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You are also required to perform analytical procedures (ratio analysis) on the selected company for 3 years and compare those ratios across time, and to industry data or a major competitor

Macquarie Group Limited operations

In the current era of industrialization, to survive in the competitive environment, it is important that organizations embrace effective financial, operational and human resource capabilities assuring a progressive growth. The performance of the organization is extremely affected by probable risks, which is an inseparable part of the banking industry. The report has been drafted to assess the effectiveness of Macquarie Group Limited in the banking industry and also determine in what ways it has developed its operations in Australia. Furthermore, the report shall draw light upon the areas where the organization has outshone its performances and evaluate the risks that could obstruct its smooth running business. 

Macquarie Group Limited is a Public company, which was established with the motto to provide advisory and investment-banking service maintain the international standard levels across the Australian market (Gordon, 2011). It is a diversified financial group offering its clients with services such as:

  1. Asset Management and Finance
  2. Advisory
  3. Banking
  4. Risk and capital solutions in the field of equity, debt and commodities.

Macquarie Group Limited acts predominantly as an investment intermediary for the retail clients institutional, corporate and government and their counterparts across the globe. Thus it generates income by offering clients with a diversified range of products and services. Out of the top, 2000 companies across Australia Macquarie Group Limited is ranked at number 24. It generates it major revenues from the Auxiliary finance and insurance services in Australia. The total revenue generated by the company is $13,313,000,000, which includes sales and other incomes. As per the annual reports of the company it has been noted that the company have higher investment-related income (Dillon and Butler, 2010). Further, it has improvised its trading conditions across the major markets (Australian Trade Commission, 2011). The Commodities and Global Market sector have also observed equity market condition. MSI (Macquarie specialist Investment) is one of the Australia’s prime providers of offering specialist solutions regarding investments. It provides a solution on self-management funds and serves with an innovative range of investment solutions.

Macquarie Group Limited is listed in Australia (ADR:MQBKY; ASX:QMC), and APRA is the regulatory authority which monitors its banking services. It has a total of Australian $17.3 billion of equity and Australian $182.9 billion of total assets. It has been recognized for its robust capital positioning and strong framework of risk management. While the Australian franchises maintained their strong positioning, the offshore businesses across UK and Europe also continued to deliver spectacular performances with international income accounting for about 63% of its total income. Moreover, the Banking and Financial Services (BFS), Corporate and Asset Finance (CAF) and Macquarie Asset Management (MAM) have altogether generated a combined net profit which contributed up to 13%, i.e., $A752 million for the year ended 31 March 2017. The key drivers for such outstanding performance were gains from previous year investments like the sale of an almond orchard. Then further the lowering charges for provision and impairments and also growth in overall Australia’s lending/deposit and platform average volumes.

The board and Management are committed to attaining the esteem standards of professional conduct beyond all Macquarie operations. Compliance with all the regulatory requirements and exclusive company policies as well as procedures are core to their business. As issued by the IAS (International Accounting Standards), the IFRS (International Financial Reporting Standards) are exclusively complied by the company (Coulbeck, 2012). While the business predominantly is associated with services of BFS and CAF they are indeed accounted on the basis of accrual method maintaining fair values.

Investment and Financing Activities

In Australia, it has been notified that the financial sector is the most sophisticated, competitive and lucrative area with about fourth largest pool of investment fund assets in the world. The economic environment also promotes the favourable conditions for the sector to flourish. Nonetheless, the sector is in the state of flux due to change in culture, reputation and uncertainties beyond pace (Shamsuddin and Xiang, 2012). The six powerful forces that shape banking industry currently are:

  1. Changing demographics,
  2. Technological change,
  3. Government,
  4. Asia growth,
  5. Consumer behaviour and
  6. Global economy.

The financial and insurance services sector is the eleventh largest employing industry in Australia. The industry has accumulated assets valued approx. %5.6 trillion which is around 4 times the nominal GDP.

With the advancement in information technology, the use of more synchronised systems of data has impeded the need to revolutionize several management practices. In the current era, banks offering financial services serve clients through e-banking services, thus keeping track of client’s behaviour online and providing them personalised facilities. Services play a prominent role in a service supply chain. Herein, agent of the service supply chain can either be independent or has its own functionality. For instance, the bank provides services to customers and industrial customers (institutional and corporate clients). To assist the clients, the service provider works on the basis of intelligent business analytics to offer solutions.

The service supply chain in Australia is highly dynamic and is evolving with respect to market needs. As four decades ago in the 1980s, the concept of e-banking was just a part of imagination, and there were no crucial services provided by banks online (Moshirian, and Wu 2012). But with time, banks and their banking services have been tailor-made offering financial service to each individual respectively.

The Australia’s financial market has expanded manifold in the last two decades followed up with the auxiliary services like financial and insurance services, professional, technical and scientific services.

