our largest business, Macquarie Asset Management, you see this year it contributed 40% of the group's income, and the earnings were up 16%. In the mirror world, we had, again, a large amount of fundraising, over AUD 20 billion and over AUD 21 billion of investments with divestments and realizations of over AUD 16 billion.
That gave us just over AUD 149 billion of equity under management to finish the year and dry powder of over AUD 25 billion, so well positioned for the year ahead. As you know, we also during this year moved the real estate businesses into MAM for growing the real estate asset management and the aircraft finance businesses, as well as the infrastructure debt. In the aircraft finance, where we're moving to more of a fiduciary offering, we were able to bring a second investor into that portfolio so that the balance sheet now comprises 50% of it, and we have 50% managed on a fiduciary basis for external investors. We also were able to sell the European rail assets in the aircraft finance or the transportation finance business, and that will close or did just close in April.
In the traditional asset management business, the assets under management are up about 6% to just over AUD 382 billion, and that was driven, of course, by the Foresters Financial Mutual Fund acquisition we mentioned during the year, as well as foreign exchange, slightly offset by market movements and also the reduction in contractual insurance assets. Overall, we're placed there with a very good footprint to grow from in terms of asset management. As you can see on the bottom of the page, we've implemented now a client solutions group to bring this broader scale of offering to our investors and continue to grow the business from there. Turning then to Banking and Financial Services, which contributed 14% of our income this year.
As you can see, the earnings from that group was up 2%, which is a good result post the provisions that were taken, recognizing the environment at year-end and also expected credit losses moving forward that have brought, were brought to account this year. That business, as you know, has been growing nicely in terms of Australian market share and particularly in terms of the home loan portfolio. We're up more than 35% over the year to be over AUD 52 billion now in terms of the size of that book, and we've particularly been focusing on lower LVR lending and owner-occupied lending. Also, the business banking book is up 10% to AUD 9 billion. There, you'll know that we focus on professional services sectors, and this year we grew much more into emerging health, built environment, and technology as new sectors to focus on.
In terms of wealth management, the funds on the platform, all up and down 8% at about AUD 79 billion. I'd note that net sales grew by 3%, but obviously the funds on platform were impacted by market movements at the end of the year. At the bottom of the page, the deposits are up 20% to now being over AUD 63 billion, and in particular, the CMA deposits are also up 20%. Good funding is being generated internally for that business. Lastly, the leasing portfolio, which was transferred into BFS over this year, or in the last year and a bit, we continue to see declining volume there with the run-off in the acquired portfolio that we have there and also declining new sales.
That business being integrated into BFS is able to access both efficiency and service ability in terms of coordinating with the rest of the retail offering in BFS. Turning to CGM, which was the second largest contributor, 32% of our income, the result there was flat on a very strong year last year, and in the current environment, a good result from CGM. We transferred the specialized asset and finance business into CGM, and that book had a stable portfolio over the year, with growth in both the telecoms, media, and technology leasing and the energy leasing in the U.K. Also, in terms of these slightly blue-shaded annuity-style activities, the commodities business also had good growth in its lending and finance, financing activities. The commodity markets business last year, you'll recall, had a big contribution from North American Gas.
This year, the contribution was spread across a much broader set of its capabilities, in particular, global oil, EMEA gas and power, agriculture, and metals and mining were good contributors in that business compared to the big focus last year on inventory management and trading. The other business lines in CGM also did well. In financial markets, we had increased revenue, across all regions. In futures as well, we had increased client activity offset partially by impairments in relation to a small number of counterparties. In equity markets, we had an increase, in revenue driven by market conditions as well. I should note that we are transferring the cash equity stockbroking business from CGM over to Macquarie Capital to sit closer to the equity capital markets business there or to sit alongside it.
That's probably a good segue to Macquarie Capital, which this year contributed 14% of our income. Now, that result was down 57% on last year, but as I've mentioned a couple of times, we had three very large realizations in Pepsi, Quadrant, and Energetics in the third quarter of last year. The advisory fee, or the overall fee income in that business was down, and that was principally because debt capital markets fee revenue was down, but the M&A revenue was up pleasingly, showing the growth in the corporate relationships and customer base there. In particular, in infrastructure, we remain the number one global infrastructure advisor. Also, in the infrastructure and energy group, we continue our growth into the renewable energy area with 250 projects with more than two, more than 25 gigawatts in terms of the pipeline of projects we have.
During the year, we made another AUD 1.5 billion of investments and realized AUD 700 million of assets, giving us a AUD 1.7 billion book at the end of the year in terms of our renewable portfolio. That is the earnings of the operating groups. I'll now just step through our financial position, and as you can see, it remains strong. Our funded balance sheet is shown on this slide, and our term liabilities continue to well exceed our term assets. We raised AUD 26 billion of term funding during the year, principally at the bank level, and we also raised AUD 1.7 billion of new equity capital, as you'll recall, during this financial year. In addition, our deposits, as I said, have stepped up 20% and are at AUD 67 billion.
Our capital position is also strong and stronger than we finished last year, so it's the surplus, on the APRA Basel III basis has gone up from AUD 6.1 billion to AUD 7.1 billion. The main drivers of that are the earnings that we had in the period since offset by the dividends that we've paid, and then the capital raising, which was AUD 1.2 billion net, so AUD 1.7 billion of equity raising, and then the redemption of the bank capital notes, and then AUD 2 billion invested into our businesses. You'll see here where that capital was invested across each half in the businesses. The main areas of investment were in Macquarie Capital, where we invested in further assets, net of realizations and also including FX movements.
In the Commodities and Global Markets, in the first half, we mentioned the impact of SACCR, and then we also had the derivative book and FX movements impacting the capital used in that business. That was offset by Macquarie Asset Management release of capital driven by asset realizations, including that sell down of the Macquarie Air Finance portfolio that I mentioned, as well as the mirror performance fee recognition. Our regulatory ratios also remain well above the Basel III minimum levels, and I particularly note that our CET1 ratio on the APRA basis is at a very strong record level of 12.2%. Looking then in terms of capital management and the dividend that I mentioned that the board had declared and what some of the thinking behind that was, we clearly have had our second highest earnings figure.
We have a record surplus at the group level of AUD 7.1 billion of capital, and we also have a record CET1 ratio at the bank level of 12.2%. We are very conscious of and acknowledge the guidance by our regulator in early April in relation to capital management in this environment. In light of that, together with the continuing uncertainty driven by the COVID-19 impacts, but having regard for our strong capital position, the board has resolved to declare a final dividend of AUD 1.80, which is down 50% on the final dividend of FY 2019. In conjunction with the AUD 2.50 paid in the first half, that results in a full year dividend of AUD 4.30, which is down about 25% on last year's full year dividend of AUD 5.75 and represents a payout ratio of 56%.
Now, this final dividend is being funded entirely out of the non-bank group. The bank group has not declared a dividend in FY 2020, and there is no dividend being declared out of the bank group at this time. Either MBL, Macquarie Bank Limited, will not be declaring a dividend. In addition to that, the board has decided to neutralize or address the capital payment being paid by the dividend by issuing shares to satisfy the mirror obligations and also by using a DRP at a discount of 1.5%. Those two actions, together with the fact that we have generated AUD 1.2 billion of retained earnings after dividends this year, and we raised AUD 1.7 billion of ordinary equity during the year, result in our ordinary equity capital increasing by AUD 3.7 billion over the year, assuming a AUD 200 million take-up under the dividend reinvestment plan.
Our view is that these measures should position us well to provide a significant buffer for further and extended COVID-19 related volatility, and it will also allow us capacity for both business growth, but importantly, to continue providing credit to the economy, in particular the Australian economy, as we move forward. I noted that we had managed to grow our mortgage book by 35% and our business banking book by 10%, and we're well positioned to continue providing this sort of service going forward. I will just finish then on noting that the dividends, as I said, AUD 1.80 for the final dividend, AUD 4.30 for the full year dividend, and 56% payout ratio. Importantly, the dividend policy that the board has in place will remain at a 60%-80% annual payout ratio.
With that, I'll hand over to Alex to take you in more detail through the financial results. Thank you.
Thanks, Shemara. Good morning, everyone. As is usually the case, I'll take you now through some of the detail around the financial statements for the year ended March 2020. Starting first with the income statement and the key drivers, and perhaps looking at the second half of 2021, if you look at net operating income, it was down 5% for the period. Largely, you can see that's as a result of the substantial step-up in credit and other impairment charges that we took in the half, largely as a result of, primarily as a result of the deteriorating economic outlook as a result of COVID-19. From an expenses perspective, the expenses were down 2% in the second half of the year.
Again, you can see a drop in employment expenses, and that's largely related to the profit share, reduced profit share expenses consistent with the underlying operating performance of the business units across the half. Income tax expense slightly down, resulting in a profit to MGL shareholders down 13% for the half at AUD 1.274 billion. If you look on a full year basis now, again, starting with the net operating income, net operating income for the period was down 3%. Net interest and trading income at the top of the P&L, they're up 4%, largely reflecting the growth in the loan portfolio in our BFS business. You can see the fee and commission income for the period up 16%, up %, excuse me, and that benefited from foreign exchange movements and increased base fees coming through our Macquarie Asset Management business.
You can see the impact of impairments and credit charges, about an 88% step-up from the full year impact last year. You can also see the reduction in investment income coming through the net operating income line. Net operating income overall down 3% for the period. Expenses broadly in line with where they were in the prior year. You can see employment expenses slightly up as a result of the increase in headcount, particularly in the support areas, unfavorable effects, and also the accelerated amortization of share-based payments for retired KMPs, but partly offset by the reduction in profit share expenses, particularly in the second half of our financial year.
