o | Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934 | |
or | ||
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, | ||
or | ||
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the transition period from |
Commission file numbers: | Barclays PLC 0-13790 Barclays Bank PLC2-71497-01 |
BARCLAYS PLC BARCLAYS BANK PLC
ENGLAND
(Jurisdictions of incorporation)
54 LOMBARD STREET, LONDON, EC3P 4AH, ENGLAND
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |||||
Barclays PLC | 25p ordinary shares | New York Stock Exchange* | ||||
American Depositary Shares, each representing | ||||||
four 25p ordinary shares | New York Stock | |||||
Barclays Bank PLC | New York Stock Exchange |
* | Not for trading, but only in connection with the registration of American Depositary Shares, | |||
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuers’ classes of capital or common stock as of the close of the period covered by the annual report.
Barclays PLC | 25p ordinary shares | |||||
£1 staff shares | 875,000 | |||||
Barclays Bank PLC | £1 ordinary shares |
2,309,360,515 | ||||||||
1,000 | ||||||||
100,000 |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark which financial statement item the registrants have elected to follow.
Item 17 o Item 18 þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrants have filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes o No o
This document comprises the Annual report on Form 20-F for the year ended December 31, 20032004 of Barclays PLC and Barclays Bank PLC (the “2003“2004 Form 20-F”). Reference is made to the Form 20-F cross reference table on page 192211 hereof (the “Form 20-F Cross Reference Table”). Only (i) the information in this document that is referenced in the Form 20-F Cross Reference Table, and (ii) the Exhibits, shall be deemed to be filed with the Securities and Exchange Commission for any purpose, including incorporation by reference into the Registration Statements on Form F-3 (File No. 333-85646, 333-12384 and 333-8054) which were filed by Barclays Bank PLC and the Registration Statements on Form S-8 (File No. 333-12818, 333-112797333-112796 and 333-112796),333-112797) which were filed by Barclays Bank PLC, and any other documents, including any documents filed by Barclays PLC or Barclays Bank PLC pursuant to the Securities Act of 1933, as amended, which purport to incorporate by reference the 20032004 Form 20-F. Any information herein which is not referenced in the Form 20-F Cross Reference Table, or suchcontained in the Exhibits themselves, shall not be deemed to be so incorporated by reference.
This document contains certain forward-looking statements within the meaning of section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, as amended, with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition and performance. The Group may also make forward-looking statements in other written materials, including other documents filed with or furnished to the SEC. In addition, the Group’s senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. In particular, among other statements, certain statements in the Financial Review and Business Description with regard to management objectives, trends in results of operations, margins, costs, return on equity, risk management, and competition are forward lookingforward-looking in nature. These forward-lookingForward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, or other words of similar meaning. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and depend on circumstances, that will occurincluding, but not limited to, UK domestic and global economic and business conditions, market related risks such as changes in interest rates and exchange rates, the future. Thepolicies and actions of governmental and regulatory authorities, changes in legislation, the outcome of pending and future litigation and the impact of competition, a number of which are beyond the Group’s control. As a result, the Group’s actual future results and developments may differ materially from those set outthe plans, goals, and expectations expressed or implied in the Group’s forward-lookingforward looking statements. There are manyFor a more detailed discussion of some of the factors that couldmay cause actual future results and developments to differ materially from those expressed or implied by these forward-looking statements.statements, see Risk factors on page 28. Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made. Barclays does not undertake to update forward-looking statements to reflect any changes in the Group’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures Barclays has made or may make in documents it fileshas filed or may file with the SEC.
This document contains information, including statistical data, about certain of Barclays markets and its competitive position. Except as otherwise indicated, this information is taken or derived from Datastream and other external sources. Barclays cannot guarantee the accuracy of information taken from external sources, or that, in respect of internal estimates, a third party using different methods would obtain the same estimates as Barclays.
Section 1
Impact
Barclays PLC Annual Report 2003 1
Directors and Officers
Directors and Officers of Barclays PLC
and Barclays Bank PLC
1 Sir Peter Middleton, GCB,Matthew William Barrett, ChairmanSir Peter Middleton GCB (age 69)60) was appointed as Chairman at theon 1st September 2004. He had been Group Chief Executive since October 1999, Annual General Meeting. Sir Peterwhen he joined the Board in 1991 as Deputy Chairman and ChairmanBoard. He joined Barclays from Bank of BZW. This followed a long career in HM TreasuryMontreal where he was Permanent Secretary from 1983 to 1991. He became Chairman of Barclays Capital following the reorganisation of BZW in 1997. In 1998, he relinquished his executive responsibilities as Deputy Chairman and ChairmanChief Executive Officer. He joined the Bank of Barclays Capital but remained a non-executive Director.Montreal in 1962. In 1994, he became an Officer of the Order of Canada, the country’s highest civilian honour, and in 1995, he was awarded the title of Canada’s Outstanding CEO of the Year. He is Deputy Chairman of United Utilities PLC, Chancellor of Sheffield University and Chairmana Member of the International Advisory Board of British American Business Inc., the Federal Reserve Bank of New York’s International Advisory Committee, Institut International D’Etudes Bancaires, the Chartered Management Institute, and the European Financial Services Round Table. He chairs the Board Corporate Governance and Nominations and Board Risk Committees.Committee.
2 Thomas David Guy Arculus(a)Thomas David Guy Arculus (age 57)58) joined the Board in February 1997. He is Chairman of O2 plc and the UK Government’s Better Regulation Task Force. He is also a member of the Finance Committee of Oxford University Press. His previous positions include Chairman of Severn Trent plc, Earls Court and Olympia Group Limited and the UK Government’s Better Regulation Task Force. He is also a non-executive Director of mmO2 plc and a delegate of Oxford University Press. His previous positions include Chairman of IPC Group Limited, and Group Managing Director of EMAP plc. He is a member of the Board HR and Remuneration Committee and the Board Corporate Governance and Nominations Committees.Committee.
3 Sir Richard Broadbent(a)Sir Richard Broadbent, Senior Independent Director (age 50)51) joined the Board in September 2003. He was appointed Senior Independent Director on 1st September 2003.2004. He hadis Chairman of Arriva plc and was previously been the Executive Chairman of HM Customs and Excise from 2000 to 2003. He was formerly a member of the Group Executive Committee of Schroders plc and a non-executive Director of the Securities Institute.
4 Hilary Mary Cropper, CBE(a)Hilary Mary Cropper CBE (age 63) joined the Board in 1998. She is Honorary President of Xansa PLC, where she was, until recently, the Chairman. Xansa is a leading supplier of business enabling technology services. Mrs Cropper is also an external adviser to the Home Civil Service Senior Appointments Selection Committee and a member of the Government’s National Employment Panel. She He is a member of the Board HR and Remuneration Committee, the Board Corporate Governance and Nominations Committee and the Board Risk Committee.
4 Richard Leigh Clifford(a) (age 57) joined the Board on 1st October 2004. He is Chief Executive of Rio Tinto, having worked for the Rio Tinto Group since 1970. He has extensive experience of managing a business that operates in a number of global regions. He was previously Chairman of the Coal Industry Advisory Board of the International Energy Agency and until May 2004, a Director of Freeport-McMoran Copper & Gold Inc.
5 Professor Dame Sandra June Noble Dawson(a)Professor Dame Sandra June Noble Dawson (age 57)58) joined the Board in March 2003. She is currently KPMG Professor of Management Studies at the University of Cambridge, and has been Director of the Judge Institute at Cambridge since 1995, and Master of Sidney Sussex College, Cambridge since 1999. Professor Dawson has held a range of non-executive posts in organisations including Rand Europe (UK), the Society for the Advancement of Management Studies, JP Morgan Fleming Claverhouse Investment Trust, and Riverside Mental Health Trust. She was also a member of the Senior Salaries Review Board. She is a member of the Board Audit Committee.
6 Sir Brian Garton Jenkins, GBEAndrew Likierman(a),Deputy ChairmanSir Brian Garton Jenkins GBE (age 68)61) joined the Board in 2000 as a Deputy Chairman on completion1st September 2004. He was previously Managing Director, Financial Management, Reporting and Audit and Head of the acquisitionGovernment Accountancy Service at HM Treasury. He is Professor of Woolwich plc. He joinedManagement Practice in Accounting at the Woolwich Board asLondon Business School and a non-executive Director in 1994 and was appointed Deputy Chairman in 1995. He became Chairman later that year and oversaw the conversion of The Woolwich Building Society to a public limited company in 1997. Sir Brian is a former senior partner of Coopers & Lybrand Chartered Accountants, has served as Lord Mayor of London, President of the InstituteBank of Chartered Accountants in England & Wales and as President of the British Computer Society.MORI Group Limited. He is President of the Charities Aid Foundation and a member of the Board Audit Board Remuneration, Board Nominations and Board Risk Committees.
2
Barclays PLC Annual Report 2004
7 Sir Nigel Rudd, DL(a)Sir Nigel Rudd DL, Deputy Chairman (age 57)58) joined the Board in February 1996. Sir NigelHe is non-executive Chairman of Pilkington PLC, Pendragon PLC and Boots Group PLC. He recently retired aswas formerly Chairman of Kidde PLC. He is Chairman of the Board HR and Remuneration Committee and a member of the Board Corporate Governance and Nominations Committee.
2
8 Stephen George Russell(a)Stephen George Russell (age 58)59) joined the Board in October 2000 on completion of the acquisition of Woolwich plc. He joined Woolwich plc’s Board as a non-executive Director in 1998. He was previously Chief Executive of Boots Group PLC from 2000 until 2003. He is Chairman of the Board Audit Committee and Board Risk Committee and is a member of the Board RiskCorporate Governance and Nominations Committee.
9 Dr Jürgen Zech(a)Dr Jürgen Zech (age 64)65) joined the Board as a non-executive Director in July 2002. Dr Zech is Chairman of Denkwerk GmbH. He retired as Chief Executive of Gerling-Konzern, the general insurance arm of Gerling, at the end of 2001. He is a non-executive Director of Misys PLC and Partner, Re Limited. He is a member of the Board Audit Committee.
10 Matthew William BarrettJohn Silvester Varley(b)(c),Group Chief ExecutiveMatthew William Barrett (age 59)48) was appointed as Group Chief Executive and joined the Board in 1999 and will succeed Sir Peter Middleton as Chairman on 1st January 2005. He joined Barclays from Bank of Montreal whereSeptember 2004, prior to which he was Chairman and Chief Executive Officer. He joined the Bank of Montreal in 1962 and during his career held a variety of senior management positions in different areas within the Bank, including Retail Banking, International Banking and Treasury. He was appointed Chief Operating Officer in 1987, Chief Executive Officer in 1989 and elected Chairman of the Board in 1990. In 1994, he became an Officer of the Order of Canada, the country’s highest civilian honour, and in 1995, he was awarded the title of Canada’s Outstanding CEO of the Year. He is a non-executive Director of the Molson Companies Limited and the Federal Reserve Bank of New York.
11 John Silvester Varley(b)(c),Group Deputy Chief ExecutiveJohn Silvester Varley (age 47) was appointed ashad been Group Deputy Chief Executive onfrom 1st January 2004 and will succeed Matthew Barrett as Group Chief Executive on 1st January 2005.2004. He had previously held the position of Group Finance Director since 2000.from 2000 until the end of 2003. He joined the Group Executive Committee in September 1996 and was appointed to the Board in June 1998. Mr VarleyHe was previously Chief Executive of Retail Financial Services from 1998 to 2000 and was Chairman of the Asset Management Division from 1995.1995 to 1998.
1211 Roger William John Davis(b)(c),Chief Executive, UK BankingRoger William John Davis (age 47)48) was appointed as Chief Executive of UK Banking on 1st January 2004 and joined the Board on the same date. Mr Davis’He joined Barclays in February 1997 and his previous roles for the Group include:include Chief Executive of Business Banking;Banking and Chairman and Chief Executive of Barclays Capital, Asia Pacific and was a member of the Barclays Capital Executive Committee.Pacific. He joined the Group Executive Committee in February 2003. Before joining Barclays, he spent 12 years in the British Army and began his City career at Robert Fleming & Co where he was a member of the Board of Jardine Fleming Holdings and Managing Director of Jardine Fleming India.
1312 Robert Edward Diamond Jr(c),Chief Executive, Wholesale and InstitutionalRobert Edward Diamond Jr (age 52) was appointed to the role on 1st January 2004 and is also Chief Executive, Barclays Capital, Chairman, Barclays Global Investors, and Chief Executive, Private Clients (age 53) was appointed as Chief Executive, Barclays Capital in October 1997 and Chairman, Barclays Global Investors.Investors in August 2002. From 1st January 2005 he also assumed responsibility for the Barclays Private Clients business. He joined Barclays in July 1996 from CSFB where he was Vice-Chairman and Head of Global Fixed Income and Foreign Exchange. He was appointed to the Group Executive Committee in September 1997.
14 Gary Stewart Dibb(c),Group Chief Administrative OfficerGary Stewart Dibb (age 53) joined Barclays from Bank of Montreal in 2000. He is responsible for Human Resources, Communications, Marketing, Strategy and Planning, Public Policy and Group Property Services as well as the implementation of Value Based Management. He joined the Group Executive Committee in February 2000.
1513 Gary Andrew Hoffman(b)(c),Chief Executive, BarclaycardGary Andrew Hoffman (age 43)44) was appointed as Chief Executive of Barclaycard in September 2001 and joined the Board on 1st January 2004. GaryHe joined the Group in 19831982 and has held a variety of management positions, as well as sitting on the Executive Committee of Retail Financial Services and being a member of the Group Operating Committee. He joined the Group Executive Committee in 2001.
Barclays PLC Annual Report 2003 3
Directors and Officers
1614 Paul Thomas Idzik(c), Chief Operating Officer
Paul Thomas Idzik(c), Chief Operating Officer (age 44) joined the Executive Committee and became Chief Operating Officer in November 2004. He is also Chairman of the Group Operating Committee. He was formerly Chief Operating Officer of Barclays Capital. He joined Barclays Capital in August 1999 following a career with Booz Allen & Hamilton where he was a Partner and senior member of the Financial Institutions Practice.
15 Naguib Kheraj(b)(c),Group Finance DirectorNaguib Kheraj (age 39)(age 40) was appointed as Group Finance Director and joined the Board on 1st January 2004. Mr KherajHe had previously held the positions of Chief Executive of Barclays Private Clients, Deputy Chairman of Barclays Global Investors, Global Head of Investment Banking and Global Chief Operating Officer at Barclays Capital. He joined the Group Executive Committee in March 2003. Before joining Barclays, Mr Kherajhe was a Managing Director and held the postposition of Chief Financial Officer for Europe at Salomon Brothers.
17 Christopher John Lendrum16 David Lawton Roberts(b)(c)
David Lawton Roberts(b)(c),Vice-ChairmanChristopher John Lendrum Chief Executive, International Retail and Commercial Banking (age 57)42) was appointed Vice-Chairman of Barclays Bank PLCas Chief Executive, International Retail and Commercial Banking on 1st January 2004 after 35 years with the Barclays Group.2005. He was appointed to the Board in 1998 and was appointed to the Group Executive Committee in 1996. His range of responsibilities includes overseeing Barclays strategy and policy in the area of corporate social responsibility and accountability for governance and control throughout Africa and the Asia Pacific Region. He is Chairman of Barclays Africa and a Director and Trustee of the Bank’s Pension Fund. Mr Lendrum has previously occupied a succession of roles including Chief Executive, Corporate Banking and Executive Vice-President, Barclays Bank of New York.
18 Robert William James Nimmo(c),Group Risk DirectorRobert William James Nimmo (age 56) joined Barclays in January 2002. He began his career at Citibank in 1969 and most recently he served as Chief Risk Officer at First Union Corporation. He joined the Group Executive Committee in January 2002.
19 David Lawton Roberts(b)(c),Chief Executive, Private Clients & InternationalDavid Lawton Roberts (age 41) was appointed asformerly Chief Executive of Private Clients & International onfrom 1st January 2004 and joined the Board on the same date. Mr RobertsHe joined the Group in 1983 and has held various management positions, including Chief Executive of Personal Financial Services and Chief Executive of Business Banking. He joined the Group Executive Committee in 2001.
20 David Avery Weymouth(c),Chief Information OfficerDavid Avery Weymouth (age 48) joined Barclays in 1977 and was appointed Chief Information Officer in February 2000. He joined the Group Executive Committee in February 2000. He had previously held other management positions including Managing Director, Service Provision for Retail and Corporate Banking and Chief Operating Officer, Corporate Banking.
Current Group Executive Committee members | Appointed to Group | ||||||
Executive Committee | |||||||
Group Chief Executive | |||||||
Roger Davis | Chief Executive, UK Banking | 2003 | |||||
Chief Executive, | |||||||
Barclays Capital Chairman, Barclays Global Investors Chief Executive, Private Clients | 1997 | ||||||
Gary Hoffman | Chief Executive, Barclaycard | 2001 | |||||
Paul Idzik | Chief Operating Officer | 2004 | |||||
Naguib Kheraj | Group Finance Director | 2003 | |||||
David Roberts | Chief Executive, | ||||||
and | Commercial Banking | 2001 | |||||
Other officers | Appointed to position | |||||
Lawrence Dickinson | 2002 | |||||
Patrick Gonsalves | Joint Secretary, | |||||
Barclays Bank PLC | 2002 | |||||
Mark Harding | 2003 | |||||
Robert Le Blanc | Risk Director | 2004 | ||||
Colin Walklin | Director of | 2002 |
4
Barclays PLC Annual Report 2004
Directors’ Reportreport
Directors’ Report
Profit Attributable
Dividends
Dividend Reinvestment Plan
Share Capital
The ordinary share capital was increased by 36.631.0 million ordinary shares during the year as a result of the exercise of options under the SAYE and Executive Share Option Schemes. At 31st December 20032004 the issued ordinary share capital totalled 6,5636,454 million shares.
Substantial Shareholdings
Board Membership
Retirement and Re-election of Directors
The Directors retiring by rotation at the 20042005 AGM and offering themselves for re-election are Matthew W Barrett, David Arculus, Sir Peter Middleton, Stephen RussellNigel Rudd and Chris Lendrum.John Varley. In addition, Sir Richard Broadbent, Roger Davis, Gary Hoffman, Naguib KherajAndrew Likierman and also David Roberts,Leigh Clifford, who were appointed as Directors since the last AGM, will also be offering themselves for re-election at the 20042005 AGM. Sir Brian Jenkins,Dr Jürgen Zech, who was last re-elected by shareholdersjoined the Board in 2002, will be retiring at the 2001 AGM will also be retiring and is not seeking re-election in accordance with the UK Combined Code.re-election.
Directors’ Interests
Directors’ Emoluments and Options
Activities
Community InvolvementCommunity support totalled £32.8m (2002: £32.3m)
Barclays invested £29.4mcommitted £29.5m in support of the community in the UK (2002: £30.0m)(2003: £29.4m) and £3.4m£2.5m was investedcommitted in international support (2002: £2.3m)(2003: £3.4m). UK community supportcommitment includes £9.9m£11.2m of charitable donations (2002: £11.1m)(2003: £9.9m).
Barclays is a member of the Percent Club – a group of companies that undertookhave undertaken to ensure that donations to the community in 2003 amountedover time amount to at least 1% of their UK pre-tax profit.
5
Directors’ Report
Political Donations
These authorities have not been used and it is not proposed that the Group’s long-standing policy of not making contributions to any political party be changed.
Barclays PLC Annual Report 2003 5
Directors’ Report
Employee Involvement
Employees are kept informed of matters of concern to them in a variety of ways, including the opportunitycorporate news magazine, the intranet, briefings and mobile phone SMS messaging.
Barclays is also committed to providing employees with opportunities to share their views and provide feedback on issues which are important to them. An annual Employee Opinion Survey is undertaken with results being reported to the Board HR and Remuneration Committee, and roadshows and employee forums take place.
In addition, Barclays undertakes regular and formal Group, business unit and project specific consultations with Amicus, our recognised union.
Equality and Diversity
Barclays respects and values people from all backgrounds and is committed to becoming a more inclusive organisation with a workforce that reflects the markets we serve.
The Barclays Equality and Diversity programme covers employee, customer, supplier and community activities, wherever appropriate.
Health and Safety
The Board receivesHR and Remuneration Committee will receive regular reports on healthHealth and safetySafety from the Group Human Resources Director.
Creditors’ Payment Policy
Creditor payment days are carefully monitored in the Group, using the systems which record the actual purchases and payments. Barclays estimates that for all UK supplies to Barclays Bank PLC, average creditor payment days in 2003 were 25 days (2002: 31 days). Paragraph 12(3) of Schedule 7 to the Companies Act 1985 requires disclosure of trade creditor payment days. Disclosure is required by the Company, rather than the Group. The Group’s principal trading subsidiary in the UK is Barclays Bank PLC, the accounts for which are prepared under Schedule 9 of the Companies Act 1985. The components for the trade creditor calculation are not easily identified in Schedule 9. However, by identifying as closely as possible the components required by the Schedule, the trade creditor payment days for Barclays Bank PLC for 20032004 were 3534 days (2002: 28(2003: 40 days). This is an arithmetical calculation which includes property rentals and payments, and does not necessarily reflect our practice, which is described above, nor the experience of any individual creditor.
The AuditorsPricewaterhouseCoopers LLP have signified their willingness to continue in office and ordinary resolutions reappointing them as auditors and authorising the Directors to determine their remuneration will be proposed at the 2004 AGM.
The Annual General Meeting
By order of the Board
Lawrence DickinsonGroupCompany Secretary11th February 200410th March 2005
6
Barclays PLC Annual Report 2004
Corporate Governancegovernance
Corporate Governance Reportgovernance report
2003 Corporate Governance Report
Chairman’s StatementIntroduction
As Chairman, I recognise that good corporate governance practices are the cornerstone of an effective organisation and applyingthis will be one of my top priorities going forward. You will read in this report about the enhancements that have been made to promote the highest standards of business integrity in all of our activities.
2003 has been another year in which corporate governance has beenin Barclays. Of course, good corporate governance depends on the focal pointquality and integrity of publicDirectors and, regulatory attention. In Julyhaving conducted an independently facilitated review of overall Board effectiveness, the Board concluded that it is functioning in a highly effective manner. Nonetheless, areas for improvement were identified and we saw the publicationwill continue to challenge ourselves to improve our standards further. Our goal is to ensure that Barclays is an exemplar organisation in the UKfield of the revised Combined Code on Corporate Governance, the culmination of the various reviews that took place in 2002 and 2003, including the Higgs and Smith Reports. Whilecorporate governance. Our existing framework is a strong base upon which to build.
Statement from Barclays will only be required to report on compliance with the revised Combined Code in respect of the 2004 financial year onwards, we are making every effort to comply with it as quickly as possible.
Our commitment to complying with the revised Code was exemplified by our approach to the communication of our succession plans in October 2003. The Chairman of the Board Remuneration Committee, Sir Nigel Rudd, led the non-executive Directors in seeking my replacement as Chairman. I am pleased we have found the right candidate in Matthew Barrett.
I wrote to all shareholders on 6th November 2003 explaining why the Board came to its decision to appoint Mr Barrett as Chairman. The Board’s decision to appoint Mr Barrett followed an extensive and rigorous process involving all the non-executive Directors. The process involved establishing the desirable characteristics for a new Chairman and reviewing external candidates, identified with the help of specialist recruitment consultants, and their availability. Mr Barrett was the Board’s unanimous choice. The Board does not regard his appointment as setting a precedent in Barclays for appointing the Group Chief Executive to the position of Chairman.
Mr Barrett’s appointment helps ensure stability within the senior leadership team at a time of considerable change when a number of senior managers have been given revised and broader responsibilities. The Board also felt that Mr Barrett was the right person for the job given the need to continue to implement our strategy, which has been shown to be successful and value-creating for shareholders; Barclays financial results in 2003 were very strong. The Board was also conscious that Mr Barrett has only been with Barclays for four years and was keen to ensure we obtained maximum value from his contribution, given the success Barclays has enjoyed under his leadership.
The Board thus considered that this particular combination of considerations at this particular time meant that Mr Barrett’s appointment was in the best interests of shareholders.
The letter is reproduced in full below:
‘Dear Shareholder
Chairman of Barclays PLCOn 9th October 2003, Barclays announced a number of changes to the Board and to senior management. The announcement said: ‘Sir Peter Middleton, Chairman of the Board of Barclays PLC, will serve until 31st December 2004, at which time Matthew W. Barrett will succeed him. Mr Barrett will be succeeded by John Varley as Group Chief Executive.’Directors
The Combined Code on Corporate GovernanceThe new
BackgroundMr Barrett has been Group Chief Executive of Barclays PLC for four years having joined the Group in October 1999. During this time the strategy that has been put in place has produced strong results. Barclays is in the top quartile of its peers worldwide in terms of total shareholder return. It has performed significantly better than the average of FTSE 100 companies. In terms of market capitalisation, it is now a top ten bank globally. It has developed a powerful, cohesive management style and a strong control culture. Senior leaders have developed to the point where the Board had a wide choice of internal candidates to succeed Mr Barrett as Group Chief Executive.
The announcements of the new Chairman and Group Chief Executive were made well in advance so that the Group could ensure a smooth transition to both roles and implement the new organisation structure which was announced at the same time.
ProcessThe Board has conducted a thorough selection process. In the case of the Chairman, both external and internal candidates were considered. The Nominations Committee was, for this purpose, chaired by Sir Nigel Rudd. However, all the non-executive Directors, and eventually the whole Board, were involved.
CriteriaIt is the obligation of the Board to appoint as Chairman the individual who, in its opinion, is best qualified to serve shareholders. The Board established a number of desirable characteristics to guide its search for a new Chairman. These included:
It is the Board’s intention that the responsibilities of the Chairman and Group Chief Executive will be agreed and set out in writing – as theyexplanation. We are currently for myself and Mr Barrett. They will be consistent with both the existing roles and the best practice guidelines on the role of the Chairman attached to the new Combined Code.
Reasons for the Board’s DecisionMr Barrett emerged as the Board’s unanimous choice, ahead of all other candidates, for the following reasons:
Barclays PLC Annual Report 2003 7
Corporate GovernanceCorporate Governance Report
Senior Independent DirectorThe Board intends to appoint a Senior Independent non-executive Director in line with the new Combined Code during 2004.
Terms and ConditionsMr Barrett’s terms and conditions, including his remuneration, will be settled nearer to the time of his appointment and will be appropriate to the role of Chairman.
ConsultationWe have kept major shareholders informed of the Barclays Board’s developing thinking on succession issues, in line with the recommendations contained in the new Combined Code but I wanted to write to shareholders personallyalso required to explain how we have arrivedapplied the principles set out in the Code.
For the year ended 31st December 2004, Barclays has complied with the provisions and applied the principles of the Code as described below. For the appointment of Matthew W Barrett as Chairman on 1st September 2004, we followed the Code’s recommendation on the approach to take where a company’s Chief Executive becomes Chairman. We consulted with our major institutional shareholders in advance of the decision being made and sent a letter, explaining the Board’s decision to all shareholders on 6th November 2003. That letter was reproduced in full, together with some additional commentary, in the 2003 Annual Report. A copy is available upon request to the Company Secretary and is also available on the Company’s website, www.investorrelations.barclays.co.uk. In addition, and in accordance with best practice, Mr Barrett will be standing for re-election at this important decision.’year’s Annual General Meeting (AGM), his first AGM since becoming Chairman.
In conclusion, the Board is not complacent on Corporate Governance. As you will see in the following pages, the Board and its Committees have made continued strides to show Barclays as an exemplary organisation in the field of corporate governance. The Group will continue to play an active role in the ongoing debate on the development of corporate governance best practice, promoting greater openness and transparency rather than prescriptive regulation.
Sir Peter MiddletonChairman
Board StructureThe
During 2004, Sir Richard Broadbent and seven executiveSir Nigel Rudd, both of whom are considered by the Board to be independent non-executive Directors, includingwere appointed as Senior Independent Director and Deputy Chairman, respectively. The appointment of a Senior Independent Director was considered by the Board to be an important enhancement to its existing corporate governance practices. It ensured that the Board had the required checks and balances in place when the Group Chief Executive. Their biographical details are set out on pages 2Executive became Chairman.
Role of the Board
The roles and responsibilities of ourthe Chairman and Group Chief Executive have been approved by the whole Board, and their roles are separate well documented and understood. A summarythe Board has agreed their respective responsibilities. The Chairman’s main responsibility is to lead and manage the work of the relevant role is attachedBoard to each executive Director’s service contract. All service contracts are available for inspection during office hours, on request, addressed to the Group Secretary.
Under the leadership of the Group Chief Executive, executive management is responsible to the Board for the implementation of the strategyensure that it operates effectively and policies approved by the Board, makingfully discharges its legal and implementing operational decisions and running the Group’s businesses.regulatory responsibilities. Non-executive Directors, based on their breadth of knowledge and experience, challenge, monitor and approve the strategy and policies recommended by the executive.Group Chief Executive.
InThe Board has delegated the 2002 Annual Report, we disclosed how we had adopted a formal system of annually evaluatingresponsibility for the Board. During 2003, we have expanded the assessment process by requiring the Board Audit Committee to complete a similar questionnaire tailored to that Committee’s function. A tailored questionnaire has been or will be sent to allday-to-day management of the other principal Board Committees during 2004 and then on an annual basis. The results of these assessments will be reported backGroup to the Board, making recommendations for change. It is the responsibility of the Chairman to lead the non-executives in assessing the performance of the Group Chief Executive. The Board RemunerationGroup Chief Executive is supported in this by the Group Executive Committee, evaluateswhich he chairs. This Committee comprises the performanceGroup Finance Director, the heads of the Chairman.Group’s major businesses and the Chief Operating Officer. The Committee usually meets weekly to develop strategies and policies for recommendation to the Board and to implement the strategy approved by the Board.
7
Corporate governance
Corporate governance report
Appointment of Directors
The Board meets regularly and has a formal scheduleassistance of matters reserved to it. All Directors have accessexternal search consultants, before an appointment is recommended to the services of the Group SecretaryBoard.
Induction and his team. Independent professional advice is also availableTraining
Meetings of the Board are structured to allow and encourage open discussion and frank debate to ensure that non-executive Directors provide effective challenge to the executive. The Chairman meets privately with the non-executives prior to each Board meeting to brief non-executive Directors and to address any concerns they may have. In 2004, there will also be a meeting of the non-executive Directors without the Chairman being present, to meet the requirements of the revised Combined Code.
On appointment, non-executiveBoard Committees, all Directors receive a comprehensive induction including site visits andtailored to their individual requirements. The induction, which is arranged by the Company Secretary, includes meetings with senior management across the businesses and the Group Functions,key external advisors, to helpassist them to build up quicklyin building a detailed understanding of how the Group works and the key issues it faces. Directors are also encouraged to make site visits to see the Group’s operations. In addition, investor bodies and major investors are given the opportunity to meet with new non-executive Directors on their appointment to discuss any concerns they have about the Group.
Where appropriate, additional training and updates on particular issues are arranged by the GroupCompany Secretary.
At each AGM, one-third of the Directors (rounded down) retire and offer themselves for re-election. In practice, this means that every Director stands for re-election at least once every three years. Any Directors appointed by the Board since the last AGM, or Directors who reach the age of 70, must also stand for re-election at the next AGM.
Our Directors diligently support the work For example, during 2004, members of the Board Audit Committee received briefings by the Group’s external auditors on audit committee effectiveness and its Committees. the valuation of derivatives. Additional training for the Board Risk Committee has included a presentation on Daily Value at Risk.
Board Effectiveness
Feedback on the performance of Board Committees was shared with the Committee Chairmen, while feedback on individual Directors was discussed with the Chairman. The Chairman then held private meetings with each Director to discuss the results and agree on developmental areas. Feedback on the performance of the Chairman was provided to Sir Richard Broadbent, the Senior Independent Director, who discussed the results privately with the other non-executive Directors and the Group Chief Executive before meeting with the Chairman. As a result of the review, the Board concluded that it was operating in a highly effective manner. Action plans have been developed in respect of those areas identified for improvement.
Board Meetings
8
Combined Code Statement of ComplianceAs a Company listedGroup Finance Director’s Report reviewing monthly financial information, the Group Chief Executive’s Report on the official listkey issues affecting the Group and its businesses, strategy updates from the Group’s main businesses and Reports from the Chairmen of the London Stock Exchange, Barclays is required to state how it has applied the principles in the United Kingdom Listing Authority’s Combined Code onBoard Audit, Risk, Corporate Governance or, where these have not been applied, to provide an explanation accordingly.
For the year ended 31st December 2003, Barclays complied with the existing Combined Code save for the formal appointment of a Senior Independent Director. As set out in our letter to shareholders on 6th November 2003, making such an appointment is a priority for the Board during 2004. However, the Group has in Sir Brian Jenkins a Deputy Chairman and independent non-executive Director who is available as a point of contact for shareholders if required.Nominations and HR and Remuneration Committees.
The Board annually reviewshas a formal schedule of matters reserved to it, including the independenceapproval of itsinterim and final financial statements, significant changes in accounting policy and practice, the appointment or removal of Directors or the Company Secretary, changes to the Group’s capital structure and major acquisitions, mergers, disposals and capital expenditure.
The Chairman encourages open discussion and frank debate at meetings. This gives the non-executive Directors taking into account developing best practice and regulation. For 2003, the Board has determined thatopportunity to provide effective challenge to management. The Chairman meets privately with all the non-executive Directors are independent under the existing Combined Code and after taking into account all the independence factors outlined in the revised Combined Code. There is a strategic alliance between Barclaycard and Xansa, of which Hilary Cropper was, until recently, Chairman. Mrs Cropper has not, and will not, participate in discussions relatingprior to this alliance at Barclayseach Board meetings. Mrs Cropper also refrained from discussing and votingmeeting to brief them on the alliancebusiness being considered at meetingsthe meeting and to address any concerns they may have.
All Directors have access to the services of the Xansa Board. Mrs CropperCompany Secretary and his team. Independent professional advice is also available, on request, to all Directors at the Company’s expense.
Independence of non-executive Directors
The Code set outs circumstances which may be relevant to the Board’s determination of whether a non-executive Director is independent. These include whether the Director has served on the Board for more than nine years. The Board has carefully considered the issue of independence and has concluded that the following behaviours are essential for the Board to consider a Director to be independent:
• | Provides objective challenge to management. | |
• | Is prepared to challenge others’ assumptions, beliefs or viewpoints as necessary for the good of the organisation. | |
• | Questions intelligently, debates constructively, challenges rigorously and decides dispassionately. | |
• | Is willing to stand up to defend their own beliefs and viewpoints in order to support the ultimate good of the organisation. | |
• | Has a good understanding of the organisation’s businesses and affairs to enable them to properly evaluate information and responses provided by management. |
Sir Nigel Rudd has now served on the Board for more than nine years, having been appointed in February 1996. The recent evaluation of Directors reinforced the opinion of the Board that Sir Nigel remains independent, notwithstanding his length of tenure. Sir Nigel demonstrates each of the behaviours set out above and there is no longerevidence that length of tenure is having an adverse impact on his independence. The Board believes his experience and knowledge of the Group’s business, combined with his external business experience, enables him to provide both effective challenge and make a Directorconstructive contribution to Board discussions. The Board considers therefore that Sir Nigel continues to be independent.
8
Barclays PLC Annual Report 2004
The Board considers Sir Nigel’s continued chairmanship of Xansa although shethe Board HR and Remuneration Committee as essential for continuity. It will also allow new members of the Committee to become fully effective while the Board considers the succession to Chairman of the Committee. Sir Richard Broadbent was appointed to the Board HR and Remuneration Committee during the year and another member will be appointed during 2005. The continued membership of both Sir Nigel and David Arculus, who has served on the Committee since 1997, is now Honorary President. considered to be of particular importance in a period when the Group is introducing a new long-term incentive plan.
Having considered the matter carefully, the Board has concludeddetermined that Hilary Cropper remains independent for these purposes undereach of the existing and the revised Combined Codes and demonstrates her independence at every Board meeting.
Although the standards in the revised Combined Code will only apply to the Group from the 2004 financial year, Barclays has used its best endeavours to comply with it so far as possible. The Board’s viewnon-executive Directors is that the Group already compliesindependent. In line with the principles set out in the revised Code. However, workCode’s recommendation, Sir Nigel will be done in the coming year to ensure compliance with the specific provisions, principally the appointment of a senior independent non-executive Director and a non-executive Director with recent and relevant financial experience to serve on the Board Audit Committee.stand for re-election annually by shareholders.
Board Committees
Board HR and Remuneration Committee
The Committee, chaired by Sir Nigel Rudd, meets at least four times a year. It considers matters relating to executive reward, including policy for executive Directors’ and senior executives’ remuneration and their individual remuneration awards. The Committee approves changes to incentive and benefits plans applicable to senior executives and governs employee share schemes. Details of the Committee’s role in governing Directors’ rewards are set out in Barclays Report on Remuneration on pages 13 to 25.
The Committee also reviews strategic HR issues including, but not limited to, employee retention, motivation and commitment; Equality and Diversity; significant employee relations matters and the availability of talent for senior roles below executive Director level.
Board Corporate Governance and Nominations Committee
The Committee is responsible for considering matters relating to the composition of the Board, including the appointment of new Directors, making recommendations to the Board as appropriate. It also reviews annually the succession plans for the Chairman and Group Chief Executive and other key Board positions. The Chairman of the Board chairs the Committee, except when the Committee is considering the Chairman’s succession, in which case the Senior Independent Director chairs the Committee.
