Macquarie Banks Ltd has an opportunistic business strategy, which to date has been skilfully executed. “Many of Macquarie’s core markets, particularly project and infrastructure finance and equities have been subject to intense competition in recent years, driven by larger offshore investment and commercial banks and this can be back up by the fact that the bank has been active in the housing development in China since 1996. ” (Anonymous, 1999) Macquarie has countered the increasing competition by making full use of its abilities, market position, and strength in product innovation and targeted customer service.
The Bank has further innovated its standard products in both specialization and complexity, and the transported and adapted its expertise between and across products and markets. “Considering the Macquarie Bank Ltd modest size by international standard, the development of a well diversified business platform has somewhat insulated the bank from extreme market conditions in some segments, enabling it to have proactive, and long-term developmental, stance in other segments. ” (Irvine, S. , 1999)
“Liquidity is access to funds to enable a business to meet its day-today operating needs. “(Viney, C. , 2003) “Under that APS210, the board of directors and management must implement and maintain a liquidity management strategy that will ensure the institution will be able to meet operational liquidity demands when due. ” (Banking Act 1959) The bank’s liquidity is very good, enhanced by its broad distribution capability that supports its retail-funding base, and maintenance of good quality liquid assets.
The bank has a well-developed securitization capability that supplements its liquidity management, and is a frequent issuer to wholesale capital markets. The bank’s liquidity controls include stress test scenarios and a liquidity support agreement with other domestic major banks. The Bank’s balance sheet is liquid with about $31 billion, or nearly 40% of adjusted assets, in readily saleable or highly liquid securities. Funding is reasonably well diversified by counterparty, term, and currency, although funding is predominantly from the semi-professional or professional market.
According to Retail Banker International, “Commonwealth Bank is a good market position in New Zealand banking and life insurance, and an emerging presence in selected Asian countries. ” Although the bank has operations in New Zealand and throughout Asia, more than 80% of its earnings are from Australia. “The Bank’s franchise strength is principally in the retail segment, which, in part, reflects its history as a Commonwealth government-owned bank until it was privatized in 1996. ” (Anonymous, 2005)
Many elements of Commonwealth Bank’s banking business profile are low risk by international standards. “It is Australia’s largest retail bank with leading market share in residential lending, credit cards, retail brokering and retail deposits. ” (Haddock, F. , 2001) Earnings have yet to be fully leveraged off Commonwealth Bank’s banking and wealth management operations, given it low penetration of products per customer and have the largest customer base and number of interaction in the domestic market.
Macquarie Bank Ltd has a strong business franchise and profile in its core business lines in Australia and in the niches it is cultivating globally. Principal activities are in Australian wholesale markets relating to the intermediation and management of risk across credit, interest rate, currency, commodity, and new equity markets as well as various asset classes. “Its orientation is toward new innovative and complex products (Spectrum-desk. com), highly structured transactions, therefore, the bank’s businesses tend to be off-balance sheet or fee based. ” (Lee, J.
, 2001) According to Surry, M. , 1997, “the bank usually acts as an advisor debt provider and packager on infrastructure deals. ” The bank also has a retail market presence in cash, stock-broking, and wealth management. Macquarie Bank Ltd have a relatively broad international presence in relation to its overall size and activities, with international operations providing about 40% of revenues, derived mainly from Asia, the Americas, Europe and Africa. The bank has also a number of alliances and joint ventures throughout key international markets, including Asia.
Competing directly with rivals many times its size, Macquarie Bank Ltd has successfully occupied domestic market segments, in which it has particular expertise. Selective market entry, combined with well-defined products suite, has underpinned a sound business platform that is not limited by geographic boundaries. Although Macquarie is modestly sized compared with many global institutions operating wholesale markets, however, according to MacDonald, D. P. , 2005, it has leading market position in many products and services for the Australian corporate and wholesale markets.
Based on the findings, Commonwealth Bank’s major strengths are well diversified business platform, with leading domestic market positions in banking, life insurance and wealth management. The bank has a strong asset quality that benefits from sound underwriting and risk management policies and well diversified retial funding base with a conservative and well experienced management team. As for the Macquarie Bank Ltd, its major strength is solid earning track records due to a well diversified business operations and entrenched risk discipline and conservative financial policies.
According to the data obtained, it is recommended that the Commonwealth Bank of Australia should concentrate more on the local franchise and diversification of its operation as the financial profile has reflected that both of these had benefited the bank. The bank’s asset quality is not expected to deteriorate materially from existing level, which is consistent with its underwriting and risk management capabilities. Its good internal capital generation capability and capital adequacy are expected to maintain at an outstanding level.