Other expenses slightly up, and you can see those two increases largely offset by the reduction in brokerage and commission coming through from the restructure of the equities business during the year, as well as the disposal of the Macquarie Pacific Funding business in BFS. Our income tax expense for the year was down AUD 151 million, the effective tax rate just over 21%. Bringing that all together for MGL shareholders, down 8% for the year at AUD 2.73 billion for the year. Now, turning to the income statement by operating group, you can see a big increase in contribution from MAM, 16% contribution from Macquarie Asset Management, largely flat in terms of the contribution from BFS and CGM, and a substantial reduction in the contribution from Macquarie Capital.
From a corporate perspective, we, a lower corporate expense, and that's reflecting both the increased utilization of funding across the group during the year, as well as the reduction in profit share expenses, over the course of FY 2020. Tax expense, as I said, down 151 from where we were this time last year. Now, before turning to the detailed financials for the operating groups, I thought it was important, given the significance of the credit and other impairment charges this year, to take you through some of the logic and some of the underpinning assumptions for our equity cap, our, expected credit loss modeling. Key, of course, to this is the dramatic change in economic conditions over the course of the latter part of our financial year, end of February into, into March and continuing today.
That forward-looking macroeconomic view needs to be factored into the ECL across our performing loan and lease portfolio. Of course, it needs to be considered in terms of specific impairments that we saw coming through those loan books across the group. There are obviously many factors that influence the ECL. From our perspective, key to that is the gross domestic product, it's helping to GDP, unemployment rates, and of course, the level of house prices. Over the course of the period, we developed three scenarios for the economic outlook. There's an upside scenario, which obviously has a substantial drop-off and then a very rapid recovery. We think that's unlikely to be the scenario that emerges. We developed a baseline scenario and a downside scenario, which are both described in the charts below.
Obviously, in that baseline scenario, we expect that to be the probable outcome. In terms of the downside scenario, we think that's a possible outcome. As we think about the ECL for the group, obviously the ECL that we've recorded this year is a weighted average of the expected credit losses across those three scenarios based on the weighting we applied to each of the scenarios. I note on this slide that 31 March 2020, the accumulated expected credit loss provision on the balance sheet is AUD 1.54 billion, and you can see that in the middle of the page. With that in mind, now talking to the credit and other impairment charges across the group, as I said earlier, you can see the step-up from FY 2019 to FY 2020, about an 88% step-up over the period and spread broadly across the organization.
From a Macquarie Asset Management viewpoint, an increased impairment of about AUD 126 million from last year, largely reflecting a small number of investments that we had to impair going into 31 March, including in particular an increased impairment associated with our holding of MIC in the United States. From a BFS perspective, there was an increased expected credit loss provision across the performing lease and loan liability, reflecting the deteriorating outlook that I talked about before, together with a small number of specific provisions we took, in relation to some of the loan assets in our business banking portfolio. From a CGM perspective, again, we saw an increase in the expected credit loss provision from the performing loan and lease portfolio in CGM, and we also saw a number of impairments on financing facilities that we provide in our futures and our FIC business.
Unfortunately, we had to impair those facilities at the end of the year. There are some specific provisions as well as that general ECL in CGM. From a Macquarie Capital perspective, a similar story. Again, the ECL has increased over the loan portfolio in Macquarie Capital, reflecting that outlook, that deteriorating outlook from an economic perspective, and a small number of facilities where we had to take specific provisions as a result of the deteriorating performance of those credits, some of which was related to COVID-19 and some related to other factors during the year. From an overall group perspective, we have also taken an additional corporate overlay provision, and that really reflects a more conservative view on the outlook for the economy over the short to medium term.
Now turning to the first of our operating groups, the Macquarie Asset Management Group, which is the largest of our groups. As I said before, you can see a 16% step-up on the contribution for the year. A good increase in base fees, 20% up on where we were this time last year, reflecting the benefit of foreign exchange movements, reflecting the benefit of investment in the mirror funds, the acquisition of the Foresters Financial platform during the year, and the base fees that we get in relation to the Macquarie Air Finance fiduciary joint venture that we put together over the last 12 months.
You can see performance fees stepped up AUD 56 million this year, and pleasingly, the performance fees are coming from a wide variety of funds across the world, which is really encouraging in terms of the diversity of the portfolio performance fees that we're seeing coming through MAM. A very significant step-up in investment-related income, and there's a number of components for that. We had higher investment-related income driven by gains on the sale of assets in the MAM business. We also saw a higher share of joint venture profits from the disposal of underlying assets in the mirror funds. We saw the contribution from the joint venture contribution from the air finance business, and we also saw the payment of a termination fee in relation to MIRA's management rights in respect of the tollway asset in France, APRR.
All those things coming through, a significant step-up in investment income during the period. Net operating lease income is down, largely reflecting the movement of those operating lease assets from the balance sheet into that fiduciary offering that we've talked about. You can see credit impairment charges coming through, and you can also see a step-up in the operating expenses, mostly reflecting unfavorable foreign exchange movements, also the full period effect of the acquisitions of GLL Real Estate Partners and the Value Invest platform in 2019, and of course, the expenses that we brought on board as a result of the Foresters Financial acquisition in 2020.
In terms of the underlying drivers, assets under management, obviously a key driver for the business over the medium term, and you can see stepping up to over AUD 605 billion this year, reflecting favorable foreign exchange movement, the acquisition of the Foresters Financial platform, as well as the investment of capital through the MIRA stable funds during the year. Of course, from a MIRA perspective, more particularly, equity under management being the key driver, just under AUD 150 billion at 31 March, and you can see a significant period of capital raising really across the world and for a number of different mandates within the MIRA stable. Pleasingly also, you saw equity return to investors at really attractive rates of return, which of course is an important part of the franchise that MIRA has built around the world.
Turning now to our Banking and Financial Services business, a solid result, up 2% this year, noting that there was an increase in, incredibly, impairments of AUD 80 million during the period. You see a very significant step-up in the contribution from our personal banking business, up AUD 148 million, and that really reflects the growth in volume that we saw coming through the BFS business this year. That increase was partly offset by the reduced contribution from our business bank, despite the increase in volumes, the 10% growth in volumes in the business bank. We obviously saw some pressure on business deposit margins coming through this year as a result of the cash rate reductions here in Australia. Reduced wealth management income as we have reconfigured that business from, towards a high net worth offering, so we had reduced brokerage income coming through.
Pleasingly though, we're seeing a reduction in the expenses again as we reduce the headcount and focus that wealth business on the high net worth private clients as we talked about previously. Underlying drivers of the business, home loans up 35% on a spot basis, business loans up 10% for the year. You can see deposits also up nearly AUD 64 billion. Obviously still, we saw the continued fall off of the vehicles portfolio, largely the amortization of the previously acquired facility in motor vehicles, and platforms affected by the market movements at the end of March. We thought it'd be useful to provide a little more detail about the credit portfolio in BFS as part of this year's results.
We have set out on this page a few things we hope you find useful. Obviously, on the left-hand side there, you can see the gross loan assets now over AUD 75 billion. I'll draw your attention to the expected credit loss as a proportion of credit risk-weighted assets. You can see that's up at 1.32%, and you can see we've given you the number before the impact of COVID, and that was 25 basis points less. You can see the real effect of COVID-19 coming through our expected credit loss provisions in BFS. On the right-hand side, this is a story that I think will be familiar to people. A lot of the growth we've seen in BFS in recent years has been in that low loan-to-value ratio product.
We had an offering out there below 70% some years ago, and we've continued to grow in that area. If you look at the portfolio on a dynamic basis, you see that 93% of the portfolio has a loan-to-value ratio of less than 80%. Very conservatively geared, and high quality, quality portfolio, which we think augurs well in the environment that we now find ourselves heading into. On the business loan side, again, the portfolio value is AUD 9 billion at the end of the year. We've set out the secure lending, and we've set out the security that we have underpinning those business loans. You can see it's largely residential property and commercial property and a diversified portfolio of things like RentRoll and StrataRoll supporting a lot of the business lending exposure in BFS.
We think the portfolio is very well positioned to weather what will inevitably be a challenging 12-18 months. Turning to the first of our markets facing businesses, the Commodities and Global Markets business, a really strong and pleasing result, and I think reflective of the fact that we have a very diversified offering in CGM and very much an offering that's focused on delivering outcomes for our clients. In the commodities business, we saw a reduction of 245 in terms of the contribution. You can see the big reduction in inventory management and trading. There are less opportunities for that part of the business over the last 12 months, but really pleasingly, you saw the risk management income step up by 20% during the period.
We've been able to provide hedging solutions to our global oil clients, to our European gas and power clients in the agriculture sector, and also in the metals and mining sector. A really encouraging result in terms of providing solutions to clients to help manage their exposures in these, in these more challenging markets. Pleasingly, we also saw the increase, a continued increase, in contribution from FX, interest rates, and credit. Simon Wright spoke about this at the operational briefing, but the contribution for that business this year was up about 21% from where it was this time last year, and then from an equity perspective, up 46%. That reflects a better trading environment, particularly in Asia, and particularly for our warrants business. It was pleasing to see that come through during the period. The net operating lease income up AUD 75 million.
This is the income we derive from the specialized and asset finance portfolio, a big step-up in that income, largely related to trading in some secondary assets that we got back at the end of lease period, and also ongoing inertia revenue from our handset leasing business. It was pleasing to see that come through. Expenses obviously flat for the, broadly flat for the year, and you can see the result up at AUD 1,746 million for the year, up slightly on where it was last year, even after considering the increased impairments of AUD 93 million that came through the group this year.
Just in terms of the underlying drivers, you can see the customer base growing in commodities, growing in financial markets and futures, and the asset base growing in the specialized and asset finance portfolio, which obviously augurs well in terms of the client business and also the annuity-style of income coming through CGM, that we referred to earlier. Just in terms of capital, there has been a significant step-up in capital utilization, for CGM during the year, up to AUD 5.9 billion. We spoke about SACCR before, the regulatory change in terms of capital against unmargined derivatives, so we saw that coming through. As the markets became more volatile toward the end of the year, we saw additional credit capital required for mark to markets, and a number of additional credit as a result of deterioration in counterparty credit profiles.