During 2004, the Committee reviewed the composition of the Board and each of the Board Committees and determined its view of the ideal mix of skills and experience required. It also reviewed the process for appointing new Directors and appointed new external search consultants to assist it in identifying potential new Directors. In addition, the Committee reviewed and approved the approach to Board, Board Committee and individual Director evaluation.
Board Audit Committee
Chairman’s Statement
MembershipThe Board Audit Committee has continued to play an important role in reviewing the Group’s controls and financial reporting systems. Its role is becoming increasingly complex and high profile given the focus on the work of audit committees over the last two years. Barclays is fully committed to ensuring its Board Audit Committee fulfils its new duties and responsibilities effectively.
single member isbe a ‘financial expert’, as defined by the US Sarbanes-Oxley Act of 2002 or fully meets the requirements of the revised Combined Code in respect ofand that he has ‘recent and relevant financial experience’. The appointment to as recommended by the Board and toCode.
Meetings
Members of the Committee during 2003, together with a record of their attendance at Committee meetings, are set out below:
During 2003, the Committee has met five times with the Group’s senior management, including the internalGroup Chief Executive or Deputy Chief Executive, the Vice-Chairman (Chris Lendrum), the Group Finance Director, the Risk Director and the Internal Audit Director. The lead audit team andpartner of the external auditors, PricewaterhouseCoopers LLP. In preparing forLLP, also attended each of these meetings I also held discussions withmeeting.
The Committee receives at each of themmeeting comprehensive reports from management and the internal and external auditors to ensure that the meetingsenable it to discharge its responsibilities. The key responsibilities of the Committee were as effective as possible. The Committee also met privately with the externalare to approve and internal auditors after each Committee meeting and at other times, where appropriate.
The Committee is responsible for approving and reviewingreview the appointment and retirement of the external auditors, as well as overseeingoversee their relationship with the Group. This includes conducting an annualGroup including consideration and approval of all audit and non-audit services provided by the external auditor; to monitor the effectiveness of and receive regular reports from the internal audit function; to review of the independence and effectiveness of the external auditors and the recommendation to the Board as to the level of fees to be paid to the external auditors.
During the course of the year, the Committee reviewed and approved a comprehensive and robust policy to regulate the Group’s use of the external auditors for non-audit services. The policy sets out in detail what services may or may not be provided to the Group by the external auditors. The Committee must approve individual assignments which are not pre-approved or which exceed a certain value and sets aside time at each Committee meeting to discuss the external auditors’ independence, the level of non-audit fees being paid to them and the types of services being provided by them, including a summary of all assignments preapproved since the last meeting. In addition, the Committee has approved a Code of Ethics applicable to the Group Chief Executive and the Group’s senior financial officers.
The responsibility for ensuring that management maintain an effective system of internal control and for reviewing its effectiveness rests with the Board. The Group Chief Executive and the Group Executive Committee is responsible for the management of risk and the Group Governance and Control Committee is responsible for monitoring the Group’s assurance process and the risk governance framework to ensure that it is complete and effective. The Board Audit Committee reviews the effectiveness of risk management standards and reviewsreview reports on control issues of Group level significance.
The Committee has a pivotal role in reviewingsignificance; to review the Group’s annual and interim financial statements, including the effectiveness of the Group’s disclosure controls and procedures and systems of internal control. The remit of the Committee also extendscontrol over financial reporting; to reviewing the work undertaken by the internal audit team and reports produced by senior management on control issues, reporting its findings to the Board as appropriate.
Barclays PLC Annual Report 2003 9
Corporate GovernanceCorporate Governance Report
The Committee reviewsreview arrangements established by management for compliance with the requirements of the Group’s regulators and receivesto receive reports on the effectiveness of the Group’s whistleblowing arrangements, as well as reports on specific instances of whistleblowing. ThisThe Committee also met privately with the external and internal auditors after each Committee meeting.
The Committee also meets once a year specifically to review and approve the audit plans for the following year for the external and internal auditors.
Relationship with the External Auditors
9
Corporate governance
Corporate governance report
The Committee has put in place a detailed policy on the provision of services by the external auditors. Under the policy, the Committee has agreed which services the external auditors are allowed to carry out on behalf of the Group and which ones they are prohibited from doing. This policy aims to safeguard the independence of the external auditor.
The external auditors are prohibited from providing bookkeeping or other services related to the Group’s accounting records or financial statements, financial information systems design and implementation, appraisal or valuation services, fairness opinions or contribution-in-kind reports, actuarial services, internal audit outsourcing, management functions or other secondments, human resource functions (including recruitment/selection), broker or dealer, investment adviser or investment banking services, legal and expert services and tax services involving advocacy.
Allowable services that may be provided by the external auditors are statutory audit services, regulatory audit services, other attest and assurance services, regulatory non-audit services and taxation services (not involving advocacy). They may also provide accountancy advice, risk management and controls advice and carry out transaction support and business support and recoveries. For these allowable services, the Committee has pre-approved all assignments where the expected fee does not exceed £100,000, or £25,000 in the case of taxation services, although such assignments must be reported to the next meeting of the Committee. Any assignment where the expected fee is above the relevant threshold requires specific approval from the Committee. The Committee has delegated authority to the Chairman of the Committee, or, in his absence an authorised member of the Committee, to approve such assignments in between meetings of the Committee.
A proposed service that does not fall either within the definition of prohibited or allowable services requires the approval of the Committee. A member of the Group Executive Committee must explain the business case for the provision of that service by the external auditor to the Committee. A breakdown of the fees paid to the external auditor during the year is set out on page 128. Where any service requires approval from the Committee, management must set out the reasons why the external auditor has been chosen, rather than an alternative provider.
Details of all services carried out by the external auditor are recorded centrally and reported to the next meeting of the Committee, which spends time at each meeting considering the independence of the external auditor based on this information.
For the year ended 31st December 2004, the Committee has concluded that the external auditor remains independent and is effective. The Committee has recommended to the Board that they propose the re-appointment of the external auditors to shareholders at the 2005 AGM.
Financial Reporting
Work of the Committee during 2004
The Committee also received regular reports on the progress of two major regulatory projects, namely the implementation of International Financial Reporting Standards.Standards and the implementation of s.404 of the US Sarbanes-Oxley Act of 2002, whereby management and the external auditors will have to attest to the effectiveness of the Group’s systems of internal control over financial reporting. The Committee has concluded that the Group is on track to deliver these projects, but will keep them under ongoing review.
The Committee strives to ensureis confident that it keeps abreast of all material developments in regulationhas the required skills and best practice affecting the work withinexperience to fully discharge its remit. The Committee has in place procedures to ensure that it receives regular briefings on such issues as well as training, where appropriate.responsibilities.
Stephen RussellBoard Audit Committee Chairman
Board Remuneration CommitteeThe members of the Committee during 2003, together with a record of their attendance at Committee meetings, are set out below:
The Board Remuneration Committee meets at least four times a year to consider matters relating to executive remuneration including policy for executive Directors’ and senior executives’ remuneration, including bonus payments. The Committee also meets to approve changes to employee benefits schemes and long-term incentive schemes. Further details of the work of the Committee are set out in Barclays Report on Remuneration on pages 11 to 22.
Board Nominations CommitteeThe members of the Committee during 2003, together with a record of their attendance at Committee meetings, are set out below:
The Board Nominations Committee meets formally at least once a year to consider matters relating to the composition of the Board, the appointment of new Directors (making recommendations to the Board as appropriate) and succession planning for senior management positions. The Committee is chaired by the Chairman of the Board, except when the Committee is considering the succession of the Chairman, in which case the Committee is chaired by Sir Nigel Rudd. During the course of the year, Sir Nigel led the search for Sir Peter Middleton’s successor. Due to the importance that the Board placed on the succession, the decision was made to invite all non-executive Directors to additional meetings which considered the Chairman’s and Group Chief Executive’s succession rather than just the Committee members set out above. In addition to the meetings described above, the non-executive Directors met prior to Board meetings and throughout the year to review both the Chair and the Group Chief Executive succession arrangements. New non-executive Director appointments were also considered at these meetings with support provided by external search consultants.
Board Risk Committee Chairman’s Statement
The Board Risk Committee meets at least four times a yearis to approve and, together with the Group Governance and Control Committee, review on an annual basis the Group’s Governance Principles. These principles flow from the Group’s belief that best practice governance, controlsoverall risk appetite, including limits for individual types of risk, including credit, market and compliance are essential for maximising shareholder value, the Group’s governing objective.operational risk. The Committee also approves Standardsmaterial changes to the overall risk appetite and monitors the Group’s risk profile, including risk trends and concentrations, provisions experience against budget and key performance indicators for risk. A key role of the Committee is also to obtain assurance that the principal risks facing the Group have been properly identified and are being appropriately managed.
In order to assess the effectiveness of the Group’s risk control framework, including appropriate risk identification and measurement processes and efficient control mechanisms, delegating authority to the Director of Group Risk to approve minor revisions to the Standards in between meetings of the Committee.
As well as agreeing the overall risk appetite and risk profile for the Group, the Committee regularly reviews the Group’s risk measurement systems and receives and reviews reports from management confirming that assessthey have reviewed the nature and extent of risks facing the Group, including Executive Management’s assessments of:
The Committee is also responsible for approving certain policy statements required by the Financial Services Authority.Group’s risk control standards. An overview of the Group’s risk management and control framework can be found on page 25.30. The Board approved the Committee’s revised approach in November 2004.
Signed on behalf of the Board Audit and Board Risk Committees
Stephen Russell
Board Audit and Board Risk Committee Chairman
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Barclays PLC Annual Report 2004
Attendance at Board and Board Committee Meetings
Details of the attendance of Directors at meetings of the Board and of Board Committees of which they were members during 2004 are as follows:
Board | |||||||||||
Board | Corporate | ||||||||||
HR and | Governance and | Board | |||||||||
Board Audit | Remuneration | Nominations | Risk | ||||||||
Director | Board | Committee | Committee | Committee | Committee | ||||||
Sir Peter Middleton | 6/6 (retired 1st September 2004 | ) | – | – | – | 2/2 (until 1st September 2004 | ) | ||||
Matthew W Barrett | 10/10 | – | – | 1/1 (appointed 23rd September 2004 | ) | – | |||||
John Varley | 10/10 | – | – | – | 1/1 (until 5th February 2004 | ) | |||||
Chris Lendrum | 10/10 | – | – | – | – | ||||||
Roger Davis | 10/10 | – | – | – | – | ||||||
Gary Hoffman | 10/10 | – | – | – | – | ||||||
Naguib Kheraj | 10/10 | – | – | – | – | ||||||
David Roberts | 10/10 | – | – | – | – | ||||||
David Arculus | 9/10 | – | 5/6 | 1/1 | – | ||||||
Sir Richard Broadbent | 10/10 | – | 5/5 (appointed 1st April 2004 | ) | 1/1 (appointed 23rd September 2004 | ) | 2/2 (appointed 1st April 2004 | ) | |||
Dame Hilary Cropper | 7/10 (died 26th December 2004 | ) | – | – | – | 1/3 | |||||
Leigh Clifford | 3/3 (appointed 1st October 2004 | ) | – | – | – | – | |||||
Professor Dame Sandra Dawson | 9/10 | 5/5 | – | – | – | ||||||
Sir Brian Jenkins | 6/6 (retired 1st September 2004 | ) | 3/3 (until 1st September 2004 | ) | 4/4 (until 1st September 2004 | ) | – | 2/2 (until 1st September 2004 | ) | ||
Sir Andrew Likierman | 4/4 (appointed 1st September 2004 | ) | 2/2 (appointed 1st September 2004 | ) | – | – | 1/1 (appointed 23rd September 2004 | ) | |||
Stephen Russell | 9/10 | 5/5 | – | 1/1 (appointed 23rd September 2004 | ) | 3/3 | |||||
Sir Nigel Rudd | 10/10 | – | 6/6 | 1/1 | – | ||||||
Dr Jürgen Zech | 10/10 | 5/5 | – | – | – | ||||||
11
Corporate Governance
Corporate Governance Report
Statement on US Corporate Governance standards
The way in which Barclays makes determinations of Directors’ independence differs from the NYSE rules. NYSE Rule 303A.02 sets out five tests for Director independence. In addition to those tests, the NYSE also requires that the Board “affirmatively determines that the Director has no material relationship with the company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company)”.
The Barclays Board annually reviews the independence of its non-executive Directors, taking into account developing best practice and regulation. For 2004, the Board has determined that all the non-executive Directors are independent as defined by the Code, as set out above.
Barclays has a number of principal Board Committees, which are broadly comparable in purpose and composition to those required by NYSE rules for domestic US companies. Barclays has a Board Corporate Governance and Nominations Committee, a Board HR and Remuneration (rather than Compensation) Committee and a Board Audit Committee. Barclays also has a Board Risk Committee.
With the exception of the Board Corporate Governance and Nominations Committee, which is chaired by the Chairman of the Board, these committees are comprised solely of non-executive Directors whom the Board has determined to be independent, in the manner described above.
The NYSE rules require that shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions to those plans. Barclays complies with UK requirements, which are similar to the NYSE rules. The Board, however, does not explicitly take into consideration the NYSE’s detailed definition of what are considered ‘material revisions’.
The NYSE rules require that domestic US companies adopt and disclose a code of business conduct and ethics for Directors, officers and employees. Rather than a single consolidated code as envisaged in the NYSE rules, Barclays has business-based conduct and ethics policies, which apply to all employees. In addition, Barclays has adopted a Code of Ethics for the Group Chief Executive and senior financial officers as required by the US Securities and Exchange Commission.
Corporate Responsibility
Relations with Shareholders
The Group aims to provide a first class service to private shareholders to help them in the effective and efficient management of their shareholding in Barclays. Last year we describedThe main methods of communicating with private shareholders are the introduction of Annual Report, the Annual Review and the AGM.
Barclays e-view the service that enables shareholders to receive shareholder documents electronically. It also gives shareholders immediate access to information relating to their personal shareholding and dividend history. Following the change of Share Registrar in November 2003 to Lloyds TSB Registrars, e-view is now a more comprehensive service and participantsParticipants can nowalso change their details and dividend mandates online. In addition,online and receive dividend tax vouchers are now available online for e-view members.electronically.
Our policy is to make constructive use of the AGM. All Directors and, in particular, the chairmen of the Board Audit and Board Remuneration committees and those Directors standing for re-election, are encouraged to attend the AGM and to be available to answer shareholders’ questions. Normally,It has been Barclays practice for a number of years that all resolutions are voted on a poll to ensure that the views of all shareholders are reflected proportionately. Each of the resolutions considered at the 2004 AGM was decided on a poll and a copy of the poll results is available from the Company Secretary or on the Company’s website, www.investorrelations.barclays.co.uk. The resolutions to be considered at the 2005 AGM will also be decided on a poll and the results will be made available on the Company’s website. A summary of the resolutions being proposed at the 2005 AGM is set out below:
Ordinary Resolutions
• | To receive the Report and Accounts for the year-ended 31st December 2004. | |
• | To approve the Report on Remuneration for the year-ended 31st December 2004. | |
• | To re-elect the following Directors: |
– | Sir Andrew Likierman; | ||
– | Leigh Clifford; | ||
– | Matthew W Barrett; | ||
– | John Varley; | ||
– | David Arculus; | ||
– | Sir Nigel Rudd. |
• | To reappoint PricewaterhouseCoopers LLP as auditors of the Company. | |
• | To authorise the Directors to set the remuneration of the auditors. | |
• | To authorise the creation of a new Performance Share Plan (PSP). | |
• | To authorise the Directors to establish supplements or appendices to the PSP. | |
• | To authorise the Directors to allot securities. |
Special Resolutions
• | To authorise the Directors to allot securities for cash other than on a pro-rata basis to shareholders and to sell treasury shares. | |
• | To authorise the Directors to repurchase shares. |
Signed on behalf of the Board
Matthew W Barrett
Chairman
10
12
Corporate GovernanceBarclays Report on Remuneration
Barclays PLC Annual Report 2004
Corporate governance
Barclays report on Remunerationremuneration
Statement from the Chairman of the Board HR and Remuneration Committee (the Committee)
The Committee is made up exclusivelyalso determines the aggregate level of non-executive Directors.bonus and inacentive funding throughout the Group. This includes setting the framework for reward in Barclays Capital and Barclays Global Investors, and approving their aggregate levels of bonus and incentive expenditure, and strategic investment expenditure on new hires.
The Committee undertakes a periodic review of strategic human resources matters. This includes succession for senior roles below Board level, the longer term availability of talent within the Group, equality and diversity policy and key employee relations issues.
This report describesdetails the current components of the remuneration policy and details the remuneration for each person who served as a Director during 2003.
Barclays emphasis on reward for performance, and alignment with shareholders’ interests, is illustrated by the following points:2004.
• | Executive Directors’ bonuses for | |
• | The Committee compares Barclays total shareholder return (TSR) with a peer group of eleven other major banks, and also against the FTSE 100 Index. Barclays | |
• | The main performance condition for executive Directors in the Incentive Share Option Plan (the ISOP) is TSR relative to a peer group of eleven other major banks. This performance condition is very challenging. The maximum number of shares under option vests only if Barclays is ranked first in | |
• | As shown in the table on page |
The Committee unanimously recommendrecommends that you vote in favour ofto approve this report at the AGM.
Signed on behalf of the Board
Sir Nigel Rudd
Board HR and Remuneration Committee Chairman
1 | Economic profit (EP) is defined as | |
2 | Towers Perrin, |
Board HR and Remuneration Committee Members
Sir Nigel Rudd, Chairman
David Arculus
Sir Richard Broadbent(a)
Sir Brian Jenkins(b)
(a) | Sir | |
(b) |
The Committee members are considered by the Board to be independent of management and free from any business or other relationship which could materially affect the exercise of their independent judgement.
The constitution and operation of the Committee comply with the Best Practice Provisions on Directors’ Remuneration in the Combined Code adopted by the UK Listing Authority.
Advisers to the Committee
During the Committee.
year Towers Perrin, Mercer Human Resource Consulting and MercerKepler Associates2 advised the Committee on latest developments in market compensation. Bothgeneral remuneration matters. Towers Perrin and Mercer Human Resource Consulting companies have advised the Company on other human resource related issues including advice in such areas as employee reward, pensions and employee communication. In addition, Towers Perrin gave actuarial and other advice to the Barclays UK life assurance companies.companies and Barclays Private Clients.
The Chairman of the Board, the Group Chief Executive, and Groupthe Human Resources Director and, as necessary, members of the Group Executive Committee, also advise the Committee, butCommittee. They are not permitted to participate in discussions or decisions relating to their own remuneration. The Group Human Resources Director is responsible for personnel within Barclays,providing professional support to line management in HR policy and administration and for monitoring compliance with prescribed policy and programmes across Barclays. The Human Resources Director is not a Board Director, and is not appointed by the Committee.
Our Remuneration Policy
TheBarclays remuneration policy is:is as follows:
13
Corporate governance
Barclays report on remuneration
• | to | |
• | to encourage | |
• | ||
• | to ensure, both internally and externally, that |
Barclays PLC Annual Report 2003 11
Corporate GovernanceBarclays Report on Remuneration
Barclays reward programmes are designed to support and facilitate generation of TSR. The graph below shows the TSR for the FTSE 100 Index and Barclays since 31st December 1998.1999. The FTSE 100 Index is the index of the hundred largest UK quoted companies by market capitalisation. It is a widely recognised performance comparison for large UK companies. It shows that, by the end of 2003,2004, a hypothetical £100 invested in Barclays on 31st December 19981999 would have generated a total return of £82,£58, compared with a loss of £13nearly £20 if invested in the FTSE 100 Index. Barclays therefore significantly outperformed the FTSE 100 Index for this period.
Total Shareholder Return
Note
The Reward Package for Executiveexecutive Directors
• | base salary; | |
• | annual bonus including the Executive Share Award Scheme (ESAS); | |
• | the Incentive Share Option Plan (ISOP); and | |
• | pension and other benefits. |
All the executive Directors met a Committee guideline that they should hold the equivalent of 1x their base salary in Barclays shares, including shares held on their behalf in ESAS.
The Committee reviews the elements of the reward package relative to the practice of other comparable organisations. Reward is benchmarked against the markets in which Barclays competes for talent.
This includes benchmarking against other leading international banks and financial services organisations, and other companies of similar size to Barclays in the FTSE 100 Index.
The sections that follow explain how each of the elements of remuneration listed above is structured. Each part of the package is important and has a specific role in achieving the aims of the remuneration policy. The combined potential earnings from bonus and ISOP outweigh the other elements, and are subject to performance conditions, thereby placing a large proportion of total reward at risk. The component parts for each Director are detailed in tables accompanying this Report.
Base Salary
The annual base salaries for the Chairman and the current executive Directors are shown in the table below:
As at 1st Jan 2004 | As at 1st Jan 2005 | |||||||
MW Barrett | £ | 1,100,000 | £ | 650,000 | ||||
JS Varley(a) | £ | 700,000 | £ | 850,000 | ||||
RJ Davis | £ | 500,000 | £ | 500,000 | ||||
GA Hoffman | £ | 500,000 | £ | 500,000 | ||||
N Kheraj | £ | 500,000 | £ | 500,000 | ||||
DL Roberts | £ | 500,000 | £ | 500,000 | ||||
(a) | John Varley’s base salary increased from £700,000 to £850,000 on 1st September 2004. |
Annual Bonus Including Executive Share Award Scheme (ESAS)
The shares element of the annual bonus referred to 75% of any bonus award is normally paid as cash and the balance as a mandatory award of shares under ESAS (see page 18 for details), whichabove must be held for at least three years.years and is subject to potential forfeit if the individual resigns and commences employment with a competitor business.
Matthew W Barrett’s bonus for 2004 takes account of his former role as Group Chief Executive up to and including 31st August 2004. Mr Barrett is not eligible for a bonus for the performance year starting 1st January 2005.
Incentive Share Option Plan (ISOP)
14
Barclays PLC Annual Report 2004
performance. For the 2000, 2001, 2002 and 2003 ISOP grants, the performance metrics were TSR and EP growth. The two measuresmeasure of performance used for the 20032004 grant were EP growth and relative TSR. These are bothwas TSR, which is a good measuresmeasure of the value created for shareholders. The awards are also subject to an underlying financial health condition, that EP for the relevant period is used as a key internal value creation metric.more than for the previous three-year period.
The Committee agrees a level of ISOP award for each executive Director, taking account of market practice for comparable positions and performance. For the 2003 ISOP grant, a proportion of the award for executive Directors was subject to the EP measure and a proportion to the TSR measure.
1. Growth in Economic ProfitThis measure encourages both profitable growth and the efficient use of capital.
If cumulative EP is above the target range at the end of the three-year performance period, options over double the number ofThe maximum annual target award shares will become exercisable. If cumulative EPunder the ISOP is 200% of remuneration; however, target awards granted to Directors in 2004 were well below the target rangethis level at the end70% to 82% of the three-year performance period, options over half of the target award shares will become exercisable. Where EP is below the three-year cumulative EP for the previous three years, the options lapse. This is described, for the 2003 awards, in the following table.
EP ranges for 2003base salary. Mr Barrett did not receive a grant of ISOP in 2004, and will not be eligible for performance period 2003awards of this kind as Chairman.
A proposed new long-term incentive plan has been submitted to 2005(a)
Forshareholders for approval at the 2000 grant of ISOP, which vested during 2003, the outcomeAGM on 28th April 2005. Details of the EP performance condition was above target,new Plan are included in the Notice of Meeting which provided a vesting of 2 x target award.
12
2.ISOP Total Shareholder Return, Performance Condition
If Barclays is ranked first, second or third in the peer group, then the options will become exercisable over quadruple, triple or double the target award shares, respectively. If Barclays is ranked fourth, fifth or sixth in the peer group, the options will become exercisable over the target award shares. However, if Barclays is ranked below sixth after three years, there will be a re-test on the fourth anniversary, over the full four-year period. If Barclays is not ranked sixth or higher after four years, the options will lapse.
The method for measuring relative performance is shown in the table that follows, together with the multiple of target award.
Performance achieved in the TSR | Number of shares | |||
ranking scale out of 12 financial | under option that | |||
institutions including Barclays | become exercisable | |||
1st place | 4 x Target Award | |||
2nd place | 3 x Target Award | |||
3rd place | 2 x Target Award | |||
4th – 6th place | 1 x Target Award | |||
7th – 12th place | Zero | |||
If Barclays is ranked below sixth after three years, the performance condition requires there will be a re-test on the fourth anniversary, over the full four- year period. If Barclays is not ranked sixth or higher after four years, the options will lapse. For ISOP, TSR is calculated on a net dividend reinvestment basis. The re-test provision will not be included in the new Performance Share Plan for which we are seeking shareholder approval at the 2005 AGM in April. | ||||
For the 20002001 grant of ISOP, which vested during 2003,2004, Barclays relative TSR performance ranking was third,fourth, which provided a vesting of 2 x1x target award. Therefore, 50%75% of the options granted thatunder the TSR condition, which would have vested had Barclays been ranked first, lapsed.
Options must normally be held for three years before they can be exercised and lapse ten years after grant if not exercised.
Sharesave
Sharepurchase (previously named Share Incentive PlanPlan)The Share Incentive Plan
Employee Benefits Trust (EBT)
Pensions
John Varley is a member of a closed non-contributory pension scheme and his contract provides for a pension of 60% of pensionable salary without reduction for early retirement if he retires at age 55 with 28 years of service and two-thirds of pensionable salary at age 60 with 33 years of service.
Service Contracts
The Committee’s approach when considering payments in the event of termination is to take account of the individual circumstances including the reason for termination, contractual obligations and share schemeplan rules.
15
Corporate governance
Barclays report on remuneration
Potential | ||||||||||||||||
Effective | Normal | compensation | ||||||||||||||
date | Notice | retirement | for loss | |||||||||||||
Directors(a) | of contract | period | date | of office | ||||||||||||
1 year’s | ||||||||||||||||
contractual | ||||||||||||||||
MW Barrett(b) | 1st Sep 2004 | 1 year | n/a | remuneration | ||||||||||||
JS Varley | 1st Sep 2004 | 1 year | 31st Mar 2016 | ” | ||||||||||||
RJ Davis | 1st Jan 2004 | 1 year | 3rd Jun 2016 | ” | ||||||||||||
GA Hoffman | 1st Jan 2004 | 1 year | 20th Oct 2020 | ” | ||||||||||||
N Kheraj | 1st Jan 2004 | 1 year | 14th Jul 2024 | ” | ||||||||||||
DL Roberts | 1st Jan 2004 | 1 year | 11th Sep 2022 | ” | ||||||||||||
Former Directors | ||||||||||||||||
Sir Peter Middleton(c) | 1st | May 1999 | 1 year | |||||||||||||
CJ Lendrum | 15th Jun 1992 | 1 year | ||||||||||||||
In the Barclays report on remuneration for 2002, we reported that, exceptionally, Mr Barrett’s contract provided for a pre-determined payment of twice annual remuneration if his contract was terminated following a change of control of Barclays. This provision will be voluntarily removed from Mr Barrett’s contract with effect from 15th March 2004.
Details of executive Directors standing for re-election at the | ||
(b) | There is no formal retirement date under Mr Barrett’s contract. | |
Sir Peter Middleton’s service contract |
Barclays PLC Annual Report 2003 13
Corporate GovernanceBarclays Report on Remuneration
Non-executive Directors
The basic fee for a non-Executive Director is £50,000 p.a. with an additional £15,000 p.a. paid to members of the following committees: Board Audit, Board Risk, Board HR and Remuneration, and Board Corporate Governance and Nominations. The Chairmen of the Board Risk and the Board Audit Committees receive £25,000 p.a.. As Senior Independent Director, Sir Richard Broadbent receives an additional fee of £25,000 p.a.. As Deputy Chairman, Sir Nigel Rudd receives £150,000 p.a. without any additional fee for chairing the Board HR and Remuneration Committee or membership of the Board Corporate Governance and Nominations Committee. Similarly, as Chairman, Matthew W Barrett receives a salary of £650,000 p.a. from 1st January 2005, without any additional fee for chairing the Board Corporate Governance and Nominations Committee.
The Board’s policy is that fees should reflect individual responsibilities and membership of Board Committees.
Barclays encourages its non-executive Directors to build up a holding in the Company’s shares. £20,000 of theireach Director’s basic Director’s fee of £50,000 is used to buy shares in the Company for each non-executive Director.Company. These shares, together with reinvested dividends, are retained on behalf of the non-executive Directors until they retire from
the Board. They are included in the table of Directors’ interests in ordinary shares of Barclays PLC on page 22.25. Non-executive Directors do not receive awards in share schemesor share option plans for employees.employees, nor do they accrue pension benefits from Barclays for their non-executive services.
Non-executive Directors do not have service contracts. For each non-executive Director, the effective date of their letter of appointment, notice period and the Group’s liability in the event of early termination are shown in the table below:
Group | ||||||||||||
liability in the | ||||||||||||
Non-executive | ||||||||||||
Appointment | Notice | event of early | ||||||||||
Directors | date | period | termination | |||||||||
TDG Arculus | 1st Feb 1997 | 6 months | 6 fees | |||||||||
Sir Richard Broadbent | 1st Sep 2003 | ” | ||||||||||
RL Clifford | 1st | ” | ||||||||||
Professor Dame | ||||||||||||
Sandra Dawson | 1st Mar 2003 | ” | ||||||||||
Sir | ” | |||||||||||
Sir Nigel Rudd | 1st Feb 1996 | ” | ||||||||||
SG Russell | 25th Oct 2000 | ” | ||||||||||
Dr Jürgen Zech | 30th Jul 2002 | ” | ||||||||||
Former Directors Dame Hilary Cropper | 1st Jun 1998 | – | ||||||||||
Sir Brian Jenkins | 25th Oct 2000 | ” | – | |||||||||
Each appointment is for an initial six-year term, renewable for onea single term of three years thereafter.
Details of non-executive Directors standing for re-election at the 20042005 AGM are set out on page 5.
The performance of each non-executive Director is reviewed annually by the Chairman, and at the end of the initial term.
Forward Looking StatementFuture Policy
Mr Barrett’s base salary from 1st January 2005 has been reduced to £650,000 p.a.. He will not be eligible for any performance bonus in respect of the 2005 performance year. He will also not be eligible for pension accrual or long-term incentive awards. Mr Varley’s base salary from 1st September 2004 is £850,000 p.a. reflecting his role as Group Chief Executive from that date.
A proposal has been submitted to shareholders to seek approval for a new long-term incentive plan for Directors and other senior leaders effective from 2005. The new plan is designed to drive outstanding relative TSR performance. It includes performance shares rather than share options. There is no performance condition re-test in the new plan.
Audited Information
14
16
2003Barclays PLC Annual Report 2004
2004 Annual Remuneration(a)(n)
Executive Share | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Award Scheme | Executive Share | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compen- | ESAS(c) | Pay in | Annual | Award Scheme | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
sation | Salary | lieu of | cash | 2004 | 2003 | ESAS(c) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Salary | for loss | Annual | 2003 | 2002 | and fees | notice | Benefits | (b)(f) | bonus | Total | Total | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
and fees | of office | Benefits | (b) | cash bonus | Total | Total | 2003 | 2002 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |||||||||||||||||||||||||||||||||||||||||||||||||
£000 | £000 | £000 | �� | £000 | £000 | £000 | £000 | £000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chairman | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sir Peter Middleton(d) | 550 | – | 16 | – | 566 | 528 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MW Barrett(d)(e) | 1,100 | – | 77 | 1,650 | 2,827 | 3,088 | 715 | 831 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Directors | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MW Barrett | 1,100 | – | 69 | 1,919 | 3,088 | 1,697 | 831 | 223 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum | 419 | – | 10 | 439 | 868 | 560 | – | 65 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JS Varley | 471 | – | 9 | 425 | 905 | 668 | 184 | 86 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JS Varley(e) | 750 | – | 11 | 1,313 | 2,074 | 905 | 569 | 184 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RJ Davis | 500 | – | 12 | 825 | 1,337 | – | 358 | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GA Hoffman(e) | 500 | – | 10 | 825 | 1,335 | – | 358 | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
N Kheraj(e)(f) | 500 | – | 125 | 938 | 1,563 | – | 406 | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DL Roberts | 500 | – | 10 | 769 | 1,279 | – | 333 | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Director | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JM Stewart(e) | 278 | 257 | 6 | – | 541 | 1,602 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-executive Directors | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TDG Arculus | 58 | – | – | – | 58 | 52 | – | – | 68 | – | – | – | 68 | 58 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||
Sir Richard Broadbent | 17 | – | – | – | 17 | – | – | – | 83 | – | – | – | 83 | 17 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||
HM Cropper | 57 | – | – | – | 57 | 52 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RL Clifford(h) | 13 | – | – | – | 13 | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Professor Dame Sandra Dawson | 44 | – | – | – | 44 | – | – | – | 62 | – | – | – | 62 | 44 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||
Sir Brian Jenkins | 144 | – | – | – | 144 | 100 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sir Andrew Likierman(i) | 26 | – | – | – | 26 | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sir Nigel Rudd | 62 | – | – | – | 62 | 57 | – | – | 98 | – | – | – | 98 | 62 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||
SG Russell | 77 | – | – | – | 77 | 58 | – | – | 93 | – | – | – | 93 | 77 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||
Dr Jürgen Zech | 57 | – | – | – | 57 | 21 | – | – | 62 | – | – | – | 62 | 57 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||
Former Directors | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sir Nigel Mobbs(i) | 26 | – | – | – | 26 | 79 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Graham Wallace(j) | 19 | – | – | – | 19 | 52 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sir Peter Middleton(j) | 550 | – | 16 | – | 566 | 566 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum(k) | 425 | 433 | 10 | 900 | 1,768 | 868 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dame Hilary Cropper(l) | 62 | – | – | – | 62 | 57 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sir Brian Jenkins(m) | 100 | – | – | – | 100 | 144 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a) | Emoluments include amounts, if any, payable by Barclays subsidiary | |
(b) | The Chairman and executive Directors receive benefits in kind, which may include life cover, the use of a | |
(c) | The amounts shown for ESAS | |
(d) | Matthew W Barrett’s remuneration reflects his role as Group Chief Executive up to and including 31st August 2004. | |
(e) | Matthew W Barrett is a member of the Advisory Committee, Federal Reserve Bank of New York, and receives no fee in respect of this position. John Varley is a Director of Ascot Authority (Holdings) Limited and British Grolux Investments Limited, for which he receives fees of £24,565 and £6,000 respectively. Gary Hoffman is a Director of Visa (Europe) Limited, for which he receives no fee. Naguib Kheraj is a member of the Board of Governors of the Institute of Ismaili Studies, for which he receives no fee. | |
(f) | Benefits for Naguib Kheraj included a cash allowance of 23% of base salary (£115,000) in lieu of pension contributions. | |
(g) | Fees to non-executive Directors included an amount of not less than £20,000 per annum which, after tax, is used to buy Barclays PLC ordinary shares for each non-executive Director. | |
(h) | Richard Leigh Clifford was appointed as a non-executive Director on 1st October 2004. | |
(i) | Sir Andrew Likierman was appointed as a non-executive Director on 1st September 2004. | |
(j) | Sir Peter Middleton ceased to be Chairman with effect from 1st September 2004. However, his notice period ended on 31st December 2004 and he therefore received remuneration until that date. He received pension payments through the Barclays Bank UK Retirement Fund for | |
(l) | Dame Hilary Cropper died on 26th December 2004. | |
Sir | ||
Barclays PLC Annual Report 2003 15
17
Corporate Governancegovernance
Barclays Reportreport on Remunerationremuneration
Executive Directors’ annual pension accrued assuming retirement at contractual age(d)(e)(f)(h)(i)
Pension | Transfer | Transfer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
accrued | value of | value of | Pension | Transfer | Transfer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued | during | Accrued | accrued | accrued | Increase in | Other | accrued | value of | value of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Age | pension | 2003 | pension | pension | pension | transfer | contribu- | Accrued | during | Accrued | accrued | accrued | Increase in | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
at 31st | at 31st | (including | at 31st | at 31st | at 31st | value | tions | Age | pension | 2004 | pension | pension | pension | transfer | contribu- | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
December | Years | December | increase for | December | December | December | during | made in | at 31st | at 31st | (including | at 31st | at 31st | at 31st | value | tions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | of service | 2002 | inflation) | 2003 | 2002 | 2003 | the year | 2003 | December | Years | December | increase for | December | December | December | during | made in | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£000 | £000 | (a) | £000 | £000 | £000 | £000 | £000 | 2004 | of service | 2003 | inflation) | 2004 | 2003 | 2004 | the year | 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£000 | £000 | (a) | £000 | £000 | £000 | £000 | £000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chairman | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MW Barrett(b) | 59 | 4 | – | – | – | – | – | – | 990 | 60 | 5 | – | – | – | – | – | – | 990 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum(c) | 56 | 34 | 238 | 19 | 257 | 3,415 | 4,069 | 654 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Directors | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JS Varley(c) | 47 | 21 | 167 | 14 | 181 | 1,693 | 2,177 | 484 | – | 48 | 22 | 181 | 126 | 307 | 2,177 | 4,705 | 2,528 | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
RJ Davis(f) | 48 | 7 | – | – | – | – | – | – | 115 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GA Hoffman(c) | 44 | 22 | 140 | 45 | 185 | 1,410 | 1,488 | 78 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
N Kheraj(g) | 40 | 7 | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DL Roberts(c) | 42 | 21 | 133 | 44 | 177 | 1,250 | 1,295 | 45 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Director | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JM Stewart(d) | 54 | 26 | 245 | 9 | 254 | 3,218 | 3,845 | 627 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum(e) | 57 | 35 | 257 | 14 | 271 | 4,069 | 4,639 | 570 | 433 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a) | Pension accrued during the year represents the increase in accrued pension (including inflation at the prescribed rate of | |
(b) | Matthew W Barrett is not a member of the Group’s main pension schemes. A notional fund | |
(c) | The Group has a closed non-contributory pension scheme, which provides that, in the case of death before retirement, a capital sum of up to four times salary is payable together with a spouse’s pension of approximately 50% of the member’s prospective pension at retirement. For death in retirement, a spouse’s pension of approximately 50% of the member’s pre-commutation pension is payable. If a member, granted a deferred pension, dies before their pension becomes payable, their widow/widower will immediately be paid a pension of 50% of their deferred pension. In all circumstances, children’s allowances are payable, usually up to the age of 18. Enhanced benefits are payable if a member is unable to continue to work as a result of serious ill health. | |
(d) | ||
The accrued pension amounts at the end of the year for Mr | ||
(e) | Chris Lendrum ceased to be a Director on 31st December 2004. The accrued pension was the value at this date. He accrued benefits in the closed non-contributory Pension Scheme. | |
(f) | Roger Davis is a member of the Group hybrid scheme. He receives a money purchase contribution of 23% of his salary to this arrangement. | |
(g) | Naguib Kheraj received a cash allowance of 23% of salary, in lieu of pension contributions. | |
(h) | The transfer values have been calculated in a manner consistent with ‘Retirement Benefit Schemes – Transfer Values (GNII)’ published by the Institute of Actuaries and the Faculty of Actuaries. | |
(i) | The tax simplification in the Finance Act 2004 will introduce new maximum limits on tax-approved pension benefits. The Committee’s policy is not to increase executive Directors’ benefits to mitigate changes in tax treatment. |
16
18
Current executiveBarclays PLC Annual Report 2004
Executive Directors: illustration of change in value of shares owned beneficially, or held under option or awardawarded under employee share plans during the year(a)
Number at 31st December 2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notional | Notional | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive | Executive | Incentive | value based | value based | Number at 31st December 2004 | Notional | Notional | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Share | Share | Share | on share | on share | Change in | Executive | Executive | Incentive | value based | value based | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
owned | Award | Option | Option | price of | price of | notional | Shares | Share | Share | Share | on share | on share | Change in | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
beneficially(b) | Scheme | Scheme | Plan(c) | Sharesave | Total | £3.85(d) | £4.98(e) | value | owned | Award | Option | Option | price of | price of | notional | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£000 | £000 | £000 | beneficially | (b) | Scheme | (c) | Scheme | Plan | (d) | Sharesave | Total | £4.98 | (e) | £5.86 | (f) | value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£000 | £000 | £000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chairman | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MW Barrett | 277,656 | 245,949 | 766,628 | 2,852,000 | 2,479 | 4,144,712 | 2,016 | 3,585 | 1,569 | 289,242 | 293,460 | 766,628 | 2,832,000 | 2,479 | 4,183,809 | 3,880 | 7,006 | 3,127 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum | 224,456 | 100,532 | – | 576,000 | 2,714 | 903,702 | 1,323 | 2,062 | 739 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Directors | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JS Varley | 303,735 | 139,838 | – | 600,000 | 4,096 | 1,047,669 | 1,778 | 2,678 | 900 | 338,451 | 139,695 | – | 880,000 | 4,096 | 1,362,242 | 2,904 | 4,041 | 1,136 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
RJ Davis | 3,156 | 587,682 | – | 440,000 | 2,714 | 1,033,552 | 3,185 | 4,056 | 870 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GA Hoffman | 168,240 | 436,586 | – | 700,000 | 6,874 | 1,311,700 | 3,475 | 4,574 | 1,099 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
N Kheraj | 2,238 | 868,622 | 60,000 | 480,000 | 10,319 | 1,421,179 | 4,655 | 5,863 | 1,207 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DL Roberts | 67,368 | 288,717 | – | 480,000 | 4,483 | 840,568 | 2,018 | 2,710 | 692 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Director | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum(g) | 239,373 | 81,712 | – | 340,000 | 2,714 | 663,799 | 1,809 | 2,331 | 522 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a) | The register of Directors’ interests, which shows full details of Directors’ current share awards and options, is available for public inspection at the Group’s Head office in London. | |
(b) | The number shown includes shares held under | |
(c) | Executive Share Award Scheme includes the maximum potential 30% bonus share element, which is added to the award in two parts: 20% after three years, 10% after five years. | |
(d) | The number of shares shown represent the target award shares under option, or the actual number of shares under option if the award has vested. | |
The value is based on the share price as at 31st December | ||
The value is based on the share price as at 31st December | ||
(g) | Chris Lendrum ceased to be a Director on 31st December 2004. |
Market price per share at 31st December 20032004 was 498p.586p. The highest and lowest market prices per share during the year were 527p586p and 311p443p respectively.
