QUESTION

Macquarie group Vs. Bank of Queensland

Assignment question : Give consideration to your selected company’s ability to wistand the extreme shifts in market sentiment. Since the Global Financial Crisis, investors have demonstrated greater caution as reflected in the increased volatility.As such you should address the company’s operational strategic and financial risks.

Hint : Selected company à Macquarie Group

SOLUTION

1. Introduction

With the subprime lending crisis striking in 2008, investors have practiced a greater degree of caution in planning their investments. This however does not only apply to the investors but also the corporations which have based their project investment on a risk- return analysis. The corporations have also considered basing their future strategies on the basis of existence of operational and organizational risk. The paper analyses 2 corporations Macquarie group and Bank of Queensland; and their performance in the financial crisis and their risk averseness as well as their ability to generate profitability for the investors.

2. Risk Management Macquarie Group and Bank of Queensland Operational, Strategic and Financial Risk Management

Macquarie’s risk management is based on a clear understanding and examining the worst care scenarios and then forming considerable solution for the situation. The corporation has effectively formed a Risk Management Group (RMG) to accesses the possible organizational and operational risks that exist in the operations of the business. For this purpose the corporation has set up large scale contingent reserves, 40 per cent gap move in stock prices. These constraints the trading departments from issuing money options scheme this allows hedging and saves the firm from an extreme loss case. The corporation has over 13000 contingent reserves to account for the worse case scenarios for the corporation. This enables the limitation of losses particularly in a crisis situation and enables the firm to enjoy certain degree of investor confidence. The group has ensured the covering of its risk through its surplus earning to emerge from the effects of the economic down turn and financial crisis. The corporation also undertakes the measures to control the high remuneration being paid to the employees of the organization, and undertakes the payment owning to the long term profitability of the business being provided by the employees.

(Annual Report Macquarie 2012- accessed on 2/5/2012, Page Numbers 20-21)

On the other hand Bank of Queensland is a 137 old institution well regulated by the Australian authorities. The corporation is though a safe and secure bank, but has not been able to safeguard itself from the effects of the financial crisis. The corporations have taken many steps to manage the risk arising from the financial crisis. A plus is however though the bank’s profitability may have been affected to some extent it has not reached the extreme end like RBS or some of the other European and American banks. To manage the financial risk owning to the customer’s the federal government issued guideline to the banks to guarantee all deposits held with Australian banks and other Authorised Deposit-taking Institutions (ADIs). Large deposits and wholesale funding were to be covered under the Australian Government Guarantee Scheme, whereas deposits up to $1 million were covered under the Financial Claims Scheme. This policy was undertaken to maintain investor confidence in the business and the banks.

(Bank of Queensland.com – accessed on 2/5/2012)

3. Share Price Comparison of Macquarie and Bank of Queensland

The Macquarie group has maintained steady share price despite the strike of the financial crisis in 2008. Macquarie was not completely insulated from the impact of the financial crisis and therefore experienced a plunge in 2009, but the company’s’ effective risk Management group consolidated to minimise risk and increase profitability has certainly benefitted Macquarie.

The figures below compare the share prices of Macquarie and Bank of Queensland.

Figure 1 : Share Prices of Macquire 2008-2012 (Source : yahoofinance.com accessed on 2/5/2012)

Figure 2 : Share Price of Bank of Queensland 2008-2012(Source- yahoofinance.com- accssed on 2/5/2012)

On the other hand the investors of Bank of Queensland have been exposed to the financial risks ever since the strike on the crisis in 2009. The strain of the crisis is still evident on the system evident from its plunging share values as well as cash flow margins. Thus the bank of Queensland should undertake lessons from Macquarie and adopt risk minimization measures to increase profitability.

4. References

• “Macquarie Annual Report 2012.” /www.macquarie.com. N.p., n.d. Web. 2 May 2012. <http://www.macquarie.com/dafiles/Internet/mgl/shared/au-com/about/profile/docs/2011_MGL_An
• “Government Guarantee.” www.boq.com.au. N.p., n.d. Web. 1 May 2012. <http://www.boq.com.au/about_us_go
• “MQG.AX Basic Chart | MACQ GROUP FPO Stock – Yahoo! UK & Ireland Finance.” Yahoo! UK & Ireland Finance – FTSE, Stock Exchange, Mortgages, Loans & More. N.p., n.d. Web. 2 May 2012. <http://uk.finance.yahoo.com/q/bc?s=MQG.AX&t=5y&l=on&z=l&q=l&c=>.
• “BOQ.AX Basic Chart | BANK QLD FPO Stock – Yahoo!7 Finance.” Business, Investments, Stocks & Quotes – Yahoo!7 Finance. N.p., n.d. Web. 2 May 2012. <http://au.finance.yahoo.com/q/bc?s=BOQ.AX&t=5y&l=on&z=l&q=l&c=>.

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