You also saw unfavorable movements from an FX perspective coming through the CGM business. Of course, from a group perspective, we capital hedge our foreign currency exposures, and so you see an increase in the FCTR coming through the reserves that's balancing out the impact of FX within CGM. Market risk down AUD 200 million for the year. In fact, as we went into the back part of the year, market risk was at multi-year lows in that business. Now turning now to Macquarie Capital, the last of our market facing businesses, a more challenging period, down 57% for the year. Obviously, investment income down AUD 760 million, not unexpected.
We talked a lot, during the 2019 results and through the year, about the significant realizations that came through Macquarie Capital last year, and we did not expect those to be repeated this year. We did see some good realizations, particularly in the green energy sector, so that was pleasing to see those realizations coming through. Fin commission income down, just over AUD 70 million for the year. The DCM business, we talked about at the half, continued to show lower results than we saw in 2019 given the market conditions. Pleasingly though, the M&A business across Macquarie Capital, the M&A fee revenue across Macquarie Capital was up for the period. That decline in DCM partly offset by the M&A activity across the group. Operating expenses up AUD 95 million.
The investment we've made in people in the US and the European advisory business together with skill sets that are necessary for our development activity around the world. Overall result, AUD 755 million for the year. In terms of the capital we have invested alongside Macquarie Capital and its clients, you can see it stepped up AUD 1.2 billion for the year. Pleasingly, you can see the increase in capital in the green energy space. You can also see, which is a continuation of the story that we've been talking about for some time. You can also see the increase in capital in infrastructure and technology across the year. Those sectors that we've invested in for a long period of time continue to be a feature of the Macquarie Capital business.
You can also see an increase in the capital we've got, alongside the debt portfolio in Macquarie Capital. Partly that's a reflection of us moving the principal finance business from CAF into Macquarie Capital, and the principal finance team seeing opportunities to participate in debt raisings alongside Macquarie Capital clients, and partly it's capital that's attached to our debt capital markets business in the United States. Turning now to some other elements of the group, compliance and the cost of compliance continue to rise. Obviously, the finance industry continues to see an increase in regulatory initiatives, and that's causing the increase in costs. You can see increased project costs as well as increased business as usual costs.
The environment continues to evolve and there is, there is a lot, a lot going on on the regulatory front. My expectation is this story of, of compliance will continue into, into the medium or the costs of compliance will continue obviously, into, into the medium term. In terms of the balance sheet, a really big year, from a balance sheet perspective, AUD 1.7 billion of capital raised in August last year, very pleasing support from, from the shareholders. In addition to that, we raised AUD 26 billion worth of term funding. Now, AUD 23.5 billion of that term funding was raised in Macquarie Bank Limited during the year. A really big raise, a really big period of capital, capital raising there.
Pleasingly we saw AUD 7.7 billion of that fundraising, excuse me, raised in the final quarter of our final quarter of the year into March. In fact, we were able to raise AUD 700 million of term funding in the month of March, which of course was a very, a very difficult, very difficult period. A really strong period of capital raising, across both debt and equity for the group. In terms of customer deposit growth, in terms of average growth rate over the last period from 2013, about 9% per annum. We saw a very big step-up in the financial year 2020, up 20% from where we were this time last year.
A really nice continuing story of customers providing, giving us deposits, and a reflection I think of the service and quality offering that BFS are offering to their clients. Really pleasing growth in customer deposit numbers this year. In terms of the diversified issuance strategy, we talk about this a lot. Obviously, from a group perspective, we need to be diverse from a currency perspective, a tenor, and a type of funding. In addition, this year we've been more active in the securitized markets, both with Puma and Smart to support our mortgages and our motor vehicle leasing assets. It's been really pleasing to see us continue to diversify the type of funding that the group's accessing. In terms of the weighted average life, 4.8 years beyond one, beyond one year.
Nice, maturity profile that we've been building over the last few years, in terms of debt funding. The loan and lease portfolio, up about 5% from where we were this time last year. You can see the growth in BFS loans, both home loans and business banking loans during the year. You can also see the growth in corporate and other lending in Macquarie Capital, and that's been partly offset by the reduction in operating lease assets as we've moved the aircraft from the balance sheet into that fiduciary offering, and we brought partners in alongside us into that joint venture. You can see the impact of those partners coming into the joint venture in our equity investments.
The equity investments have gone up from AUD 5.9 billion in March of 2019 to AUD 7.5 billion. You'll see the big step-up in transport, industrial, and infrastructure. That's really the inclusion of the 50% interest that we still retain in MAF onto our equity investments balance sheet. You can see that coming through the numbers over the last 12 months. In terms of regulation, as I said before, there is a lot of regulation activity that continues. On the 30th of March, APRA announced the deferral of the scheduled implementation of the Basel III reforms in Australia by one year. That was a part of allowing ADIs to focus on the implications of COVID-19 and in particular to continue to support the Australian economy.
We have set out the particular initiatives and the deferral timetable that has now been announced by APRA. We also note that APRA is in discussions with Macquarie on resolution planning and intergroup funding. Those discussions continue, and we are working on these initiatives in consultation with APRA. Just a quick update in relation to Germany. Obviously, Macquarie continues to respond to requests for information from the German authorities in relation to their investigation of dividend trading. In total, the German authorities have now designated as suspects approximately 100 current and former Macquarie staff. I note that most of whom are no longer with Macquarie. The total amount at issue, as we have said before, is not material and has been provided for in the financials. In terms of the bank group CET1 ratio, a really strong 12.2%.
You can see the contributions to that, over the year from 11.4 last year to 12.2. Obviously, the profit coming through, coming through the bank, the capital ingestion, the impact of SACCR, which is obviously a negative in terms of, in terms of step one. The business capital requirements, that's the growth largely in BFS and CGM. Of course, the other movement is the foreign currency translation reserve, that capital hedging we do of our foreign currency investment exposures across the group. Liquidity remains very strong, nearly AUD 40 billion of cash and liquid assets available to the group at 31 March, and very strong liquidity coverage ratios as well. In terms of capital management, just a couple of things from me.
On the 13th of March, we announced the withdrawal of our replacement BCN2 hybrid capital instrument given the significant uncertainty in market conditions at that point. I do note that subject to those market conditions, Macquarie Bank Limited is considering launching a BCN2 in the near future. We also redeemed the Macquarie Income Securities during the period, and the BCN, the AUD 429 million of Macquarie bank capitalized, was redeemed during the period. The board has resolved to issue shares to satisfy the employee grants this year. I note that the issue price for those shares will be the average of the daily volume weighted average price during the period from the 25th of May 2020 until the 5th of June.
In relation to the DRP, I note that the second half 2019 dividend and the interim dividend for FY 2020 DRP were acquired on market. The board has, however, resolved to issue shares to satisfy the DRP for the second half 2020 dividend at a discount to the provided market price of 1.5%. With that, I'll hand you back to Shemara. Thank you.
Great. Thank you, Alex. Before I go on to talking about the factors driving our short-term outlook, I thought it was worth dwelling for a minute on the business activity we've had over the recent period by group. Starting with Macquarie Asset Management, I mentioned that the group ended the year with AUD 25 billion of dry powder. Investment activities have continued, as you can see there across North America, EMEA, Asia, and Australia. Fundraising has also continued. Out of that AUD 20 billion raised last year, I'd note AUD 1.9 billion of it was raised in the last month of March. Also, in terms of asset realizations, I mentioned the sale of the European rail portfolio closed in this month of April. MIM continues to deliver good results for its clients across fixed income and equities.
Looking at Banking and Financial Services, the growth that we've been experiencing in deposit volumes has continued through this financial year. We also continue to provide credit, extend credit to the economy within our typical prudent lending standards. In the market-facing businesses in Macquarie Capital, we are basically seeing opportunity to support our clients with fundraising with AUD 6.8 billion of equity raised for our clients by the Macquarie Capital team since the 1st of March, and also help on other financing solutions for our clients. In the development and construction activity across our infrastructure and renewable energy projects around the world, activity is proceeding but clearly under very tightened health and safety conditions. Lastly, in the Commodities and Global Markets business, what we've seen in this financial year is heightened client activity as there's been repositioning of portfolios happening.
We also saw a renewal of our borrowing base facility in the commodities business there, which shows the support that our counterparties have for our business. Looking then at the factors driving short-term outlook by group, starting first again with Macquarie Asset Management, we expect base fees to be broadly in line, but we expect net other operating income to be significantly down due to the expected delays in realization of assets. In the Banking and Financial Services business, the higher deposit and loan values will impact the results in that business, but the platform volumes will depend on market movements. We expect competitive dynamics to continue to exert margin pressure in that business.
In terms of Macquarie Capital, the transaction activity is continuing, but the challenging markets mean that we expect that the completion rate of transactions or the successful completion of transactions will be impacted. We also expect an increase in the time to completion. In the principal investing side of that business, including in energy and infrastructure, the time to realization is also going to be delayed and that will impact results. Lastly, in Commodities and Global Markets, we're expecting subdued activity levels from clients over this financial year. I'd note that the specialized asset and finance business has still that stable balance sheet and annuity flows, which should drive results. We also have the diversification by product and sector that should give that business some resilience to its earnings. We may find opportunities from the continued volatility.
Pulling all of that together, market conditions are, of course, likely to remain challenging. That is particularly so given the significant uncertainty being caused worldwide by the COVID impacts and the uncertain speed of global economic recovery. To the extent these conditions are impacting our FY 2021 profitability, that remains uncertain and that makes short-term forecasting extremely difficult. Accordingly, we are unable to provide meaningful guidance for this year ahead. I would also note the year-end results or the results of the year remain subject to, in addition to the COVID-19 impacts, the normal factors of the completion rate of transactions and period-end reviews, market conditions and the impact of geopolitical events, the impact of foreign exchange, potential regulatory changes and tax uncertainties, and the geographic composition of our income.