Under the Executive Share Award Scheme (ESAS), ISOP and ESOS, nothing was paid by these participants on the grant of options.
Barclays PLC Annual Report 2003 17
19
Corporate Governancegovernance
Barclays Reportreport on Remunerationremuneration
Executive Directors: shares provisionally allocated and shares under option under Executive Share Award Scheme (ESAS)(a)
During 2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nil cost | Awarded in | During 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Awarded in | Market | Number | option | Date | 2004 in | Awarded in | Market | Market | Number | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number at | respect of | price at | at 31st | granted | from | Latest | respect of | Number at | respect of | price at | price | Bonus | at 31st | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1st January | the results | release | December | at 3rd | which | expiry | the results | 1st January | the results | release | at exercise | shares | December | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | for 2002 | Released(b) | date £ | 2003 | anniversary(c) | exercisable | date | for 2003(d) | 2004 | for 2003 | Released(b) | date £ | Exercised(c) | date £ | lapsed | 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chairman | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MW Barrett | 185,724 | 60,225 | – | – | 245,949 | 66,932 | 21/2/03 | 20/2/05 | 169,327 | 245,949 | 169,327 | – | – | 66,932 | 4.92 | 5,576 | 293,460 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum | 91,164 | 17,520 | 8,152 | 3.80 | 100,532 | 37,060 | 26/2/02 | 20/2/05 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
45,516 | 4.75 | 3,792 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Directors | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JS Varley | 195,704 | 23,214 | 79,080 | 3.80 | 139,838 | 62,304 | 26/2/02 | 20/2/05 | 37,493 | 139,838 | 37,493 | 37,636 | 4.87 | – | – | – | 139,695 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
RJ Davis(d) | 587,682 | – | – | – | – | – | – | 587,682 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GA Hoffman(d) | 309,414 | – | 9,412 | 4.87 | – | – | – | 300,002 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
N Kheraj(d) | 868,622 | – | – | – | – | – | – | 868,622 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DL Roberts(d) | 294,665 | – | 5,948 | 4.87 | – | – | – | 288,717 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Director | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JM Stewart(e) | 25,940 | – | – | – | 25,940 | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum | 100,532 | – | 18,820 | 4.87 | – | – | – | 81,712 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nil cost | Nil cost | Awarded in | ||||||||||||||||||||||||||||||
option | option | Date | 2005 in | |||||||||||||||||||||||||||||
granted | held under | from | Latest | respect of | ||||||||||||||||||||||||||||
at 3rd | voluntary | which | expiry | the results | ||||||||||||||||||||||||||||
anniversary(e) | ESAS(f) | exercisable | date | for 2004(g) | ||||||||||||||||||||||||||||
Chairman | ||||||||||||||||||||||||||||||||
MW Barrett | – | – | – | – | 120,982 | |||||||||||||||||||||||||||
Executive Directors | ||||||||||||||||||||||||||||||||
JS Varley | 46,304 | – | 25/02/03 | 23/02/06 | 96,235 | |||||||||||||||||||||||||||
RJ Davis | 225,052 | – | 25/02/03 | 23/02/06 | 60,490 | |||||||||||||||||||||||||||
GA Hoffman | 29,418 | 136,584 | 26/02/99 | 04/03/14 | 60,490 | |||||||||||||||||||||||||||
N Kheraj | – | – | – | – | 68,739 | |||||||||||||||||||||||||||
DL Roberts | 18,368 | – | 25/02/03 | 23/02/06 | 56,367 | |||||||||||||||||||||||||||
Former Director | ||||||||||||||||||||||||||||||||
CJ Lendrum | 38,432 | – | 25/02/03 | 28/02/06 | – | |||||||||||||||||||||||||||
(a) | ||
(b) | The trustees may release additional shares to participants which represent accumulated net dividends in respect of shares under award. During | |
(c) | The trustees may release additional shares to participants which represent accumulated net dividends in respect of shares under award. During 2004, the trustees released the following accumulated dividend shares – 13,996 to Matthew W Barrett. These are not included as part of the original award and consequently are not included in the Exercised column. | |
The number shown on 1st January 2004 includes those shares provisionally allocated in respect of performance for 2003, for those individuals who were not Directors in 2003. | ||
(e) | The shares under option shown in this column are already included in the numbers shown at 1st January | |
(f) | The shares under option in this column are not included in the numbers shown at 1st January 2004. Voluntary ESAS is an additional award under ESAS following a Director requesting that part of the cash bonus to which he would otherwise become entitled be waived, and is granted as a right to acquire shares which will become fully exercisable after five years. | |
The awards in respect of | ||
18
20
Barclays PLC Annual Report 2004
Executive Directors: shares under option under Incentive Share Option Plan (ISOP)(a)(b)(f)(c)
During the year(c) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number held as at | Number held as at | Number held as at | During the year | Number held as at | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1st January 2003 | Granted | Lapsed | 31st December 2003 | 1st January 2004 | Granted | Exercised | Lapsed | 31st December 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maximum | Maximum | Maximum | Maximum | Maximum | Maximum | Maximum | Maximum | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
number | number | number | number | Shares | Date | number | number | Market | number | number | Shares | Date | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Target | over which | Target | over which | Target | over which | Target | over which | due to | Exercise | from | Target | over which | Target | over which | Number | price at | Target | over which | Target | over which | due to | Exercise | from | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Award | potentially | Award | potentially | Award | potentially | Award | potentially | vest in | price per | which | Expiry | Award | potentially | Award | potentially | of shares | exercise | Award | potentially | Award | potentially | vest in | price per | which | Expiry | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | exercisable | Shares | exercisable | Shares | exercisable | Shares | exercisable | 2004 | (d) | share | exercisable | date | Shares | exercisable | Shares | exercisable | exercised | date | Shares | exercisable | Shares | exercisable | 2005(b) | share | exercisable | date | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
000 | 000 | 000 | 000 | 000 | 000 | 000 | 000 | £ | 000 | 000 | 000 | 000 | 000 | £ | 000 | 000 | 000 | 000 | £ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chairman | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MW Barrett | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 40 | 80 | – | 5.20 | 20/03/05 | 19/03/12 | 40 | 80 | – | – | – | – | – | – | 40 | 80 | 40 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 1,960 | 7,840 | – | – | – | – | 1,960 | 7,840 | – | 5.20 | 20/03/05 | 19/03/12 | 1,960 | 7,840 | – | – | – | – | – | – | 1,960 | 7,840 | 1,960 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 40 | 80 | 20 | 5.34 | 12/03/04 | 11/03/11 | 40 | 80 | – | – | – | – | 20 | 60 | – | 20 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 300 | 1,200 | – | – | – | – | 300 | 1,200 | 300 | 5.34 | 12/03/04 | 11/03/11 | 300 | 1,200 | – | – | – | – | – | 900 | – | 300 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | 80 | – | 3.90 | 18/05/03 | 17/05/10 | – | 80 | – | – | – | – | – | – | – | 80 | – | 3.90 | 18/05/03 | 17/05/10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 216 | 864 | – | – | – | 432 | – | 432 | – | 3.90 | 18/05/03 | 17/05/10 | – | 432 | – | – | – | – | – | – | – | 432 | – | 3.90 | 18/05/03 | 17/05/10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Directors | Executive Directors | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JS Varley | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | – | – | 300 | 1,200 | – | – | – | – | 300 | 1,200 | – | 4.80 | 23/03/07 | 22/03/14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | – | – | 40 | 80 | – | – | 40 | 80 | – | 3.26 | 14/3/06 | 13/3/13 | 40 | 80 | – | – | – | – | – | – | 40 | 80 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | – | – | 80 | 320 | – | – | 80 | 320 | – | 3.26 | 14/3/06 | 13/3/13 | 80 | 320 | – | – | – | – | – | – | 80 | 320 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 40 | 80 | – | 5.20 | 20/03/05 | 19/03/12 | 40 | 80 | – | – | – | – | – | – | 40 | 80 | 40 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | 80 | �� | 320 | – | 5.20 | 20/03/05 | 19/03/12 | 80 | 320 | – | – | – | – | – | – | 80 | 320 | 80 | 5.20 | 20/03/05 | 19/03/12 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 40 | 80 | 20 | 5.34 | 12/03/04 | 11/03/11 | 40 | 80 | – | – | – | – | 20 | 60 | – | 20 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | 80 | 320 | 80 | 5.34 | 12/03/04 | 11/03/11 | 80 | 320 | – | – | – | – | – | 240 | – | 80 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | 80 | – | 3.90 | 18/05/03 | 17/05/10 | – | 80 | – | – | – | – | – | – | – | 80 | – | 3.90 | 18/05/03 | 17/05/10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 68 | 272 | – | – | – | 136 | – | 136 | – | 3.90 | 18/05/03 | 17/05/10 | – | 160 | – | – | – | – | – | – | – | 160 | – | 3.90 | 18/05/03 | 17/05/10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JS Varley | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RJ Davis | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | – | – | 180 | 720 | – | – | – | – | 180 | 720 | – | 4.80 | 23/03/07 | 22/03/14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | – | 40 | 80 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | – | – | 80 | 320 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | – | 40 | 80 | 40 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 40 | 160 | – | – | – | – | – | – | 40 | 160 | 40 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 20 | 60 | – | 20 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 40 | 160 | – | – | – | – | – | 120 | – | 40 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GA Hoffman | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | – | – | 180 | 720 | – | – | – | – | 180 | 720 | – | 4.80 | 23/03/07 | 22/03/14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | – | – | 40 | 80 | – | – | 40 | 80 | – | 3.26 | 14/3/06 | 13/3/13 | 40 | 80 | – | – | – | – | – | – | 40 | 80 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | – | – | 80 | 320 | – | – | 80 | 320 | – | 3.26 | 14/3/06 | 13/3/13 | 80 | 320 | – | – | – | – | – | – | 80 | 320 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 40 | 80 | – | 5.20 | 20/03/05 | 19/03/12 | 40 | 80 | – | – | – | – | – | – | 40 | 80 | 40 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | 80 | 320 | – | 5.20 | 20/03/05 | 19/03/12 | 80 | 320 | – | – | – | – | – | – | 80 | 320 | 80 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 40 | 80 | 20 | 5.34 | 12/03/04 | 11/03/11 | 40 | 80 | – | – | – | – | 20 | 60 | – | 20 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | 80 | 320 | 80 | 5.34 | 12/03/04 | 11/03/11 | 60 | 240 | – | – | – | – | – | 180 | – | 60 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | 80 | – | 3.90 | 18/05/03 | 17/05/10 | – | 80 | – | – | – | – | – | – | – | 80 | – | 3.90 | 18/05/03 | 17/05/10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | 160 | – | 160 | – | 3.90 | 18/05/03 | 17/05/10 | – | 120 | – | – | – | – | – | – | – | 120 | – | 3.90 | 18/05/03 | 17/05/10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Director | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JM Stewart(e) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 40 | 80 | – | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | 80 | 320 | – | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 40 | 80 | 20 | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | 80 | 320 | 80 | 5.34 | 12/03/04 | 11/03/11 |
21
Corporate governance
Barclays report on remuneration
Executive Directors: shares under option under Incentive Share Option Plan (ISOP)(a)(b)(c)(continued)
Number held as at | During the year | Number held as at | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
1st January 2004 | Granted | Exercised | Lapsed | 31st December 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Maximum | Maximum | Maximum | Maximum | |||||||||||||||||||||||||||||||||||||||||||||||||||||
number | number | Market | number | number | Shares | Date | ||||||||||||||||||||||||||||||||||||||||||||||||||
Target | over which | Target | over which | Number | price at | Target | over which | Target | over which | due to | Exercise | from | ||||||||||||||||||||||||||||||||||||||||||||
Award | potentially | Award | potentially | of shares | exercise | Award | potentially | Award | potentially | vest in | price per | which | Expiry | |||||||||||||||||||||||||||||||||||||||||||
Shares | exercisable | Shares | exercisable | exercised | date | Shares | exercisable | Shares | exercisable | 2005(b) | share | exercisable | date | |||||||||||||||||||||||||||||||||||||||||||
000 | 000 | 000 | 000 | 000 | £ | 000 | 000 | 000 | 000 | £ | ||||||||||||||||||||||||||||||||||||||||||||||
N Kheraj | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | – | – | 200 | 800 | – | – | – | – | 200 | 800 | – | 4.80 | 23/03/07 | 22/03/14 | ||||||||||||||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | – | 40 | 80 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | – | – | 80 | 320 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | – | 40 | 80 | 40 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||
TSR | 60 | 240 | – | – | – | – | – | – | 60 | 240 | 60 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||
2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 20 | 60 | – | 20 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||
TSR | 40 | 160 | – | – | – | – | – | 120 | – | 40 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||
DL Roberts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TSR | – | – | 180 | 720 | – | – | – | – | 180 | 720 | – | 4.80 | 23/03/07 | 22/03/14 | ||||||||||||||||||||||||||||||||||||||||||
2003 | �� | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | – | 40 | 80 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | – | – | 80 | 320 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | – | 40 | 80 | 40 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | – | – | 80 | 320 | 80 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||
2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 20 | 60 | – | 20 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||
TSR | 40 | 160 | – | – | – | – | – | 120 | – | 40 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||
Former Director | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum(d) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | – | 40 | 80 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | – | – | 80 | 320 | – | 3.26 | 14/03/06 | 13/03/13 | ||||||||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | – | – | 40 | 80 | 40 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | – | – | 80 | 320 | 80 | 5.20 | 20/03/05 | 19/03/12 | ||||||||||||||||||||||||||||||||||||||||||
2001 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | 40 | 80 | – | – | – | – | 20 | 60 | – | 20 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||
TSR | 80 | 320 | – | – | – | – | – | 240 | – | 80 | – | 5.34 | 12/03/04 | 11/03/11 | ||||||||||||||||||||||||||||||||||||||||||
2000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EP | – | 80 | – | – | 80 | 5.15 | – | – | – | – | – | 3.90 | 18/05/03 | 17/05/10 | ||||||||||||||||||||||||||||||||||||||||||
TSR | – | 136 | – | – | 136 | 5.15 | – | – | – | – | – | 3.90 | 18/05/03 | 17/05/10 | ||||||||||||||||||||||||||||||||||||||||||
(a) | The Register of Directors’ interests, which shows full details of Directors’ current share awards and options, is available for inspection at the Group’s Head office in London. | |
The | ||
Market price per share at 31st December | ||
(d) | Chris Lendrum ceased to be a Director on 31st December 2004. |
22
Barclays PLC Annual Report 2003 19
Corporate GovernanceBarclays Report on Remuneration
2004
Executive Directors: shares under option under Sharesave(a)(b)
During 2004 | Information as at 31st December 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
During 2003 | Information as at 31st December 2003 | Number | Number | Weighted | Market | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number | Number | Weighted | Market | held at | at 31st | Exercise | average | price on | Date from | Latest | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
held at | at 31st | Exercise | average | price on | Date from | Latest | 1st January | December | price per | exercise | date of | which | expiry | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1st January | December | price per | exercise | date of | which | expiry | 2004 | Granted | Exercised | 2004 | share | price | exercise | exercisable | date | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | Granted | Exercised | 2003 | share | price | exercise | exercisable | date | £ | £ | £ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£ | £ | £ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MW Barrett | 3,064 | 2,479 | 3,064 | 2,479 | 3.16 | 3.73 | 4.97 | 01/11/06 | 30/04/07 | 2,479 | – | – | 2,479 | – | 3.73 | – | 01/11/06 | 30/04/07 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum | 6,626 | – | 3,912 | 2,714 | 1.99 | 3.50 | 4.97 | 01/11/05 | 30/04/06 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Directors | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JS Varley | 4,096 | – | – | 4,096 | – | 4.11 | – | 01/11/06 | 30/04/07 | 4,096 | – | – | 4,096 | – | 4.11 | – | 01/11/06 | 30/04/07 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
RJ Davis | 2,714 | – | – | 2,714 | – | 3.50 | – | 01/11/05 | 30/04/06 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GA Hoffman | 5,736 | 1,138 | – | 6,874 | – | 3.76 | – | 01/11/05 | 30/04/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
N Kheraj | 6,312 | 4,007 | – | 10,319 | – | 3.47 | – | 01/11/05 | 30/04/10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DL Roberts | 4,626 | 801 | 944 | 4,483 | 3.56 | 3.68 | 5.42 | 01/11/04 | 30/04/10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Director | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JM Stewart(c) | 5,588 | – | 5,588 | – | 3.08 | – | 4.38 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CJ Lendrum(b) | 2,714 | – | – | 2,714 | – | 3.50 | – | 01/01/05 | 30/06/05 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a) | The Register of Directors’ interests, which shows full details of Directors’ current share awards and options, is available for inspection at the Group’s Head office in London. | |
(b) | ||
20
23
Directors: closed Group incentive schemes (Executive Share Option Scheme (ESOS) andCorporate governanceWoolwich Executive Share Option Plan (ESOP))
In addition, executive Directors continue to have interests under the ESOS and Woolwich plc 1998 ESOP schemes (as indicated in the table below). No further awards will be made under these schemes. Under the ESOS, options granted (at market value) to executives were exercisable only if the growth in earnings per share of the Company over a three-year period was, at least, equal to the percentage increase in the UK Retail Prices Index plus 6%, over the same period. The performance target for the 1999 ESOS grant was met.
Under the ESOP, options originally granted over Woolwich plc shares at market value were exercised in 2001 or exchanged, in accordance with the proposals made under the Offer to acquire the Woolwich, for options over Barclays PLC shares. Under the rules of ESOP, the performance conditions attached to the exercise of options were disappliedreport on acquisition of Woolwich plc by Barclays.remuneration
Directors: awards under closed Group incentive schemes(a)(d)
During the year(b) | Number | Market | Weighted | ||||||||||||||||||||||||||||||||||
Number at | at 31st | Exercise | price on | average | Date from | Latest | |||||||||||||||||||||||||||||||
1st January | December | price per | exercise | exercise | which | expiry | |||||||||||||||||||||||||||||||
2003 | Exercised | Lapsed | 2003(c) | share | date | price | exercisable | date | |||||||||||||||||||||||||||||
£ | £ | ||||||||||||||||||||||||||||||||||||
Executive | |||||||||||||||||||||||||||||||||||||
MW Barrett(d) | |||||||||||||||||||||||||||||||||||||
ESOS | 766,628 | – | – | 766,628 | – | – | 4.43 | 04/10/02 | 03/10/09 | ||||||||||||||||||||||||||||
Former Director | |||||||||||||||||||||||||||||||||||||
JM Stewart(e) | |||||||||||||||||||||||||||||||||||||
Woolwich ESOP(f) | 396,516 | – | – | 396,516 | – | – | 3.65 | 14/12/02 | 06/02/04 |
Number | Market | Weighted | ||||||||||||||||||||||||||||||||||
Number at | at 31st | Exercise | price on | average | Date from | Latest | ||||||||||||||||||||||||||||||
1st January | During the year(b) | December | price per | exercise | exercise | which | expiry | |||||||||||||||||||||||||||||
2004 | Exercised | Lapsed | 2004 | share | date | price | exercisable | date | ||||||||||||||||||||||||||||
£ | £ | £ | ||||||||||||||||||||||||||||||||||
Chairman | ||||||||||||||||||||||||||||||||||||
MW Barrett(c) | ||||||||||||||||||||||||||||||||||||
ESOS | 766,628 | – | – | 766,628 | – | – | 4.43 | 04/10/02 | 03/10/09 | |||||||||||||||||||||||||||
Executive Directors | ||||||||||||||||||||||||||||||||||||
GA Hoffman | ||||||||||||||||||||||||||||||||||||
ESOS | 40,000 | 40,000 | – | – | 3.47 | 5.19 | 3.47 | 05/09/00 | 04/09/04 | |||||||||||||||||||||||||||
N Kheraj | ||||||||||||||||||||||||||||||||||||
ESOS | 60,000 | – | – | 60,000 | – | – | 3.97 | 14/08/01 | 13/08/08 | |||||||||||||||||||||||||||
(a) | The register of Directors’ interests, which shows full details of Directors’ current share awards and options, is available for public inspection at the Group’s Head office in London. | |
(b) | No options were granted under these plans. | |
(c) | ||
The independent trustee of the Barclays Group | ||
24
Barclays PLC Annual Report 2003 21
Corporate GovernanceBarclays Report on Remuneration
2004
Directors: interests in ordinary shares of Barclays PLC(a)
At 1st January 2003(b) | At 31st December 2003 | |||||||||||||||
Non- | Non- | |||||||||||||||
Beneficial | beneficial | Beneficial | beneficial | |||||||||||||
Chairman | ||||||||||||||||
Sir Peter Middleton | 163,748 | 6,000 | 163,748 | 6,000 | ||||||||||||
Executive | ||||||||||||||||
MW Barrett | 263,384 | – | 277,656 | – | ||||||||||||
CJ Lendrum(c) | 202,860 | – | 224,456 | – | ||||||||||||
JS Varley(c) | 247,448 | – | 303,735 | – | ||||||||||||
Non-executive | ||||||||||||||||
TDG Arculus | 11,391 | – | 14,289 | – | ||||||||||||
Sir Richard Broadbent(d) | – | – | 2,000 | – | ||||||||||||
HM Cropper | 9,703 | – | 12,886 | – | ||||||||||||
Professor Dame Sandra Dawson(e) | – | – | 2,808 | – | ||||||||||||
Sir Brian Jenkins | 3,576 | 105,200 | 5,138 | 105,200 | ||||||||||||
Sir Nigel Rudd | 8,604 | – | 11,427 | – | ||||||||||||
SG Russell | 7,125 | – | 10,609 | – | ||||||||||||
Dr Jürgen Zech | 2,500 | – | 5,195 | – |
At 1st January 2004(b) | At 31st December 2004 | |||||||||||||||
Non- | Non- | |||||||||||||||
Beneficial | beneficial | Beneficial | beneficial | |||||||||||||
Chairman | ||||||||||||||||
MW Barrett | 277,656 | – | 289,242 | – | ||||||||||||
Executive Directors | ||||||||||||||||
JS Varley(c) | 303,735 | – | 338,451 | – | ||||||||||||
RJ Davis | 3,156 | – | 3,156 | – | ||||||||||||
GA Hoffman(c) | 126,444 | – | 168,240 | – | ||||||||||||
N Kheraj | 2,238 | – | 2,238 | – | ||||||||||||
CJ Lendrum(d) | 224,456 | – | 239,373 | – | ||||||||||||
DL Roberts(c) | 62,034 | – | 67,368 | – | ||||||||||||
Non-executive Directors(e) | ||||||||||||||||
TDG Arculus | 14,289 | – | 17,428 | – | ||||||||||||
Sir Richard Broadbent | 2,000 | – | 3,992 | – | ||||||||||||
RL Clifford(f) | – | – | 2,000 | – | ||||||||||||
Professor Dame Sandra Dawson | 2,808 | – | 5,460 | – | ||||||||||||
Sir Andrew Likierman(g) | – | – | 2,000 | – | ||||||||||||
Sir Nigel Rudd | 11,427 | – | 14,367 | – | ||||||||||||
SG Russell | 10,609 | – | 13,774 | – | ||||||||||||
Dr Jürgen Zech | 5,195 | – | 7,964 | – | ||||||||||||
(a) | Beneficial interests in the table above represent shares held by Directors who were on the Board as at 31st December | |
(b) | Or date appointed to the Board if later. | |
(c) | Between 31st December | |
(d) | Chris Lendrum ceased to be a Director on 31st December 2004. | |
(e) | On 10th February 2005 the following non-executive Directors received the amounts of shares set out after their names in respect of part of their Board and (where applicable) Board Committee fees: David Arculus: 1,138; Sir Richard Broadbent: 972; Leigh Clifford: 580; Professor Dame Sandra Dawson: 1,206; Sir Andrew Likierman: 717; Sir Nigel Rudd: 1,137; Stephen Russell: 1,115; Dr Jürgen Zech: 1,085. | |
(f) | Appointed with effect from 1st October 2004. | |
(g) | Appointed with effect from 1st September | |
22
25
Corporate Governancegovernance
Accountability and Audit
Going Concern
Internal Control
The Directors review the effectiveness of the system of internal control annually. An internal control compliance certification process is conducted throughout the Group in support of this review. The effectiveness of controls is periodically reviewed within the business areas. Quarterly risk reports are made to the Board covering all risks of Group significance including credit risk, market risk, operational risk, and legal and compliance risk. Regular reports are made to the Board Audit Committee by management, Group Internal Audit and the compliance and legal functions covering particularly financial controls, compliance and operational controls. Reports covering risk measurement standards and risk appetite are made to the Board Risk Committee.
The key document for the Group’s internal control processes is the record of Group Governance practices which describes the Group’s governance and control framework and details Group policies and processes. The record of Group Governance practices is reviewed and approved on behalf of the Group Chief Executive by the Group Governance and Control Committee. Further details of risk management procedures are given in the Risk management section on pages 2530 to 59.71.
The system of internal financial and operational controls is also subject to regulatory oversight in the United Kingdom and overseas. Further information on supervision by the financial services regulators is provided under Supervision and regulation on pages 96 to 97.76 and 77.
Statement of Directors’ Responsibilities for Accounts
The following statement, which should be read in conjunction with the Auditors’ report set out on page 100,109, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditors in relation to the accounts.
The Directors are required by the Companies Act 1985 to prepare accounts for each financial year which give a true and fair view of the state of affairs of the Company and Group as at the end of the financial year and of the profit or loss for the financial year.
The Directors consider that, in preparing the accounts on pages 101110 to 190210 and 195214 to 202,223, and the additional information contained on pages 1113 to 22,25, the Group has used appropriate accounting policies, consistently applied and supported by reasonable and prudent
judgements and estimates, and that all accounting standards which they consider to be applicable have been followed.
The Directors have responsibility for ensuring that the Company and the Group keep accounting records which disclose with reasonable accuracy the financial position of the Company and the Group and which enable them to ensure that the accounts comply with the Companies Act 1985.
The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Signed on behalf of the Board
Sir Peter MiddletonMatthew W Barrett11th February 200410th March 2005
Disclosure Controls and Procedures
26
Barclays PLC Annual Report 2003 23
Presentation of Informationinformation
Presentation of Information
Barclays Bank PLC is a public limited company registered in England and Wales under company number 1026167. The Bank was incorporated on 7th August 1925 under the Colonial Bank Act 1925 and on 4th October 1971 was registered as a company limited by shares under the Companies Acts 1948 to 1967. Pursuant to The Barclays Bank Act 1984, on 1st January 1985 the Bank was re-registered as a public limited company and its name was changed from Barclays Bank International Limited to Barclays Bank PLC.
All of the issued ordinary share capital of Barclays Bank PLC is owned by Barclays PLC. The Annual Report for Barclays PLC also contains the consolidated accounts of, and other information relating to, Barclays Bank PLC. The Annual Report includes information required on Form 20-F. Form 20-F will contain as exhibits certificates pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, signed by the Group Chief Executive and Group Finance Director, with respect to both Barclays PLC and Barclays Bank PLC. Except where otherwise indicated, the information given is identical with respect to both Barclays PLC and Barclays Bank PLC.
The accounts of Barclays Bank PLC included in this document do not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. The statutory accounts of Barclays Bank PLC, which contain an unqualified audit report and do not contain any statement under Section 237(2) or (3) of that Act, will be delivered to the Registrar of Companies in accordance with Section 242 of that Act and are published as a separate document.
The term ‘Barclays PLC Group’ means Barclays PLC together with its subsidiary undertakings and the term ‘Barclays Bank PLC Group’ means Barclays Bank PLC together with its subsidiary undertakings. ‘Barclays’ and ‘Group’ are terms which are used to refer to either of the preceding groups when the subject matter is identical. The term ‘Company’ refers to Barclays PLC and the term ‘Bank’ refers to Barclays Bank PLC. ‘Woolwich plc’ is used, as the context requires, to refer to Woolwich plc and its subsidiary undertakings. In this report, the abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling respectively; the abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of US dollars respectively and ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros respectively.
Statutory Accounts
24
27
Risk Management
Risk Management and Control – Overview
Risk Factors
Business Conditions and General Economy
Credit Risk
Market Risks
Capital Risk
Liquidity Risk
Operational Risks
Regulatory Compliance Risk
Regulatory compliance risk arises from a failure or inability to comply fully with the associated returns and within its overall risk appetite.laws, regulations or codes applicable specifically to the financial services industry. Non-compliance could lead to fines, public reprimands, damage to reputation, enforced suspension of operations or, in extreme cases, withdrawal of authorisation to operate.
Risk governance framework28
Barclays PLC Annual Report 2004
Legal Risk
• | ||
Group business may not be conducted in accordance with applicable laws; | ||
• | ||
in an adverse way; | ||
• | ||
During 2003, initiatives were pursued to build on the establishment of the Board Governance Standards (‘Standards’) in 2002. The Standards are high-level articulations of the Board’s risk control requirements, covering what are considered to be the principal risks to the achievement of the Group’s objectives. Risk reporting to the Board Risk Committee is aligned to the Standards.
The risk governance framework is being aligned with the internationally accepted standard ‘Internal Control – Integrated Framework’ published by the Committee of Sponsoring Organisations of the Treadway Commission.
Barclays operates in a highly regulated industry and is engaged in responding to significant changes in the regulatory environment, for example, from the implementation of Basel II, International Financial Reporting Standards and the US Sarbanes-Oxley Act. These changes, which directly affect risk management, necessitate considerable resources to amend or re-design our systems and reporting processes. Under Basel II, Barclays aims to achieve advanced status in all risk categories.
Responsibilities for Risk Management and ControlThe responsibilities for risk management and control within the overall governance framework rest with:
• | the Group | |
In addition, the Group faces risk where legal proceedings are brought against it. Regardless of whether or not such claims have merit, the outcome of legal proceedings is inherently uncertain and could result in financial loss.
Although the Group has processes and controls around the management of legal risk, failure to manage legal risks can impact the Group adversely, both financially and reputationally.
Committee OversightTax Risk
Although the Group devotes considerable resources to managing tax risk, failure to manage this risk can impact the Group adversely.
Changes in Governmental Policy and Regulation
There is continuing political and regulatory scrutiny of, and major changes in, legislation and regulation of the consumer credit industry in the UK and elsewhere. In the UK, these responsibilitiescurrently include a review of store cards by the Competition Commission and investigations by the Office of Fair Trading into interchange rates and default fees on credit cards. The review and investigations are looking at the consumer credit industry generally and the Group is guidedco-operating with those proceedings. Their outcome is unclear but may have an impact on the consumer credit industry in general and monitored by:therefore on the Group’s business in this sector.
Other areas where changes could have an impact include inter alia:
• | the | |
• |
• | general changes in the regulatory requirements, for example, prudential rules relating to the | |
• | changes in competition and | |
• | changes in the financial reporting environment (see Conversion to International Financial Reporting Standards in 2005 on pages 115 and 116); | |
• | expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; and | |
• | other unfavourable political, military or diplomatic developments producing social instability or legal uncertainty which in turn may affect demand for |
Impact of Strategic Decisions taken by the Group
Competition
Impact of External Factors on the Group and Peer Group
Barclays devotes considerable resources and expertise to managing the risks to which it is exposed. Our risk management is described in the following pages (pages 30-57). Please also refer to the cautionary statement concerning forward-looking statements on the inside of the front cover in conjunction with this section.
Barclays PLC Annual Report 2003 25
29
Risk Managementmanagement
Group Risk Governance Structure
26
Introduction
Responsibility for risk resides at all levels of management, from the Board down through the organisation to individuals in offices around the world. Each business manager is accountable for managing risk in his or her business area, assisted, where appropriate, by risk specialists.
We measure the key risks and understand the viability of transactions after taking risk into account. There are defined appetites for the most important risks and we consider the risk and return on individual transactions as well as their effect on the Bank’s overall portfolio.
From a credit risk perspective, 2004 was a benign year, without the large corporate defaults of the recent past. In our consumer portfolios, the growth in credit losses was consistent with our portfolio growth and risk appetite. Risk taking in our trading activities remained within our Group market risk parameters at all times.
These favourable conditions are reflected in the provisions for bad and doubtful debts which declined from a peak of £1,484m in 2002 to £1,091m, a decline over two years of 26%. During the same period, our portfolio increased by 24%. This good outcome benefited from a much lower corporate provisions charge as well as some recovery of amounts written-off in earlier years, trends that are characteristic of the recovery phase of a credit cycle.
Barclays is growing in our product breadth, our client base and in our domestic and international markets. With this growth and with regulatory changes upon us – the US Sarbanes-Oxley Act, the Basel II Accord and the new International Financial Reporting Standards – we are making continued, significant investments in risk management and risk systems.
In 2004 we further developed our methodology for defining and setting our risk appetite, introducing new formal measurements and governance which are described later in this section. We also strengthened risk management and governance by implementing an enhanced Group Internal Control and Assurance Framework, which provides definitive guidance on governance requirements throughout the Group. Both of these were evolutionary improvements of already sound risk management.