The leading market players of Australia banking and financial sectors and keen competitors of Macquarie Group Limited are:

Australia and New Zealand Banking Group: this Bank is the third largest bank when compared on the basis of market capitalisation in Australia. The commercialism and retail banking are pillars of the company. It employs supreme technology to handle customer’s queries and assisting financial planners. The total Asset size of ANZ bank is $914,900,000,000.

Westpac Bank: this is one of the oldest banks, which is remarked as one of the four humongous banks in Australia and the largest in New Zealand. It has 1200 branches and 13 million customers. Indeed the total Asset size of Westpac is $839,202,000,000. 

Macquarie has created the standing by notably hiking its mortgage interest rates, becoming the utmost lender keeping pace with major banks.  

To maintain a competitive standing among the other industry member, it is important that the banks ensure to drive forces like enhancing the product attributes, resources competencies, market achievement, competitive capabilities etc. Latest technology plays a critical role in the banking industry (Bryant, 2012). It assists bank in introducing its innovative products customised as per clients demands. It can also be used to lowering the overall cost of the transaction and enhancing the quality of products. The industry of banking offering low-cost rates makes it tempting for the customers. Since there is fierce competition in order to survive in the industry it is important to offer products at low cost and at the same time hold a reputable brand image. Furthermore, service quality is what the customer seeks most in this industry.

Financial reporting practices

The banking industry is driven by opportunities and threats equally. The threats that hold potential to disrupt the positioning of Macquarie Group Limited are:

  1. Interest income and Loan growth has unsurprising effects of financial institution
  2. Implementation of new technologies
  3. Differentiating from other banks through services.
  4. Offering services through mobile channels.
  5. Maintaining high-security levels. 

There are various acts enacted in Australia that require stringent compliance of the organization. The Banking Act 1959, Corporations Act 2001 and Financial Sector (Shareholdings) Act 1998 are those acts that predominantly govern this sector. Under these acts, the regulators are required to meet the prudential standards, practice guides as well as other guidelines (Mulyaningsih and Daly, 2012). Furthermore, it is also important that a regular reporting and adequate disclosures are made.

According to Haiss (2013), the political environment of Australia is quite steady and has proven out to be success factors for Macquarie Group Limited. Nevertheless, it's international working across the UK is disturbed due to the Brexit regulations, weakening GBP currency impacting the banks business in the UK. The economic environment, on the other hand, is expected to be improving due to stability in oil prices and the fiscal reforms, which has reduced the compliance as well as regulations costs.

Furthermore, the social capacity is intriguing as Macquarie’s commit to workplace diversity meeting the utmost needs of all its clients and employees. Further, it also plays a crucial role in changing consumer mindset towards key financial services (Pais, A. and Stork, P.A., 2011).

Moreover, the technological advancement has been integral to banking and financial services. Information analytics and big data have turned out to be a game changer for Macquarie. Also, the technology modernization and merging of digital channels have led to lowering cost transactions and development in the virtual banking sector.

Particulars

Description

Strength

It has diversified portfolio throughout the different financial service segments. Further, Macquarie has marked up a strong business performance in the year 2017. It's one of the core strengths of such performance is its dedication to corporate governance and transparency.

Weaknesses

The key weakness of the group is pressure on credit ratings.

Opportunities

The prime opportunity lies in financial service segments. The demand for banking and financial services has been improved due to the increase in global markets (Goyal and Joshi, 2011). Lastly, the geographical expansion across developing economies has also led to growth opportunities.

Threats

The key threats that hamper banking growth are the frauds and penalties affecting profitability and repute. Further, stiff competition also prevails in this sector from global and domestic players. Malware attack and infiltration are probable threats in online security.

Macquarie group limited is a leading Australian firm, and it is important to have a clear outlook of the industry to maintain the repo. As inferred by Gewald (2010), Porter five forces help in shaping strategy as one can derive the impact of firm’s profitability in the industry in which it is currently operating. The porter five forces analysis is:

Particulars

Description

Threat of New Entrants

Since there are stringent regulations and hefty legal laws, it is not easy to invade this industry without adhering to all the key requisites (Mostafavi, Abraham and Sullivan, 2011). Thus, the threat of new entrants is low.

Bargaining Power of Buyers

Buyers are often demanding and seek for best offerings this indeed pressurises bank to limit their profitability as switching cost is low. Thus, the bargaining power is high.

Bargaining power of suppliers

The negotiating power is high, and there are numerous suppliers serving the field. Thus the dominant position of the supplier is moderate.

Threat of substitute

Innovation in technology delivering new services can create an organization to suffer on the whole. For instance, Google Drive and Dropbox are hardware drive which can value proposition uniquely different from the current offering of the industry (Beatty and Liao, 2014.). Therefore, in this revolutionised industry the threat of substitute is moderate.