We continue to maintain a cautious stance with a conservative approach to capital, funding, and liquidity, and that should position us well to respond in the current environment. Looking at the medium term, as we often say or always say, we think we're well positioned given our deep expertise in specialist niche areas like our global specialist asset management capability, our Australian banking franchise that we have, our global commodities platform, and then in our investment bank, our service capability together with the principal finance balance sheet available and the infrastructure and energy specialization. We also have a diversity in terms of business sectors and geography. We have an ongoing focus on cost management. We have our strong and conservative balance sheet, and we also have our proven risk management framework and culture, which should continue to support us going forward.
You can see that in the last slide I'll speak to that shows our medium-term results that we've delivered. Where in our annuity-style activities over the last 14 years, we've delivered a 22% return on average and 24% in this last financial year. In our market-facing activities, we've delivered a 16% return on average and 14% in this last financial year. After taking into account our record surplus capital position of AUD 7 billion, that gives a net return to shareholders this year of 14.5% return on equity. With that, I'm going to hand back to Sam for questions. I would note that joining us virtually in addition to yourselves, we have Martin Stanley, the Head of Macquarie Asset Management in London, and also Dan Wong, the Co-head of Macquarie Capital based in London, where it's getting close to 2:00 A.M. now.
Also the Co-Head of Macquarie Capital, Michael Silverton, joining from New York, where it's more leisurely getting close to 9:00 P.M. Here in Australia, we have Florian Herold from Macquarie Capital as well, another of our executive committee members. We have online Nicole Kong, the Head of the Commodities and Global Markets business, and Greg Ward, Head of Banking and Financial Services. In relation to our support groups in the room with me, as well as Alex Harvey, our CFO, we've got at a very wide distance in the auditorium here, Nicole Sorbara, our Chief Operating Officer. I know Michael Herring, our General Counsel, is available. Patrick Upfold, our Chief Risk Officer, is also on the line from Melbourne. Lastly, Mary Reemts, CEO of Macquarie Bank Limited and Head of the Foundation, is also available for questions.
With that, I'll hand over to you, Sam, for questions. Thanks.
All right. Thanks, Shemara. As Shemara said, we're going to open the lines for questions. It will be facilitated by the operator, so I'll hand over to the operator. Thank you.
Thank you. If you wish to ask a question, please press star one. If you wish to cancel your request, please press star two. The first question comes from Matthew Wilson with Evans & Partners. Please go ahead.
Yeah, good morning, Tim, and thank you for the opportunity. Two questions, if I may. Firstly, in the Commodities and Global Markets business, obviously inventory management and trading went from +302 to - 124 in the second half. Given the oil price pressure, most of that came in April. Can you talk us through the performance of that line since the March month end? I also note there's 180 less heads now in that business. Perhaps if I ask the second one as well, Macquarie Air Finance, there was no impairment recognized in relation to investment in Macquarie Air Finance, which sits at about AUD 789 million. There was a small one in the vehicle. Can you talk us through that decision and what factors are driving the valuation of that or the current value of that investment going forward? Thank you.
Yeah, I'll kick off and hand over to Nick O'Kane, who's with us to answer your first question. In relation to the inventory management and trading income, you may recall last year we had a situation in the North American gas market where there were constraints in physical infrastructure and transportation and storage, that created an opportunity for us to make a particularly strong gain. That did not repeat this year. The results in the commodities business, as I mentioned, were spread across many areas, global oil, particularly strong contribution over the year. There were also good results from the EMEA gas and power business and the metals, mining, and agriculture. I'll let Nick talk to that, and then we'll come back, Nick, and we'll talk about the air finance and the vehicle provisions.
Thank you, Shemara. That is correct in terms of the way you've represented that outcome in the business. What we did see was the opportunity for other parts of the business to contribute largely around the risk management product and the risk management side of the business. We didn't see a repeat of the opportunities in some of our businesses in the North American gas markets, particularly, that we had seen in the previous months. That was what was driving that result difference or the difference in that result between the two halves.
Any comment post-March, given that's when we've seen the most sort of calamity in oil?
Nick, I was just going to say we mentioned when I talked about the activity levels that we've seen, good activity level. For our services, that's been positive given the rebalancing of our client portfolios over the month of April. I think, I don't know, Nick, if you have anything to add to that, but I think that's the comment we'd make is that, when there's activity from our clients and we're able to provide services, that is generally good for the Commodities and Global Markets business.
That's right. The volatility that we have seen has meant that our customers have exposures that they've needed to hedge, and we've continued to assist them with that over the course of the last month.
Okay. If that covers, sorry, Alex, please go ahead.
Matt, in relation to MAF, as you say, we've moved that portfolio of aircraft into the fiduciary JV. We now have an equity account of interest of, in the AUD 700 million in that portfolio. We obviously, as you could imagine, given the difficult environment for airlines, had a very good look at the carrying value of that equity investment. In terms of the way we think about that, you're obviously comparing the value in use basically to the carrying value that we have on the balance sheet.
The portfolio, as you know, is about 190 aircraft and pretty diverse in terms of the lessees that we have in the portfolio, largely narrow body and largely contracted for an extended period of time. You know, when we tested the value in use, it holds up obviously very well in comparison with the cost. We are seeing clients ask for deferrals. Obviously, we had to think about that in terms of the value of the stake in the joint venture. Obviously, with these long-life assets, a relatively short period of deferral has no impact in the value in use.
We did take, through the joint venture, a small single-digit impairment on a couple of aircraft that are back with us to reflect the longer period of time for releasing, and a reduced lease rate. Generally speaking, we're very, obviously very comfortable with the carrying value of those assets, and that's well in the value in use, at least well in excess of the carrying value on the balance sheet. Finally, if,
Thank you.
As it goes longer and aircraft get handed back, you know, we will continue to review that. As we see today, very comfortable with the value of it.
Motor vehicle leasing, do you want to cover that or should? The, the.
Sorry, did you have another? Did you have another question about?
No, it was just a question about the motor vehicle.
Oh, that was more air finance. If you wanted to add anything on vehicles, we're always happy to get more information.
I think we could cover that. I can't, I can't quite hear you, Matt. I think we covered air.
Thank you.
You're interested in MAF, so I think I've covered that. We covered that.
Yep, you're fine.
Thanks.
Thank you. The next question comes from Ed Henning with CLSA. Please go ahead.
Hi, thank you for taking my questions. First one, can you just run us through your thoughts on your equity investments? Obviously, we've seen very little impairments in this half. You know, assets have fallen globally. Just how the outlook on that to start with?
Mm-hmm.
Yeah. In terms of the equity investments, we've obviously gone through, investment by investment and considered impairments. There have been ones that are particularly impacted by this COVID-19 environment where we have taken impairments. Alex mentioned Macquarie Infrastructure Company in the US where we have a private jet terminal business, Atlantic Aviation. We've had some oil-related assets that we've taken impairments on. We've had investments in a small cruise business we've taken impairments on. We've gone through them, position by position and taken impairments where appropriate.
I mean, obviously, maybe just to add to that, Ed, you know, a lot of the, a lot of that, those equity investments obviously sit in, in Macquarie Capital. And, as you know, the predominance of, of activity in that business is really the development, that construction stage of, of infrastructure and, and green energy. And so a lot of those assets are at cost, and they're obviously supported by, by revenue contracts that underpin the value of the assets. And so, you know, in effect, we think those, those assets obviously are well supported even, even in the current, even in the current, climate. As Shemara said, we've, we've obviously done a detailed review across the portfolio in Macquarie Capital and elsewhere in the group and, and had a look at position by position to make sure that, we're comfortable with the carrying values.
and then other equity positions. We have a co-investment in our funds where we have essential service long-term infrastructure assets. It has been a small portion of the book that has been impacted in terms of equity investments by the current environment.
Okay. Thank you. Just a second question, following on from Matt, just on CGM. Can you just touch a little bit more, you know, do you have any mark-to-markets on oil if you've got any storage there? Also just touch on, April, just a little bit more on what you're seeing in, in the gas market there as well, please.
Yeah. I'll let Alex comment in more detail on what we're doing in terms of the storage assets, of which we do have some. What we've done is, Alex talked through the approach we've taken on our expected credit losses, but we've taken a forward perspective looking at the scenarios that we've put in place and looked at how our positions can be impacted. We've had some situations where we've had counterparties with particular issues as well where we've taken credit impairments. Ultimately, through the XVA adjustments in our derivatives exposures and the ECL adjustments in terms of where we have credit positions, we've gone through position by position and taken those into account. Storage, particularly, obviously has increased in value in this environment. Alex can talk through the accounting that we use on the storage.
In terms of the, thanks, Ed. In terms of the, in terms of the storage assets, I mean, obviously a feature of the CGM business, around the world, particularly in North America, is that physical inventory movement, whether it be, you know, across pipelines or into storage assets. As part of that physical business, the team does have access to storage assets. As Shemara said, you know, with the oil price, the recent oil price movement, storage assets generally are going up in value with the contango coming into the market. The team over in the US is actively working to generate return from those storage assets.
You know, one of the things we saw in the latter part of FY 2020 was, I guess you had oil price coming down, you had storage value going up. Oil prices, obviously for us, we mark-to-market through the group's P&L. Storage is accounted for on an accrual basis. What you saw at the back end of FY 2020 was the drop in oil price coming through, which was going through our P&L, but not the related increase in storage value that is implicit in the portfolio that the team have access to.
Sorry, can you just touch a little bit more what you're seeing on the North American gas trading side, please, in April?
Yep, Tom, it'll have a go. And then maybe Nick, do you, you can jump in. I mean, obviously, what we are seeing, you know, if you think about the, the general view, you know, oil, oil, oil production is obviously, is obviously under pressure with the, with the prices coming down. What we've seen, over the, over the recent times is gas as a byproduct of that oil production. One of the things that's happening in the, in the gas markets in the US is a narrowing of the spreads between, between regions. That's partly a, a function of the fact that as people anticipate oil production coming down, you're obviously seeing gas prices, gas prices rally, relative to, to where they were.