Our aim will continue to be to grow shareholder value through taking risks that are consistent with our risk appetite and commensurate with the associated returns.
Robert Le Blanc
Risk Director
Risk ManagementRisk management in
The key role of Business narrative contains quantitative information mainly in graphical format. In most cases the same data appear in tables in a statistical section beginning on page 58.
Risk Directors and their teams isManagement Process
Responsibilities | ||
Direct | • | Understand the principal risks to achieving Group strategy. |
• | Establish risk appetite. | |
• | Establish and communicate the risk management framework including responsibilities, authorities and key controls. | |
Assess | • | Establish the process for identifying and analysing business-level risks. |
• | Agree and implement measurement and reporting standards and methodologies. | |
Control | • | Establish key control processes and practices, including limit structures, provisioning criteria and reporting requirements. |
• | Monitor the operation of the controls and adherence to risk direction and limits. | |
• | Provide early warning of control or appetite breaches. | |
• | Ensure that risk management practices are appropriate for the control environment. | |
Report | • | Interpret and report on risk exposures, concentrations and risk-taking outcomes. |
• | Interpret and report on sensitivities and Key Risk Indicators. | |
• | Communicate with external parties. | |
Manage and Challenge | • | Review and challenge all aspects of the Group’s risk profile. |
• | Assess new risk-return opportunities. | |
• | Advise on optimising the Group’s risk profile. | |
• | Review and challenge risk management practices. | |
30
Barclays PLC Annual Report 2004
Risk Responsibilities
• | ||
• | ||
• | ||
• | ||
• | ||
• |
SpecialistMatrix of risk teams ledresponsibilities at Barclays
The internal control framework at Barclays is aligned with the internationally accepted standard Internal Control – Integrated Framework published by the Committee of Sponsoring Organisations of the Treadway Commission (COSO). The Group’s principal risks are the subject of Board Governance Standards, which set out Board approved risk control requirements. Board Governance Standards exist for the following risks:
Brand Management | Liquidity | |
Capital Planning | Market | |
Corporate Responsibility | Operations | |
Credit | People | |
Financial Crime | Regulatory Compliance | |
Financial Reporting, Taxation and Budgeting | Change | |
Legal | Strategic Planning |
Detailed discussion of our risk management of certain risks follows, starting with credit risk on page 35.
The management of risk at Barclays is guided and monitored by a number of committees. Each has specific functions as shown in the chart on the Governance Structure at Group Level on the next page.
31
Risk Type Headsmanagement
Risk management and other risk specialists reportcontrol – overview
Governance Structure at Group Level
In addition to the committees shown in the chart, the Board established a Brand and Reputation Committee in 2004.
These committees are informed by regular and comprehensive reports. The Board Risk Committee receives a quarterly report covering all significant risk types. The Board Audit Committee receives quarterly reports on control issues of significance and half-yearly provisions and regulatory reports. Both committees also receive reports dealing in more depth with specific issues relevant at the time. The proceedings of both committees are reported to the full Board, which also receives a concise quarterly risk report.
When the new Basel II Accord is introduced, Barclays aims to achieve advanced status under all risk categories. The Group considers that the investment required to attain this status is warranted by the internal risk management improvements that will follow, the reputational benefits and the potential for greater capital efficiency.
32
Barclays PLC Annual Report 2004
Risk Director.Appetite
Their role isThe objectives of the risk appetite framework are to:
• | ||
• | ||
• | ||
• |
The Risk Appetite framework considers credit, market and operational risk and is applied using two perspectives: ‘earnings volatility’ and ‘mandate and scale’.
Earnings volatility:This takes account of the potential volatility around our forecast financial performance each year. The portfolio’s risk is measured at four representative levels:
• | expected performance (including the average credit losses based on measurements over many years); | |
• | a moderate stress level of loss that is likely to occur only infrequently and is meant to correspond to a macroeconomic cycle; | |
• | a severe stress which is much less likely but within a reasonable possibility; | |
• | an extreme but highly improbable level of stressed loss which is used to determine the Group’s Economic Capital. |
These ascending but increasingly less likely levels of loss are illustrated in the following chart.
At 31st December 2004, the Group’s expected credit loss in one year was £1,395m (see page 58). The Economic Capital (i.e. the loss in one year under extreme stress) for all risk types was £12.6bn, estimated with a probability of 1 in 5,000 years.
Mandate and Scale:This second perspective enables the setting of limits to control against unacceptable levels of loss that may arise as a result of portfolio concentration. It is our objective that unexpected losses remain within the scope of our communicated strategy and are of a scale that is appropriate for our Group. This perspective uses simple, descriptive measures and limits for relevant exposure types.
Overall, the Risk Appetite framework provides a basis for the allocation of risk capacity to each business. Since the level of loss at each level of probability is dependent on the portfolio of exposures in each business, the statistical measurement for each key risk category gives the Group clearer sight and better control of risk-taking throughout the enterprise.
The Risk Appetite framework is designed to be:
• | simple and practical to apply by measurement and monitoring of exposures; | |
• | geared to risk/return where capacity is directly related to opportunity; | |
• | based on a top-down capacity for earnings volatility; | |
• | based on bottom-up identification of risk | |
• | relevant, recognising the impact and | |
• | aggregated across businesses where appropriate. |
Stress Testing
• | Gross Domestic Product weaker; | |
• | employment weaker; | |
• | interest rates higher or lower; | |
• | interest rate curve shifts; | |
• | equity prices lower; | |
• | property prices weaker; | |
• | credit spreads wider; | |
• | country exposure stressed; | |
• | industry exposure stressed; | |
• | sterling stronger. |
More complex scenarios, such as recessions, can be represented by combinations of variables. These scenarios allow senior management to gain a better understanding of how the Group is likely to react to changing economic and geo-political conditions. Insights gained are fully integrated into the management process and the Risk Appetite framework. These analyses and insights and the close involvement of management also provide the basis for fulfilling the stress testing requirements of the new Basel II Accord.
33
Risk management
Risk management and control – overview
The Application of Economic Capital
The management of the supply of capital occurs via the Group’s shareholders’ capital and statutory capital ratios as discussed on pages 99 and 100. See also the management of capital risk on page 51.
The Group assesses the internal demand for capital requirements by using its own risk-based methodologies. These are usedproprietary economic capital methodology developed and refined over more than a decade. We estimate the capital needed to survive an extreme but highly improbable level of stressed loss. The calculation is based on the historical volatility of losses. Capitalisation occurs to a level sufficient to provide a high level of confidence in performance assessmentthe Group, with the level of confidence consistent with the Group’s AA rating.
Economic capital is estimated primarily for the risks listed under Board Governance Standards on page 31 as well as insurance risk, risk associated with fixed assets, and for risk management decision making.in private equity investments. The Group computes and assigns this ‘economic’economic capital by the risk categories to all operating units. This enables the Group to apply a common, consistent and additive metric to ensure that returns throughout the Group are commensurate with the associated risks. EconomicAn asset attracts the same cost of capital wherever it is assigned primarily withinacquired across the six risk categories summarised below:
Credit Risk– The Group estimates the losses expected from its credit portfolio and sets aside appropriate provisions. Capital is required in the event that losses substantially exceed the expected level. The amount is estimated by statistical analysis of the historical loan loss volatility in the various product categories.
Within wholesale and retail businesses, capital allocation is differentiated by segment and customer grade. Off-balance sheet exposures are converted to loan equivalent amounts based on their probability of being drawn, before applying capital factors. See page 29 for further information on credit risk measurement.
Market Risk– The required economic capital is primarily based on Daily Value at Risk (DVaR) measurements. Where risks are not measured using DVaR, the capital requirement is based on stress test analysis. Market risk measurement is further discussed on page 48.
Business and Operational Risk– A combined economic capital allocation for operational risk and business risk is derived through an equation including variables such as cost base, historic profit volatility and comparable external benchmarks. These risks are discussed on page 58.
Insurance Risk– Economic capital is estimated through benchmark analysis of the free asset ratio of similarly rated insurance companies.
Fixed Assets– Economic capital is also estimated through benchmark analysis of relevant companies.
Private Equity– Economic capital is allocated using an equation based on the amount of equity investment and comparable benchmark capitalisation.Group.
Barclays estimates the correlation between risk types and calculates a diversification benefit which results in a reduction in allocated economic capital for the Group.Group and each of the businesses.
Economic capital is fully embedded in the management culture of the Group via risk adjusted performance management (e.g. economic profit), effective targeting of resources to value creating areas, pricing tools, compensation and remuneration schemes and is integral to the Risk Appetite framework. The total economic capital required by the Group, as determined by its internal risk assessment models and after consideringframework will be an important part to the Group’s estimated diversification benefits, is compared with available common shareholders’ funds to evaluate overall capital utilisation.implementation of the Basel II Accord.
Average economic capital by business and risk type are shown in the following charts and shown by business in the table on page 28.
AverageIn 2004, UK Retail Banking economic capital allocation decreased £50m to £2,200m with the impact of continued growth more than offset by business duringthe sale in 2003
Average of non-core assets that had previously been acquired with the Woolwich. UK Business Banking economic capital allocation bydecreased £50m to £2,450m as a consequence of a general improvement in the credit quality of counterparties and improved risk type during 2003assessment of complex transactions.
Barclays PLC Annual Report 2003 27
Risk ManagementRisk Management and Control – Overview
AverageThe economic capital allocated to Private Clients (including the closed life assurance business) increased by business
Average economic capital | ||||||||
2003 | 2002 | |||||||
£m | £m | |||||||
Personal Financial Services | 2,400 | 2,100 | ||||||
Barclays Private Clients | ||||||||
– ongoing | 700 | 550 | ||||||
– closed life assurance activities | 200 | 300 | ||||||
Barclaycard | 1,800 | 1,500 | ||||||
Business Banking | 2,850 | 2,750 | ||||||
Barclays Africa | 200 | 200 | ||||||
Barclays Capital | 2,100 | 2,050 | ||||||
Barclays Global Investors | 150 | 200 | ||||||
Other operations(a) | 500 | 550 | ||||||
Average economic capital | 10,900 | 10,200 | ||||||
Average historical goodwill | 5,100 | 4,700 | ||||||
Capital held at Group centre(b) | 1,100 | 900 | ||||||
Total average shareholders’ funds | 17,100 | 15,800 | ||||||
Personal Financial Services£50m to £400m following the acquisition of Gerrard and growth of the business. International economic capital allocation has increased by £300m£200m to £2,400m largely due to continued improvements in methodologies for quantification of credit risk for long maturity assets, previously carried at£1,000m reflecting the Group centre.
Barclays Private Clients economic capital allocation has increased by £150m to £700m due to the acquisitionsinclusion of Banco Zaragozano for a full year and Charles Schwab Europe. The closed life assurance activities economic capital allocation has reduced by £100m to £200m due togrowth in the continued run-off of the portfolio and a series of hedges implemented to reduce exposure to equity markets.Spanish business.
Barclaycard economic capital allocation has increased by £300m£250m to £1,800m£2,450m due to continued growth in the loan book, includingoutstandings and the acquisition of Clydesdale Financial Services.Juniper.
Goodwill has increased with the acquisition of Charles Schwab Europe, Clydesdale Financial Services, Banco Zaragozano and Gerrard.
The Group regularly reviews and updates itsBarclays Capital economic capital allocation methodologies. A numberdecreased by £50m to £2,100m as a result of enhancements developed during 2003 will be incorporatedimproved wholesale credit conditions more than offsetting the increase in 2004.
market risk capital driven by growth of the business.
28
34
Barclays PLC Annual Report 2004
Risk management
Risk Management
Credit Risk Management
Credit Risk Management
Credit risk arises becauseis the risk that the Group’s customers, clients or counterparties maywill not be able or willing to pay interest, repay capital or otherwise to fulfil their contractual obligations under loan agreements or other credit facilities.
The taking Credit risk also arises through the downgrading of counterparties whose credit instruments the Group may be holding, causing the value of those assets to fall. Furthermore, credit risk is manifested as country risk where difficulties experienced by the country in which the exposure is domiciled may impede payment or reduce the value of the asset or where the counterparty may be the country itself. Settlement risk is another special form of credit risk which is centralthe possibility that the Group may pay a counterparty – for example, a bank in a foreign exchange transaction – and fail to our business. Atreceive the year end, Barclays had £291,820m (2002: £263,648m) of loanscorresponding settlement in return.
Credit risk is the Group’s largest risk and advances and also other credit risks. The annual credit risk expense of £1,347m (2002: £1,484m) exceeds the risk-taking cost associated with all other risk types combined. Therefore considerable resources, expertise and controls are devoted to managing credit risk.
Credit Risk Control
it. The central objectiveimportance of credit risk management at Barclays is illustrated by noting that nearly two-thirds of risk-based economic capital is allocated to create shareholder value by ensuring that the net income generated by each exposure individuallybusinesses for credit risks. Credit exposures arise principally in loans and advances and in aggregate is commensurate withirrevocable commitments to lend as shown in the risk taken. At Barclays, this is primarily achieved through People and Systems:following chart. During 2004, the total exposure increased to £652bn (2003: £555m; 2002: £501bn).
(a) | OTC derivatives means derivatives traded bilaterally with counter parties and not through an exchange, commonly called over-the-counter derivatives. LME refers to the London Metal Exchange. |
Peoplewith the skill and experience needed for this task working within the Group Risk Governance Framework.
Systems, including advanced analytics, to measure, monitor and analyse the risk and inform management judgement.
People: Credit Risk Management ResponsibilityBarclays recognises that the taking of credit risk involves judgement, skill and knowledge.
The Group’s approach to
In retail businesses, such as Barclaycard and Personal Financial Services, where there are large numbers of customers, a systems driven environment prevails. Credit decisions are made with the aid of statistically based scoring systems. Account management is likewise automated. Both application scoring for new accounts and behavioural scoring for existing relationships are used. These systems measure risk using statistical methodologies derived from the wealth of information and experience Barclays has gained through its relationships with over 14 million customers.
Small business credit risk is managed like consumer accounts using scoring systems. Mid-range business credits are approved and reviewed according to a hierarchy of discretions, under which limits are set according to the skills, experience and seniority of the credit managers and sanctioning teams. They are assisted by analytical models – credit grading tools – that help to assess the quality of the borrower.
Large value wholesale credits are similarly handled by experienced front-line risk management staff – also equipped with analytical tools – who work alongside relationship management teams. Decisions must be referred to the Group Credit Committee if the intended exposures exceed specified limits. Besides loans, the credit risks include those arising from money market, foreign exchange, derivative, securities dealing and other products.
In each business, specialist teams deal with impaired credits.
As mentioned in the preceding section, the risk management teams are accountable to the Business Risk Directors in each businessthose businesses who, in turn, report to the headheads of their businessbusinesses and also to the Group Risk Director.
In addition, GroupThe Credit Risk function, led by the Group Credit Risk Director, provides Group-wide direction of credit risk-taking. Group Credit RiskThis functional team manages the resolution of all significant credit policy issues and runsadministers the Group Credit Committee which approves major credit decisions.
The Group Credit Risk Director reports toprincipal committees that review credit risk management are the Group Financial Risk Director, a new role introduced in 2003, who reports to the Group Risk Director. The Group Financial Risk Director has responsibility for both credit and market risk.
Regular reports are provided to the Group Risk Oversight Committee to enable it to discharge its responsibilities.and the Board Risk Committee. The Board Audit Committee reviews and approves provisioning decisions.
Systems: Credit Risk Measurement and AnalysisData and analytical tools are integral to risk management.
Probability of Default: Internal risk ratingsRisk Ratings
Where internal models are used, they are based upon up-to-date account, market and financial information. The models are reviewed regularlyan approximate relationship to monitor their robustness relative to actual performance and revised as necessary to optimise their effectiveness.certain external ratings.
Barclays credit ratingsInternal Credit Ratings
Barclays | Probability of Default | Annual probability of default | S&P | Moody’s | ||||||||||||||||||||||||||||
Internal | Minimum | Mid Point | Maximum | Equivalent | Equivalent | |||||||||||||||||||||||||||
Rating | Minimum | Maximum | Mid Point | % | % | % | Rating* | Rating* | ||||||||||||||||||||||||
1.2 | 0.02 | % | 0.04 | % | 0.025 | % | 0.02 | 0.025 | 0.04 | AAA/AA+/AA | Aaa/Aa/A1 | |||||||||||||||||||||
1.5 | 0.05 | % | 0.09 | % | 0.075 | % | 0.05 | 0.075 | 0.09 | AA-/A+ | A2 | |||||||||||||||||||||
1.8 | 0.10 | % | 0.14 | % | 0.125 | % | 0.10 | 0.125 | 0.14 | A/A- | A3 | |||||||||||||||||||||
2.1 | 0.15 | % | 0.19 | % | 0.175 | % | 0.15 | 0.175 | 0.19 | BBB+ | Baa1 | |||||||||||||||||||||
2.5 | 0.20 | % | 0.24 | % | 0.225 | % | 0.20 | 0.225 | 0.24 | BBB+ | Baa1 | |||||||||||||||||||||
2.8 | 0.25 | % | 0.29 | % | 0.275 | % | 0.25 | 0.275 | 0.29 | BBB | Baa2 | |||||||||||||||||||||
3 | 0.30 | % | 0.59 | % | 0.450 | % | 0.30 | 0.450 | 0.59 | BBB- | Baa3 | |||||||||||||||||||||
4 | 0.60 | % | 1.19 | % | 0.900 | % | 0.60 | 0.900 | 1.19 | BB+/BB/BB- | Ba1/Ba2 | |||||||||||||||||||||
5 | 1.20 | % | 2.49 | % | 1.850 | % | 1.20 | 1.850 | 2.49 | B+/B | Ba3 | |||||||||||||||||||||
6 | 2.50 | % | 4.99 | % | 3.750 | % | 2.50 | 3.750 | 4.99 | B- | B1 | |||||||||||||||||||||
7 | 5.00 | % | 9.99 | % | 7.500 | % | 5.00 | 7.500 | 9.99 | CCC+/CCC- | B2/B3 | |||||||||||||||||||||
8 | 10.00% | + | – | 15.000 | % | 10.00 | 15.000 | – | CC/C | Caa/Ca/C | ||||||||||||||||||||||
* | Approximate alignment with Barclays and each other. |
Barclays PLC Annual Report 2003 29
Risk ManagementCredit Risk Management
SeveritySeverity is the estimated amount of loss expected if a loan defaults, calculated as a percentage of the exposure at the date of default. It recognises that the loss is usually substantially less than the exposure. The value depends on the collateral, if any, seniority or subordination of the exposure, work-out expenses relative to the loan value and other considerations. The outcome is heavily dependent on economic conditions that determine, for example, whether businesses can be refinanced or the prices that can be realised for assetsExposure in the event that they are sold.
Exposure
of Default
For derivative instruments, exposure in the event of default is the estimated cost of replacing contracts with a positive value if counterparties should fail to perform their obligations.
35
Barclays PLC Annual Report 2004
Risk management
Credit risk management
Severity of Loss-given-default
From historical information, the Group can estimate how much is likely to be lost, on average, for various types of loans. To illustrate, loss-given-default is low for residential mortgages because of the property pledged as collateral. In contrast, LGD is about 70% for unsecured personal lending.
The Group monitors itslevel of LGD depends on the type of collateral (if any); the seniority or subordination of the exposure; the industry in which the customer operates (if a business); the jurisdiction applicable and work-out expenses. The outcome is also dependent on economic conditions that may determine, for example, the prices that can be realised for assets or whether businesses can readily be refinanced. Individual defaults show a wide range of outcomes, varying from full to nil recovery and all points in between.
Expected Loss: Risk Tendency
Risk Tendency
Risk Tendency is based ona measure of the results of a set of model-based calculations,modelled loss for the models having been created using historical data. The models estimate the expected loss arising fromperforming loan defaults overportfolio for the forthcoming 12 months, from the current performing loan portfolio, taking into account its current composition, size and risk characteristics. characteristics and previous experience over a long period with similar credit exposures.
The actual credit provisions can vary significantly around this value, dueRisk Tendency of a loan is estimated as the product of the probability of default derived from the rating with the other components discussed above:
Risk Tendency of a loan = probability of default × expected exposure at default × loss given default.
The RT’s of individual loans are summed to changesproduce the Risk Tendencies of the various sub-portfolios in the economic environment orGroup and ultimately for the business conditions in specific sectors or countries during the year and from unpredictable or unexpected events. This applies especially in wholesale portfolios where the default ofwhole Group. It is thus a small number of large exposures can have a significant impact on the outcome.
In addition to enhancing the understanding‘bottom-up’ measure of the averageinherent loss in the Group’s credit exposures. RT provides insight into the credit quality of the portfolio and assists management in tracking risk changes as the Group’s stock of credit exposures evolves in the course of business.
Many models are used in the estimation of the three components of RT in each of the Group’s businesses. The majority of the models are internally developed using Barclays own historical data and other external information. We also use externally developed models and rating tools. These are validated for use within Barclays before they are introduced. All models are validated annually to ensure their applicability to the current portfolios and credit conditions.
In interpreting Risk Tendency, the following should be borne in mind:
• | At the individual loan level many of the models take current conditions into account while others are based on conditions over several years. RT is thus to a considerable degree a point-in-time risk measure. This contrasts with a through-the-credit-cycle measure which would provide an estimate of the average loss expected over a whole cycle. | |
• | Risk Tendency is not a forecast of bad debt provisions. It is rather a statistical measure that gives insight into the size and quality of the loan portfolio: |
– | Risk Tendency covers only the performing loans at the date of estimation and does not make allowance for subsequent growth or change in the composition of the loan book. | ||
– | As it only considers the performing portfolio, the often significant additional charges, write-backs and recoveries arising during the year from impaired loans are not included. These items can materially affect the provisions charge to the profit and loss account. | ||
– | The actual credit provisions charge arising from new defaults in any one year from loans that are performing at the start of the year vary significantly around the RT value. This can be due to changes during the year in the economic environment or in the business conditions in specific sectors or countries and from unpredictable or unexpected events. This applies especially in wholesale portfolios where the default of a small number of large exposures can have a significant effect on the outcome. For retail portfolios, consisting of a very large number of small exposures, the variation from RT is usually much smaller. | ||
– | For these reasons, RT does not equate to the Group’s budget or internal forecast of provisions in the coming year. |
Risk Tendency is equivalent to the Expected Loss measure that all banks who wish to qualify for the Advanced Internal Ratings Based Approach will have to disclose from 2008 under the forthcoming Basel II Accord. Barclays has published RT since its 1997 results and is the only British bank and one of the measuresfew international banks to do so.
Risk Tendency is used by the Group to inform a wider range of decisions, such as establishing the desired aggregate exposure levels to individual sectors, and determining pricing policy.
The models used It has also been a factor in determining the level of the general provision for loan losses. Going forward, the measurement of credit losses will be governed by IFRS (IAS 39) which will result in the reporting of specific impairment.
In 2004, Risk Tendency calculation reflectremained steady at £1,395m (2003: £1,390m) (see chart on next page).
RT declined in the diversity ofcorporate and wholesale businesses as the portfolio. They are being improved constantlycorporate and wholesale credit environments continued to improve and as potential problem loans declined significantly.
In International, RT decreased £5m (7%) to £65m (2003: £70m) as the Group collects more data and deploys more sophisticated techniques. The Group believes that each change will havedeveloped a minor impact onbetter understanding of the total result but should lead to better estimates over time.
As shownrisks in the table below, Risk Tendency was £1,390m based upon the composition of the lendingBanco Zaragozano portfolio as at 31st December 2003 (31st December 2002: £1,375m). It fellacquired in Personal Financial Services by 8% as a result of enhanced risk and fraud management strategies. 2003.
Barclaycard Risk TendencyRT increased by 21%, commensurate with11% to £860m (2003: £775m) due to growth in the portfolio and the impact of the acquisition of Clydesdale Financial Services.Juniper.
36
Barclays PLC Annual Report 2004
Credit Risk Tendency increasedMitigation
Barclays manages the diversification of its portfolio to avoid unwanted credit risk concentrations. This takes several dimensions. Maximum exposure guidelines are in place relating to the exposures to any individual counterparty. These permit higher exposures to highly rated borrowers than to lower rated borrowers. They also distinguish between types of counterparty, for example between sovereign governments, banks and corporations. Excesses are considered individually at the time of credit sanctioning, are reviewed regularly, and are reported to the Risk Oversight Committee and the Board Risk Committee. Similarly the Country Risk policy specifies risk appetite by country and avoids excessive concentrations of credits in individual countries. Finally, there are policies that limit lending to certain industries, for example commercial real estate.
Barclays Private Clients by 44% followingactively manages its credit exposures. When weaknesses in exposures are detected – either in individual exposures or in groups of exposures – it takes action to mitigate the acquisitionrisks. These include steps to reduce the amounts outstanding (in discussion with the customers, if appropriate), the use of Banco Zaragozano. It fell in Barclays Capital by 38% followingcredit derivatives and, sometimes, the recovery in wholesale credit markets and improvement in the quality and reduction in the sizesale of the loan portfolio. Risk tendency also increased in Transition Businesses after assets were transferred into this portfolio (see page 68).
Risk Tendency by Business Cluster
2003 | 2002 | |||||||
£m | £m | |||||||
Personal Financial Services | 340 | 370 | ||||||
Barclays Private Clients | 65 | 45 | ||||||
Barclaycard | 525 | 435 | ||||||
Business Banking | 280 | 280 | ||||||
Barclays Africa | 30 | 30 | ||||||
Barclays Capital | 130 | 210 | ||||||
Transition Businesses | 20 | 5 | ||||||
Total | 1,390 | 1,375 | ||||||
Non-performing loans, against which specific provisionsassets. Credit derivatives are held, are excluded from this calculation. Adjustments totraded for profit and used for managing non-trading credit exposures. Details of these provisionsactivities may be found in the light of emerging information aboutstatistical section (page 64) and Note 37 to the borrowers’ financial strength can collectively have a substantial influence on the annual credit expense that is not captured in Risk Tendency.Accounts (page 157).
Credit Risk Portfolio ManagementBarclays uses mechanismsThe Group securitises loans such as credit derivatives, securitisations and asset salescard receivables. The manner in which these transactions have been structured to reduce the uncertainty of returns from the credit portfolio. The benefits are reflected indate has reduced credit risk provisions and/or reduced volatilityonly to a small degree because the motivation has generally not been the mitigation of earningsrisk. Instead the transactions have served other purposes, such as widening the Group’s sources of funds and consequentlyaddressing regulatory capitalisation in specific geographies. Securitisation remains an improved return on economic capital. More information on creditavenue of risk portfolio management appears on page 38.mitigation available to Barclays.
The value of assets originated by the Group that were securitised in 2004 was £0.8bn (2003: £2.3bn).
30
37
Risk ManagementmanagementAnalysis of
Analysis of Loans and Advances
Loans and advances greware the largest component of the Group’s credit exposures and contain more than half of the credit risk as shown on page 35. They increased over the year increasing by £28.2bn (10.7%£41bn (14%) to £291.8bn£332.9bn at 31st December 2003.2004 (2003: £291.8bn, 2002: £263.6bn).
The management of retail credit risk is different from wholesale credit risk. In retail, where there are millions of loans and advances, both initial and ongoing account maintenance decisions are driven by efficient, smart systems which have been developed usingWholesale customers remain the Group’s considerable accumulated experience. In contrast, wholesale loans are more complex and are individually considered, although analytical tools still have a major role.largest customer category.
Outcomes
Loans and advances
2003 | 2002 | |||||||
£m | £m | |||||||
Retail businesses | ||||||||
Banks | 1,495 | 1,748 | ||||||
Customers | 100,774 | 90,625 | ||||||
Total retail businesses | 102,269 | 92,373 | ||||||
Wholesale businesses | ||||||||
Banks | 60,445 | 56,508 | ||||||
Customers | 129,106 | 114,767 | ||||||
Total wholesale businesses | 189,551 | 171,275 | ||||||
Total | 291,820 | 263,648 | ||||||
The analysisdrawn balances shown above are before deduction of provisions and interest in suspense. The information in the chart is based on the business unit in which the loans are booked. ThoseLoans in those businesses that deal primarily with personal customers, such as Personal Financial ServicesBarclaycard and Barclaycard,UK Retail Banking, are included underin retail businesses,customers even though they have some wholesalea small percentage may be to business customers. Similarly, loans in businesses that deal primarily with corporate, institutional and sovereign clients are included in wholesale businesses,customers, even though they may have some personal customers.
In subsequent pages, considerable detail
Loans and advances by banking and trading books
2003 | |||||||||||||
Customers | Banks | Total | |||||||||||
£m | £m | £m | |||||||||||
Banking book | 170,919 | 17,270 | 188,189 | ||||||||||
Trading book | 58,961 | 44,670 | 103,631 | ||||||||||
Total | 229,880 | 61,940 | 291,820 | ||||||||||
2002 | |||||||||||||
Customers | Banks | Total | |||||||||||
£m | £m | £m | |||||||||||
Banking book | 160,216 | 15,451 | 175,667 | ||||||||||
Trading book | 45,176 | 42,805 | 87,981 | ||||||||||
Total | 205,392 | 58,256 | 263,648 | ||||||||||
The amounts shown in the tables above are before deduction of provisions and interest in suspense. The banking book comprises loans and advances whichthat are intended to be held to maturity or until repayment by the customer. In contrast the loans and advances on the trading book are held for sale. Losses that may arise in the trading book – including credit losses – are absorbed in trading profits and are regarded as market risk, the management of which is described later. The next part of the credit section is thus devoted to exposures on the banking book, particularly customer exposures. For details of exposures to banks refer to the statistical information on page 59.
38
Barclays PLC Annual Report 2003 312004
Risk ManagementmanagementAnalysis of Loans and Advances
Loans and Advances to Banks
The majority of loans and advances to banks are placings, amounting to £56.5bn at 31st December 2003 (2002: £48.1bn), and include reverse repo transactions. Also included are loans to banks and building societies, interbank settlement accounts and federal funds sold. Loans and advances to banks increased by 6% to £61.9bn at 31st December 2003 (2002: £58.3bn).
The amounts shown in the tables below are before deductions of provisions and interest in suspense.
Maturity analysis of loans and advances to banks
Over three | Over one | |||||||||||||||||||||||
months | year but | |||||||||||||||||||||||
Not more | but not | not more | ||||||||||||||||||||||
than three | more than | than five | Over | |||||||||||||||||||||
On demand | months | one year | years | five years | Total | |||||||||||||||||||
At 31st December 2003 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | 629 | 4,299 | 586 | 5,127 | 3,674 | 14,315 | ||||||||||||||||||
Other European Union | 116 | 1,525 | 28 | 12 | 21 | 1,702 | ||||||||||||||||||
United States | 23 | 57 | 10 | 20 | – | 110 | ||||||||||||||||||
Rest of the World | 295 | 605 | 192 | 48 | 3 | 1,143 | ||||||||||||||||||
Total banking business | 1,063 | 6,486 | 816 | 5,207 | 3,698 | 17,270 | ||||||||||||||||||
Total trading business | 830 | 39,660 | 4,180 | – | – | 44,670 | ||||||||||||||||||
Total | 1,893 | 46,146 | 4,996 | 5,207 | 3,698 | 61,940 | ||||||||||||||||||
Over three | Over one | |||||||||||||||||||||||
months | year but | |||||||||||||||||||||||
Not more | but not | not more | ||||||||||||||||||||||
than three | more than | than five | Over | |||||||||||||||||||||
On demand | months | one year | years | five years | Total | |||||||||||||||||||
At 31st December 2002 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | 423 | 2,742 | 648 | 7,518 | 179 | 11,510 | ||||||||||||||||||
Other European Union | 222 | 1,689 | 84 | 31 | 128 | 2,154 | ||||||||||||||||||
United States | 14 | 110 | 118 | 14 | – | 256 | ||||||||||||||||||
Rest of the World | 262 | 890 | 376 | 3 | – | 1,531 | ||||||||||||||||||
Total banking business | 921 | 5,431 | 1,226 | 7,566 | 307 | 15,451 | ||||||||||||||||||
Total trading business | 1,052 | 38,693 | 3,060 | – | – | 42,805 | ||||||||||||||||||
Total | 1,973 | 44,124 | 4,286 | 7,566 | 307 | 58,256 | ||||||||||||||||||
Interest rate sensitivity of loans and advances to banks1
2003 | 2002 | |||||||||||||||||||||||
Fixed | Variable | Fixed | Variable | |||||||||||||||||||||
rate | rate | Total | rate | rate | Total | |||||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | 7,221 | 7,094 | 14,315 | 6,493 | 5,017 | 11,510 | ||||||||||||||||||
Other European Union | 1,523 | 179 | 1,702 | 1,830 | 324 | 2,154 | ||||||||||||||||||
United States | 17 | 93 | 110 | 30 | 226 | 256 | ||||||||||||||||||
Rest of the World | 781 | 362 | 1,143 | 1,212 | 319 | 1,531 | ||||||||||||||||||
Total banking business | 9,542 | 7,728 | 17,270 | 9,565 | 5,886 | 15,451 | ||||||||||||||||||
Total trading business | 25,607 | 19,063 | 44,670 | 24,929 | 17,876 | 42,805 | ||||||||||||||||||
Total | 35,149 | 26,791 | 61,940 | 34,494 | 23,762 | 58,256 | ||||||||||||||||||
1 Where a loan is earning a fixed ratecustomers on the reporting date, it is included as a fixed rate loan, regardless of the term for which the rate is fixed.
32
LoansGeographical Analysis and Advances to CustomersCountry Risk
Geographic analysis of
The loans and advances to customers on the banking book*book booked through the Group’s operations in Iberia were £12bn at 31st December 2004, 6.2% of the Group total. They were comprised of £5.8bn in residential mortgages (48%) and £6.2bn (52%) in other loans.
Industry analysisA critical element of risk management isBarclays exposure limits to ensure adequate diversification of credit exposures. Barclays tracks its global exposure by industry assub-investment grade countries are shown in the following chart paying particular attentionbelow (largest 15 exposure limits).
The country exposures shown are the sum of customer limits and unused but available product limits. Both domestic and cross-border exposures are included.
Loans and advances to industries that might be volatile or pose higher risk. Thisborrowers in currencies other than the currencies of the borrowers are shown in the tables on page 63.
Risk Profile of Customer Loans and Advances
(a) | Excludes non-performing and potential problem loans |
Industry Analysis
Global loans39
Risk management
Loans and advances to customers by industry –on the banking book only (% of total)
The chart shows that Barclays largest sectoral exposures are to home loans, other personal loans and business and other services. These categories overwhelmingly compriseare comprised of small loans, have lowerlow volatility of credit risk outcomes, and are intrinsically highly diversified.
During 2003,The loan-to-value ratios on the sectors that were of special interestGroup’s UK home loan portfolio are indicated in 2002 – energy, utilities and telecommunications – all improved. Nevertheless, somethe next chart.
The valuations in the chart are those which applied at the last credit decision on each loan, i.e. when the customer last requested an increase in the limit or, if there has been no increase, at inception of the companies within these sectors stillloan. Since house prices have weak balance sheetsrisen rapidly in recent years to mid-2004, most loan-to-value ratios would be considerably lower if updated to current market values.
Barclays loan loss rates have remained stable in other personal loans (consumer loans and continue to be stressed. The tourism, travelcredit cards) despite the increased levels of household indebtedness and airline sub-sectors were also of concern in 2003, in part due to global terrorist threats, SARS and the war in the Middle East, in part due to competition and discounting within these sectors. In the property sector, commercial office space was in excess supply in London and the South East of the United Kingdom.
Commentators anticipated higher credit losses in the mortgage market due to an expected decline in house prices. This followed several years of rapid price rises and with higher interest rates in prospect. Although there was a modest interest rate rise, house prices increased further and mortgage defaults fell from an already very low level. There was also interest in other retail credits – unsecured loans and credit cards – in the wake of comments on the record levels of consumer indebtedness relative to incomes by the Bank of England, the FSA and others. However, due to the still low interest rates, consumers’ debt servicing costs remained well below previous peaks and there was no material impact on Barclays 2003 provision charges.UK.
Maturity analysisAnalysis
Maturity analysis of loans and advances to customers*
40
Barclays PLC Annual Report 2003 332004
Risk ManagementAnalysis of Loans and Advances
Interest rate sensitivity of loans and advances to customers
2003 | 2002 | |||||||||||||||||||||||
Fixed | Variable | Fixed | Variable | |||||||||||||||||||||
rate | rate | Total | rate | rate | Total | |||||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | 35,998 | 107,811 | 143,809 | 41,332 | 94,568 | 135,900 | ||||||||||||||||||
Other European Union | 4,159 | 14,868 | 19,027 | 2,876 | 9,703 | 12,579 | ||||||||||||||||||
United States | 1 | 3,572 | 3,573 | 314 | 5,824 | 6,138 | ||||||||||||||||||
Rest of the World | 2,738 | 1,772 | 4,510 | 4,351 | 1,248 | 5,599 | ||||||||||||||||||
Total banking business | 42,896 | 128,023 | 170,919 | 48,873 | 111,343 | 160,216 | ||||||||||||||||||
Total trading business | 26,587 | 32,374 | 58,961 | 20,204 | 24,972 | 45,176 | ||||||||||||||||||
Total | 69,483 | 160,397 | 229,880 | 69,077 | 136,315 | 205,392 | ||||||||||||||||||
Geographic and industry analysisThese tables have been prepared on the basis described on page 33.