Rivalry among existing competitors

The rivalry in this industry is intense as there are more experienced organizations with a large base of assets that will strive to drop down prices for maintaining its pace in the market. Thus, the rivalry is intense in this industry.

There are other factors as well, which can affect the overall performance of Macquarie group limited. For instance the inflation period, period of development wherein raw materials can be scarce and expensive, that will affect the overall finance of the company. Other than this the interest rates, as well as the economic situations, can also hamper the company financial stability and profitability. Thus in order to compete effectively, it is important that a proper research is conducted to react to change spontaneously. 

Competent and proficient skills are required for effectively surviving through the turbulence within the industry. Development can be guaranteed by possessing trained workforce, as employees are the backbone of an organization they’re proficiency at work can ensure the satisfaction of customers. Upkeeping a good base of loyal customers will require the employee’s skilful efforts, subsequently ensuring development, as the expertise skills will help in adequately meeting up the changed behaviour of customers on a continual basis (Wu and Shen, 2013).

Adoption of new service or any new product offering can lead to potent risk for companies as it may or may not be intelligible with the employees and customers. For instance, the new technologies may not be well versed by employees thus adoption without explicit training can lead to blunders.

Industry size and growth

The growing wants of the consumer must impel Macquarie to consider the expansion of business across Asia as well. Since there are a lot of emerging economies across Asia that can be a worthy prospect for the business. The company should do adequate research to see how well it can suit to the environment of such economies.

The business is considerably set up in a different parts of UK and US. Each of these countries has their own set of legal accounting rules and regulations, which Macquarie is obligated to follow. There is a probability that company might omit to adhere to such policies, which could result in heavy fines and penalties. Moreover, the company might have also encountered a legal coverage when they have illegally adopted any technique or terms that are detrimental to the respective country this could result in stringent actions (Cohn, Fehr and Maréchal, 2014). It is thus important that company remains updated of both local as well as enduring laws of the respective country.

Macquarie group limited has incorporated multiple changes that can appeal the majority of customers. Nonetheless, there are chances that some of the services provided may be doubtful or bad which could lead to huge financial costs. It is thus imperative for the company to handle all the financial information to ensure no bad debts are there.

Information technology is the very need in the banking industry, as this reduces the overall cost of maintaining Big data and also assistive in scrutinizing information in real time. The use of software and technology update is the very essence of this industry (Seelanatha, 2010). To remain quick and alert it is important that Macquarie group limited use IT as the main feature in all its workings.

Strategies are the means to organization and goals. They help in providing the company with the direction to plan and move ahead to meet long-term objectives. Due to constant changes in industry business needs to update its strategies in order to maintain its standards. For instance, the introduction of new IFRS 9 has impelled banking organization to adapt itself to new financial accounting standards as a measure of forward-looking requirement of business. Nevertheless, these changes will bring both challenges and require a high degree of judgements. 

Type of Ratio’s

2015

2016

2017

Profitability Ratio

Return

On assets

0.94

1.07

1.17

Net

Margin

33.63

42.43

51.19

Liquidity Ratio

Current

Ratio

1.20

1.09

0.83

Solvency Ratio

Financial leverage

14.01

13.51

13.20

Debt/Equity

9.40

9.11

7.34

Efficiency ratio

Asset

Turnover

0.03

0.03

0.02

Fixed Asset turnover

0.36

0.26

0.19

After analysing all the financial ratios, it can be derived from the information that the growth has been unpredictable at various points. There has been a significant reduction in debts and rise in net margin from 2016. The financial stability is continued however diversifying and making considerable positive modification in the current state can make progression.

As the companies annual report have been studied, it has been seen that the company follows a non-hierarchical communication system as it encourages a sense of entrepreneurial endeavour and a sense of ownership. There is a network of areas that help in easy communication across the divisions.

For gaining a high level of competencies, the company needs to focus on employees knowledge and skills. Since the work is highly technical, it is important that those having specialised knowledge are approached to perform the requisite roles and be multi-tasking as and when required. This will indeed help in capitalising the opportunities and executing special ideas for conquering a competitive edge (Joshi, Cahill and Sidhu, 2010).

Industry supply chain

Macquarie corporate governance statement has been certified by Board and lodged with ASX. They have consistent governance practices with the substantial recommendation in the 3rd edition of ASX corporate principles. The approach towards corporate governance includes:

  1. Promoting long-term profitability of Macquarie whilst managing risk prudently.
  2. Driving esteem and sustainable shareholder value on a long-term basis (Xu et al., 2011).
  3. Meeting the expectations of stakeholders by adopting sound corporate governance practices as its broader responsibility to shareholders, investors, clients and community in which it is operating.