I think that was a, that's a sort of a feature of what we've seen over the last, over the last quarter or so. Maybe I'll let Nick talk about what he's seeing in April.
Yeah, that's right. That's right, Alex. So we have seen some volatility in the benchmark natural gas price over the course of the last month or so, where we've seen the market test the lows and then rebound. As you look further down the curve, we've actually seen a strengthening in natural gas prices, due to the factors which Alex has just outlined and the expected impact on future production that would be linked to production of other hydrocarbons. We've actually seen that market recover faster than some of the other markets in the North American energy space. You know, aside from that, trading conditions have been relatively normal in the month of April for natural gas.
Okay. So it's, you're just seeing pressure at the moment, basically being able to trade the big volatility swings in price?
There has been some volatility in the prompt month, but it's not particularly significant.
Okay. Thank you very much.
There's pressure. Okay. Thanks.
Thank you. The next question comes from Andrei Stadnik with MS. Please go ahead.
Morning. We wanted to ask two questions, one at a time if I could. Firstly, just thinking about the dividend, you've noted that the outlook for the dividend policy remains 60%-80%. The dividend did dip into mid 50% on this occasion. The dividend was really in the second half carried entirely by the non-bank group. How should shareholders be thinking about the dividend for FY 2021? Is that 60%-80% target range still relevant in the current conditions?
Yes, the board has maintained its policy, in terms of dividend payout ratio being in the 60%-80% range. This year, as you noted, it was 56%. I think we stepped through the extenuating circumstances that have driven the thinking behind what the dividend should be this year. Going forward, the policy of the board is a 60%-80% payout ratio.
Cheers. Thank you. In terms of outlook for fundraisers in MAM, you raised about AUD 20 billion this year. What, you know, what should, you know, we've been thinking about in terms of potential for FY 2021, just, you know, kind of noting that some of your American and European peers have been talking about more difficult raising conditions. You know, what are your investors saying? Because infrastructure assets, you know, sold through the financial crisis 10 plus years ago relatively well. Some of them have been tested much more severely in the current conditions. You know, what kind of feedback are you getting from your clients in the MAM side?
Given Martin is on the phone at this late hour for him, I'll hand over to him. I guess I'd make the broad, couple of comments that there's a lot of liquidity out there in the world at the moment despite the issues in the real economy. Investors need more than ever to find good places to put that money in terms of return for risk, and then defensive assets and yielding assets. The track record of the MAM team is very, very strong. The franchise of investor relationships it has is very, very strong. The backdrop for MAM in terms of fundraising is good. Having said that, our investors are obviously dealing with multiple challenges at this time. Why don't I, Martin, hand over to you to elaborate?
Yeah, sure. Thank you. You know, in the portfolio of around 160 assets around the world, despite what we're seeing at the moment and despite what we're looking at in the future, we've got a very small handful of assets that have got either liquidity or financing issues. That's predominantly because we've taken a very cautious approach over the last few years in terms of our financing arrangements. Much of our debt was termed out, much of our covenants were adjusted, such that as we sit today, we're actually in a very strong position. The portfolio around the world has held up very well. Any assets that we've got issues with are generally in those areas that you know that are reasonably obvious.
The sort of aviation space, and in those cases, we've got our relationship banks and our relationship banks are being very accommodating. I think in answer to your second point about how investors are feeling, I think they're all feeling pretty good. They obviously have a whole bunch of other issues around the world to deal with at the same time. We have communicated as much as we can with the investors. We've engaged with them on an individual fund-by-fund level. We've held conference calls with them. The general feedback from the investor community is very positive at present.
Thank you. Can I just double-check? In terms of, you know, repeating AUD 20 billion raisings in FY 2021, would you say that's fairly unlikely?
well, it's,
You go ahead, Martin.
It depends on the, obviously, it depends on the, you know, how the, how the world unfolds as we go through the next few months. We've actually had a very strong start to the year. Over the course of the last month, for example, we've raised around AUD 3.5 billion of capital during the course of this short period. Some of that is sort of, we've got existing products in the market, so people are supporting those existing products. We've also had good support for some of the co-investment transactions that we're doing. We've actually got off to a pretty good start despite the conditions. We've got some of our strongest products in the market for this year. Let's see how we go. At the moment, things are looking reasonably promising.
Thank you.
Thank you. The next question comes from Andrew Triggs with JP Morgan. Please go ahead.
Thank you. Good morning. Just two questions, please. First question just on the very strong second half, other total of other operating income and charges of AUD 1.2 billion, which was really driven by gains on associates and JVs. Just interested in some more color on what those related to, please. And then second question, just perhaps any comments on the performance and outlook for the principal finance book, just in the current economic backdrop.
Do you want to do the first one?
Yeah, sure. Thanks, Andrew. Yeah, it was a good period, in the second half, as you say. If you think about where that joint venture income comes from, really, what drove the performance in the second half was largely the sale of the underlying assets in the mirror business. You'll recall last year that we announced a number of transactions in that mirror business where we'd sold assets in some of the European funds and some of the US funds. We saw those transactions completed. That obviously brings the equity-counted income forward to us. That's the primary driver.
Obviously, we're also seeing, you know, in that investment income category, not so much the JVs, but, you know, investment income more generally in the second half that we saw the disposal of the MIRA's investment in the Logos real estate platform in the, in the second half. We also saw a termination fee paid to MIRA in respect of its management role in APRR, the French toll road that I mentioned earlier. All of that came through in the second half.
I guess the other thing that's coming through this year of net profits and losses of associates is as we've moved the aircraft business from the on-balance sheet operating lease business into the fiduciary business, into the joint venture, we're now a, we were for the year a 75% holder. We're now a 50% holder. You saw our share of that joint venture profit coming through that line as well. It obviously stepped up in the second half following the completion of the sale, the first sale of 25% to PGGM.
And, on the principal finance, again, given we have Dan Wong on the phone, at a very late or I should say very early hour his time, might let him comment on the portfolio of renewable energy developments. We have down the 250 projects which we're constantly investing in and realizing what you see there across geographies and commodity types. Then Florian Herold is on the phone here in Sydney. So, Michael Silverton, we might get Florian to talk about the ACS side if that's all right. Dan, do you want to go first?
Yeah, sure. Thanks a lot, Shemara. Yeah, look, in relation to the principal investments that we have in infrastructure and energy, as Shemara has mentioned, it's a business that is focused on the development and construction of projects across infrastructure and energy and in particular green energy. We go into this new financial year with a strong book of investments that are coming through the construction phase and the development phase. They're all projects that are continuing. And, you know, despite COVID-19 having had some impact on activity on site, in the main, we're seeing our construction activity continue, albeit under some constrained environments with the social distancing and the like.
Overall, governments remain supportive for that activity to continue, which is important as our projects mature into late-stage construction and into operations, which obviously then puts it into a position for us to bring new investors in or to invest in them outright. We also have a strong pipeline of development activity, over 250 projects in particular in green energy. And this is, you know, one of the more, one of the most exciting parts of our business, and growing parts of our business. These are long-term activities. While COVID-19 has had an impact on some of the activity as everyone moves to working from home, because the long-term development cycle of these activities, in the main, it's a relatively small impact and these projects are moving along.
We're expecting these projects to continue and demand for them both in terms of the green energy that is produced off the back of it. We're seeing good demand from corporates continuing as they're all on their journeys to decarbonize their own operations. Also, in terms of the investor market, whilst it's still relatively early, similar to Martin Stanley's comments, we're expecting it to be relatively resilient, in that these projects are, you know, stable cash flows and also in the direction of sustainable infrastructure, which is a good risk-return for investors as well.
I guess I'd say overall, we like Martin said in relation to the infrastructure assets, we're going to have to watch how things play out because the environment is so uncertain. At the moment, you know, we've got small exits going on in regions in sub-commodities and we're seeing good interest. We're just going to have to wait and see and keep the market updated as things develop. Michael Silverton on the phone from New York, do you want to just give some preliminary comments and then Florian can talk about, in sectors beyond infrastructure and energy, what we see for realization opportunities in principal finance?
Sure. Thanks, Shemara. The overall portfolio we feel very good about. And we're obviously invested across the capital structure, with some good running yield from our debt positions. The timing of exits obviously matter, and we can see those shifting out. The deployment rate has been good. We have been seeing good opportunity. And obviously, we've been engaging with our clients extensively over the recent period just to see how we can be supportive. We have extensive sponsor relationships where our ability to move across the capital structure can assist them through this time. I think we see good opportunity there. Maybe Florian, you want to add to that?
Thank you. I'd really just add that the book is a combination between debt and equity and where we have debt positions, they are almost entirely first ranking, most senior in the capital structures. We feel well-positioned there. Equally, the current environment we're in could bring interesting opportunities alongside clients and in the market. I would otherwise echo the comments that Michael already made.
Okay. Thanks, Macquarie Capital team. As I said, I mean, our, our next update will be at the AGM, four-yearly updates. We will probably have a better sense of how things are tracking by then. At this stage, we can't really say much beyond what the team have because the environment is so uncertain.
Thanks, Shemara.
Thank you. The next question comes from Brendan Sproules with Citi. Please go ahead. Pardon me. The next question will come from Jonathan Mott with UBS. Please go ahead.
Yeah. Hi, I've got a question that goes to the structural impact of the crisis and how it impacts your operations and assets. If you look at an asset like an airport or a toll road, they're meant to be defensive and annuity-based. But some of these assets you've seen activity levels down 70%, up to 90%, and above 90%. If you step back and think about it, it's the second and or maybe even the third time we've seen these black swan events over the last 20 years. When you consider that they're defensive in a normal condition, but every 10 years or so we're having these black swans, do we need to sort of stop and reconsider the gearing levels of these assets?