Loans and advances to customers booked in offices in the UK – banking business
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 7,721 | 6,158 | 5,616 | 4,215 | 4,118 | |||||||||||||||
Agriculture, forestry and fishing | 1,766 | 1,747 | 1,626 | 1,689 | 1,693 | |||||||||||||||
Manufacturing | 5,967 | 6,435 | 6,766 | 7,573 | 6,954 | |||||||||||||||
Construction | 1,883 | 1,825 | 1,779 | 1,666 | 1,331 | |||||||||||||||
Property | 6,341 | 5,695 | 5,600 | 5,130 | 3,689 | |||||||||||||||
Energy and water | 1,286 | 1,290 | 1,153 | 1,120 | 613 | |||||||||||||||
Wholesale and retail distribution and leisure | 8,886 | 7,858 | 7,571 | 7,531 | 6,455 | |||||||||||||||
Transport | 2,579 | 2,366 | 1,894 | 1,353 | 1,270 | |||||||||||||||
Communications | 476 | 694 | 368 | 180 | 345 | |||||||||||||||
Business and other services | 12,030 | 11,693 | 10,581 | 9,894 | 8,415 | |||||||||||||||
Home loans | 61,905 | 58,436 | 50,945 | 47,235 | 18,316 | |||||||||||||||
Other personal | 21,905 | 21,357 | 19,678 | 18,200 | 15,673 | |||||||||||||||
Overseas customers | 5,477 | 6,201 | 6,472 | 5,024 | 4,711 | |||||||||||||||
138,222 | 131,755 | 120,049 | 110,810 | 73,583 | ||||||||||||||||
Finance lease receivables | 5,587 | 4,145 | 4,205 | 4,504 | 5,094 | |||||||||||||||
Total | 143,809 | 135,900 | 124,254 | 115,314 | 78,677 | |||||||||||||||
The largest increase in loans and advances in the UK occurred in home loans where balances grew by 6% to £61.9bn. Loans to financial institutions, wholesale, retail and leisure, and property all increased by more than 10% as did finance leases.
Loans and advances to customers booked in offices in other European Union countries – banking business
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 1,205 | 371 | 500 | 436 | 178 | |||||||||||||||
Agriculture, forestry and fishing | 147 | 165 | 240 | 303 | 223 | |||||||||||||||
Manufacturing | 1,275 | 1,422 | 1,317 | 1,420 | 1,322 | |||||||||||||||
Construction | 609 | 314 | 298 | 261 | 193 | |||||||||||||||
Property | 346 | 137 | 241 | 182 | 144 | |||||||||||||||
Energy and water | 409 | 367 | 282 | 372 | 145 | |||||||||||||||
Wholesale and retail distribution and leisure | 426 | 215 | 283 | 140 | 207 | |||||||||||||||
Transport | 566 | 252 | 318 | 172 | 119 | |||||||||||||||
Communications | 40 | 173 | 185 | 83 | 37 | |||||||||||||||
Business and other services | 1,251 | 1,648 | 1,679 | 1,284 | 918 | |||||||||||||||
Home loans | 10,334 | 6,243 | 3,871 | 4,436 | 1,029 | |||||||||||||||
Other personal | 1,769 | 721 | 661 | 582 | 505 | |||||||||||||||
Overseas customers | 438 | 384 | 685 | 381 | 462 | |||||||||||||||
18,815 | 12,412 | 10,560 | 10,052 | 5,482 | ||||||||||||||||
Finance lease receivables | 212 | 167 | 148 | 151 | 494 | |||||||||||||||
Total | 19,027 | 12,579 | 10,708 | 10,203 | 5,976 | |||||||||||||||
The growth in the European Union – especially in home loans – reflects the acquisition of Banco Zaragozano and the growth of Openplan in Spain.
34
Loans and advances to customers in offices in the United States – banking business
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 919 | 1,036 | 1,053 | 616 | 320 | |||||||||||||||
Agriculture, forestry and fishing | 1 | 3 | – | – | 1 | |||||||||||||||
Manufacturing | 341 | 842 | 1,553 | 1,123 | 727 | |||||||||||||||
Construction | 2 | 31 | 24 | – | – | |||||||||||||||
Property | 1 | 15 | 21 | 30 | 69 | |||||||||||||||
Energy and water | 1,511 | 2,229 | 1,567 | 1,440 | 1,168 | |||||||||||||||
Wholesale and retail distribution and leisure | 77 | 141 | 160 | 214 | 138 | |||||||||||||||
Transport | 468 | 1,248 | 931 | 580 | 356 | |||||||||||||||
Communications | – | 46 | 66 | 88 | 166 | |||||||||||||||
Business and other services | 220 | 441 | 901 | 2,174 | 1,000 | |||||||||||||||
Home loans | – | – | – | 1 | 1 | |||||||||||||||
Other personal | – | – | 267 | 6 | 58 | |||||||||||||||
Overseas customers | – | 62 | 23 | 56 | – | |||||||||||||||
3,540 | 6,094 | 6,566 | 6,328 | 4,004 | ||||||||||||||||
Finance lease receivables | 33 | 44 | 48 | 48 | 44 | |||||||||||||||
Total | 3,573 | 6,138 | 6,614 | 6,376 | 4,048 | |||||||||||||||
Loans and advances to customers booked in offices in the rest of the world – banking business
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | |||||||||||||||
Loans and advances | 4,465 | 5,566 | 7,384 | 8,920 | 8,316 | |||||||||||||||
Finance lease receivables | 45 | 33 | 32 | 30 | 28 | |||||||||||||||
Total | 4,510 | 5,599 | 7,416 | 8,950 | 8,344 | |||||||||||||||
Total loans and advances to customers
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | |||||||||||||||
Banking business | 170,919 | 160,216 | 148,992 | 140,843 | 97,045 | |||||||||||||||
Trading business | 58,961 | 45,176 | 34,240 | 23,198 | 21,562 | |||||||||||||||
Total | 229,880 | 205,392 | 183,232 | 164,041 | 118,607 | |||||||||||||||
Of the loans and advances to customers, reverse repos were £50.0bn (2002: £42.5bn).
Barclays PLC Annual Report 2003 35
Risk ManagementAnalysis of Loans and Advances
Maturity analysis of loans and advances to customers
Over three | Over one | |||||||||||||||||||||||
months | year but | |||||||||||||||||||||||
Not more | but not | not more | ||||||||||||||||||||||
than three | more than | than five | Over | |||||||||||||||||||||
On demand | (a) | months | one year | years | five years | Total | ||||||||||||||||||
At 31st December 2003 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | ||||||||||||||||||||||||
Corporate lending(b) | 6,108 | 9,298 | 4,596 | 17,138 | 11,796 | 48,936 | ||||||||||||||||||
Other lending from United Kingdom offices | 2,869 | 6,940 | 6,359 | 12,345 | 66,360 | 94,873 | ||||||||||||||||||
Total United Kingdom | 8,977 | 16,238 | 10,955 | 29,483 | 78,156 | 143,809 | ||||||||||||||||||
Other European Union | 597 | 2,497 | 2,591 | 2,507 | 10,835 | 19,027 | ||||||||||||||||||
United States | – | 276 | 253 | 1,745 | 1,299 | 3,573 | ||||||||||||||||||
Rest of the World | 601 | 2,151 | 495 | 764 | 499 | 4,510 | ||||||||||||||||||
Total banking business | 10,175 | 21,162 | 14,294 | 34,499 | 90,789 | 170,919 | ||||||||||||||||||
Total trading business | 2,004 | 54,996 | 1,615 | 335 | 11 | 58,961 | ||||||||||||||||||
Total | 12,179 | 76,158 | 15,909 | 34,834 | 90,800 | 229,880 | ||||||||||||||||||
Over three | Over one | |||||||||||||||||||||||
months | year but | |||||||||||||||||||||||
Not more | but not | not more | ||||||||||||||||||||||
than three | more than | than five | Over | |||||||||||||||||||||
On demand | (a) | months | one year | years | five years | Total | ||||||||||||||||||
At 31st December 2002 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | ||||||||||||||||||||||||
Corporate lending(b) | 8,340 | 7,047 | 5,604 | 14,251 | 10,519 | 45,761 | ||||||||||||||||||
Other lending from United Kingdom offices | 2,416 | 6,693 | 6,135 | 10,919 | 63,976 | 90,139 | ||||||||||||||||||
Total United Kingdom | 10,756 | 13,740 | 11,739 | 25,170 | 74,495 | 135,900 | ||||||||||||||||||
Other European Union | 856 | 1,976 | 2,187 | 2,945 | 4,615 | 12,579 | ||||||||||||||||||
United States | – | 768 | 1,227 | 2,451 | 1,692 | 6,138 | ||||||||||||||||||
Rest of the World | 439 | 2,859 | 1,370 | 605 | 326 | 5,599 | ||||||||||||||||||
Total banking business | 12,051 | 19,343 | 16,523 | 31,171 | 81,128 | 160,216 | ||||||||||||||||||
Total trading business | 2,409 | 41,247 | 1,392 | 91 | 37 | 45,176 | ||||||||||||||||||
Total | 14,460 | 60,590 | 17,915 | 31,262 | 81,165 | 205,392 | ||||||||||||||||||
36
Risk ManagementLoans and Advances in Non-local Currencies and to Countries Receiving IMF Support
Loans and advances to borrowers in currencies other than the local currency of the borrowerThe worldwide operations of the Group involve significant exposures in non-local currencies.
The US Securities and Exchange Commission requires that Barclays report those exposures denominated in currencies other than the borrower’s local currency. These outstandings exclude finance provided within the Group, and are based on the country of domicile of the borrower or guarantor of ultimate risk. They comprise loans and advances to customers and banks (including placings), finance lease receivables, interest bearing investments, acceptances, other monetary assets and on-balance sheet amounts arising from off-balance sheet financial instruments.
At 31st December 2003, the countries where these outstandings exceeded 1% of total Group assets were the United States and Germany and amounted to £17,237m. At 31st December 2002 and 31st December 2001, the countries where these outstandings exceeded 1% of total Group assets were the US, Germany and France and amounted to £32,105m and £20,715m respectively. Further detail is provided in the table below.
Loans and advances to borrowers in currencies other than the local currency of the borrower for countries where this exceeds1% of total Group assets
Commercial | ||||||||||||||||||||
Banks | industrial | |||||||||||||||||||
and other | Governments | and other | ||||||||||||||||||
As % of | financial | and official | private | |||||||||||||||||
assets | Total | institutions | institutions | sectors | ||||||||||||||||
£m | £m | £m | £m | |||||||||||||||||
At 31st December 2003 | ||||||||||||||||||||
United States | 2.7 | 12,110 | 4,679 | – | 7,431 | |||||||||||||||
Germany | 1.2 | 5,127 | 4,662 | 7 | 458 | |||||||||||||||
At 31st December 2002 | ||||||||||||||||||||
United States | 4.2 | 17,140 | 9,672 | 1 | 7,467 | |||||||||||||||
Germany | 2.5 | 10,094 | 9,841 | 7 | 246 | |||||||||||||||
France | 1.2 | 4,871 | 4,484 | 24 | 363 | |||||||||||||||
At 31st December 2001 | ||||||||||||||||||||
United States | 2.3 | 8,294 | 4,878 | – | 3,416 | |||||||||||||||
Germany | 2.3 | 8,218 | 8,031 | 1 | 186 | |||||||||||||||
France | 1.2 | 4,203 | 3,088 | 22 | 1,093 |
Loans and advances to borrowers in currencies other than the local currency of the borrower for countries where this is between0.75% and 1% of total Group assetsAt 31st December 2003, Barclays had cross-currency loans to borrowers in France of between 0.75% and 1% of total Group assets, amounting to £3,570m. At 31st December 2002, there were cross-currency loans to borrowers in the Netherlands and Ireland of between 0.75% and 1% of total Group assets, amounting to £7,552m. At 31st December 2001, cross-currency loans to borrowers in Japan and Netherlands fell in the range between 0.75% and 1% of total Group assets and totalled £5,774m.
Countries receiving IMF supportBarclays exposure to countries receiving substantial IMF support amounted to £0.5bn in total at 2003 year end (2002: £0.5bn, 2001: £1.3bn). The largest exposure was to Turkey (£0.3bn).
Barclays PLC Annual Report 2003 37
Risk ManagementOther Credit Risks
Other Credit Risks
Off balance sheet and other credit exposuresas at 31st December
2003 | 2002 | ||||||||
£m | £m | ||||||||
Off balance sheet exposures | |||||||||
Contingent liabilities | 33,694 | 26,546 | |||||||
Commitments to lend | 114,847 | 101,378 | |||||||
On balance sheet exposure | |||||||||
Balances arising from off-balance sheet | |||||||||
financial instruments (OTC derivatives) | 15,812 | 13,454 | |||||||
London Metal Exchange warrants and other trading positions | 1,290 | 829 | |||||||
Debt securities | – held for trading | 59,812 | 53,961 | ||||||
– non-trading | 37,581 | 40,268 | |||||||
The nature of the credit risks inamong these exposures differsdiffer considerably. Losses resulting
• | Loan commitments may become loans and the risks are thus similar to loans. | |
• | Contingent liabilities (guarantees, assets pledged as security, acceptances and endorsements, etc) historically experience low loss rates. | |
• | Losses arising from exposures held for trading (derivatives, debt securities) are accounted for as trading losses, rather than credit charges, even though the fall in value causing the loss may be attributable to |
Further details on contingent liabilitiesof these exposures are shown in Note 4436 to the Accounts (page 140)155). They include guarantees, assets pledged as collateral, acceptances and endorsements.
Barclays is also exposed to settlement risk in its dealings with other financial institutions. These reflect contracts entered into on behalf of customers who undertake to compensate the bankrisks arise for payments made on their behalf. The credit risk existsexample in that the customers may not meet their commitmentsforeign exchange transactions when they arise.
Commitments to lend (see also Note 44 on page 140) are contractual undertakings to lend to customers during a specified period or at a future date or they may be ongoing facilities subject to periodic review. These facilities are available to be used by customers, usually at their discretion, and may therefore become loans.
Balances arising from off balance sheet financial instruments represent the positive mark to market or otherwise assessed fair values of derivatives. See Note 45 (page 141), for a comprehensive disclosure of derivatives. The managementBarclays pays its side of the markettransaction to another bank or other counterparty before receiving payment from the other side. The risk inherent in derivatives is described on page 53 along with a description of derivatives used. The credit risk in these instruments exists in that the counterparty may not meet its obligation. While these exposures are of short duration, they can be unablelarge. In recent years settlement risk has been reduced by several industry initiatives that have enabled simultaneous and final settlement of transactions to settle when settlementbe made (such as payment-versus-payment through Continuous Linked Settlement and delivery-versus-payment in central bank money). Barclays has worked with its peers in the development of these arrangements. Increasingly the majority of high value transactions are settled by such mechanisms. Where these mechanisms are not available, the risk is due in Barclays favour. Most derivatives arefurther reduced by dealing predominantly with highly rated counterparties.
Debt securities are shown in Note 17 (page 124),counterparties, holding collateral and London Metals Exchangelimiting the size of the exposures are disclosed in Note 23 (page 128).according to the rating of the counterparty, with smaller exposures to those of higher risk.
Credit Risk Portfolio Management and the Use of Credit Derivatives
Credit derivatives are traded for profit and used for managing non-trading credit exposures. The extent of these activities is illustrated in the table below:
Notional principal amounts of credit derivativesat 31st December
2003 | 2002 | |||||||
£m | £m | |||||||
Credit derivatives held or issued for trading purposes | 43,256 | 10,665 | ||||||
Credit derivatives held for the purpose of managing non-trading exposures | 4,194 | 7,736 | ||||||
Total | 47,450 | 18,401 | ||||||
See Note 45 (page 141), for further details of the credit derivative positions.
During 2003, Barclays also sold loan assets. When non-performing loans for which provisions were held were sold, the net proceeds were applied to the relevant exposures and related provisions. These sales are distinct from Barclays substantial loan trading business.
Barclays securitised £3.3bn of loan assets comprising credit card and other receivables. Most of the credit risk associated with these assets was retained.
38
41
Risk ManagementmanagementPotential Credit Risk Lendings
Potential Credit Risk Lendings
Potential credit risk lendingsloans (PCRLs) comprise non-performing loans (NPLs) and potential problem loans (PPLs). NPLs are loans where the customers have failed to meet their commitments, either in part or in whole. PPLs are loans which are current as towhere payment of principal and interest is up-to-date and the loans are therefore fully performing, but where there exists serious doubt exists as to the ability of the borrowers to continue to comply with repayment terms in the near future.
UK non-performingNon-performing loans decreased by 1% (£26m) to £3,311m (2002: £3,337m). Other European Union non-performingand potential problem loans increased by 34% (£58m) from £173m to £231m, reflecting growth in the portfolio, including acquisitions. US non-performing loans decreased by 49% (£361m) to £383m as the exposures in this category were written off, restructured, upgraded, sold or otherwise worked out at a faster rate than new non-performing loans arose. In the Rest of the World non-performing loans decreased by 15%, to £230m.
The table that follows presents an analysis of non-performing loans consistent with both UK
The amounts are statedshown before deduction of the value of security held, the specific provisions carried or interest suspended, all of which might reduce the impact of an eventual default,loss, should it occur.
Potential problem loans declined sharply for several reasons: the inflow to this category fell as fewer customers encountered new difficulties, some customers recovered sufficiently to be restored to normal status and others were reclassified as non-performing. The deterioration of some potential problem loans to non-performing explains, in part, why non-performing loans fell much less than the potential problem loans. Both categories improved as a proportion of total loans and advances on the banking book as shown in the following charts.
Non-performing loans
Potential and potential problem loans as a percentage of Loans and Advances (Gross Banking Book)
Non-performing loans summary
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Non-accrual loans | 2,261 | 2,542 | 1,923 | 1,539 | 1,251 | |||||||||||||||
Accruing loans where interest is being suspended with or without provisions | 646 | 611 | 561 | 496 | 436 | |||||||||||||||
Other accruing loans against which no provisions have been made | 669 | 677 | 734 | 623 | 553 | |||||||||||||||
Sub total | 3,576 | 3,830 | 3,218 | 2,658 | 2,240 | |||||||||||||||
Accruing loans 90 days or more overdue, against which no provisions have been made | 575 | 690 | 648 | 713 | 361 | |||||||||||||||
Reduced rate loans | 4 | 6 | 5 | 6 | 8 | |||||||||||||||
Total non-performing loans | 4,155 | 4,526 | 3,871 | 3,377 | 2,609 | |||||||||||||||
A geographical analysis of this table appears on the next page.
Barclays PLC Annual Report 2003 392004
Risk ManagementmanagementPotential Credit Risk Lendings
Non-performing loans
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Non-accrual loans: | ||||||||||||||||||||
United Kingdom | 1,572 | 1,557 | 1,292 | 1,223 | 1,007 | |||||||||||||||
Other European Union | 143 | 108 | 90 | 96 | 122 | |||||||||||||||
United States | 383 | 744 | 306 | 119 | 47 | |||||||||||||||
Rest of the World | 163 | 133 | 235 | 101 | 75 | |||||||||||||||
Total | 2,261 | 2,542 | 1,923 | 1,539 | 1,251 | |||||||||||||||
Accruing loans where interest is being suspended with or without provisions: | ||||||||||||||||||||
United Kingdom | 559 | 480 | 386 | 351 | 326 | |||||||||||||||
Other European Union | 46 | 35 | 30 | 36 | 19 | |||||||||||||||
United States | – | – | – | – | – | |||||||||||||||
Rest of the World | 41 | 96 | 145 | 109 | 91 | |||||||||||||||
Total | 646 | 611 | 561 | 496 | 436 | |||||||||||||||
Other accruing loans against which provisions have been made: | ||||||||||||||||||||
United Kingdom | 610 | 609 | 660 | 474 | 423 | |||||||||||||||
Other European Union | 33 | 27 | 20 | 71 | 42 | |||||||||||||||
United States | – | – | 11 | 2 | 38 | |||||||||||||||
Rest of the World | 26 | 41 | 43 | 76 | 50 | |||||||||||||||
Total | 669 | 677 | 734 | 623 | 553 | |||||||||||||||
Sub totals: | ||||||||||||||||||||
United Kingdom | 2,741 | 2,646 | 2,338 | 2,048 | 1,756 | |||||||||||||||
Other European Union | 222 | 170 | 140 | 203 | 183 | |||||||||||||||
United States | 383 | 744 | 317 | 121 | 85 | |||||||||||||||
Rest of the World | 230 | 270 | 423 | 286 | 216 | |||||||||||||||
Total | 3,576 | 3,830 | 3,218 | 2,658 | 2,240 | |||||||||||||||
Accruing loans 90 days overdue, against which no provisions have been made: | ||||||||||||||||||||
United Kingdom | 566 | 687 | 621 | 695 | 343 | |||||||||||||||
Other European Union | 9 | 3 | – | 1 | – | |||||||||||||||
United States | – | – | – | – | – | |||||||||||||||
Rest of the World | – | – | 27 | 17 | 18 | |||||||||||||||
Total | 575 | 690 | 648 | 713 | 361 | |||||||||||||||
Reduced rate loans: | ||||||||||||||||||||
United Kingdom | 4 | 4 | 4 | 6 | 6 | |||||||||||||||
Other European Union | – | – | – | – | – | |||||||||||||||
United States | – | – | – | – | – | |||||||||||||||
Rest of the World | – | 2 | 1 | – | 2 | |||||||||||||||
Total | 4 | 6 | 5 | 6 | 8 | |||||||||||||||
Total non-performing loans: | ||||||||||||||||||||
United Kingdom | 3,311 | 3,337 | 2,963 | 2,749 | 2,105 | |||||||||||||||
Other European Union | 231 | 173 | 140 | 204 | 183 | |||||||||||||||
United States | 383 | 744 | 317 | 121 | 85 | |||||||||||||||
Rest of the World | 230 | 272 | 451 | 303 | 236 | |||||||||||||||
Total | 4,155 | 4,526 | 3,871 | 3,377 | 2,609 | |||||||||||||||
Potential problem loans
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
United Kingdom | 1,139 | 994 | 968 | 728 | 648 | |||||||||||||||
Other European Union | 23 | – | 2 | 2 | 23 | |||||||||||||||
United States | 259 | 241 | 369 | 313 | 5 | |||||||||||||||
Rest of the World | 56 | 69 | 63 | 64 | 35 | |||||||||||||||
Total | 1,477 | 1,304 | 1,402 | 1,107 | 711 | |||||||||||||||
Interest forgone on non-performing loans
Ratios of provisions to non-performing loans and potential credit risk lendings appear in the next section on page 47, following the discussion of provisions.
40
Risk Management
Provisions for Badbad and Doubtful Debtsdoubtful debts
Provisions for Bad and Doubtful Debts
Barclays policy is to provide for credit losses when it considers that recovery is doubtful. Risk managers continuously review the quality of the exposures and make provisions where necessary, based on their knowledge of the customer or counterparty, and developments in the industry and country of operation.
Provisioning approach
Total provisions are comprised of two components, specific provisions and general provisions.
Specific provisionsProvisionsare raised when the Group considers that the creditworthiness of a borrower has deteriorated such that recovery of the whole or part of an outstanding advance is in serious doubt.
• | Within the retail businesses, where the portfolio comprises large numbers of homogeneous assets, statistical techniques are used to raise specific provisions for each product portfolio, based on delinquency data and historical recovery rates. These provisions are updated | |
monthly. | ||
• | Small business accounts with straightforward loans contracts up to about | |
methods. | ||
• | For |
General provisionsreflect losses that, although not specifically identified, are known from experience to be present in the lending portfolio at the balance sheet date. These provisions are adjusted at least half yearly by an appropriate charge or release.
General provisions are also created with respect to the recoverability of assets arising from off-balance sheet exposures and country transfer risk, all prepared in a manner consistent with the general provisioning methodology.
Write-off occurs immediately when, and to the extent that, the whole or part of a debt is considered irrecoverable.
See also page 92 (Critical Accounting estimates) and page 103 (Accounting policies: loans and advances) for a description of relevant terms and policies.
Provisions charge over ten years
Provisions charge over ten years as a percentage of the banking book
The provisions charge fell 9% (£137m) to £1,347m (2002: £1,484m). Provisions excluding the impact of Transition Businesses, mainly Argentina in 2002, fell 3% (£36m) to £1,324m (2002: £1,360m).
Business Banking provisions increased broadly in line with portfolio growth. Provisions fell in Barclays Capital reflecting the ongoing improvement in the loan book and the continued recovery in the large corporate credit environment.
Provisions fell in Personal Financial Services with an improvement in the quality of the loan portfolio and improved risk management. The reduction occurred in the unsecured lending portfolio. Provisions charges for mortgages remained at a very low rate. Barclaycard provisions increased in line with continued portfolio growth.
Further details appear in the analysis of results by business starting on page 78.
Barclays PLC Annual Report 2003 41
Risk ManagementProvisions for Bad and Doubtful Debts
Analysis of the provisions charges for bad and doubtful debts
Year ended 31st December | ||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Net specific provisions charge/(release) | ||||||||||||||||||||
United Kingdom | 1,132 | 1,041 | 964 | 688 | 568 | |||||||||||||||
Other European Union | 37 | 14 | 20 | 12 | 1 | |||||||||||||||
United States(a) | 84 | 385 | 136 | 17 | 34 | |||||||||||||||
Rest of the World | 67 | 46 | 45 | 60 | 32 | |||||||||||||||
Total net specific provisions charge | 1,320 | 1,486 | 1,165 | 777 | 635 | |||||||||||||||
General provisions charge/(release) | 27 | (2 | ) | (16 | ) | 40 | (14 | ) | ||||||||||||
Total | 1,347 | 1,484 | 1,149 | 817 | 621 | |||||||||||||||
Bad debt provisions charge ratios (‘Loan loss ratios’)
Year ended 31st December | ||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
% | % | % | % | % | ||||||||||||||||
Provisions charge as a percentage of average banking loans and advances for the year: | ||||||||||||||||||||
Specific provisions | 0.71 | 0.85 | 0.74 | 0.64 | 0.60 | |||||||||||||||
General provisions | 0.02 | – | (0.01 | ) | 0.03 | (0.02 | ) | |||||||||||||
0.73 | 0.85 | 0.73 | 0.67 | 0.58 | ||||||||||||||||
Amounts written off (net of recoveries) | 0.74 | 0.64 | 0.53 | 0.47 | 0.52 | |||||||||||||||
Provisions charge as a percentage of average loans and advances for the year (including trading business): | ||||||||||||||||||||
Specific provisions | 0.46 | 0.58 | 0.52 | 0.44 | 0.43 | |||||||||||||||
General provisions | 0.01 | – | – | 0.02 | (0.01 | ) | ||||||||||||||
Total | 0.47 | 0.58 | 0.52 | 0.46 | 0.42 | |||||||||||||||
Amounts written off (net of recoveries) | 0.48 | 0.43 | 0.37 | 0.32 | 0.38 | |||||||||||||||
42
Provisions charge analysis
Provision balances
Analysis of provision balances for bad and doubtful debts
As at 31st December | ||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Specific provisions | ||||||||||||||||||||
United Kingdom | 1,856 | 1,790 | 1,605 | 1,343 | 1,083 | |||||||||||||||
Other European Union | 97 | 84 | 89 | 112 | 131 | |||||||||||||||
United States(a) | 121 | 257 | 89 | 20 | 23 | |||||||||||||||
Rest of the World | 159 | 130 | 188 | 118 | 74 | |||||||||||||||
Total specific provisions | 2,233 | 2,261 | 1,971 | 1,593 | 1,311 | |||||||||||||||
General provisions | 795 | 737 | 745 | 760 | 672 | |||||||||||||||
Total provisions | 3,028 | 2,998 | 2,716 | 2,353 | 1,983 | |||||||||||||||
Average loans and advances for the year (excluding trading business) | 184,765 | 174,764 | 157,904 | 122,333 | 106,488 | |||||||||||||||
(including trading business) | 285,963 | 256,789 | 223,221 | 176,938 | 147,139 | |||||||||||||||
Barclays PLC Annual Report 2003 43
Risk ManagementProvisions for Bad and Doubtful Debts
Provisions balance ratios
As at 31st December | ||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
% | % | % | % | % | ||||||||||||||||
Excluding trading business | ||||||||||||||||||||
Provisions balance at end of year as a percentage of loans and advances at end of year: | ||||||||||||||||||||
Specific provisions | 1.19 | 1.29 | 1.22 | 1.06 | 1.19 | |||||||||||||||
General provisions | 0.42 | 0.42 | 0.46 | 0.51 | 0.61 | |||||||||||||||
1.61 | 1.71 | 1.68 | 1.57 | 1.80 | ||||||||||||||||
Including trading business | ||||||||||||||||||||
Provisions balance at end of year as a percentage of loans and advances at end of year: | ||||||||||||||||||||
Specific provisions | 0.77 | 0.86 | 0.85 | 0.79 | 0.83 | |||||||||||||||
General provisions | 0.27 | 0.28 | 0.32 | 0.38 | 0.42 | |||||||||||||||
1.04 | 1.14 | 1.17 | 1.17 | 1.25 | ||||||||||||||||
Treatment of interest on debts that have specific provisions –
If the collection of interest is doubtful, it is credited to a suspense account and excluded from the interest income in the profit and loss account. Although interest continues to be charged to the customer’s account, the amount suspended is netted against the relevant loan. Loans on which interest is suspended are not reclassified as accruing interest until interest and principal payments are up-to-date and future payments are reasonably assured. If the collection of interest is considered remote, interest is no longer applied.
Treatment of collateral assets acquired in exchange for advances –
Assets acquired in exchange for advances in order to achieve an orderly realisation continue to be reported as advances. The assets acquired are recorded at the carrying value of the original advance as at the date of the exchange and any impairment is accounted for as a specific provision.
MovementsGeneral Provisionsreflect losses that, although not specifically identified, are known from experience to be present in the lending portfolio at the balance sheet date. These provisions are adjusted at least half yearly by an appropriate charge or release.
General provisions are also created with respect to the recoverability of assets arising from off-balance sheet exposures and country transfer risk, all prepared in a manner consistent with the general provisioning methodology.
Write-off occurs when, and to the extent that, the whole or part of a debt is considered irrecoverable.
See also page 80 (Critical Accounting estimates) and page 112 (Accounting policies: loans and advances) for a description of relevant terms and policies.
The credit environment both in retail and in corporate and wholesale businesses was relatively benign in 2004. This led to a lower level of potential problem and non-performing loans and lower provision charges.
Overall, the Group provision charge declined 19% to £1,091m (2003: £1,347m). This resulted from a substantial decrease in the corporate and wholesale provisions charge, while the retail provisions charge was steady. As a percentage of average banking loans and advances, the provisions rate fell to 0.54% (2003: 0.73%).
In the corporate and wholesale businesses, non-performing and potential problem loans in total fell by 29% to £2,062m from £2,920m in 2003, reflecting the continuing strong corporate credit environment. The corporate and wholesale provisions charge declined to £284m (2003: £543m). The reduction in the provisions charge included an exceptional recovery of £57m in UK Business Banking.
In retail, non-performing loans and potential problem loans remained steady at £2,679m (2003: £2,712m). The provisions charge in the retail businesses was also steady at £807m (2003: £804m). The provisions charge increased in Barclaycard (the card and unsecured consumer lending business) due to volume growth and the maturation of new customer recruitment. The provisions charge included a release of £40m associated with the UK mortgage business, following a review of the portfolio and the current loss experience.
43
Risk management
Provisions for bad and doubtful debts
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Provisions balance at beginning of year | 2,998 | 2,716 | 2,353 | 1,983 | 1,943 | |||||||||||||||
Acquisitions and disposals | 62 | (11 | ) | 46 | 119 | (10 | ) | |||||||||||||
Exchange and other adjustments | (18 | ) | (77 | ) | (1 | ) | 4 | (13 | ) | |||||||||||
Amounts written off | (1,474 | ) | (1,220 | ) | (973 | ) | (683 | ) | (651 | ) | ||||||||||
Recoveries | 113 | 106 | 142 | 113 | 93 | |||||||||||||||
Provisions charged against profit | 1,347 | 1,484 | 1,149 | 817 | 621 | |||||||||||||||
Provisions balance at end of year | 3,028 | 2,998 | 2,716 | 2,353 | 1,983 | |||||||||||||||
The chart below shows provisions charges over the last ten years. The charge has fallen from its peak in 2002 even though the loan book has grown substantially.
Provisions charges over ten years
(See also Table 20 on page 66 and Table 21 on page 66.)
(See also Table 20 on page 66.)
During 2004, £198m was transferred from the general provisions stock to specific provisions stock. These transfers are included in the release of general provisions and increase the new and increased specific provisions. The transfers reflect enhancements to provisioning models and the resolution of an individual large corporate exposure. The transfers had no effect on the net provisions charge.
44
A geographical
Barclays PLC Annual Report 2004
(See also Table 22 on page 67.)
Total provision balances declined 9% (£262m) over the prior year.
While the specific provisions balance has remained broadly flat during 2004, the year-end general provision stock decreased by 29% (£231m) to £564m (2003: £795m) as explained on the previous page.
An analysis of the values in this summary table followsmovements in the next three tables.provision balances is shown in the following chart.