The leaders at Macquarie Group Limited are practising Neuroleadership style which can enhance the way it performs its business. Herein, the organization simply focus on setting up of tools which can help in forming new business habits in managers as well as team members. It educates manager to draw a clear connection between brain between positive feedback and forming new habits. The key for managing teams is by measuring progress, delivering constructive feedback and tweak approaches. This approach has boosted up in building a stronger relationship of Macquarie with clients.

The businesses activities are carried out at the different division in a non-hierarchical manner yet are coordinated through six operating groups:

  • Investment banking group
  • Treasury and commodities group
  • Funds management group
  • Equity markets group
  • Banking and property groups
  • Financial service group

The flow of communication is transparent and easily traceable as it is recorded through these six divisions (McConnell, 2012). Employee’s responsibilities are adequately driven through this synchronized structure, and each of them is easily monitored.

The company has clear principles of opportunity, accountability as well as integrity as a code of conduct promoted by the top management and further cascaded throughout the organization. It is required that employees have fair dealings with clients having a fundamental responsibility towards them (Coulbeck, 2012). Further Macquarie equips their staff with a flexible workforce, which has an ongoing rolling out of manager’s capability to train and provide information how the staff could react at varied arrangements.

Conclusion 

The current report reflects the favourability of working of the banking industry at Australia and the prospective arenas across it. Macquarie has successfully ventured its business in this industry has a considerable market share in Australia, UK and US. Nonetheless, the market volatility is required to be understood for meeting the market needs and undertaking prompt actions towards the risk prevailing in the industry.

References

Australian Trade Commission, 2011. Australia’s banking industry. Australia: Australian Government, p.76.

Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics, 58(2), pp.339-383.

Brodie, M., 2012. Building the sustainable library at Macquarie University. Australian Academic & Research Libraries, 43(1), pp.4-16.

Bryant, L., 2012. An assessment of development funding for new housing post GFC in Queensland, Australia. International Journal of Housing Markets and Analysis, 5(2), pp.118-133.

Cohn, A., Fehr, E. and Maréchal, M.A., 2014. Business culture and dishonesty in the banking industry. Nature, 516(7529), pp.86-89.

Coulbeck, N., 2012. The multinational banking industry (Vol. 9). Routledge.

Dillon, H. and Butler, P., 2010. Macquarie: from colony to country. Random House Australia.

Gewald, H., 2010. The perceived benefits of business process outsourcing: An empirical study of the German banking industry. Strategic Outsourcing: An International Journal, 3(2), pp.89-105.

Gordon, C., 2011. Competing in global niche markets: the case of Macquarie Bank. International Journal of Bank Marketing, 29(4), pp.293-307.

Goyal, K.A. and Joshi, V., 2011. A study of social and ethical issues in banking industry. International Journal of Economics and Research, 2(5), pp.49-57.

Haiss, P., 2013. Cultural influences on strategic planning: empirical findings in the banking industry. Springer Science & Business Media.

Joshi, M., Cahill, D. and Sidhu, J., 2010. Intellectual capital performance in the banking sector: An assessment of Australian owned banks. Journal of Human Resource Costing & Accounting, 14(2), pp.151-170.

McConnell, P., 2012. The governance of strategic risks in systemically important banks. Journal of Risk Management in Financial Institutions, 5(2), pp.128-142.

Mostafavi, A., Abraham, D. and Sullivan, C., 2011. Drivers of innovation in financing transportation infrastructure: A systemic investigation.

Moshirian, F. and Wu, Q., 2012. Banking industry volatility and economic growth. Research in International Business and Finance, 26(3), pp.428-442.

Mulyaningsih, T. and Daly, A., 2012. Competitive conditions in banking industry: an empirical analysis of the consolidation, competition and concentration in the Indonesia banking industry between 2001 and 2009. Bulletin of Monetary Economics and Banking (Buletin Ekonomi Moneter dan Perbankan), 14(2), pp.141-175.

Pais, A. and Stork, P.A., 2011. Contagion risk in the Australian banking and property sectors. Journal of Banking & Finance, 35(3), pp.681-697.

Seelanatha, L., 2010. Market structure, efficiency and performance of banking industry in Sri Lanka. Banks and Bank Systems, 5(1), pp.20-31.

Shamsuddin, A. and Xiang, D., 2012. Does bank efficiency matter? Market value relevance of bank efficiency in Australia. Applied Economics, 44(27), pp.3563-3572.

Wu, M.W. and Shen, C.H., 2013. Corporate social responsibility in the banking industry: Motives and financial performance. Journal of Banking & Finance, 37(9), pp.3529-3547.

Xu, Y., Jiang, A.L., Fargher, N. and Carson, E., 2011. Audit reports in Australia during the global financial crisis. Australian Accounting Review, 21(1), pp.22-31.

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