Are there any other structural issues that you think are going to come out of the crisis that we need to consider? A following question which really relates to travel restrictions because at the moment, a lot of the deals that you're doing, across your assets under management, your principal investments, even M&A in Macquarie Capital, a lot of it is international cross-border. If the travel restrictions stay in place for several months or potentially a year if Australia gets the borders closed here, but even internationally, how's that going to impact your ability to execute transactions across so many different parts of your businesses? Those two structural questions, please.
Yeah. Thanks, Jon. In terms of your question about black swans, they're all completely different, which is what makes them black swans. If it was the same sort of issues over and over again, they'd become part of doing business. We have had events. The GFC, for example, was a very different sort of black swan where we did learn lessons about matching funding, about liquidity, about capital positions being financially very robust. Frankly, gearing levels have come down in assets since then. We are very prudent. Martin could speak to it about the leverage we put into the assets in our funds. We take the same position with the assets on the balance sheet.
Here, we have a very different issue with these, which is a health-related pandemic which has led to governments having to shut down economies to get over the health issue and then try and reopen economies without lasting damage. What that does with so many people out of work, or if they are on welfare or wage subsidies, not feeling comfortable about spending. We have demand destruction. We have travel and movement destruction. Assets like transportation assets, which are only a small part of what we have, a lot of utility assets there and waste assets and all of these that continue to be used. Roads and airports may have traffic hit for a period. Whether that period is going to be 6 months or even 12 months, these are very, very long-dated assets. They have, you know, 10, 20, 50-year lives.
It is unlikely that the demand destruction, unless it has a long-term impact, is going to materially impact the valuation of those assets. We are early in this latest black swan. There will certainly be lessons to be learned from it. We, like everyone, you know, have learned some early lessons. We will be watching how it evolves and taking away lessons from that in terms of how we run business in the future. One of those lessons structurally is, you know, lots of people have had to deal with working remotely. There was a time where we would have thought it would take a very long time for us to get set up to work remotely. We had a whole lot of, you know, disaster recovery facilities in place, etc. Nicole's here with us.
Basically, she and the operations team have managed through technology, through HR, to send 98 of our people, to, you know, be able to work from their homes. We've been doing that now for seven weeks. Activity levels continue. I mentioned some of that in the Outlook slides that I talked about, the activity levels going on this year. You know, the MAM funds have managed to do investments with Cincinnati Bell in the US, Viesco in Europe, the LGCNS assets in Asia, the AirTrunk assets here and in Asia. Deals are still happening. The Macquarie Capital people have managed to do advisory transactions. We've managed to sell our European rail portfolio. We've done a lot of equity raising over the last period. I mentioned AUD 6.8 billion. The ASX has been the biggest raising market in the world.
It's been quite phenomenal how we've been able to keep business going in this environment where the real economy is materially impacted and we're able to do it without having to travel. You know, it may bring people to question how much they need to travel going forward. Having said that, we're all ultimately social creatures and we need to interact with each other and build relationships, etc. I think once the travel restrictions are lifted, people will start to engage more. We're managing to get business done. Because Nicole's here, I might, Nicole, let you make any comments on, you know, what sort of disruption we're seeing around the world having to work in this environment in terms of allowing our businesses to continue operations.
Thanks, Shemara. I think the key point is, by and large, it's business as usual. This is a result of a long-term investment in building capability. Yes, we have had to do a lot of work to allow 98% of our people globally to work from home. Given we are a global business, we're in 30 countries around the world. We've been able to connect seamlessly. As you say, business has continued. All of that has worked very well. We do expect to see domestic travel to open up well ahead of international travel. We are planning for that at some stage. It is also showing that there are different ways of working.
We are also able to effectively connect large groups of people remotely, whereas in the past, we probably would have had a lot more physical travel to allow those groups of people to come together.
Yeah. Nicole also covers our office space footprint. On the one hand, we're finding people are able to function much more working remotely and out of office. On the other hand, when people come back, we'll probably have stronger social distancing, so potentially need more space because of that. It's probably early in this particular black swan to make big calls on what the long-term implications will be. We are learning some short-term lessons.
Just following on from one of your comments in there, Shemara, I think you said that deals are still happening and you mentioned a lot of the transactions that have completed June's period. A lot of the due diligence for that probably would have been done before the pandemic really exploded and travel restrictions came in. Do you think cross-border international transactions, asset sales, M&A will still be able to happen and due diligence will still be able to be completed while we're in global travel restrictions? I mean international travel, not working from home.
Yeah. Look, activity level is continuing across borders. For example, you know, you've seen the investment-grade market, operating very strongly in the U.S. and a lot of issuance. And, not just, you know, there's Yankee issuance as well happening in there. So people are able to evaluate, businesses all around the world and decide whether to allocate capital to them. Having said that, as we said in the Outlook slides, we do think activity level will be subdued because people won't be able to get around. But also, people will be cautious about making calls until they know exactly how this is going to play out and impact various businesses. So there'll be implications both ways. For now, as I say, it's early. So we're waiting to see. At the moment, we've managed to have decent activity at levels, decent client activity, reasonable realization of assets.
As we said in our Outlook, we're assuming that there will be significant delay in realization of asset exits and in terms of less activity levels. I have to see how it plays at the moment. You know, one month or couple of months into it, there's still activity going on.
Thank you.
Thank you. The next question comes from Brian Johnson with Jefferies. Please go ahead.
Hi everyone. I'm going to say congratulations on a pretty reasonable result in a difficult set of circumstances. I had a few very quick questions on specific slides. Just going to slide 48, which is the equity investments one. It might seem a small point, but the transport, industrial, and infrastructure says that you've got an equity investment of AUD 600 million. A lot of the narrative today would suggest it's more the MAT residual investment is somewhere between AUD 700 million-AUD 800 million. Can I just get my head around the difference between those two numbers?
600 is last here. Alex, do you want to cover that on page 48? It's,
Yeah.
It was AUD 0.6 billion March 19, and it's AUD 1.3 billion now.
Yeah. It's gone up by AUD 0.7 billion there. There's obviously some other investments in that category, Brian, that are moving around a little bit. The carrying value of the interest in MAT is actually in the accounts, and it's sort of AUD 780 million. It's a component of that movement. You've got foreign exchange movements going through there, and you've got some ins and outs on some other investments that are in that portfolio.
Just on that issue, Alex, you said today that you've, working with airlines. Now, my understanding is that in that business, normally the airline gives less or about three months cash upfront.
Mm-hmm.
When you're working with them, are we talking about moratoriums or are we talking actually about waiving of rental payments?
No. They, they tend to be, more to date, Brian, it's been more, more deferrals. You know, there's obviously an ongoing dialogue across the customer base. Mostly it's, mostly it's about deferrals. They vary in range, but you're probably talking about, you know, three- to four-month type deferrals, where, you know, relieving them of sort of 50% of the rent. That's sort of the nature of it. Obviously, it's changing a bit. There are a number of airlines in there that we're talking with. Generally, sort of three- to four-month deferrals of 50% of the rent.
Okay. Now, just before we wander off that slide, Alex, there's something that strikes me—strikes me.
Mm-hmm.
When we have a look at a large chunk of these assets, they're probably equity accounted. And when you think about it logically, a lot of your peers, for example, superannuation funds, mark to market their unlisted investments.
Mm-hmm.
Whereas when I equity account them, more than likely, during the early phases, I'm actually reducing the carrying value, which reduces the impairment risk.
Yep.
When I have a look in the MERA business, because you do not recognize the performance fee to the end, it is not as though you are marking them to market. I was just wondering, are those two dynamics that mean that your impairment charges probably are not as big as some of the guys that actually mark stuff to market, or am I barking up the wrong tree?
In relation to the, in relation to the balance sheet investment in the funds, they're obviously held at cost, as you say, Brian. We don't mark them up to carrying value. We don't put that,
Yeah.
Mark up in, in carrying value through the P&L. They're at cost. You know, obviously, some of the other investors in infrastructure have obviously, for the purpose of reporting to their investors, carrying assets at fair market value rather than cost. We've seen some of that come through. In our case, they're held at cost. In relation to the second point, yeah, I mean, a lot of these investments will be either associates. You'll see if there's losses in that entity, you'll see the losses actually reducing the carrying value of the asset. Some of the assets are under IFRS 9.
If you've got a small equity interest in an asset set, so it's below an associate, you actually account for that as fair value through P&L. Some of the exposure here will be fair value through P&L as well. The points you're generally making are right.
Yeah. I just.
Okay.
Gonna say, I mean, it is Alex is right that we hold the assets at carrying value and at, at, cost. And that's why you see the investment gains only bought when we realize and exit the assets. But, you know, the situation of super funds is different. They've got people switching from various, offerings to, you know, balance to growth, etc. And so they need to make sure they're marking to market and that the people that remain in the funds that others exit from get fair valuation. So different valuation criteria, I guess, or approaches.
Okay. The next one, just on slide 30, you've detailed the three scenarios that we're working through: the upside, the baseline, and the downside. I was wondering, Alex, if you just fill in the last little bit, could you have said probabilities that you've assigned to each of those? Is the upside zero?
Brian, we obviously.
I'll give you an example. Westpac have given those numbers.
Sure. No, I noticed that some haven't. We've obviously chosen not to. The reason for that is, I guess, pretty obvious. Like, at the end of the day, Brian, these scenarios are running through a whole range of models. You know, the specificity around a particular percentage is probably slightly less relevant than, at least in our view, the directional perspective. If you look at what I said about the baseline, we're saying that's a probable baseline. That's obviously north of 50%. If you look at the possible, I'd say that's less than 50%. It's probably less than probable. From an upside viewpoint, I said it was unlikely. I'm not saying it's zero.