44
Amounts written off
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
United Kingdom | (1,175 | ) | (950 | ) | (814 | ) | (595 | ) | (546 | ) | ||||||||||
Other European Union | (54 | ) | (31 | ) | (36 | ) | (45 | ) | (44 | ) | ||||||||||
United States | (215 | ) | (215 | ) | (94 | ) | (26 | ) | (40 | ) | ||||||||||
Rest of the World | (30 | ) | (24 | ) | (29 | ) | (17 | ) | (21 | ) | ||||||||||
Total amounts written off | (1,474 | ) | (1,220 | ) | (973 | ) | (683 | ) | (651 | ) | ||||||||||
Recoveries
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
United Kingdom | (95 | ) | (88 | ) | (106 | ) | (100 | ) | (85 | ) | ||||||||||
Other European Union | (7 | ) | (7 | ) | (5 | ) | (6 | ) | (4 | ) | ||||||||||
United States | (10 | ) | (9 | ) | (27 | ) | (4 | ) | (4 | ) | ||||||||||
Rest of the World | (1 | ) | (2 | ) | (4 | ) | (3 | ) | – | |||||||||||
Total recoveries | (113 | ) | (106 | ) | (142 | ) | (113 | ) | (93 | ) | ||||||||||
Provisions charged against profit
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
New and increased specific provisions: | ||||||||||||||||||||
United Kingdom | 1,373 | 1,210 | 1,157 | 843 | 768 | |||||||||||||||
Other European Union | 57 | 33 | 35 | 35 | 27 | |||||||||||||||
United States | 118 | 404 | 173 | 27 | 45 | |||||||||||||||
Rest of the World | 80 | 72 | 75 | 76 | 47 | |||||||||||||||
1,628 | 1,719 | 1,440 | 981 | 887 | ||||||||||||||||
Releases of specific provisions: | ||||||||||||||||||||
United Kingdom | (146 | ) | (81 | ) | (87 | ) | (55 | ) | (115 | ) | ||||||||||
Other European Union | (13 | ) | (12 | ) | (10 | ) | (17 | ) | (22 | ) | ||||||||||
United States | (24 | ) | (10 | ) | (10 | ) | (6 | ) | (7 | ) | ||||||||||
Rest of the World | (12 | ) | (24 | ) | (26 | ) | (13 | ) | (15 | ) | ||||||||||
(195 | ) | (127 | ) | (133 | ) | (91 | ) | (159 | ) | |||||||||||
Recoveries | (113 | ) | (106 | ) | (142 | ) | (113 | ) | (93 | ) | ||||||||||
Net specific provisions charge | 1,320 | 1,486 | 1,165 | 777 | 635 | |||||||||||||||
General provision charge/(release)(a) | 27 | (2 | ) | (16 | ) | 40 | (14 | ) | ||||||||||||
Net charge to profit | 1,347 | 1,484 | 1,149 | 817 | 621 | |||||||||||||||
(a) |
Total provisions for bad and doubtful debts at end of year comprise:
As at 31st December | ||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Specific provisions | ||||||||||||||||||||
United Kingdom | 1,856 | 1,790 | 1,605 | 1,343 | 1,083 | |||||||||||||||
Other European Union | 97 | 84 | 89 | 112 | 131 | |||||||||||||||
United States | 121 | 257 | 89 | 20 | 23 | |||||||||||||||
Rest of the World | 159 | 130 | 188 | 118 | 74 | |||||||||||||||
Total specific provisions | 2,233 | 2,261 | 1,971 | 1,593 | 1,311 | |||||||||||||||
General provisions | 795 | 737 | 745 | 760 | 672 | |||||||||||||||
3,028 | 2,998 | 2,716 | 2,353 | 1,983 | ||||||||||||||||
Barclays PLC Annual Report 2003 45
Risk ManagementProvisions for Bad and Doubtful Debts
Specific provisions charges and balances for bad and doubtful debts by industry
Net specific provision charged for the year | Specific provisions balance as at 31st December | |||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||
United Kingdom: | ||||||||||||||||||||||||||||||||||||||||
Banks and other financial institutions | 13 | 1 | (2 | ) | 7 | 10 | 12 | 1 | 5 | 7 | 9 | |||||||||||||||||||||||||||||
Agriculture, forestry and fishing | (3 | ) | (1 | ) | 6 | 6 | 4 | 5 | 7 | 13 | 11 | 7 | ||||||||||||||||||||||||||||
Manufacturing | 79 | 80 | 62 | 8 | 4 | 58 | 98 | 49 | 43 | 48 | ||||||||||||||||||||||||||||||
Construction | (23 | ) | 41 | 12 | 7 | 4 | 7 | 35 | 6 | 8 | 7 | |||||||||||||||||||||||||||||
Property | (3 | ) | 8 | 3 | 1 | (5 | ) | 3 | 9 | 8 | 8 | 8 | ||||||||||||||||||||||||||||
Energy and water | 13 | 22 | 1 | 8 | – | 27 | 28 | 10 | 8 | 2 | ||||||||||||||||||||||||||||||
Wholesale and retail distribution and leisure | 38 | 37 | 44 | 21 | 34 | 52 | 54 | 60 | 42 | 42 | ||||||||||||||||||||||||||||||
Transport | 100 | 7 | 6 | 2 | 4 | 103 | 7 | 6 | 4 | 4 | ||||||||||||||||||||||||||||||
Communications | 1 | 16 | 1 | – | – | 15 | 15 | 1 | 1 | 1 | ||||||||||||||||||||||||||||||
Business and other services | 76 | 62 | 75 | 27 | 14 | 121 | 92 | 77 | 40 | 34 | ||||||||||||||||||||||||||||||
Home loans | 9 | 4 | 8 | 10 | 5 | 55 | 53 | 60 | 61 | 39 | ||||||||||||||||||||||||||||||
Other personal | 757 | 748 | 782 | 577 | 504 | 1,359 | 1,343 | 1,252 | 1,041 | 830 | ||||||||||||||||||||||||||||||
Overseas customers | 66 | 13 | (34 | ) | 6 | (22 | ) | 24 | 39 | 52 | 58 | 41 | ||||||||||||||||||||||||||||
Finance lease receivables | 9 | 3 | – | 8 | 12 | 15 | 9 | 6 | 11 | 11 | ||||||||||||||||||||||||||||||
1,132 | 1,041 | 964 | 688 | 568 | 1,856 | 1,790 | 1,605 | 1,343 | 1,083 | |||||||||||||||||||||||||||||||
Foreign | 188 | 445 | 201 | 89 | 67 | 377 | 471 | 366 | 250 | 228 | ||||||||||||||||||||||||||||||
1,320 | 1,486 | 1,165 | 777 | 635 | 2,233 | 2,261 | 1,971 | 1,593 | 1,311 | |||||||||||||||||||||||||||||||
Analysis of amounts written off and recovered by industry | ||||||||||||||||||||||||||||||||||||||||
Amounts written off for the year | Recoveries of amounts previously written off | |||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||
United Kingdom: | ||||||||||||||||||||||||||||||||||||||||
Banks and other financial institutions | 14 | 2 | 3 | 13 | 14 | 12 | – | 3 | 4 | 2 | ||||||||||||||||||||||||||||||
Agriculture, forestry and fishing | – | 4 | 7 | 6 | 6 | 1 | 2 | 2 | 2 | 3 | ||||||||||||||||||||||||||||||
Manufacturing | 126 | 72 | 65 | 30 | 20 | 8 | 22 | 11 | 16 | 12 | ||||||||||||||||||||||||||||||
Construction | 19 | 15 | 16 | 8 | 12 | 14 | 3 | 2 | 2 | 3 | ||||||||||||||||||||||||||||||
Property | 5 | 10 | 5 | 5 | 9 | 1 | 2 | 1 | 3 | 7 | ||||||||||||||||||||||||||||||
Energy and water | 15 | 4 | 1 | 2 | – | – | 1 | – | – | – | ||||||||||||||||||||||||||||||
Wholesale and retail distribution and leisure | 45 | 53 | 35 | 34 | 35 | 5 | 11 | 9 | 12 | 17 | ||||||||||||||||||||||||||||||
Transport | 5 | 7 | 4 | 3 | 4 | 1 | 1 | – | 1 | 1 | ||||||||||||||||||||||||||||||
Communications | 1 | 2 | – | – | 1 | – | – | – | – | – | ||||||||||||||||||||||||||||||
Business and other services | 58 | 65 | 57 | 33 | 43 | 11 | 13 | 9 | 11 | 12 | ||||||||||||||||||||||||||||||
Home loans | 11 | 11 | 14 | 15 | 3 | 3 | 1 | 4 | 3 | 2 | ||||||||||||||||||||||||||||||
Other personal | 790 | 692 | 599 | 435 | 363 | 38 | 31 | 29 | 28 | 24 | ||||||||||||||||||||||||||||||
Overseas customers | 82 | 9 | 2 | 7 | 31 | – | – | 35 | 17 | 1 | ||||||||||||||||||||||||||||||
Finance lease receivables | 4 | 4 | 6 | 4 | 5 | 1 | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||||||||
1,175 | 950 | 814 | 595 | 546 | 95 | 88 | 106 | 100 | 85 | |||||||||||||||||||||||||||||||
Foreign | 299 | 270 | 159 | 88 | 105 | 18 | 18 | 36 | 13 | 8 | ||||||||||||||||||||||||||||||
1,474 | 1,220 | 973 | 683 | 651 | 113 | 106 | 142 | 113 | 93 | |||||||||||||||||||||||||||||||
These tables have been prepared on the basis described on page 33.
46
Coverage ratios
Ratios
The coverage of non-performing loans by the Group’s stock of provisions and interest in suspense increaseddecreased from 68.0%71.5% at 31st December 20022003 to 74.1%70.4% at 31st December 2003.2004. Over the same period, coverage of potential credit risk lendingsloans (i.e. NPLs and PPLs) increased from 52.8%54.6% to 54.6%59.2%.
Total provisions45
Risk management
Provisions for bad and doubtful debts
Provisions coverage of non-performing loans
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
% | % | % | % | % | ||||||||||||||||
United Kingdom | 77.6 | 74.2 | 74.9 | 72.9 | 81.1 | |||||||||||||||
Other European Union | 71.4 | 61.8 | 78.6 | 72.1 | 94.5 | |||||||||||||||
United States | 39.2 | 43.7 | 61.8 | 81.0 | 74.1 | |||||||||||||||
Rest of the World | 83.9 | 61.8 | 59.2 | 64.7 | 50.4 | |||||||||||||||
Total coverage of non-performing loans | 74.1 | 68.0 | 72.1 | 72.4 | 79.1 | |||||||||||||||
Total provisions coverage of and potential credit risk lendingsloans (NPLs and PPLs)
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
% | % | % | % | % | ||||||||||||||||
United Kingdom | 57.7 | 57.2 | 56.4 | 57.7 | 62.0 | |||||||||||||||
Other European Union | 65.0 | 61.8 | 77.5 | 71.4 | 84.0 | |||||||||||||||
United States | 23.4 | 33.0 | 28.6 | 22.6 | 70.0 | |||||||||||||||
Rest of the World | 67.5 | 49.3 | 51.9 | 53.4 | 43.9 | |||||||||||||||
Total coverage of potential credit risk lending | 54.6 | 52.8 | 52.9 | 54.5 | 62.1 | |||||||||||||||
The general provision is allocated according to the characteristics of the loans in each geographic area.
(See also Table 32 on page 70.)
Another useful way of assessing provision balances is to recognise that specific provisions are created to cover non-performing loans, whereas general provisions relate to as yet unidentified losses on performing loans. The following table provides an analysisThis is shown in the next two charts.
Specific provisions coverage of provision balances on this basis.
Ratios of generalnon-performing loans and specific provision balances
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
% | % | % | % | % | ||||||||||||||||
Specific provisions coverage of non-performing loans | 53.7 | 50.0 | 50.9 | 47.2 | 50.2 | |||||||||||||||
General provisions coverage of performing loans (excluding trading book) | 0.43 | 0.43 | 0.47 | 0.52 | 0.62 | |||||||||||||||
General provisions coverage of performing loans (including trading book) | 0.28 | 0.28 | 0.33 | 0.38 | 0.43 | |||||||||||||||
The ratio of general provisions tocoverage of performing loans declined in 2000 and 2001 following the acquisition of Woolwich plc, a portfolio consisting predominantly of secured residential mortgage loans needing comparatively low general provisions.
(See also Table 33 on page 71.)
Performing loans comprise gross loans and advances less non-performing loans. All non-performingThe ratio of general provisions to performing loans has declined since 2000 following the acquisition of Woolwich Plc whose portfolio needs comparatively low general provisions as it consists predominantly of secured residential mortgage loans. It declined further in 2004 following transfers to specific provisions.
Write-offs
Debts are written off to the extent that there is no realistic prospect of a change in the customers’ condition, or where local conditions dictate, and the whole or part of the debt is considered irrecoverable.
Total write-offs increased to £1,595m (2003: £1,474m).
Provisioning under International Financial Reporting Standards
From 2005, the Group will prepare its accounts in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) as required under European Commission Regulation 1606/2002. This standard does not differentiate between specific and general provisions for bad and doubtful debts. Instead, provisions are replaced by an allowance for impairment. Thus the Group will not show distinct specific and general provisioning information in future reports but will report on the banking book.allowance for impairment instead.
46
Barclays PLC Annual Report 2003 472004
Risk Management
Market Risk Management
Market risk is the risk that the Group’s earnings or capital, or its ability to meet business objectives, will be adversely affected by changes in the level or volatility of market rates or prices such as interest rates, including credit spreads, foreign exchange rates, equity prices, and commodity prices.
The main market risks arise from the Group’s trading activities. Barclays is also exposed to non-trading market risks relating to the pension fund and, to a lesser extent, asset and liability management.
Categorisation of Market Risk
To facilitate the management, control, measurement and reporting of market risk, Barclays has grouped market risk into three broad categories:
• | Trading market risk These risks arise in trading transactions where Barclays acts as principal with clients or with the market. The Group’s policy is that market risks arising from trading activities are concentrated in Barclays Capital. | |
• | Asset and Liability risk These risks arise from banking activities, including those incurred on non-trading positions such as capital balances, demand deposits and customer originated transactions and flows. | |
• | Other market risks The Group also incurs market risks that do not fit into the above categories. The principal risks of this type are defined benefit pension scheme risk and asset management structural market risk (including the risk in Barclays Life Fund). |
Market risk managementRisk Management and control responsibilitiesControl Responsibilities
The market risk management policies ofBoard Risk Committee approves the Group are determined by the Group Risk Oversight Committee, which also recommends overall market risk appetite via the Group Executive Committee, to the Board Risk Committee.for all types of market risk. The Group’s policy is that the market risks associated with the Group’s business activities are clearly identified, assessed and controlled within agreed limits and that the market risks arising from trading activities are concentrated in Barclays Capital.
The Group Market Risk Director is responsible for the content, effectiveness and efficiency of the Group’s market risk control framework and, under delegated authority from the Risk Director and the Risk Oversight Committee, sets a limit framework within the context of the approved market risk appetite.
The Market Risk Director is assisted by a central market risk management team (Market Risk) and by risk management departments in the Group’s businesses and a centralbusinesses. A daily market risk management team. The Group Market Risk Director reports to the Group Financial Risk Director who reports to the Group Risk Director.
The Group Risk Oversight Committee allocates a total Daily Value at Risk (DVaR) limit for the Group and delegates the day-to-day control and monitoring of market risk to the Group Market Risk Director, who sets limits for each business area. To assist this process, a market risk report is produced daily which summarises the Group’s market risk exposures against agreed limits. Data for this report is supplied by the business areas. This daily report is sent to the Group Risk Director, the Group Financial Risk Director, the Group Market Risk Director, the Group Finance Director and the appropriate Business Risk Directors.
A more detailed market risk report is presentedThe Head of each monthbusiness, assisted by the Group Market Risk Director to the Group Risk Oversight Committee. This report brings to the attention of all Committee members current Group marketbusiness risk exposures and issues along with relevant background information.
Each business area of the Groupmanagement team, is accountable for identifying, measuring and managing all market risks associated with its activities. In managing market risk, businesses mustalso consider asset liquidity risk and funding liquidity risk where these issuesrelevant.
In Barclays Capital, the Head of Market Risk is responsible for the market risk governance and control framework. Day-to-day responsibility for market risk lies with the senior management of Barclays Capital, supported by the Global Market Risk Management team that operates independently of the trading areas. Daily market risk reports are relevant.produced for the main Barclays Capital business areas covering the five main risk factor categories, namely interest rate, credit spread, foreign exchange, equity and commodity risk. A more detailed trading market risk presentation is discussed at Barclays Capital’s Traded Products Risk Review meeting, held fortnightly. The attendees at this meeting include the senior managers from Barclays Capital and Market Risk.
Outside Barclays Capital, Treasury manages treasury market risk, strategic interest rate risk and structural interest rate risk. Retail market risk, a consequence of the UK banking operations, is managed by the Retail Market Risk team. In the Group’s non-UK banking operations, market risk is managed mainly by local treasuries supported by Market Risk. The chart overleaf gives an overview of the business control structure.
47
Risk management
Market risk management
Managing market risk – organisational overview
Market Risk Measurement
The measurement techniques used to measure and control market risk measurementinclude:
• | Daily Value at Risk; | |
• | Stress Tests; | |
• | Annual Earnings at Risk; | |
• | Economic capital. |
Daily Value at Risk (DVaR)Barclays uses DVaR as the primary mechanism for controlling market risk. DVaR is an estimate with a confidence level of 98%, of the potential loss which might arise from unfavourable market movements, if the current positions were to be held unchanged for one business day.day, measured to a confidence level of 98%. Daily losses exceeding the DVaR figure are likely to occur, on average, twice in every 100 business days.
In Barclays Capital, DVaR is an important market risk measurement tool. DVaR is calculated using the historical simulation method with a historical sample of two years. Barclays Capital’s interest rate DVaR methodology allows the measurement process to discriminate between the market risk of holding bonds of differing credit quality, for example AAA grade securities as against BBB grade securities. This is achieved by incorporating eight interest rate credit categories, these being government, interest rate swaps and six credit grades for non-government exposures. We have initiated an extension to this model to incorporate issuer specific risk. Outside Barclays Capital, DVaR is calculated using a simplified approach.
WhereThe effectiveness of the DVaR does not adequately measuremodel is assessed principally by back-testing which counts the number of days when trading-related losses are bigger than the estimated DVaR figure. Back-testing results are shown on page 50.
Stress Tests
Stress tests provide an indication of the potential size of losses that could arise in extreme conditions. The stress tests carried out by Barclays Capital include risk alternative methodsfactor stress testing where stress movements are used such asapplied to each of the five risk categories, namely interest rates, credit spreads, foreign exchange rates, and equity and commodity prices; emerging market stress testing where emerging market portfolios are subject to stress movements; and ad-hoc stress testing, which includes applying possible stress events to specific positions or regions e.g. the stress outcome to a region following a currency peg break.
If the potential stress loss exceeds the trigger limit, the positions captured by the stress test are reviewed and discussed by Capital Market Risk and the respective Business Head(s). The minutes of the discussion, including the merits of the position and the appropriate course of action, are then sent to the Market Risk Director for review.
48
Barclays PLC Annual Earnings at Risk. Report 2004
Outside Barclays Capital, stress testing is carried out by the business centres and is reviewed by the senior management and business-level asset and liability committees. The stress testing is tailored to the business and is typically scenario analysis and historical stress movements applied to respective portfolios.
Annual Earnings at Risk (AEaR)
AEaR measures the sensitivity of annual earnings to shocks in market rates at the 99th percentile for change over a one-yearone year period. This shock is consistent with the standardised interest rate shock recommended by the Basel II framework for assessing banking book interest rate risk.
To facilitate the identification, measurement, control and reporting of market risk, Barclays has categorised market risk into three broad categories as described below:
(i) Trading market riskTrading includes transactions where Barclays Capital acts as principal with clients or with the market. A detailed review of this riskAEaR is provided below.
(ii) Asset and liability managementThe Group encounters risks in managing its assets and liabilities. A detailed review of these risks is covered in the Treasury Asset and Liability Management section on pages 54used to 57.
(iii) Other market risksIn some instances, the Group incurs market risks that do not fit into the above categories. The principal risks of this type are asset managementmeasure structural interest rate market risk and defined benefit pension schemeAsset Management structural risk (see the Other Market Risks section (page 50) for more details).
Economic Capital
Economic capital methodologies are used to calculate risk sensitive capital allocations for businesses incurring market risk. These are covered below.Consequently, the businesses incur capital charges related to their market risk.
Trading Market Risk
As mentioned above, the
The Group’s policy is to concentrate trading activities in Barclays Capital. TradingThis includes transactions where Barclays Capital acts as principal with clients or with the market. For maximum efficiency, Barclays manages client and market activities together. In Barclays Capital, trading risk occurs in both the trading book and the banking book as defined for regulatory purposes.
In anticipation of future customer demand, the Group maintains access to market liquidity by quoting bid and offer prices with other market makers and carries an inventory of capital market and treasury instruments, including a broad range of cash, securities and derivatives. Trading positions and any offsetting hedges are established as appropriate to accommodate customer or Group requirements. Barclays Capital takes principal positions in the interest rate, credit spread, foreign exchange, equity and commodity markets based on expectations of customer demand or a change in market conditions.
Derivatives entered into for trading purposes include swaps, forward rate agreements, futures, credit derivatives, options and combinations of these instruments. For a description of the nature of derivative instruments, see page 53.
48
Risk controlIn Barclays Capital, the Head of Market Risk is responsible for the market risk governance and control framework. Day-to-day responsibility for managing exposure to market risk lies with the senior management of Barclays Capital, supported by the Global Market Risk Management Unit that operates independently of the trading areas. Daily DVaR utilisation reports are produced across the main business areas and the five main risk factor categories, namely interest rate, credit spread, foreign exchange, equity and commodity risk.
Any DVaR excess at the business level, risk factor level or total level, along with the relevant background information and proposed way forward, is reported to the senior management of Barclays Capital and the Group Market Risk Director. The Group Market Risk Director presents these DVaR excesses to the Group Risk Oversight Committee.
As DVaR does not provide a direct indication of the potential size of losses that could arise in extreme conditions, Barclays Capital uses a number of complementary techniques for controlling market risk. These include revenue loss triggers and stress tests. The latter are based on both historical and hypothetical extreme movements of market prices and are reviewed as part of the detailed market risk presentation at the fortnightly Traded Products Risk Review meetings. The attendees at this meeting include senior managers from Barclays Capital and Group Central Functions.
If the potential loss indicated by a stress test exceeds an agreed trigger level, then the positions captured by the stress test are reviewed and discussed by Barclays Capital Market Risk and the respective Business Head(s). The minutes of the discussion, including the merits of the position and the appropriate course of action, are then sent to the Group Market Risk Director.
Risk measurementBarclays Capital calculates DVaR using the historical simulation method with a historical sample of two years. As stated above, the calculation assumes a one-day holding period and is performed to the 98% level of confidence.
The DVaR methodology allows the interest rate risk (due to changes in the government interest rates) to be measured separately from credit spread risk (due to changes in credit spreads). The credit spread is the premium for holding a non-government investment, and is the difference between the total interest rate and the appropriate government interest rate, for the same maturity.
In total, the DVaR methodology maps interest rate risk into eight categories. These are government, interest rate swaps and six credit grades for non-government exposures. This categorisation allows the measurement process to discriminate between the market risk of holding bonds with different credit qualities, for example AAA grade securities as against non-investment grade securities. In particular, it shows the effectiveness of hedging strategies such as shorting government bonds or swaps against non-government bond portfolios.
The DVaR numbers shown in the table below are all based on the above methodology.57.
Analysis of market risk exposuresTrading Market Risk Exposures
The table below shows the DVaR statistics for Barclays Capital’s market risk exposure increased in 2003. The credit businesses incurred additional credit spread risk, primarily due to growing client business in corporate bondstrading activities (trading book and credit derivatives.
The daily average, maximum and minimum values of DVaR were estimated as below.banking book).
Barclays Capital DVaR: Summary table for 20032004 and 20022003
Twelve months to | Twelve months to | |||||||||||||||||||||||||||||||||||||||||||||||
Twelve months to | Twelve months to | 31st December 2004 | 31st December 2003 | |||||||||||||||||||||||||||||||||||||||||||||
31st December 2003 | 31st December 2002 | Average | High(a) | Low(a) | Average | High(a) | Low(a) | |||||||||||||||||||||||||||||||||||||||||
Average | High | (a) | Low | (a) | Average | High | (a) | Low | (a) | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||
Interest rate risk | 21.0 | 34.1 | 13.6 | 21.7 | 34.5 | 10.0 | 25.0 | 53.6 | 15.1 | 21.0 | 34.1 | 13.6 | ||||||||||||||||||||||||||||||||||||
Credit spread risk | 16.2 | 29.2 | 8.9 | 9.4 | 12.5 | 6.0 | 22.6 | 32.9 | 16.0 | 16.2 | 29.2 | 8.9 | ||||||||||||||||||||||||||||||||||||
Foreign exchange risk | 2.3 | 5.0 | 1.0 | 2.9 | 4.4 | 1.9 | 2.4 | 7.4 | 0.9 | 2.3 | 5.0 | 1.0 | ||||||||||||||||||||||||||||||||||||
Equities risk | 2.6 | 4.9 | 1.5 | 3.6 | 5.4 | 2.1 | 4.2 | 7.9 | 2.2 | 2.6 | 4.9 | 1.5 | ||||||||||||||||||||||||||||||||||||
Commodities risk | 4.4 | 7.0 | 2.2 | 1.8 | 3.3 | 0.8 | 6.0 | 14.4 | 2.2 | 4.4 | 7.0 | 2.2 | ||||||||||||||||||||||||||||||||||||
Diversification effect | (20.6 | ) | n/a | n/a | (16.2 | ) | n/a | n/a | (25.9 | ) | n/a | n/a | (20.6 | ) | n/a | n/a | ||||||||||||||||||||||||||||||||
Total DVaR(b) | 25.9 | 38.6 | 17.6 | 23.2 | 35.7 | 13.4 | 34.3 | 46.8 | 24.0 | 25.9 | 38.6 | 17.6 | ||||||||||||||||||||||||||||||||||||
(a) | The high (and low) DVaR figures reported for each category did not necessarily occur on the same day as the high (and low) DVaR reported as a whole. Consequently, a diversification effect number for the high (and low) DVaR figures would not be meaningful and is therefore omitted from the | |
(b) | The year-end |
Barclays PLC Annual Report 2003 49
Risk Managementmanagement
Market Risk Managementrisk management
TotalBarclays Capital’s market risk exposure, as measured by average total Daily Value at Risk, increased in 2004. This was due mainly to interest rate opportunities taken in the first half of 2004 and an increase in credit spread positions. The latter increase was primarily the result of growing client flows in corporate bonds and credit derivatives. The increase in total DVaR Daily exposures in 2002is consistent with Barclays Capital’s business expansion.
The graph below shows the history of total DVaR on a daily basis for 2003 and 20032004.
Analysis of Trading revenueRevenue
The histograms below show the distribution of market risk daily trading revenue for Barclays Capital in 20032004 and 2002. Market risk daily trading revenue2003. It includes all primary income (net fees and commissions) and secondary income (netdealing profits, net interest income and dealing profits).net fees and commissions relating to primary trading. The average daily revenue in 20032004 was £10.0m (2002: £8.7m)£12.5m (2003: £10.0m) and there were 246 positive revenue days out of 254 (2003: 244 positive revenue days out of 254 (2002: 238 positive revenue days out of 252)254).
Barclays Capital Trading Revenue 2003 (£m)
Barclays Capital Trading Revenue 2002 (£m)
Regulatory DVaR and back-testingBack-testingBarclays Capital’s DVaR model, along with the market risk management and control infrastructure, has been approved by the FSA under the internal model approach for calculating regulatory capital for general market risk. For regulatory DVaR, the methodology maps interest rate risk into one category (interest rate swaps), rather than the eight categories described above. Model recognition was first given in 1999.
Barclays recognises the importance of assessing the effectiveness of its DVaR model. The main approach employed is the technique known as back-testing, which counts the number of days when trading related losses are bigger than the estimated DVaR figure. The regulatory standard for back-testing is to measure DVaR assuming a one-dayone day holding period with a 99% level of confidence. For Barclays Capital’s regulatory trading book, there were no instances in 2004 or 2003, of a daily trading revenue loss exceeding the corresponding back-testing DVaR. In 2002, there were two instances.
Other Market Risks
Asset management structuraland Liability Market Risk
Interest rate exposures arising from mismatches of fixed rate assets and liabilities in UK banking operations are passed to Treasury. Treasury aggregates these positions and then passes the net position to the market riskAsset management structuralvia Barclays Capital. Due mainly to timing considerations, market risk can arise when some of the net position stays with Treasury. Similarly, market risk can arise due to the impact of interest rates on customer behaviour. The latter risk is managed and measured by the Retail Market Risk team using behavioural models. The positions are converted into wholesale swap or option exposures, passed to Treasury and managed by the process described above.
Structural interest rate risk that feearises from the variability of income from non-interest bearing products, managed variable rate products and commission income is affected by a change in equity market levels. It affects Barclays Private Clients’ assets under management, Barclays Life and Barclays Global Investors.the Group’s capital. This risk is measuredmanaged by Treasury, assisted by the Retail Market Risk team.
Market risk is also taken in overseas treasuries in support of customer activity. In Group terms the risk is modest. The market risks are managed by local treasury functions and managed using Annual Earnings atlocal asset and liability committees. Market Risk (AEaR) wheremaintains regular contact with the potential reduction in income is measured overbusinesses on treasury issues and oversees a year. For more detail on AEaR, see marketcomprehensive financial risk measurement on page 48. In 2003, Barclays Private Clients placed a series of hedges which reduced the market risk for 2003 and 2004.reporting framework.
Other Market Risks
Defined benefit pension scheme risk
Barclays maintains a number of defined benefit pension schemes for past and current employees. The ability of the pension fund to meet the projected pension payments is maintained through investments. Market risk arises because the estimated market value of the pension fund assets might decline or their investment returns might reduce or because the presentestimated value of the pension liabilities might increase. In these circumstances, Barclays might be required or might choose to make extra contributions to the pension fund. Financial details of the pension fund are on page 126.
Asset management structural market risk
Asset management structural market risk is the risk that fee and commission income is affected by a change in equity market levels. It affects Barclays Private Clients, Barclays Life and Barclays Global Investors. The risk is controlled and managed by the respective businesses and Barclays Market Risk.
50
Barclays PLC Annual Report 2004
Risk management
The Board Risk Committee has approved Board Governance Standards for capital and liquidity risk management that are high level statements of the controls required to meet the Group’s strategic objectives.
The Treasurer has established risk control frameworks and a policy and assurance structure to ensure that capital and liquidity risks are managed in accordance with the requirements of the Board Standards. Policies are set by the Treasury Committee which is chaired by the Group Finance Director.
Capital Risk Management
Capital risk is the risk that the Bank fails to comply with FSA mandated regulatory requirements, resulting in a breach of its minimum capital ratios and the possible suspension or loss of its banking licence. Capital risk also includes the risk that the capital base is not managed in a prudent manner thereby endangering the Group’s credit rating.
Barclays views its strong credit rating as a source of competitive advantage. A solid capital position, together with a diverse portfolio of activities, an increasingly international presence, consistent profit performance, prudent risk management and a focus on value creation, underpins that rating.
The Group’s capital management will continue to maximise shareholder value through optimising both the level and mix of its capital resources, seeking to:
• | meet the individual capital ratios required by our regulators; | |
• | maintain an AA credit rating; | |
• | generate sufficient capital to support asset growth and corporate activity; | |
• | manage the currency exposure to its overall Sterling Risk Asset ratio. |
Over the past four years, the Group’s tier 1 ratio has averaged 7.9%. The Group’s Risk Asset ratio has averaged 12.5% which compares favourably to the minimum requirements of our regulators.
(a) | Less supervisory deductions. |
Liquidity Risk Management
Liquidity management within the Group has several strands. The first is day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers. The Group maintains an active presence in global money markets to enable that to happen. The second is maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow. Finally, the ability to monitor, manage and control intraday liquidity in real time is recognised by the Group as a mission critical process: Any failure to meet specific intraday commitments would be a public event and may have an immediate impact on the Group’s reputation.
In overseas markets, day-to-day liquidity is the responsibility of local treasury management in each territory within the parameters set by Treasury and subject to regular reports to Treasury in order to maximise the benefits of knowledge gained. Local asset and liability management committees review liquidity management. These committees are comprised of senior local executives and – when warranted by the size and complexity of the operation – representatives of Treasury.
The ability to raise funds is in part dependent on maintaining the bank’s credit rating. The funding impact of a credit downgrade is regularly estimated. Whilst the impact of a single downgrade may affect the price at which funding is available, the effect on liquidity is not considered material in Group terms.
51
Risk ManagementmanagementDisclosures about Certain Trading Activities including Non-exchange Traded ContractsCapital and liquidity risk management
Liquidity Risk Measurement
In addition to cash flow management, Treasury also monitors unmatched medium-term assets and the level and type of undrawn lending commitments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit and guarantees.
Treasury develops and implements the process for submitting the Group’s projected cash flows to stress scenarios. The US Securitiesoutput of stress testing informs the Group’s contingency funding plan. This is maintained by Treasury and Exchange Commission requires disclosures relatingis aligned with the Group and country business resumption plans to encompass decision-making authorities, internal and external communication and, in the event of a systems failure, the restoration of liquidity management and payment systems.
Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, provider, product and term. Whilst 2004 saw relatively stable markets, with no significant consequences for the Group’s liquidity, significant market events over recent years including corporate scandals contributed to a short-term flight to quality in financial markets from which Barclays benefited.
An important source of structural liquidity is provided by our core retail deposits in the UK and Europe, mainly current accounts and savings accounts. Although current accounts are repayable on demand and savings accounts at short notice, the Group’s broad base of customers – numerically and by depositor type – helps to protect against unexpected fluctuations. Such accounts form a stable funding base for the Group’s operations and liquidity needs.
To avoid reliance on a particular group of customers or market sectors, the distribution of sources and the maturity profile of deposits are also carefully managed. Important factors in assuring liquidity are competitive rates and the maintenance of depositors’ confidence. Such confidence is based on a number of factors including the Group’s reputation, the strength of earnings and the Group’s financial position.
Securitisation represents a relatively modest proportion of the Group’s current funding profile, but provides additional flexibility. The Group has a large residential mortgage portfolio which could be securitised and hence forms a large – and as yet untapped – source of liquidity.
For further details see contractual cash obligations and commercial commitments of the Group on page 53.
52
Barclays PLC Annual Report 2004
Table A: Contractual Obligations
Payments due by period | ||||||||||||||||||||
Less than | One to | Four to | After | Total | ||||||||||||||||
one | three | five | five | |||||||||||||||||
year | years | years | years | |||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Long-term debt | 46,101 | 9,841 | 8,472 | 9,520 | 73,934 | |||||||||||||||
Capital lease obligations | 100 | 93 | 121 | 39 | 353 | |||||||||||||||
Operating lease obligations | 243 | 416 | 366 | 1,657 | 2,682 | |||||||||||||||
Purchase obligations | 296 | 493 | 193 | 103 | 1,085 | |||||||||||||||
Other long-term liabilities | 352 | – | – | – | 352 | |||||||||||||||
Total | 47,092 | 10,843 | 9,152 | 11,319 | 78,406 | |||||||||||||||
Table B: Other Commercial Commitments
Amount of commitment expiration per period | ||||||||||||||||||||
Less than | One to | Four to | After | Total | ||||||||||||||||
one | three | five | five | amounts | ||||||||||||||||
year | years | years | years | committed | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Acceptances and endorsements | 294 | 9 | – | – | 303 | |||||||||||||||
Guarantees and assets pledged as collateral security | 24,614 | 2,088 | 1,744 | 1,565 | 30,011 | |||||||||||||||
Other contingent liabilities | 6,227 | 1,156 | 379 | 483 | 8,245 | |||||||||||||||
Arising out of sale and option to resell transactions | 1 | – | – | – | 1 | |||||||||||||||
Documentary credits and other short-term trade related transactions | 506 | 13 | 1 | 2 | 522 | |||||||||||||||
Forward asset purchases and forward forward deposits placed | 9 | – | – | 46 | 55 | |||||||||||||||
Undrawn formal standby facilities, credit lines and other commitments to lend | 97,710 | 14,688 | 17,762 | 3,313 | 133,473 | |||||||||||||||
53
Risk management
Operational and business risks are inherent in Barclays operations and are typical of any large enterprise.
Operational Riskis the risk of direct or indirect losses resulting from inadequate or failed internal processes or systems, human factors, or from external events. Major sources of operational risk include: operational process reliability, IT security, outsourcing of operations, dependence on key suppliers, implementation of strategic change, integration of acquisitions, fraud, error, customer service quality, regulatory compliance, recruitment, training and retention of staff, and social and environmental impacts.
Business Riskis the risk of adverse outcomes resulting from a weak competitive position or from poor choice of strategy, markets, products, activities or structures. Major potential sources of business risk include: revenue volatility due to factors such as macro-economic conditions; inflexible cost structures; uncompetitive products or pricing; and structural inefficiencies.
Barclays is committed to the advanced management of operational and business risks. In particular, we are implementing advanced management and measurement approaches for operational risk to strengthen control, improve customer service and minimise operating losses.
It is not cost effective to attempt to eliminate all operational and business risks and in any event it would not be possible to do so. Events of small significance are expected to occur and are accepted as inevitable; events of material significance are rare and the Group seeks to reduce the risk from these in a framework consistent with its agreed risk appetite.
Responsibility for and Control of Operational Risk
Responsibility for implementing and overseeing these policies is to be found throughout the organisation as follows:
• | The prime responsibility for the management of operational risk and the compliance with Board Governance Standards rests with the business and functional units where the risk arises. Front-line risk managers are widely distributed throughout the Group in business units. They service and support these areas assisting line managers in managing these risks. | |
• | Business Risk Directors in each business are responsible for overseeing the implementation of and compliance with Group policies. |
• | Governance and Control Committees in each business monitor control effectiveness. The Governance and Control Committee receives reports from the committees in the businesses and considers Group-wide control issues and their risk mitigation. | |
• | A Standard Owner agrees responsibility for each Board Governance Standard, agrees policy and provides advice to business managers Group-wide. Each monitors and reports upon the application of their Standard. | |
• | In the corporate centre, the Operational Risk Director oversees the range of operational risks across the Group in accordance with the Group Operational Risk Framework. | |
• | The Internal Audit function provides assurance for operational risk control across the organisation and reports to the Board and senior management. |
The Management and Measurement of Operational Risk
Risk Assessment– A consistent approach to the identification and assessment of key risks and controls is undertaken across all business units. Scenario analysis and self-assessment techniques are widely used by business management for risk identification and for evaluation of control effectiveness and monitoring capability. Business management determines whether particular risks are effectively managed within business risk appetite and otherwise take remedial action. The risk assessment process is consistent with COSO principles.
Risk Event Data Collection and Reporting– A standard process is used Group-wide for the recognition, capture, assessment, analysis and reporting of risk events. This process is used to identify where process and control requirements are needed to reduce the recurrence of risk events. Risk events are loaded onto a central database and reported monthly to the Risk Oversight Committee.
Barclays also uses a database of external public risk events to assist in risk identification and assessment.
Reporting– Business units are required to report on both a regular and an event-driven basis. The reports include a profile of the key risks to their business objectives, control issues of Group-level significance, and operational risk events. Specific reports are prepared on a regular basis for the Risk Oversight Committee, the Board Risk Committee and the Board Audit Committee. In particular the Group Operational Risk Profile Report is provided quarterly to the Risk Oversight Committee.
Economic Capital– Methodologies are used for both operational and business risks to calculate risk sensitive capital allocations. These are allocated to business units which incur risk-based capital charges, as a consequence, providing an incentive to manage the risk within appetite levels. Additional investment is being made to enhance the Operational Risk Capital model to improve risk sensitivity and to obtain approval to apply the Advanced Measurement Approach (AMA) under the Basel II Accord when that option first becomes available in 2008.
54
Barclays PLC Annual Report 2004
Risk management
The Group delivers a fully integrated service to clients for base metals, precious metals, energy products (covering US natural gas, oil and oil-related products) and Europeanproducts, power and gas through Barclays Capital.and other commodities.
The Group offers both over the counter (OTC) and exchange traded derivatives in these commodities. The base and precious metals business also enters into outright metal purchase and salessale transactions, as well aswhile the associated ‘over the counter’ (OTC) and exchange traded derivatives. The energy business deals in commodity derivative contracts but does not maintain any physical exposures. Structured products are also developed and offered in respect of energy, base and precious metal and power and gas commodities. The European power and gas business trades both physical forwards and derivative contracts.
The Group does not maintain any physical exposures in oil or oil-related products. The Group also develops and offers a range of commodity-related structured products.
The Group’s commodity business continues to expand, as market conditions allow, both through the addition of new products and markets in European power and gas, and the continuing growth in the existing metals and energy trading volumes.markets.
The Group’s principal commodity related derivative contracts are swaps, options, forwards and futures, which are similar in nature to such non-commodity related contracts. Commodity derivatives contracts include commodity specification and delivery location as well as forward date and notional values.value.
The fair values of commodity physical and derivative positions are determined through a combination of recognised market observable prices, exchange prices and established inter-commodity relationships. In common with all derivatives, the fair value of OTC commodity derivative contracts is either determined using a quoted market price or by using valuation models. Where a valuation model is used, the fair value is determined based on the expected cash flows under the terms of each specific contract, discounted back to present value. The expected cash flows for each contract are either determined using market parameters such as commodity price curves, commodity volatilities, commodity correlations, interest rate yield curves and foreign exchange rates, or derived from historical or other market prices.
Fair values generated by models are independently validated with reference to market price quotes, or price sharing with other institutions. However, where no observable market parameter is available then instrument fair value will include a provision for the uncertainty in that parameter based on sale price or subsequent traded levels.