I mean, there is a case that we put together that sees a rapid bounce. But it's unlikely. It's been attributed that weighting in terms of the Outlook. What we did do, as you know, as you can see from that slide, Brian, is just above the charts, we actually calculated what the provision would be if you assumed 100% upside, 100% downside, and 100% baseline. So, and obviously, the provision overall is AUD 1.54 billion. You can, I mean, I guess you can't get it quite exactly, but you can probably triangulate roughly where those percentages are. You can obviously, you know, form your own view on, you know, where you'd like to be on our three scenarios.
Exactly. I'm going to, Alex, I'm telling you, I'm just going to assume that you've gone with 5% and then everything else flicks out of that. Just the next one, just the next one, if I may.
Mm-hmm.
Shemara, you've spoken about dividend reiterating the policy. Can I just get a feeling on what your thought is on future DRP issuance when your capital position is already so strong?
Yeah. I think when I spoke to the dividend, thinking that the board had applied, I mentioned that this year in particular, we've had guidance, from our regulator, APRA, on the 7th of April that the board took into account. You know, we also believe that we want to be particularly strong to be able to have capacity to support the economy through this. I think this year there have been particular factors that have driven turning on the DRP. We historically have not done this. This year, the board decided it was important if we're going to pay a dividend to raise enough new capital to more than compensate for the dividend payment impact and end up with a stronger capital position after the dividend payment, which I'll note was a payment out of the group, not out of the bank.
Mm-hmm.
The DRP will help us. The MERA is AUD 600 million. And then the DRP will help us with a position that's even stronger than the dividend payment than just neutral.
Okay. The next one, Alex, if we go to slide 52, kind of snap through.
Which, Brian, what did you say? What slide?
Slide 52.
52. Okay.
On slide 52, what's not, what's just kind of there is that this year your poor, long-suffering staff don't get actually the shared sale facility, the benefit of that.
Mm-hmm.
Could we get a feeling for the, basically the timing of when we should expect to see those shares hit the market and what you might think the size of that would actually be?
In terms of the timing, I mean, obviously, the staff sale, the window for staff selling will open next week. I think I've got the, I'll come back to you with the exact date, Brian, but next week.
Thank you.
You'll obviously see some staff selling during that period. You can have a look in the accounts in relation to the volume of MERA that's coming out. It'll be in the, I guess it'll be in the high 500s in terms of release out of MERA. Now, obviously, Brian, not all of that necessarily will be sold. It's a choice that people make at that time to either sell the shares or not sell the shares.
Alex, historically, that's how you pay your tax bill, isn't it?
I guess that's the case for, yeah, for some, for sure.
Okay. Just the final one, if I may. Shemara, I'm sensing that your messaging here today seems to be that COVID disrupts the realization, the timing of the realizations, and the velocity of capital rather than ultimately a lot of the fees basically coming through. As you even commented yourself then, US debt markets and investment grades seem to be opening up pretty quickly with phenomenal issuance, in such a relatively short period of time. Can we just get a feeling on how, what, what is it that slows down the realization? Is it basically investors not being able to get debt, or is it just investor uncertainty?
I think it's going to be both of those things, Brian, because it's the investment grade market where we're seeing a lot of issuance at the moment. Our debt capital markets business operates much more in the single B leverage loan type market. That could come back as confidence increases, or it could very easily be disrupted because things are quite fragile at the moment and the market is moving constantly. As Nick mentioned, we're seeing a lot of volatility. I think in terms of accessing finance, cost of funding obviously has gone up a lot. Even though spreads have come in since the pandemic first started, they've certainly blown out from where they were. And availability of finance as well. You know, banks are being prudent in terms of where they're making funding available. So availability of debt is an issue.
Generally, investors, I think, really need to think through the implications of this pandemic and how it is going to impact the assets they invest in. I think both those things can impact. We did say that we expect our base fees to be broadly in line. Asset realizations, both in the asset management business and in Macquarie Capital, we expect will be delayed quite a bit.
Shemara, when we actually get to the realization phase on some of the kind of like assets that are likely to be unlisted, the unlisted fund, and the next buyer of the assets is coming in as trying to regear them, which bit of the debt market are they particularly relying on?
Yeah, Martin talked to that already. Martin, I might let you comment again in terms of how our assets are going. Our assets are well placed, but it's the purchases in terms of debt funding that I was commenting on.
Yes.
Martin, did you want to?
Yeah, yeah. That's. Yeah. Look, I think one of the, there's a couple of practical issues as well, Brian, that like, you can do a certain amount so that, you know, there's a lot of due diligence that's going on remotely. People are doing posting stuff up, and you're doing remote management meetings and things like that. People are being reasonably ingenious about how they're going about this stuff. There are some practical issues that ultimately you want to go and see the assets. You want to have a look around, and you want to, you want to look the management team in the eye, etc. Some of that will have practical implications about slowing things down. I don't think as far as our assets are concerned, generally, our assets are assets with good credit.
As a result of that, the debt markets are open. There's a slight change in pricing for some assets. Broadly speaking, it's, you know, the markets are open for good quality credit. It's when you move into the poorer, high yield debt, high yield debt market. That's where it starts to get a bit sticky. I don't think debt is an issue here. We also got to remember, of course, that risk-free rates are one of the drivers as well for asset valuations. You know, one would imagine that we're going to be seeing pretty low risk-free rates post this period for some time. Yeah.
Thank you very much.
Thank you. The next question comes from Brett Le Mesurier with Shaw & Partners. Please go ahead.
Thanks. I've got a couple of questions. Firstly, the derivative assets tripled over the past year, and most of that happened in the past six months. What additional credit risks does that present to you? Secondly, on the realization front of assets you own, presumably a number of them are in funds that wind up at various stages. How many of those assets are in funds that are winding up in the next 12 months?
The fund, assets, basically, we have discretion to delay sale. The infrastructure funds typically have a 10-year life and can have up to a two-year extension. I do not think, unless Martin contradicts me, there are any assets that we were planning to exit where we have pressure to sell within this financial year if we do not want to. Martin, correct?
No, there are no, we're under no pressure in terms of sales of assets. Most of our funds have got plenty of time to run.
Yeah. We'll basically realize at the time where we think we'll get the best return for the investors in those funds. And then.
Brett, in terms of the derivative assets, you're right. They've expanded significantly during the year. Obviously, that's a reflection of the volatility we've seen in markets and the mark-to-market impact, both on the asset and the liability side. The assets have gone up to AUD 45 billion. The liabilities have gone up to AUD 38 billion. You've seen a big expansion on both sides. Basically, volatility and mark-to-market across the derivative portfolio together with FX that's coming through. In terms of the risk attached to that, in that slide that I put up for CGM, you can see that of the movement in capital over the period, AUD 500 million of that was credit capital attached to derivatives.
Obviously, you know, as we, as that mark-to-market has occurred, and, you know, in some cases, the deterioration in counterparty credit, we've increased the amount of credit capital we've got largely against unmargined derivatives.
What would be the average credit rating of your counterparties?
Patrick Upfold is on the phone, our Chief Risk Officer. Why don't we let him comment on that? Patrick, generally, how, you know, your approach is going in terms of risk management through this period on both derivatives but also credit and equity positions counterpart?
Yeah. Thanks, thanks for that. Hi, Brett, just in terms of the movement in the derivative book. The consequence of that will depend on exactly what it is that we're hedging and what counterparty that we're facing. By and large, a significant amount of our hedging activity is that we're facing an exchange, and so we're netting down against an exchange. That will be one credit risk that we're facing, that will be posting margin and initial margin against an exchange as those positions move. We might be providing hedging services to our clients where, in hedging out that position, we're facing an exchange. We've got an exposure to those clients, and that will increase our credit risk.
Now we anticipate that, when we extend credit to those, extend credit to those clients, that we do not probability weight movements in, in markets. We essentially ask ourselves, you know, how bad could it get in the market? And, you know, what is our ability of our, our client to withstand, to withstand that movement, movement in the market? That will increase, obviously, our credit risk, but we feel pretty comfortable about, by and large. Obviously, there are exceptions to the rule, but by and large, we feel pretty comfortable about our exposure to, to, to our, to, to our clients. The third area, of course, that we might, we may well be hedging, physical commodities.
While you may see a rise on one side of the equation in terms of that derivative, we'll also hold physical positions, which will have an offsetting position. In that sense, we might be facing exchange, but we'll have either we'll own or be secured against the physical commodity. I was going to try to answer your question.
Sorry, you can't comment on the credit quality of your counterparties?
Oh, yes. On the.
Are they substantially double A or are they substantially double B, for example?
Oh, look, as I say, look, it's across, it's across the board. Obviously, if we're facing exchange, the credit risk that we're taking is fairly small. But we will be dealing with lower rated counterparties, you know, double B, double B counterparties. In those circumstances, we'll tend to be looking to take some form of security, in respect to those, in respect to those clients. I think actually in the accounts table there, that you should be able to see in the back page of the notes to account, the accounts, a distribution of our clients according to investment grade and sub-investment grade.
That's right, Patrick. You can.
I think the level of our provisioning that we've had to take reflects the discipline of our risk management processes in terms of evaluating these counterparty credit risks and making sure we have proper collateral and security where they are lower credit rated counterparties.
Okay. Thank you. Those are all the questions I had.
Thanks, Brett.
Thank you. The next question comes from Richard Wiles with Morgan Stanley. Please go ahead.
Good morning. Shemara, I have some questions in relation to Macquarie Investment Management.
Yeah.
Firstly, it's a AUD 380 billion asset manager. Do you think it has sufficient scale or would you like it to be a lot bigger? Secondly, do you think the current environment accelerates consolidation in the global asset management industry? Thirdly, would you contemplate a large acquisition like you did in 2009? Finally, what are your existing capability or geographical gaps in the traditional asset management business?
Yeah. Certainly scale is a big driver of return in asset managers. I think the footprint we have now, we have reached scale where we're making very good earnings and return on equity because we can afford to have this global footprint, the operational footprint where we invested in Aladdin and also a new data warehouse capability. We have teams on the ground managing money in all four regions of North America, Europe, Asia, and here. We have distribution capability now into all channels and geographies. We are at good scale. Having said that, if acquisition opportunities did come up where basically we could take on revenue without having to incur materially greater costs, given we have the platform, that would be appealing. We are very disciplined in terms of looking at acquisitions, though, as you know. We made the Delaware investment more than 10 years ago.
Since then, we've only done small add-ons. In terms of where we see gaps, obviously we don't have a big presence in Europe. We have a big presence here in Australia and in North America. A platform there would be complementary. Frankly, the business is chugging along fine without it. In North America, we have the ability to do in-market, inorganic growth and get great scale benefits there. In terms of strategies where we have gaps, obviously global equities was one where we saw a gap, and we took on the Value Invest team there in terms of global value on capabilities. We're growing emerging market debt, high yield, etc., and also where we have the ability to take on a whole platform and get the synergy benefits of that.
Shemara, just broadly, do you think the current environment will accelerate consolidation in the industry? Or do you think it just continues at much the same pace? I mean, is this a significant event for the industry overall or just a speed bump along the way?
I think, you know, to the extent there are people that end up with distress, it will accelerate consolidation. You know, there may be a few of those. Last time, as I said to Jonathan Mott, the crisis was driven by different factors that meant banks and insurers had capital challenges and had to exit assets like asset managers that were really good quality portfolios, on terms that were attractive for investors. This time, it's a health-driven pandemic. It really depends how the good quality asset managers are placed in being able to access equity and debt and their own funding to continue. We may not have as many distressed offerings come to the market. I think the consolidation may pick up a little, but we're not expecting it to move to the extent it did with the global financial crisis.
Thank you.
Thank you. The next question comes from Brendan Sproules with Citi. Please go ahead.
Good morning. Thanks for taking my question. Apologies. I think I got cut off earlier. My question relates to slide 58, looking at the capital that you have invested across each of the divisions. I was wondering if you could help me understand what sort of capital requirements that, that or how will COVID, I guess, uncertainty affect the capital requirements in these businesses? For example, in Banking and Financial Services, what are you expecting from risk-weighted asset inflation in Commodities and Global Markets? What are you expecting from counterparty credit risk, but also higher VaR as you try to sort of take advantage of the trading activities? Lastly, in sort of Macquarie Capital, I guess to some extent, asset management, to what extent do you need to hold more capital against some of these equity investments given the movement we've seen in equity prices?
Yeah. It's, in relation to the last two that you asked about, Macquarie Asset Management is a very capital-light business. We basically put money into co-invest alongside our funds. And positions like MIC are unusual positions, but we're generally co-investing, a small portion of that fund so that we're aligned. And those positions are pretty resilient. We're not expecting that we have to put materially more capital in or, capital weight the assets that we have there more because the risk of them has not changed materially in our view. In relation to the CGM business, I'll let Nick comment in a minute, but we haven't had Greg Ward speak yet from Banking and Financial Services. I might let him speak to that question.
I mentioned in the introductory material that Greg and his team have really been focusing in terms of where they put on assets in their businesses, for example, in mortgages with lower LVR and more owner-occupied, in SME with clients that are professional services. Alex showed you in his slide how well collateralized those business loans are. Greg, did you want to comment a bit on BFS and the capital that we're seeing that we'll need to put into the business? Slide 37 has a lot of material there on the nature of Greg's book.
Yeah, of course, Shemara. I think the only real impact we have, or the most significant impact in terms of capital, obviously, is from business growth. As you say, we've got a very, we think, comparatively safe portfolio, given our niche approach. The growth will come in from capital, from business growth. The only other impact will be somewhat pro-cyclical, which is the result of longer workout periods from customers, you know, the payment pause and so forth. We expect a lot of the loans to be on balance sheet for a longer period of time, and that might increase the capital, between sort of 5%-7%. That's just a guess at this point.
Yeah. The BFS business as well is a good return on capital business, and we do not expect material increase. The commodities business together with BFS sits in the bank. Mary Reemst, you're on the phone. Did you want to comment at all on the potential for capital increase in the bank? The non-bank I've commented on, ma'am, I can comment on that cap as well. Did you want to comment on that?
Yes. Good morning. In terms of the bank, the bank is well capitalized. I think, as Alex pointed out in his slide, we had additional AUD 1 billion of capital put into the bank in March. Well positioned. Greg's talked about the potential in terms of BFS and CGM. They're the two main businesses in there. I think it all depends on what happens in terms of the outlook and as things progress. In terms of sufficiency of capital in order to meet, you know, growth, etc., the bank, I think, is well capitalized with a strong CET1 ratio, the strongest that it's ever had. I think we're feeling fairly comfortable in terms of the ability of the bank to meet the growth of both those businesses.
And, and.
I think we'll,
Capital growth in CGM, I think we covered, Alex, in your slides and mine, that we have actually stepped it up. You can talk about the SACCR, the derivatives, BFS.
I think, I mean, the only other thing to say, Brendan, is, a bit to the point that, that Greg's making. Obviously, you know, there's a period of time with, with some of the loan exposures where the, where the workouts, the, and the clearing of that provision, you know, won't be, won't be possible. You'll, you're, you're expecting to see under the ECL provisioning, some of those exposures going to default. You'll be holding those exposures for a, for a longer period of time. As Greg mentioned, you know, the 5%-7% step-up in risk-weighted assets in, in BFS. From a CGM viewpoint, obviously part of, part of the movement in the provision this year was, expected credit losses across the loan and, and the lease portfolio in, in CGM.
Again, you know, similarly to Greg, some of that exposure obviously will take an extended period to work out. You will see a little bit of capital accretion as a result of that delay in work out of those positions. The other thing I think we're expecting, we'll expect to see over the next 12 months, particularly in the base case, is you will see some counterparty downgrades just as the baseline scenario rolls through, rolls through from a probability weight today to a reality over the next 12 months.
I think from a credit risk-weighted asset perspective in CGM, again, you could see, depending on a whole range of things, you could see a step-up of that, again, that sort of, you know, 6-8% in terms of increased capital draw on CGM. Obviously that depends quite a lot on how the baseline or how the economic scenario unfolds over the next 12 months and just where the exposures actually emerge across that business. Hopefully that gives you a sense of, you know, what we see as the rollout over the next 12 months.
You know.
Yeah, Alex, just on the VAR, not that it's a significant part of our overall capital base, but certainly the events that we've seen in the areas in which we're active over the last few months have been extraordinary. And for those familiar with the mathematical modeling of VAR, it is more heavily weighted towards more recent events. All things being equal, we can expect to see, you know, VAR to increase. As we're putting on new deals, the amount of VAR that we're going to need to hold behind those deals will increase. Of course, we would be expecting that our returns, in respect to those trades that we put on, would more than compensate us for the increased capital that we're holding.
I don't know whether Nick's got anything further to add on that.
Yeah, I think that is a very good point, Patrick. You know, the recent market events will be flying through to the models and will, like for like, show a greater volatility, and hence requirement for capital, but not dissimilar to what we've been through in the past. One other thing which may also impact our capital going forward would be the growth in the underlying derivative portfolio as well. You know, over the course of the last few years, the CGM client business has grown, and we intend to continue to grow it. That could flow through to increased capital at some point also. As you would say, you would expect to see the commensurate returns in step with any increase there.
And I think, as I mentioned in the capital management slide, we are, taking all this into account, sitting with very good capital buffers. Mary mentioned the billion put into the bank and the 12.2% record CET1 we're sitting at to support CGM in growth and BFS. At the group level, we've got this AUD 7.1 billion surplus. The capital position will be stronger after the dividend. We are positioning ourselves if there is increased capital demand to be able to deliver.
Could I just ask a follow-up question? Obviously you've been deploying capital in the last couple of years, particularly to new business opportunities. And the green energy portfolio stands out as a place where you place capital. Has COVID and the effect of that meant that that is likely to slow down over the next 12 months? Or is that a portfolio that continues to be invested at the same velocity?
Dan, do you want to comment on that? I think slide 42 shows the growth in the green, and we mentioned the steps as well. In terms of opportunity to invest in renewable energy projects we're working on, we've been migrating.
Yeah, why don't I?
From operating to construction to development projects, which require typically less funding and more human capital. Over to you, Dan.
Yeah, let me have a go at that. I mean, clearly COVID-19 is impacting some of the activities in the green energy business. I think I've mentioned it before. In terms of projects under construction, which are continuing, and also development in terms of the timeframes, you know, the current impact is relatively small in the scheme of things. If you look forward, the nature of our business is split into two types of activities. One is investments that are into projects that are under construction. That's where we really need to step up the amount of funding or capital required in the activity, as we move an investment from development stage into financial close and into construction stage.
In terms of our development activity, you know, that is a substantial part of our activity and, I referred to 250 projects or to, you know, 25 GW under development. Now that activity is largely expensed, as we take that activity through. When those projects mature, it creates the opportunity for us to invest into those projects and step up the amount of capital we use. We also participate in investing in projects that other people develop, whether they be by developers or utilities or contractors. We invest into those projects that move into construction phase, and that steps up, as well. The final thing I'll mention is, in terms of deal flow, the overall market for developing infrastructure and energy, we feel pretty good about.
The long-term sectoral trends here are strong and, frankly, I think do not change due to COVID. The world still needs sustainable infrastructure and to build a lot more of it, in terms of infrastructure and energy and in particular green energy. We see more deal flow coming through there. The question is whether we can position our business to capture our share of it. You know, I'd like to think that we can.
Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Dobson for closing remarks.
All right. Those are our no further questions. Thank you, everyone, for dialing in. Thank you for your support. We look forward to catching up with you over the next couple of weeks. Thank you very much.
I also wanted to say thank you again to everyone for dialing in and for your support. Also a big thank you to our team. I guess like with all of your teams, it's just been a very challenging recent period. As you've heard, as we've had this discussion, people have really stepped up to the plate very well. Thanks to all of our team.