Discounting of expected cash flows back to present value is achieved by constructing discount curves from the market price of observable interest rate products, such as deposits, interest rate futures and swaps. In addition, the Group maintains fair value adjustments reflecting the cost of credit risk (where this is not embedded in the fair value), future administration costs associated with ongoing operational support of products, the cost of exiting illiquid or significant positions, as well asand the cost of trading out of a position (all positions are marked to mid-market and hence thesome bid/offer transaction cost would be incurred).
The tables on page 5256 analyse the overall fair value of the commodity derivative contracts by movement over time and source of fair value. Additionally, the positive fair value, adjusted for the impact of netting, of such contracts is analysed by counterparty credit risk rating.
Barclays PLC Annual Report 2003 51
55
Risk Managementmanagement
Disclosures about Certain Trading Activitiescertain trading activities including Non-exchange Traded Contractsnon-exchange traded contracts
The following tables analyse the overall fair value of the commodity derivative contracts by movement over time and source of fair value. As at 31st December 20032004 this reflects a gross positive fair value of £1,982m£4,955m (31st December 2002: £701m)2003: £1,982m) and a gross negative fair value of (£2,088m)£4,780m (31st December 2002:(£661m))2003: £2,088m). Realised and unrealised profits related to physical commodity and commodity derivative activities are included withinwith dealing profits. Physical commodity positions are held at fair value and reported withinwith other assets in Note 2321 on page 128.142.
Movement in fair value of commodity derivative positions
Total | Total | |||||||||||||||||||||||||||
Total | Total | 2004 | 2003 | |||||||||||||||||||||||||
2003 | 2002 | £m | £m | |||||||||||||||||||||||||
£m | £m | |||||||||||||||||||||||||||
Fair value of contracts outstanding at the beginning of the year | 40 | (45 | ) | (106 | ) | 40 | ||||||||||||||||||||||
Contracts realised or otherwise settled during the year | (8 | ) | 25 | 171 | (8 | ) | ||||||||||||||||||||||
Fair value of new contracts entered into during the year | (101 | ) | 50 | 313 | (101 | ) | ||||||||||||||||||||||
Other changes in fair value | (37 | ) | 10 | (203 | ) | (37 | ) | |||||||||||||||||||||
Fair values of contracts outstanding at the end of the year | (106 | ) | 40 | 175 | (106 | ) | ||||||||||||||||||||||
Source of commodity derivative fair values
Fair value of contracts at 31st December 2004 | ||||||||||||||||||||||||||||||||||||||||||
Fair value of contracts at 31st December 2003 | Maturity | Maturity | Maturity | Maturity | Total | |||||||||||||||||||||||||||||||||||||
Maturity | Maturity | Maturity | Maturity | Total | less than | one to | four to | over | fair | |||||||||||||||||||||||||||||||||
less than | one to | four to | over | fair | one year | three years | five years | five years | value | |||||||||||||||||||||||||||||||||
one year | three years | five years | five years | value | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||
Prices actively quoted | (103 | ) | 44 | 13 | (74 | ) | (120 | ) | (38 | ) | 86 | 16 | 17 | 81 | ||||||||||||||||||||||||||||
Prices provided by other external sources | (1 | ) | – | – | – | (1 | ) | (8 | ) | – | – | – | (8 | ) | ||||||||||||||||||||||||||||
Prices based on models and other valuation methods | (11 | ) | 3 | 2 | 21 | 15 | (5 | ) | 63 | 23 | 21 | 102 | ||||||||||||||||||||||||||||||
Total | (115 | ) | 47 | 15 | (53 | ) | (106 | ) | (51 | ) | 149 | 39 | 38 | 175 | ||||||||||||||||||||||||||||
The following table analyses the positive fair value, adjusted for the impact of netting, arising on commodity derivative contracts. As at 31st December 2003,2004, this reflects a gross positive fair value of £1,982m£4,955m (31st December 2002: £701m)2003: £1,982m) adjusted for the Group’s ability to net amounts due to the same counterparties (31st December 2003: £864m,2004: £3,198m, 31st December 2002: £351m)2003: £864m).
Analysis of net positive commodity derivative fair value by counterparty credit risk rating
Total | Total | |||||||||||||||
Total | Total | value | value | |||||||||||||
value | value | 2004 | 2003 | |||||||||||||
2003 | 2002 | £m | £m | |||||||||||||
£m | £m | |||||||||||||||
A- to AAA | 792 | 147 | 1,004 | 792 | ||||||||||||
BBB- to BBB+ | 280 | 133 | 538 | 280 | ||||||||||||
BB+ and below | 46 | 70 | 215 | 46 | ||||||||||||
Total | 1,118 | 350 | 1,757 | 1,118 | ||||||||||||
AtAll credit exposures are actively managed by the Group. Refer to page 35 for more information on the Group’s approach to credit risk management. In particular, at 31st December 2003, 70%2004, 69% of all of the commodities credit exposure was to counterparties with cross asset class netting agreements, that is, netting agreements allowing exposure on commodities products to be reduced by amounts owed to the same counterparties in other asset classes. This percentage is consistent across the credit ratings applying to BBB+ and below as well as higher rated counterparties.
Additionally, collateral agreements are held with a majority of these same counterparties that allow collateral to be called against commodity exposures. All non-collateralised exposures are subject to credit limits, and credit or risk tendency reserves are created against these exposures if appropriate.
52
56
Barclays PLC Annual Report 2004
Risk management
Risk Management
The use of derivatives and their sale to customers as risk management products is an integral part of the Group’s trading activities. These instruments are also used to manage the Group’s own exposure to fluctuations in interest and exchange rates as part of its asset and liability management activities.
Barclays Capital manages the trading derivatives book as part of the market risk book. This includes foreign exchange, interest rate, equity, commodity and credit derivatives. The policies regarding market risk management are outlined in the market risk management section on pages 4847 to 50.
The policies for derivatives that are used to manage the Group’s own exposure to interest and exchange rate fluctuations are outlined in the treasury asset and liability management section on pages 54 to 57.page 50.
Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices defined in the contract. They include swaps, forward rate agreements, futures, options and combinations of these instruments and primarily affect the Group’s net interest income, dealing profits, commissions received and other assets and liabilities. Notional amounts of the contracts are not recorded on the balance sheet.
The Group participates both in exchange traded and OTC derivatives markets.
Exchange traded derivativesTraded Derivatives
Over the counter traded derivativesCounter Traded Derivatives (OTC)
These instruments range from commoditised transactions in derivative markets, to trades where the specific terms are tailored to the requirements of the Group’s customers. In many cases, industry standard documentation is used, most commonly in the form of a master agreement, with individual transaction confirmations. The existence of a signed master agreement is intended to give the Group protection in situations where a counterparty is in default, including the ability to net outstanding balances where the rules of offset are legally enforceable. For further explanation of the Group’s policies on netting, see Accounting policies on pages 101 to 106.page 114.
Foreign exchange derivativesExchange Derivatives
Currency options provide the buyer with the right, but not the obligation, either to purchase or sell a fixed amount of a currency at a specified exchange rate on or before a future date. As compensation for assuming the option risk, the option writer generally receives a premium at the start of the option period.
Interest rate derivativesRate Derivatives
An interest rate swap is an agreement between two parties to exchange fixed rate and floating rate interest by means of periodic payments based upon a notional principal amount and the interest rates defined in the contract. Certain agreements combine interest rate and foreign currency swap transactions, which may or may not include the exchange of principal amounts. A basis swap is a form of interest rate swap, in which both parties exchange interest payments based on floating rates, where the floating rates are based upon different underlying reference indices. In a forward rate agreement, two parties agree a future settlement of the difference between an agreed rate and a future interest rate, applied to a notional principal amount. The settlement, which generally occurs at the start of the contract period, is the discounted present value of the payment that would otherwise be made at the end of that period.
Equity derivativesDerivatives
Credit derivativesDerivatives
A credit default swap is a contract where the protection seller receives premium or interest related payments in return for contracting to make payments to the protection buyer upon a defined credit event. Credit events normally include bankruptcy, payment default on a reference asset or assets, andor downgrades by a rating agency.
A total return swap is an instrument whereby the seller of protection receives the full return of the asset, including both the income and change in the capital value of the asset. The buyer in return receives a predetermined amount.
A description of how credit derivatives are used within the Group is provided on pages 38 and 95.page 37.
A description of the impact of derivatives under US GAAP is set out on page 182.201.
Commodity derivativesDerivatives
A description of commodity derivatives is provided on page 51.55.
57
Risk management
Statistical and Other Risk Information
This section of the report contains supplementary information that is more detailed or contains longer histories than the data presented in the discussion. For commentary on this information, please refer to the preceding text (pages 28 to 57).
Credit Risk Management
Table 1: Risk Tendency by Business Cluster
2004 | 2003 | |||||||
£m | £m | |||||||
UK Banking | 375 | 385 | ||||||
UK Retail Banking UK Business Banking | 150 225 | 150 235 | ||||||
Private Clients and International | 70 | 75 | ||||||
Private Clients International | 5 65 | 5 70 | ||||||
Barclaycard | 860 | 775 | ||||||
Barclays Capital | 70 | 135 | ||||||
Transition Businesses | 20 | 20 | ||||||
Total | 1,395 | 1,390 | ||||||
(Also see chart on page 37.)
Table 2: Loans and advances
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Retail businesses | ||||||||||||
Banks Customers | | | 1,424 111,074 | | | | 1,495 100,774 | | | | 1,748 90,625 | |
Total retail businesses | 112,498 | 102,269 | 92,373 | |||||||||
Wholesale businesses | ||||||||||||
Banks Customers | 73,713 146,672 | 60,445 129,106 | 56,508 114,767 | |||||||||
Total wholesale businesses | 220,385 | 189,551 | 171,275 | |||||||||
Total | 332,883 | 291,820 | 263,648 | |||||||||
(Also see chart on page 38.)
Table 3: Loans and advances by banking and trading books
2004 | ||||||||||||
Customers | Banks | Total | ||||||||||
£m | £m | £m | ||||||||||
Banking book | 192,647 | 24,992 | 217,639 | |||||||||
Trading book | 65,099 | 50,145 | 115,244 | |||||||||
Total | 257,746 | 75,137 | 332,883 | |||||||||
2003 | ||||||||||||
Customers | Banks | Total | ||||||||||
£m | £m | £m | ||||||||||
Banking book | 170,919 | 17,270 | 188,189 | |||||||||
Trading book | 58,961 | 44,670 | 103,631 | |||||||||
Total | 229,880 | 61,940 | 291,820 | |||||||||
58
Barclays PLC Annual Report 2003 53
Risk ManagementTreasury Asset and Liability Management
Group Treasury actively manages the financial risks relating to the Group’s assets and liabilities, which comprise liquidity, funding and funding concentration risks, structural interest rate risks and exchange rate risks.
Group Treasury policies are set by the Group Treasury Committee which is chaired by the Group Finance Director. Group policy is to centralise retail asset and liability management within Group Treasury to minimise earnings volatility and meet Group control standards. The Group Treasury Committee sanctions Liquidity and Structural Interest Rate risk limits across the Group and ensures compliance via a limit and control monitoring structure in collaboration with the local Asset and Liability Committees (ALCOs).2004
Liquidity risk managementLiquidity risk is the risk that the Group is unable to meet its payment obligations when they fall due and to replace funds when they are withdrawn; the consequenceTable 4: Maturity analysis of which may be the failure to meet obligations to repay depositors and fulfil commitments to lend.
Group Treasury is responsible for the Group’s overall liquidity policy and control which is managed to ensure that the Group can meet its current and future re-financing needs at all times and at acceptable costs. The Group’s liquidity position was strong at 31st December 2003.
Liquidity management within the Group has two main strands. The first is day to day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of existing funds as they mature or are withdrawn to satisfy demands for additional borrowings by customers. The second is maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow.
Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month as these are key periods for liquidity management. This is based on principles agreed by the UK Financial Services Authority. Each operation is required to maintain sufficient access to funds, in terms of maturing assets and proven capacity to borrow in the money markets.
Additionally, in evaluating the Group’s liquidity position, Group Treasury monitors unmatched medium-term assets and the level and type of undrawn lending commitments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit and guarantees.
An important source of liquidity is our core UK retail deposits, mainly current accounts and savings accounts. Although current accounts are repayable on demand and savings accounts are repayable at short notice, maintaining a broad base of customers, both numerically and by depositor type, helps to protect against unexpected fluctuations. Such accounts form a stable deposit base for the Group’s operations and liquidity needs.
In order to avoid reliance on a particular group of customers or market sectors, the distribution of sources and maturity profile of deposits are also carefully managed. Important factors in assuring liquidity are competitive rates and the maintenance of depositors’ confidence. Such confidence is based on a number of factors including the Group’s reputation, the strength of earnings and the Group’s financial position.
In overseas markets, day to day liquidity is the responsibility of local treasury management in each territory within the parameters set by Group Treasury and subject to regular reports to Group Treasury in order to maximise the benefits of knowledge gained. Local asset and liability management committees comprising senior local executives and Group Treasury representatives also review liquidity management depending on the size and complexity of the treasury operation.
Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, provider and product. Whilst 2003 saw a relatively stable situation, with no notable consequences for the Group’s liquidity, significant market events over recent years including corporate scandals all resulted in a short-term flight to quality in financial markets from which Barclays benefited.
The ability to raise funds is in part dependent on maintaining the Group’s credit rating, although, except at extremes, a credit downgrade is likely to affect only the price at which funding is available rather than the volume that can be raised.
Many factors contribute to the credit rating process including assessment of management capability, and the quality of the corporate governance and risk management processes. The Group considers one of the most important factors in preserving its strong credit rating, which is a core objective, is maintaining a strong capital base and strong capital ratios.
For further details see contractual cash obligations and commercial commitments of the Group on page 57.
54
Interest rate risk managementInterest rate risk is the risk of loss arising from adverse movements in the level or volatility of market interest rates. The interest rate risk arising from the UK banking operations is aggregated and managed by Group Treasury.
Overall mismatches of fixed rate assets and liabilities are managed in the aggregate by Group Treasury through the use of interest rate swaps and other derivatives. Care is taken to ensure that the management of the portfolio is flexible, as market circumstances and customer requirements can rapidly change the desired portfolio structure. Group Treasury can exercise some discretion within limits prescribed by Group Market Risk with respect to the risk management of these positions and flows.
The exposure is then passed to the market mainly via independently managed dealing units within Barclays Capital who treat these transactions as part of their normal trading activities, and also via third parties. Risks arising in the Group’s other banking operations are managed in a similar way.
Management of the retail positions inherent in the Group’s balance sheet include the structural interest rate risk associated with interest free deposits, other interest free or fixed rate liabilities as well as the Group’s shareholders’ funds. The positions arising from these balances are managed by the maintenance of assets with fixed interest rates over several years, including loans and advances to banks
Over three | Over one | |||||||||||||||||||||||
months | year but | |||||||||||||||||||||||
Not more | but not | not more | ||||||||||||||||||||||
than three | more than | than five | Over | |||||||||||||||||||||
On demand | months | one year | years | five years | Total | |||||||||||||||||||
At 31st December 2004 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | 733 | 5,510 | 1,067 | 10,533 | 3,508 | 21,351 | ||||||||||||||||||
Other European Union | 177 | 540 | 204 | 268 | – | 1,189 | ||||||||||||||||||
United States | 25 | 725 | 3 | – | – | 753 | ||||||||||||||||||
Rest of the World | 275 | 819 | 479 | 123 | 3 | 1,699 | ||||||||||||||||||
Total banking business | 1,210 | 7,594 | 1,753 | 10,924 | 3,511 | 24,992 | ||||||||||||||||||
Total trading business | 1,500 | 44,289 | 4,356 | – | – | 50,145 | ||||||||||||||||||
Total | 2,710 | 51,883 | 6,109 | 10,924 | 3,511 | 75,137 | ||||||||||||||||||
Over three | Over one | |||||||||||||||||||||||
months | year but | |||||||||||||||||||||||
Not more | but not | not more | ||||||||||||||||||||||
than three | more than | than five | Over | |||||||||||||||||||||
On demand | months | one year | years | five years | Total | |||||||||||||||||||
At 31st December 2003 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | 629 | 4,299 | 586 | 5,127 | 3,674 | 14,315 | ||||||||||||||||||
Other European Union | 116 | 1,525 | 28 | 12 | 21 | 1,702 | ||||||||||||||||||
United States | 23 | 57 | 10 | 20 | – | 110 | ||||||||||||||||||
Rest of the World | 295 | 605 | 192 | 48 | 3 | 1,143 | ||||||||||||||||||
Total banking business | 1,063 | 6,486 | 816 | 5,207 | 3,698 | 17,270 | ||||||||||||||||||
Total trading business | 830 | 39,660 | 4,180 | – | – | 44,670 | ||||||||||||||||||
Total | 1,893 | 46,146 | 4,996 | 5,207 | 3,698 | 61,940 | ||||||||||||||||||
Table 5: Interest rate sensitivity of loans and advances to banks
2004 | 2003 | |||||||||||||||||||||||
Fixed | Variable | Fixed | Variable | |||||||||||||||||||||
rate | rate | Total | rate | rate | Total | |||||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | 14,561 | 6,790 | 21,351 | 7,221 | 7,094 | 14,315 | ||||||||||||||||||
Other European Union | 1,012 | 177 | 1,189 | 1,523 | 179 | 1,702 | ||||||||||||||||||
United States | 682 | 71 | 753 | 17 | 93 | 110 | ||||||||||||||||||
Rest of the World | 1,347 | 352 | 1,699 | 781 | 362 | 1,143 | ||||||||||||||||||
Total banking business | 17,602 | 7,390 | 24,992 | 9,542 | 7,728 | 17,270 | ||||||||||||||||||
Total trading business | 23,575 | 26,570 | 50,145 | 25,607 | 19,063 | 44,670 | ||||||||||||||||||
Total | 41,177 | 33,960 | 75,137 | 35,149 | 26,791 | 61,940 | ||||||||||||||||||
59
Risk management
Statistical information
Table 6: Interest rate sensitivity of loans and advances to customers
2004 | 2003 | |||||||||||||||||||||||
Fixed | Variable | Fixed | Variable | |||||||||||||||||||||
rate | rate | Total | rate | rate | Total | |||||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | 40,515 | 118,579 | 159,094 | 35,998 | 107,811 | 143,809 | ||||||||||||||||||
Other European Union | 2,754 | 17,639 | 20,393 | 4,159 | 14,868 | 19,027 | ||||||||||||||||||
United States | 1,915 | 6,069 | 7,984 | 1 | 3,572 | 3,573 | ||||||||||||||||||
Rest of the World | 3,080 | 2,096 | 5,176 | 2,738 | 1,772 | 4,510 | ||||||||||||||||||
Total banking business | 48,264 | 144,383 | 192,647 | 42,896 | 128,023 | 170,919 | ||||||||||||||||||
Total trading business | 30,743 | 34,356 | 65,099 | 26,587 | 32,374 | 58,961 | ||||||||||||||||||
Total | 79,007 | 178,739 | 257,746 | 69,483 | 160,397 | 229,880 | ||||||||||||||||||
Table 7: Loans and advances to customers and debt securities, andbooked in offices in the UK – banking business
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | |||||||||||||||||||
Financial institutions | 11,947 | 7,721 | 6,158 | 5,616 | 4,215 | |||||||||||||||||||
Agriculture, forestry and fishing | 1,947 | 1,766 | 1,747 | 1,626 | 1,689 | |||||||||||||||||||
Manufacturing | 6,282 | 5,967 | 6,435 | 6,766 | 7,573 | |||||||||||||||||||
Construction | 2,476 | 1,883 | 1,825 | 1,779 | 1,666 | |||||||||||||||||||
Property | 7,933 | 6,341 | 5,695 | 5,600 | 5,130 | |||||||||||||||||||
Energy and water | 936 | 1,286 | 1,290 | 1,153 | 1,120 | |||||||||||||||||||
Wholesale and retail distribution and leisure | 9,751 | 8,886 | 7,858 | 7,571 | 7,531 | |||||||||||||||||||
Transport | 2,275 | 2,579 | 2,366 | 1,894 | 1,353 | |||||||||||||||||||
Communications | 454 | 476 | 694 | 368 | 180 | |||||||||||||||||||
Business and other services | 14,281 | 12,030 | 11,693 | 10,581 | 9,894 | |||||||||||||||||||
Home loans | 64,481 | 61,905 | 58,436 | 50,945 | 47,235 | |||||||||||||||||||
Other personal | 23,313 | 21,905 | 21,357 | 19,678 | 18,200 | |||||||||||||||||||
Overseas customers | 7,612 | 5,477 | 6,201 | 6,472 | 5,024 | |||||||||||||||||||
153,688 | 138,222 | 131,755 | 120,049 | 110,810 | ||||||||||||||||||||
Finance lease receivables | 5,406 | 5,587 | 4,145 | 4,205 | 4,504 | |||||||||||||||||||
Total | 159,094 | 143,809 | 135,900 | 124,254 | 115,314 | |||||||||||||||||||
(See also variable rate assets. Derivatives are also employed to hedge both the structural interest rate risk resulting from interest free deposits and the Group’s shareholders’ funds.chart on page 40.)
The earnings from retail products (generallycategory ‘other personal’ includes credit cards, personal loans and personal overdrafts.
The industry classifications in personal and corporate banking) can also be adversely affected by customer behaviour and movements intables 7-9 have been prepared at the level or volatility of market rates and prices. The risk embedded within retail contracts is managed bythe borrowing entity. This means that a specialist Retail Market Risk Unit. It is measured using behavioural models and then converted into wholesale swap and option exposure, which is transferred to Group Treasury at an appropriate market rate transfer price. This leaves residual risk within the businessloan to the extent that wholesale contracts do not replicatesubsidiary of a major corporation is classified by the market or customer behaviour. This riskindustry in which the subsidiary operates, even though the parent’s predominant business may be in a different industry. Loans to customers domiciled outside the country where the office recording the transaction is controlled by limits set by Group Market Risk.
International banking operations also incur market interest rate risk. Policies for managing this risk are agreed between Group Treasury and Group Market Risk and are applied through Asset and Liability Committees (ALCOs). Guidance on the scope and constitution of ALCOs is provided by Group Market Risk, which maintains regular contact with the businesses on treasury issues. Compliance with the policy is controlled via a comprehensive financial risk reporting framework including interest rate gap limits or value at risk limits issued by Group Market Risk. These limits allow banking books to be managed by local treasury operations in an orderly fashion, either through Barclays Capital or, where necessary, through local markets.
The Group exposure, excluding Barclays Capital interest rate risk (which is disclosed within the preceding Market Risk section), is shown in the form of an interest rate repricing table (see Note 45, page 141) and includes non-trading hedges. This summarises the repricing profile of the Group’s assets, liabilities and off-balance sheet exposures at 31st December 2003. The table provides the basis for assessment of the sensitivity of the Group’s earnings to interest rate movements. Based on the Group balance sheet as at 31st December 2003, the Group’s expected earnings in 2004 would not be significantly affected either by a hypothetical immediate and sustained 1% increase or decrease in interest rates.
Group risk management activities employing interest rate swaps, currency swaps, basis swaps and other derivatives that are designated as hedges. The derivative components of the Group’s hedging programme are transferred to the market via internal or external counterparties.
Interest rate swaps and cross currency interest rate swaps that are used in the management of the non-trading exposureslocated are shown in the table below (except for those within Barclays Capital, where the exposure is included in the reported DVaR figures, see page 49). These figures are the weighted average pay fixed ratesunder ‘Overseas customers’ and receive fixed ratesnot by maturity date and nominal amount at 31st December 2003. The nominal amounts below include £5,320m and £495m, in respect of sterling and non-sterling basis swaps respectively. Basis swaps are swaps where both payable and receivable legs are at variable rates of interest. In managing the non-trading exposures relating to capital balances and demand deposits, both on-balance sheet and derivative positions are held.industry.
The reported figures do not take account of underlying balance sheet items being hedged, the net interest income thereon or their mark to market values.60
Barclays PLC Annual Report 2003 552004
Table 8: Loans and advances to customers booked in offices in other European Union countries – banking business
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 822 | 1,205 | 371 | 500 | 436 | |||||||||||||||
Agriculture, forestry and fishing | 156 | 147 | 165 | 240 | 303 | |||||||||||||||
Manufacturing | 1,154 | 1,275 | 1,422 | 1,317 | 1,420 | |||||||||||||||
Construction | 710 | 609 | 314 | 298 | 261 | |||||||||||||||
Property | 169 | 346 | 137 | 241 | 182 | |||||||||||||||
Energy and water | 337 | 409 | 367 | 282 | 372 | |||||||||||||||
Wholesale and retail distribution and leisure | 502 | 426 | 215 | 283 | 140 | |||||||||||||||
Transport | 481 | 566 | 252 | 318 | 172 | |||||||||||||||
Communications | 47 | 40 | 173 | 185 | 83 | |||||||||||||||
Business and other services | 2,339 | 1,251 | 1,648 | 1,679 | 1,284 | |||||||||||||||
Home loans | 10,920 | 10,334 | 6,243 | 3,871 | 4,436 | |||||||||||||||
Other personal | 2,283 | 1,769 | 721 | 661 | 582 | |||||||||||||||
Overseas customers | 143 | 438 | 384 | 685 | 381 | |||||||||||||||
20,063 | 18,815 | 12,412 | 10,560 | 10,052 | ||||||||||||||||
Finance lease receivables | 330 | 212 | 167 | 148 | 151 | |||||||||||||||
Total | 20,393 | 19,027 | 12,579 | 10,708 | 10,203 | |||||||||||||||
See note under table 7.
Table 9: Loans and advances to customers in offices in the United States – banking business
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | |||||||||||||||
Financial institutions | 1,510 | 919 | 1,036 | 1,053 | 616 | |||||||||||||||
Agriculture, forestry and fishing | – | 1 | 3 | – | – | |||||||||||||||
Manufacturing | 394 | 341 | 842 | 1,553 | 1,123 | |||||||||||||||
Construction | 111 | 2 | 31 | 24 | – | |||||||||||||||
Property | 371 | 1 | 15 | 21 | 30 | |||||||||||||||
Energy and water | 946 | 1,358 | 2,229 | 1,567 | 1,440 | |||||||||||||||
Wholesale and retail distribution and leisure | 353 | 77 | 141 | 160 | 214 | |||||||||||||||
Transport | 379 | 468 | 1,248 | 931 | 580 | |||||||||||||||
Communications | 138 | 153 | 46 | 66 | 88 | |||||||||||||||
Business and other services | 715 | 220 | 441 | 901 | 2,174 | |||||||||||||||
Home loans | 2,214 | – | – | – | 1 | |||||||||||||||
Other personal | 58 | – | – | 267 | 6 | |||||||||||||||
Overseas customers | 767 | – | 62 | 23 | 56 | |||||||||||||||
7,956 | 3,540 | 6,094 | 6,566 | 6,328 | ||||||||||||||||
Finance lease receivables | 28 | 33 | 44 | 48 | 48 | |||||||||||||||
Total | 7,984 | 3,573 | 6,138 | 6,614 | 6,376 | |||||||||||||||
See note under table 7.
Table 10: Loans and advances to customers booked in offices in the rest of the world – banking business
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | |||||||||||||||
Loans and advances | 5,129 | 4,465 | 5,566 | 7,384 | 8,920 | |||||||||||||||
Finance lease receivables | 47 | 45 | 33 | 32 | 30 | |||||||||||||||
Total | 5,176 | 4,510 | 5,599 | 7,416 | 8,950 | |||||||||||||||
61
Risk ManagementmanagementTreasury AssetStatistical information
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
At 31st December | £m | £m | £m | £m | £m | |||||||||||||||
Banking business | 192,647 | 170,919 | 160,216 | 148,992 | 140,843 | |||||||||||||||
Trading business | 65,099 | 58,961 | 45,176 | 34,240 | 23,198 | |||||||||||||||
Total | 257,746 | 229,880 | 205,392 | 183,232 | 164,041 | |||||||||||||||
Table 12: Maturity analysis of loans and advances to customers
Over three | Over one | |||||||||||||||||||||||
months | year but | |||||||||||||||||||||||
Not more | but not | not more | ||||||||||||||||||||||
than three | more than | than five | Over | |||||||||||||||||||||
On demand | months | one year | years | five years | Total | |||||||||||||||||||
At 31st December 2004 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | ||||||||||||||||||||||||
Corporate lending(a) | 8,327 | 8,754 | 8,597 | 15,063 | 17,543 | 58,284 | ||||||||||||||||||
Other lending from United Kingdom offices | 4,532 | 8,049 | 7,196 | 13,172 | 67,861 | 100,810 | ||||||||||||||||||
Total United Kingdom | 12,859 | 16,803 | 15,793 | 28,235 | 85,404 | 159,094 | ||||||||||||||||||
Other European Union | 951 | 2,807 | 5,709 | 3,308 | 7,618 | 20,393 | ||||||||||||||||||
United States | – | 913 | 563 | 2,807 | 3,701 | 7,984 | ||||||||||||||||||
Rest of World | 741 | 1,247 | 1,774 | 829 | 585 | 5,176 | ||||||||||||||||||
Total banking business | 14,551 | 21,770 | 23,839 | 35,179 | 97,308 | 192,647 | ||||||||||||||||||
Total trading business | 4,294 | 58,978 | 1,529 | 298 | – | 65,099 | ||||||||||||||||||
Total | 18,845 | 80,748 | 25,368 | 35,477 | 97,308 | 257,746 | ||||||||||||||||||
Over three | Over one | |||||||||||||||||||||||
months | year but | |||||||||||||||||||||||
Not more | but not | not more | ||||||||||||||||||||||
than three | more than | than five | Over | |||||||||||||||||||||
On demand | months | one year | years | five years | Total | |||||||||||||||||||
At 31st December 2003 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Banking business: | ||||||||||||||||||||||||
United Kingdom | ||||||||||||||||||||||||
Corporate lending(a) | 6,108 | 9,298 | 4,596 | 17,138 | 11,796 | 48,936 | ||||||||||||||||||
Other lending from United Kingdom offices | 2,869 | 6,940 | 6,359 | 12,345 | 66,360 | 94,873 | ||||||||||||||||||
Total United Kingdom | 8,977 | 16,238 | 10,955 | 29,483 | 78,156 | 143,809 | ||||||||||||||||||
Other European Union | 597 | 2,497 | 2,591 | 2,507 | 10,835 | 19,027 | ||||||||||||||||||
United States | – | 276 | 253 | 1,745 | 1,299 | 3,573 | ||||||||||||||||||
Rest of the World | 601 | 2,151 | 495 | 764 | 499 | 4,510 | ||||||||||||||||||
Total banking business | 10,175 | 21,162 | 14,294 | 34,499 | 90,789 | 170,919 | ||||||||||||||||||
Total trading business | 2,004 | 54,996 | 1,615 | 335 | 11 | 58,961 | ||||||||||||||||||
Total | 12,179 | 76,158 | 15,909 | 34,834 | 90,800 | 229,880 | ||||||||||||||||||
Note
(a) | In the UK, finance lease receivables are included in ‘Other lending’, although some leases are to corporate customers. |
62
Barclays PLC Annual Report 2004
Table 13: Loans and advances to borrowers in currencies other than the local currency of the borrower for countries where this exceeds 1% of total Group assets
Commercial | ||||||||||||||||||||
Banks | industrial | |||||||||||||||||||
and other | Governments | and other | ||||||||||||||||||
As % of | financial | and official | private | |||||||||||||||||
assets | Total | institutions | institutions | sectors | ||||||||||||||||
£m | £m | £m | £m | |||||||||||||||||
At 31st December 2004 | ||||||||||||||||||||
United States | 4.1 | 21,556 | 10,102 | 2 | 11,452 | |||||||||||||||
Germany | 1.4 | 7,128 | 6,614 | – | 514 | |||||||||||||||
France | 1.1 | 5,562 | 5,019 | 27 | 516 | |||||||||||||||
At 31st December 2003 | ||||||||||||||||||||
United States | 2.7 | 12,110 | 4,679 | – | 7,431 | |||||||||||||||
Germany | 1.2 | 5,127 | 4,662 | 7 | 458 | |||||||||||||||
At 31st December 2002 | ||||||||||||||||||||
United States | 4.2 | 17,140 | 9,672 | 1 | 7,467 | |||||||||||||||
Germany | 2.5 | 10,094 | 9,841 | 7 | 246 | |||||||||||||||
France | 1.2 | 4,871 | 4,484 | 24 | 363 | |||||||||||||||
At 31st December 2004, there were no countries where Barclays had cross-currency loans to borrowers between 0.75% and 1% of total Group assets. At 31st December 2003, there were cross-currency loans to borrowers in France of between 0.75% and 1% of total Group assets, amounting to £3,570m. At 31st December 2002 there were cross-currency loans to borrowers in the Netherlands and Ireland of between 0.75% and 1% of total Group assets amounted to £7,552m.
Table 14: Off-balance sheet and other credit exposures as at 31st December
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Off-balance sheet exposures | ||||||||||||
Contingent liabilities | 38,559 | 33,694 | 26,546 | |||||||||
Commitments to lend | 134,051 | 114,847 | 101,378 | |||||||||
On-balance sheet exposure | ||||||||||||
Balances arising from off-balance sheet financial instruments (OTC derivatives) | 18,174 | 15,812 | 13,454 | |||||||||
London Metal Exchange warrants and other trading positions | 952 | 1,290 | 829 | |||||||||
Debt securities – held for trading | 87,671 | 59,812 | 53,961 | |||||||||
– non-trading | 39,757 | 37,581 | 40,268 | |||||||||
Current year credit cards commitments to lend have been calculated on a contractual basis rather than a modelled basis. Had this method been applied in earlier years, reported commitments would have been increased by £5,899m to £120,746m in 2003 and by £5,230m to £106,608m in 2002.
63
Risk management
Statistical information
Table 15: Notional principal amounts of credit derivatives at 31st December
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Credit derivatives held or issued for trading purposes | 186,275 | 43,256 | 10,665 | |||||||||
Credit derivatives held for the purpose of managing non-trading exposures | 5,133 | 4,194 | 7,736 | |||||||||
Total | 191,408 | 47,450 | 18,401 | |||||||||
Table 16: Non-performing loans summary
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Non-accrual loans | 2,115 | 2,261 | 2,542 | 1,923 | 1,539 | |||||||||||||||
Accruing loans where interest is being suspended with or without provisions | 492 | 629 | 611 | 561 | 496 | |||||||||||||||
Other accruing loans against which provisions have been made | 842 | 821 | 819 | 830 | 692 | |||||||||||||||
Sub total | 3,449 | 3,711 | 3,972 | 3,314 | 2,727 | |||||||||||||||
Accruing loans 90 days or more overdue, against which no provisions have been made | 521 | 590 | 690 | 648 | 713 | |||||||||||||||
Reduced rate loans | 15 | 4 | 6 | 5 | 6 | |||||||||||||||
Total non-performing loans | 3,985 | 4,305 | 4,668 | 3,967 | 3,446 | |||||||||||||||
64
Barclays PLC Annual Report 2004
Table 17: Non-performing loans
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Non-accrual loans: | ||||||||||||||||||||
United Kingdom | 1,583 | 1,572 | 1,557 | 1,292 | 1,223 | |||||||||||||||
Other European Union | 194 | 143 | 108 | 90 | 96 | |||||||||||||||
United States | 249 | 383 | 744 | 306 | 119 | |||||||||||||||
Rest of the World | 89 | 163 | 133 | 235 | 101 | |||||||||||||||
Total | 2,115 | 2,261 | 2,542 | 1,923 | 1,539 | |||||||||||||||
Accruing loans where interest is being suspended with or without provisions: | ||||||||||||||||||||
United Kingdom | 431 | 559 | 480 | 386 | 351 | |||||||||||||||
Other European Union | 31 | 29 | 35 | 30 | 36 | |||||||||||||||
United States | – | – | – | – | – | |||||||||||||||
Rest of the World | 30 | 41 | 96 | 145 | 109 | |||||||||||||||
Total | 492 | 629 | 611 | 561 | 496 | |||||||||||||||
Other accruing loans against which provisions have been made: | ||||||||||||||||||||
United Kingdom | 764 | 760 | 751 | 756 | 543 | |||||||||||||||
Other European Union | 27 | 35 | 27 | 20 | 71 | |||||||||||||||
United States | 26 | – | – | 11 | 2 | |||||||||||||||
Rest of the World | 25 | 26 | 41 | 43 | 76 | |||||||||||||||
Total | 842 | 821 | 819 | 830 | 692 | |||||||||||||||
Sub totals: | ||||||||||||||||||||
United Kingdom | 2,778 | 2,891 | 2,788 | 2,434 | 2,117 | |||||||||||||||
Other European Union | 252 | 207 | 170 | 140 | 203 | |||||||||||||||
United States | 275 | 383 | 744 | 317 | 121 | |||||||||||||||
Rest of the World | 144 | 230 | 270 | 423 | 286 | |||||||||||||||
Total | 3,449 | 3,711 | 3,972 | 3,314 | 2,727 | |||||||||||||||
Accruing loans 90 days overdue, against which no provisions have been made: | ||||||||||||||||||||
United Kingdom | 484 | 566 | 687 | 621 | 695 | |||||||||||||||
Other European Union | 34 | 24 | 3 | – | 1 | |||||||||||||||
United States | 1 | – | – | – | – | |||||||||||||||
Rest of the World | 2 | – | – | 27 | 17 | |||||||||||||||
Total | 521 | 590 | 690 | 648 | 713 | |||||||||||||||
Reduced rate loans: | ||||||||||||||||||||
United Kingdom | 2 | 4 | 4 | 4 | 6 | |||||||||||||||
Other European Union | – | – | – | – | – | |||||||||||||||
United States | 13 | – | – | – | – | |||||||||||||||
Rest of the World | – | – | 2 | 1 | – | |||||||||||||||
Total | 15 | 4 | 6 | 5 | 6 | |||||||||||||||
Total non-performing loans: | ||||||||||||||||||||
United Kingdom | 3,264 | 3,461 | 3,479 | 3,059 | 2,818 | |||||||||||||||
Other European Union | 286 | 231 | 173 | 140 | 204 | |||||||||||||||
United States | 289 | 383 | 744 | 317 | 121 | |||||||||||||||
Rest of the World | 146 | 230 | 272 | 451 | 303 | |||||||||||||||
Total | 3,985 | 4,305 | 4,668 | 3,967 | 3,446 | |||||||||||||||
Table 18: Potential problem loans
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
United Kingdom | 648 | 989 | 852 | 872 | 659 | |||||||||||||||
Other European Union | – | 23 | – | 2 | 2 | |||||||||||||||
United States | 27 | 259 | 241 | 369 | 313 | |||||||||||||||
Rest of the World | 81 | 56 | 69 | 63 | 64 | |||||||||||||||
Total | 756 | 1,327 | 1,162 | 1,306 | 1,038 | |||||||||||||||
65
Risk management
Statistical information
Table 19: Interest foregone on non-performing loans
Year ended 31st December | ||||||||
2004 | 2003 | |||||||
£m | £m | |||||||
Interest income that would have been recognised under the original contractual terms of the non-performing loans: | ||||||||
United Kingdom | 266 | 247 | ||||||
Rest of the World | 52 | 65 | ||||||
318 | 312 | |||||||
Interest income of approximately £59m (2003: £47m) from such loans was included in profit, of which £54m (2003: £39m) related to domestic lending and the remainder to foreign lending. The balance was not received or was suspended.
Table 20: Analysis of the provisions charge for bad and doubtful debts
Year ended 31st December | ||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Net specific provisions charge/(release) | ||||||||||||||||||||
United Kingdom | 1,198 | 1,132 | 1,041 | 964 | 688 | |||||||||||||||
Other European Union | 57 | 37 | 14 | 20 | 12 | |||||||||||||||
United States | 33 | 84 | 385 | 136 | 17 | |||||||||||||||
Rest of the World | 13 | 67 | 46 | 45 | 60 | |||||||||||||||
Total net specific provisions charge | 1,301 | 1,320 | 1,486 | 1,165 | 777 | |||||||||||||||
General provisions (release)/charge | (210 | ) | 27 | (2 | ) | (16 | ) | 40 | ||||||||||||
Total | 1,091 | 1,347 | 1,484 | 1,149 | 817 | |||||||||||||||
Table 21: Bad debt provisions charge ratios (‘Loan loss ratios’)
Year ended 31st December | ||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
% | % | % | % | % | ||||||||||||||||
Provisions charge as a percentage of average banking loans and advances for the year: | ||||||||||||||||||||
Specific provisions charge | 0.65 | 0.71 | 0.85 | 0.74 | 0.64 | |||||||||||||||
General provisions charge | (0.11 | ) | 0.02 | – | (0.01 | ) | 0.03 | |||||||||||||
0.54 | 0.73 | 0.85 | 0.73 | 0.67 | ||||||||||||||||
Amounts written off (net of recoveries) | 0.67 | 0.74 | 0.64 | 0.53 | 0.47 | |||||||||||||||
Provisions charge as a percentage of average loans and advances for the year (including trading business): | ||||||||||||||||||||
Specific provisions charge | 0.41 | 0.46 | 0.58 | 0.52 | 0.44 | |||||||||||||||
General provisions charge | (0.07 | ) | 0.01 | – | – | 0.02 | ||||||||||||||
Total | 0.34 | 0.47 | 0.58 | 0.52 | 0.46 | |||||||||||||||
Amounts written off (net of recoveries) | 0.42 | 0.48 | 0.43 | 0.37 | 0.32 | |||||||||||||||
66
Barclays PLC Annual Report 2004
Table 22: Analysis of provision balances for bad and doubtful debts
As at 31st December | ||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Specific provisions | ||||||||||||||||||||
United Kingdom | 1,860 | 1,856 | 1,790 | 1,605 | 1,343 | |||||||||||||||
Other European Union | 104 | 97 | 84 | 89 | 112 | |||||||||||||||
United States | 128 | 121 | 257 | 89 | 20 | |||||||||||||||
Rest of the World | 110 | 159 | 130 | 188 | 118 | |||||||||||||||
Total specific provision balances | 2,202 | 2,233 | 2,261 | 1,971 | 1,593 | |||||||||||||||
General provision balances | 564 | 795 | 737 | 745 | 760 | |||||||||||||||
Total provision balances | 2,766 | 3,028 | 2,998 | 2,716 | 2,353 | |||||||||||||||
Average loans and advances for the year (excluding trading business) | 200,180 | 184,765 | 174,764 | 157,904 | 122,333 | |||||||||||||||
(including trading business) | 317,136 | 285,963 | 256,789 | 223,221 | 176,938 | |||||||||||||||
Table 23: Provisions balance ratios
As at 31st December | ||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
% | % | % | % | % | ||||||||||||||||
Excluding trading business | ||||||||||||||||||||
Provisions balance at end of year as a percentage of loans and advances at end of year: | ||||||||||||||||||||
Specific provision balances | 1.01 | 1.19 | 1.29 | 1.22 | 1.06 | |||||||||||||||
General provision balances | 0.25 | 0.42 | 0.42 | 0.46 | 0.51 | |||||||||||||||
1.26 | 1.61 | 1.71 | 1.68 | 1.57 | ||||||||||||||||
Including trading business | ||||||||||||||||||||
Provisions balance at end of year as a percentage of loans and advances at end of year: | ||||||||||||||||||||
Specific provision balances | 0.66 | 0.77 | 0.86 | 0.85 | 0.79 | |||||||||||||||
General provision balances | 0.17 | 0.27 | 0.28 | 0.32 | 0.38 | |||||||||||||||
0.83 | 1.04 | 1.14 | 1.17 | 1.17 | ||||||||||||||||
Table 24: Movements in provisions charge for bad and doubtful debts
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||||
Provisions balance at beginning of year | 3,028 | 2,998 | 2,716 | 2,353 | 1,983 | |||||||||||||||||
Acquisitions and disposals | 21 | 62 | (11 | ) | 46 | 119 | ||||||||||||||||
Exchange and other adjustments | (34 | ) | (18 | ) | (77 | ) | (1 | ) | 4 | |||||||||||||
Amounts written off | (1,595 | ) | (1,474 | ) | (1,220 | ) | (973 | ) | (683 | ) | ||||||||||||
Recoveries | 255 | 113 | 106 | 142 | 113 | |||||||||||||||||
Provisions charged against profit | 1,091 | 1,347 | 1,484 | 1,149 | 817 | |||||||||||||||||
Provisions balance at end of year | 2,766 | 3,028 | 2,998 | 2,716 | 2,353 | |||||||||||||||||
67
Risk management
Statistical information
Table 25: Amounts written off
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
United Kingdom | (1,411 | ) | (1,175 | ) | (950 | ) | (814 | ) | (595 | ) | ||||||||||
Other European Union | (58 | ) | (54 | ) | (31 | ) | (36 | ) | (45 | ) | ||||||||||
United States | (71 | ) | (215 | ) | (215 | ) | (94 | ) | (26 | ) | ||||||||||
Rest of the World | (55 | ) | (30 | ) | (24 | ) | (29 | ) | (17 | ) | ||||||||||
Total amounts written off | (1,595 | ) | (1,474 | ) | (1,220 | ) | (973 | ) | (683 | ) | ||||||||||
Table 26: Recoveries
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
United Kingdom | (220 | ) | (95 | ) | (88 | ) | (106 | ) | (100 | ) | ||||||||||
Other European Union | (8 | ) | (7 | ) | (7 | ) | (5 | ) | (6 | ) | ||||||||||
United States | (15 | ) | (10 | ) | (9 | ) | (27 | ) | (4 | ) | ||||||||||
Rest of the World | (12 | ) | (1 | ) | (2 | ) | (4 | ) | (3 | ) | ||||||||||
Total recoveries | (255 | ) | (113 | ) | (106 | ) | (142 | ) | (113 | ) | ||||||||||
Table 27: Provisions charged against profit
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
New and increased specific provisions charge: | ||||||||||||||||||||
United Kingdom | 1,571 | 1,373 | 1,210 | 1,157 | 843 | |||||||||||||||
Other European Union | 82 | 57 | 33 | 35 | 35 | |||||||||||||||
United States | 67 | 118 | 404 | 173 | 27 | |||||||||||||||
Rest of the World | 47 | 80 | 72 | 75 | 76 | |||||||||||||||
1,767 | 1,628 | 1,719 | 1,440 | 981 | ||||||||||||||||
Releases of specific provisions charge: | ||||||||||||||||||||
United Kingdom | (153 | ) | (146 | ) | (81 | ) | (87 | ) | (55 | ) | ||||||||||
Other European Union | (17 | ) | (13 | ) | (12 | ) | (10 | ) | (17 | ) | ||||||||||
United States | (19 | ) | (24 | ) | (10 | ) | (10 | ) | (6 | ) | ||||||||||
Rest of the World | (22 | ) | (12 | ) | (24 | ) | (26 | ) | (13 | ) | ||||||||||
(211 | ) | (195 | ) | (127 | ) | (133 | ) | (91 | ) | |||||||||||
Recoveries | (255 | ) | (113 | ) | (106 | ) | (142 | ) | (113 | ) | ||||||||||
Net specific provisions charge | 1,301 | 1,320 | 1,486 | 1,165 | 777 | |||||||||||||||
General provision (release)/charge | (210 | ) | 27 | (2 | ) | (16 | ) | 40 | ||||||||||||
Net provisions charge to profit | 1,091 | 1,347 | 1,484 | 1,149 | 817 | |||||||||||||||
68
Barclays PLC Annual Report 2004
Table 28: Specific provision charges for bad and doubtful debts by industry
Net specific provision charged for the year | ||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
United Kingdom: | ||||||||||||||||||||
Banks and other financial institutions | (1 | ) | 13 | 1 | (2 | ) | 7 | |||||||||||||
Agriculture, forestry and fishing | – | (3 | ) | (1 | ) | 6 | 6 | |||||||||||||
Manufacturing | 28 | 79 | 80 | 62 | 8 | |||||||||||||||
Construction | 10 | (23 | ) | 41 | 12 | 7 | ||||||||||||||
Property | (42 | ) | (3 | ) | 8 | 3 | 1 | |||||||||||||
Energy and water | 3 | 13 | 22 | 1 | 8 | |||||||||||||||
Wholesale and retail distribution and leisure | 66 | 38 | 37 | 44 | 21 | |||||||||||||||
Transport | (19 | ) | 100 | 7 | 6 | 2 | ||||||||||||||
Communications | (1 | ) | 1 | 16 | 1 | – | ||||||||||||||
Business and other services | 64 | 76 | 62 | 75 | 27 | |||||||||||||||
Home loans | 17 | 9 | 4 | 8 | 10 | |||||||||||||||
Other personal | 890 | 757 | 748 | 782 | 577 | |||||||||||||||
Overseas customers | 181 | 66 | 13 | (34 | ) | 6 | ||||||||||||||
Finance lease receivables | 2 | 9 | 3 | – | 8 | |||||||||||||||
1,198 | 1,132 | 1,041 | 964 | 688 | ||||||||||||||||
Foreign | 103 | 188 | 445 | 201 | 89 | |||||||||||||||
1,301 | 1,320 | 1,486 | 1,165 | 777 | ||||||||||||||||
The category ‘other personal’ includes credit cards, personal loans and personal overdrafts.
The industry classifications in tables 28, 29 and 30 have been prepared at the level of the borrowing entity. This means that a loan to the subsidiary of a major corporation is classified by the industry in which the subsidiary operates, even though the parent’s predominant business may be in a different industry. Loans to customers domiciled outside the country where the office recording the transaction is located are shown in the chart under ‘Overseas customers’ and not by industry.
Table 29: Specific provision balances for bad and doubtful debts by industry
Specific provision balances as at 31st December | ||||||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
£m | % | £m | % | £m | % | £m | % | £m | % | |||||||||||||||||||||||||||||||
United Kingdom: | ||||||||||||||||||||||||||||||||||||||||
Banks and other financial institutions | 7 | 0.3 | 12 | 0.5 | 1 | – | 5 | 0.3 | 7 | 0.4 | ||||||||||||||||||||||||||||||
Agriculture, forestry and fishing | 4 | 0.2 | 5 | 0.2 | 7 | 0.3 | 13 | 0.7 | 11 | 0.7 | ||||||||||||||||||||||||||||||
Manufacturing | 37 | 1.7 | 58 | 2.6 | 98 | 4.3 | 49 | 2.5 | 43 | 2.7 | ||||||||||||||||||||||||||||||
Construction | 6 | 0.3 | 7 | 0.3 | 35 | 1.6 | 6 | 0.3 | 8 | 0.5 | ||||||||||||||||||||||||||||||
Property | 26 | 1.2 | 3 | 0.1 | 9 | 0.4 | 8 | 0.4 | 8 | 0.5 | ||||||||||||||||||||||||||||||
Energy and water | 23 | 1.0 | 27 | 1.2 | 28 | 1.3 | 10 | 0.5 | 8 | 0.5 | ||||||||||||||||||||||||||||||
Wholesale and retail distribution and leisure | 70 | 3.2 | 52 | 2.3 | 54 | 2.4 | 60 | 3.0 | 42 | 2.6 | ||||||||||||||||||||||||||||||
Transport | 55 | 2.5 | 103 | 4.6 | 7 | 0.3 | 6 | 0.3 | 4 | 0.3 | ||||||||||||||||||||||||||||||
Communications | 13 | 0.6 | 15 | 0.7 | 15 | 0.7 | 1 | 0.1 | 1 | 0.1 | ||||||||||||||||||||||||||||||
Business and other services | 105 | 4.8 | 121 | 5.4 | 92 | 4.1 | 77 | 3.9 | 40 | 2.5 | ||||||||||||||||||||||||||||||
Home loans | 58 | 2.6 | 55 | 2.5 | 53 | 2.3 | 60 | 3.0 | 61 | 3.8 | ||||||||||||||||||||||||||||||
Other personal | 1,354 | 61.5 | 1,359 | 60.9 | 1,343 | 59.4 | 1,252 | 63.5 | 1,041 | 65.4 | ||||||||||||||||||||||||||||||
Overseas customers | 88 | 4.0 | 24 | 1.1 | 39 | 1.7 | 52 | 2.6 | 58 | 3.6 | ||||||||||||||||||||||||||||||
Finance lease receivables | 14 | 0.6 | 15 | 0.7 | 9 | 0.4 | 6 | 0.3 | 11 | 0.7 | ||||||||||||||||||||||||||||||
1,860 | 84.5 | 1,856 | 83.1 | 1,790 | 79.2 | 1,605 | 81.4 | 1,343 | 84.3 | |||||||||||||||||||||||||||||||
Foreign | 342 | 15.5 | 377 | 16.9 | 471 | 20.8 | 366 | 18.6 | 250 | 15.7 | ||||||||||||||||||||||||||||||
2,202 | 100.0 | 2,233 | 100.0 | 2,261 | 100.0 | 1,971 | 100.0 | 1,593 | 100.0 | |||||||||||||||||||||||||||||||
69
Risk management
Statistical information
Table 30: Analysis of amounts written off and recovered by industry
Amounts written off for the year | Recoveries of amounts previously written off | |||||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||
United Kingdom: | ||||||||||||||||||||||||||||||||||||||||
Banks and other financial institutions | 7 | 14 | 2 | 3 | 13 | 3 | 12 | – | 3 | 4 | ||||||||||||||||||||||||||||||
Agriculture, forestry and fishing | 2 | – | 4 | 7 | 6 | 1 | 1 | 2 | 2 | 2 | ||||||||||||||||||||||||||||||
Manufacturing | 79 | 126 | 72 | 65 | 30 | 30 | 8 | 22 | 11 | 16 | ||||||||||||||||||||||||||||||
Construction | 13 | 19 | 15 | 16 | 8 | 2 | 14 | 3 | 2 | 2 | ||||||||||||||||||||||||||||||
Property | 2 | 5 | 10 | 5 | 5 | 69 | 1 | 2 | 1 | 3 | ||||||||||||||||||||||||||||||
Energy and water | 9 | 15 | 4 | 1 | 2 | 2 | – | 1 | – | – | ||||||||||||||||||||||||||||||
Wholesale and retail distribution and leisure | 55 | 45 | 53 | 35 | 34 | 7 | 5 | 11 | 9 | 12 | ||||||||||||||||||||||||||||||
Transport | 44 | 5 | 7 | 4 | 3 | 15 | 1 | 1 | – | 1 | ||||||||||||||||||||||||||||||
Communications | 2 | 1 | 2 | – | – | 1 | – | – | – | – | ||||||||||||||||||||||||||||||
Business and other services | 96 | 58 | 65 | 57 | 33 | 16 | 11 | 13 | 9 | 11 | ||||||||||||||||||||||||||||||
Home loans | 19 | 11 | 11 | 14 | 15 | 5 | 3 | 1 | 4 | 3 | ||||||||||||||||||||||||||||||
Other personal | 963 | 790 | 692 | 599 | 435 | 68 | 38 | 31 | 29 | 28 | ||||||||||||||||||||||||||||||
Overseas customers | 116 | 82 | 9 | 2 | 7 | – | – | – | 35 | 17 | ||||||||||||||||||||||||||||||
Finance lease receivables | 4 | 4 | 4 | 6 | 4 | 1 | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||||||||
1,411 | 1,175 | 950 | 814 | 595 | 220 | 95 | 88 | 106 | 100 | |||||||||||||||||||||||||||||||
Foreign | 184 | 299 | 270 | 159 | 88 | 35 | 18 | 18 | 36 | 13 | ||||||||||||||||||||||||||||||
1,595 | 1,474 | 1,220 | 973 | 683 | 255 | 113 | 106 | 142 | 113 | |||||||||||||||||||||||||||||||
Table 31: Total provisions balance coverage of non-performing loans
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
% | % | % | % | % | ||||||||||||||||
United Kingdom | 72.4 | 74.2 | 71.2 | 72.5 | 71.1 | |||||||||||||||
Other European Union | 55.6 | 71.4 | 61.8 | 78.6 | 72.1 | |||||||||||||||
United States | 49.5 | 39.2 | 43.7 | 61.8 | 81.0 | |||||||||||||||
Rest of the World | 95.9 | 83.9 | 61.8 | 59.2 | 64.7 | |||||||||||||||
Total coverage of non-performing loans | 70.4 | 71.5 | 65.9 | 70.4 | 71.0 | |||||||||||||||
Table 32: Total provisions balance coverage of potential credit risk lending (NPLs and PPLs)
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
% | % | % | % | % | ||||||||||||||||
United Kingdom | 60.4 | 57.7 | 57.2 | 56.4 | 57.7 | |||||||||||||||
Other European Union | 55.6 | 65.0 | 61.8 | 77.5 | 71.4 | |||||||||||||||
United States | 45.3 | 23.4 | 33.0 | 28.6 | 22.6 | |||||||||||||||
Rest of the World | 61.7 | 67.5 | 49.3 | 51.9 | 53.4 | |||||||||||||||
Total coverage of potential credit risk lending | 59.2 | 54.6 | 52.8 | 52.9 | 54.5 | |||||||||||||||
70
Barclays PLC Annual Report 2004
Table 33: Ratios of general and specific provision balances
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
% | % | % | % | % | ||||||||||||||||
Specific provisions balances coverage of non-performing loans | 55.3 | 51.9 | 48.4 | 49.7 | 46.2 | |||||||||||||||
General provisions balances coverage of performing loans (excluding trading book) | 0.26 | 0.43 | 0.43 | 0.47 | 0.52 | |||||||||||||||
General provisions coverage of performing loans (including trading book) | 0.17 | 0.28 | 0.28 | 0.33 | 0.38 | |||||||||||||||
Liquidity Risk Management
Table 34: Analysis of weighted-average receive fixed and pay fixed rates by reset maturity date and nominal amount at 31st December 20032004
Sterling denominated contracts | Non-sterling denominated contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pay fixed | Receive fixed | Pay fixed | Receive fixed | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sterling denominated contracts | Non-sterling denominated contracts | Nominal | Average | Nominal | Average | Nominal | Average | Nominal | Average | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pay fixed | Receive fixed | Pay fixed | Receive fixed | amount | rate | amount | rate | amount | rate | amount | rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Nominal | Average | Nominal | Average | Nominal | Average | Nominal | Average | £m | % | £m | % | £m | % | £m | % | |||||||||||||||||||||||||||||||||||||||||||||||||
amount | rate | amount | rate | amount | rate | amount | rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£m | % | £m | % | £m | % | £m | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reset maturity date | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Not more than three months | 1,673 | 5.25 | 2,754 | 5.67 | 3,403 | 2.24 | 593 | 2.85 | 993 | 4.60 | 1,380 | 6.23 | 776 | 2.66 | 671 | 2.67 | ||||||||||||||||||||||||||||||||||||||||||||||||
Over three months but not more than six months | 2,696 | 5.36 | 946 | 5.76 | 152 | 3.32 | 268 | 3.38 | 2,633 | 5.11 | 1,242 | 6.43 | 778 | 2.70 | 385 | 3.70 | ||||||||||||||||||||||||||||||||||||||||||||||||
Over six months but not more than one year | 2,631 | 5.22 | 2,854 | 6.20 | 2,109 | 2.51 | 341 | 4.38 | 1,553 | 4.62 | 4,221 | 5.70 | 3,063 | 2.88 | 854 | 4.58 | ||||||||||||||||||||||||||||||||||||||||||||||||
Over one year but not more than five years | 7,097 | 5.24 | 24,807 | 5.17 | 2,523 | 5.12 | 3,347 | 6.17 | 5,806 | 5.24 | 24,250 | 5.04 | 2,382 | 4.23 | 4,711 | 4.03 | ||||||||||||||||||||||||||||||||||||||||||||||||
Over five years | 2,057 | 5.65 | 6,286 | 5.99 | 1,361 | 4.52 | 4,744 | 6.65 | 4,475 | 4.63 | 6,520 | 5.92 | 1,499 | 4.53 | 5,647 | 6.45 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | 16,154 | 5.31 | 37,647 | 5.44 | 9,548 | 3.40 | 9,293 | 6.06 | 15,460 | 4.94 | 37,613 | 5.36 | 8,498 | 3.51 | 12,268 | 5.10 | ||||||||||||||||||||||||||||||||||||||||||||||||
Analysis of weighted-average receive variable and pay variable rates by reset maturity date and nominal amount at 31st December 2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sterling denominated contracts | Non-sterling denominated contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receive variable | Pay variable | Receive variable | Pay variable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nominal | Average | Nominal | Average | Nominal | Average | Nominal | Average | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
amount | rate | amount | rate | amount | rate | amount | rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£m | % | £m | % | £m | % | £m | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reset maturity date | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Not more than three months | 12,951 | 3.19 | 27,230 | 3.89 | 7,460 | 2.17 | 8,437 | 3.55 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over three months but not more than six months | 6,041 | 4.07 | 13,304 | 4.20 | 2,357 | 2.55 | 1,162 | 2.01 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over six months but not more than one year | 62 | 4.12 | 13 | 3.65 | 86 | 1.53 | 35 | 3.10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over one year but not more than five years | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over five years | – | – | – | – | – | – | 14 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 19,054 | 3.47 | 40,547 | 3.99 | 9,903 | 2.25 | 9,648 | 3.36 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The net effectTable 35: Analysis of the derivative positions, in isolation, on net interest income was a credit of £240m (2002: £246m). This included credits of £273m (2002: £242m)weighted-average receive variable and debits of £33m (2002: credits of £4m) for interest ratepay variable rates by reset maturity date and exchange rate derivatives respectively.
Foreign exchange risk managementCorporate and retail banking businesses incur foreign exchange risk in the course of providing services to their customers. The part of this risk that arises in UK operations is transferred directly to and managed by Barclays Capital as reported in the previous section. Group Market Risk allocates modest foreign exchange open position limits to international operations to facilitate the management of customer originated flows. Exposures are reported daily to Group Market Risk. Throughout 2002 and 2003, aggregate DVaR of these businesses for foreign exchange rate risk was immaterial.
Management of foreign currency investmentsNon-trading positions in foreign currencies arise from the currency investments that the Group makes in its overseas businesses. Group Treasury manages the funding and financing of these investments so as to limit the effect of exchange rate movements on the Group’s risk asset ratios. The principal structural currency exposures of the Group are set out on page 142.
These positions, together with the currency composition of tiers 2 and 3 capital and minority interests in tier 1 and tier 2 capital, ensure that movements in exchange rates have little impact on the Group’s risk asset ratios. However, exchange rate movements do have an impact on reserves (see Consolidated statement of changes in reserves on page 111). With the positions in placenominal amount at 31st December 2003, a hypothetical increase of 10% in the value of sterling against all currencies would have led to a fall of some £79m in reserves (2002: £36m).2004
Sterling denominated contracts | Non-sterling denominated contracts | |||||||||||||||||||||||||||||||
Receive variable | Pay variable | Receive variable | Pay variable | |||||||||||||||||||||||||||||
Nominal | Average | Nominal | Average | Nominal | Average | Nominal | Average | |||||||||||||||||||||||||
amount | rate | amount | rate | amount | rate | amount | rate | |||||||||||||||||||||||||
£m | % | £m | % | £m | % | £m | % | |||||||||||||||||||||||||
Reset maturity date | ||||||||||||||||||||||||||||||||
Not more than three months | 17,093 | 4.24 | 29,649 | 5.10 | 10,070 | 2.26 | 13,073 | 2.66 | ||||||||||||||||||||||||
Over three months but not more than six months | 5,725 | 4.96 | 15,821 | 5.03 | 1,601 | 2.35 | 2,433 | 2.51 | ||||||||||||||||||||||||
Over six months but not more than one year | 542 | 5.05 | 43 | 5.31 | 633 | 2.19 | 144 | 2.95 | ||||||||||||||||||||||||
Over one year but not more than five years | – | – | – | – | – | – | 424 | 2.27 | ||||||||||||||||||||||||
Over five years | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Total | 23,360 | 4.44 | 45,513 | 5.07 | 12,304 | 2.26 | 16,074 | 2.63 | ||||||||||||||||||||||||
56
71
Additional information on liquidity managementThe tables below give details of the contractual obligations and commercial commitments of the Group as at 31st December 2003.
Contractual obligations
Payments due by period | ||||||||||||||||||||
Less than | One to | Four to | After | Total | ||||||||||||||||
one | three | five | five | |||||||||||||||||
year | years | years | years | |||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Long-term debt | 33,812 | 2,746 | 8,138 | 10,902 | 55,598 | |||||||||||||||
Capital lease obligations | 15 | 17 | 42 | 36 | 110 | |||||||||||||||
Operating lease obligations | 198 | 390 | 347 | 1,851 | 2,786 | |||||||||||||||
Purchase obligations | 273 | 377 | 123 | 73 | 846 | |||||||||||||||
Other long-term liabilities | 7 | – | – | – | 7 | |||||||||||||||
Total | 34,305 | 3,530 | 8,650 | 12,862 | 59,347 | |||||||||||||||
Included within long-term debt is dated loan capital and debts securities in issue.
Purchase obligations relate to contracts for the provision of services such as office supplies, telecommunications and maintenance and sponsorship agreements where the Bank has entered into legally binding contracts to purchase products or services over a specified period of time.
Other long-term liabilities relate to obligations relating to the Group’s main defined benefit pension plans. Amounts are based on current and projected obligations of the plans, performance of plan assets and participant contributions.
Other commercial commitments
Amount of commitment expiration per period | ||||||||||||||||||||
Less than | One to | Four to | After | Total | ||||||||||||||||
one | three | five | five | amounts | ||||||||||||||||
year | years | years | years | committed | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Acceptances and endorsements | 581 | 90 | – | – | 671 | |||||||||||||||
Guarantees and assets pledged as collateral security | 20,789 | 1,750 | 1,173 | 884 | 24,596 | |||||||||||||||
Other contingent liabilities | 6,455 | 920 | 690 | 362 | 8,427 | |||||||||||||||
Documentary credits and other short-term trade related transactions | 352 | 5 | 1 | 1 | 359 | |||||||||||||||
Forward asset purchases and forward forward deposits placed | 72 | – | – | 16 | 88 | |||||||||||||||
Undrawn Note issuance and revolving underwriting facilities | – | – | – | – | – | |||||||||||||||
Undrawn formal standby facilities, credit lines and other commitments to lend | 87,240 | 15,845 | 8,684 | 2,631 | 114,400 | |||||||||||||||
Total | 115,489 | 18,610 | 10,548 | 3,894 | 148,541 | |||||||||||||||
Further information on guarantees is provided in Note 61 on page 187.
Barclays PLC Annual Report 2003 57
Risk ManagementManagement of Other Risks
In addition to the risks discussed so far, Barclays also faces a number of other risks which it groups and manages under Non-financial risk. Non-financial risk encompasses operational risk and business risk:
Operational riskis the risk of direct or indirect impacts resulting from inadequate or failed internal processes or systems or from external events. Major sources of operational risk include: implementation of strategic change, integration of acquisitions, outsourcing of operations, dependence on key suppliers, fraud, error, customer service quality, regulatory compliance, payment systems’ reliability, IT security, recruitment, training and retention of staff, and social and environmental impacts.
Business riskis the risk of adverse impact resulting from a weak competitive position or from poor choice of strategy, markets, products, activities or structures. Major potential sources of business risk include: revenue volatility due to factors outside our control; inflexible cost structures; uncompetitive products or pricing; and structural inefficiencies.
Barclays is expanding its Group-wide commitment to the management of these risks. Barclays will continue to enhance its non-financial practices and methodologies where appropriate and will implement advanced non-financial risk management to enhance shareholder value and the quality of customer service.
Responsibility and control of non-financial risksBarclays has a Group-wide non-financial risk framework, which is approved by the Board and is consistent with and part of the Group Risk Governance framework described earlier. Board Governance Standards have been established for all key areas of identified risk. These standards are high-level articulations of the Board’s risk control requirements.
Non-financial risk is subject to management and oversight throughout the organisation.
Measurement and management of non-financial risk
Risk assessmentA consistent approach to the identification and assessment of key risks and controls is undertaken across all business units. Scenario analysis and self-assessment techniques are widely used by business management for risk identification and evaluation of control effectiveness and monitoring capability. Business management determine whether particular risks are effectively managed within business risk appetite or otherwise take remedial action.
Risk event data collection and reportingA standard process is used Group-wide for the recognition, capture, assessment, analysis and reporting of risk events. Quantitative information about both internal and external risk events is used to analyse scenarios and to validate quantitative risk assessments.
ReportingBusiness units are required to report on both a regular and an event-driven basis. The reports include a profile of the key risks to their business objectives, control issues of Group-level significance, and operational risk events (losses or incidents). Specific reports are prepared on a regular basis for the Group Risk Oversight Committee, the Board Risk Committee and the Board Audit Committee.
Economic capitalAs for other risks, economic capital methodologies have been developed to allocate capital to business units for both operational and business risks. This risk-based capital provides businesses with incentives to demonstrate implementation of risk reduction practices or policies. The operational risk economic capital methodology includes the modelling of dominant unexpected risks and adjustments to reflect the business control environment. Continued enhancement of this methodology will support Barclays objective of qualifying for the ‘Advanced Measurement Approach’ under the proposed Basel II Accord.
Regulatory compliance risk managementRegulatory compliance risk arises from a failure or inability to comply with the laws, regulations or codes applicable specifically to the financial services industry. Non-compliance can lead to fines, public reprimands, damage to reputation, enforced suspension of operations or, in extreme cases, withdrawal of authorisation to operate.
The Group is subject to extensive supervisory and regulatory regimes in the UK, elsewhere in Europe, the US, the Asia-Pacific region and in the other countries around the world in which it operates. Effective management of regulatory compliance risk is a key business line management accountability. It is the primary responsibility of business management to conduct business in accordance with applicable regulations and with an awareness of compliance risk. The Group Compliance Director is responsible for formulating and communicating a risk control framework for the management of compliance risk and for monitoring a reporting framework to assist business management in discharging its responsibility.
58
Legal risk managementEffective management of legal risk is a key business line management accountability. It is the primary responsibility of business management to conduct business in accordance with applicable laws and with an awareness of legal risk. Legal risk may arise in a number of ways, primarily:
The Group identifies and manages legal risk through the effective use of its internal and external legal advisers. The Group General Counsel is responsible for formulating and communicating a risk control framework for the management of legal risk and for monitoring a reporting framework to assist business management in discharging its responsibility.
Tax risk managementThis is the risk of loss or increased charges associated with changes in, or errors in the interpretation of, taxation rates or law. Responsibility for control of this lies with the Group Taxation Director, reporting to the Group Finance Director, and systems are in place to identify and manage this risk.
This includes taking external advice as necessary. The businesses are advised of their obligations to comply with tax and reporting requirements. Whilst managed centrally, taxation staff are located within the business areas, in the UK and overseas, where this adds to the effectiveness of risk management.
Barclays PLC Annual Report 2003 59
Section 2
Results
6072
Financial Data Barclays PLC
Profit before tax
Earnings per share
Post-tax return on average shareholders’ funds
Dividends per share
Barclays PLC Annual Report 2003 61
Financial Datadata Barclays PLC
Consolidated profit and loss account summary(a)
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||
Interest receivable | 12,427 | 12,044 | 13,458 | 11,788 | 9,320 | 13,665 | 12,427 | 12,044 | 13,458 | 11,788 | ||||||||||||||||||||||||||||||
Interest payable | (5,823 | ) | (5,839 | ) | (7,492 | ) | (6,682 | ) | (4,696 | ) | (6,823 | ) | (5,823 | ) | (5,839 | ) | (7,492 | ) | (6,682 | ) | ||||||||||||||||||||
Profit on redemption/repurchase of loan capital | – | – | – | 2 | 3 | – | – | – | – | 2 | ||||||||||||||||||||||||||||||
Net interest income | 6,604 | 6,205 | 5,966 | 5,108 | 4,627 | 6,842 | 6,604 | 6,205 | 5,966 | 5,108 | ||||||||||||||||||||||||||||||
Fees and commissions receivable | 4,896 | 4,454 | 4,202 | 3,676 | 3,201 | 5,672 | 4,896 | 4,454 | 4,202 | 3,676 | ||||||||||||||||||||||||||||||
Less: fees and commissions payable | (633 | ) | (529 | ) | (465 | ) | (320 | ) | (275 | ) | (706 | ) | (633 | ) | (529 | ) | (465 | ) | (320 | ) | ||||||||||||||||||||
Dealing profits | 1,054 | 833 | 1,011 | 677 | 556 | 1,493 | 1,054 | 833 | 1,011 | 677 | ||||||||||||||||||||||||||||||
Other operating income | 490 | 364 | 428 | 353 | 287 | 644 | 490 | 364 | 428 | 353 | ||||||||||||||||||||||||||||||
Operating income | 12,411 | 11,327 | 11,142 | 9,494 | 8,396 | 13,945 | 12,411 | 11,327 | 11,142 | 9,494 | ||||||||||||||||||||||||||||||
Administration expenses – staff costs | (4,295 | ) | (3,755 | ) | (3,714 | ) | (3,219 | ) | (3,057 | ) | (4,998 | ) | (4,295 | ) | (3,755 | ) | (3,714 | ) | (3,219 | ) | ||||||||||||||||||||
Administration expenses – other | (2,404 | ) | (2,312 | ) | (2,303 | ) | (1,967 | ) | (1,807 | ) | (2,758 | ) | (2,404 | ) | (2,312 | ) | (2,303 | ) | (1,967 | ) | ||||||||||||||||||||
Depreciation | (289 | ) | (303 | ) | (308 | ) | (255 | ) | (267 | ) | (295 | ) | (289 | ) | (303 | ) | (308 | ) | (255 | ) | ||||||||||||||||||||
Goodwill amortisation | (265 | ) | (254 | ) | (229 | ) | (51 | ) | (13 | ) | (299 | ) | (265 | ) | (254 | ) | (229 | ) | (51 | ) | ||||||||||||||||||||
Operating expenses | (7,253 | ) | (6,624 | ) | (6,554 | ) | (5,492 | ) | (5,144 | ) | (8,350 | ) | (7,253 | ) | (6,624 | ) | (6,554 | ) | (5,492 | ) | ||||||||||||||||||||
Operating profit before provisions | 5,158 | 4,703 | 4,588 | 4,002 | 3,252 | 5,595 | 5,158 | 4,703 | 4,588 | 4,002 | ||||||||||||||||||||||||||||||
Provisions for bad and doubtful debts | (1,347 | ) | (1,484 | ) | (1,149 | ) | (817 | ) | (621 | ) | (1,091 | ) | (1,347 | ) | (1,484 | ) | (1,149 | ) | (817 | ) | ||||||||||||||||||||
Provisions for contingent liabilities and commitments | 1 | (1 | ) | (1 | ) | 1 | (1 | ) | (2 | ) | 1 | (1 | ) | (1 | ) | 1 | ||||||||||||||||||||||||
Provisions | (1,346 | ) | (1,485 | ) | (1,150 | ) | (816 | ) | (622 | ) | (1,093 | ) | (1,346 | ) | (1,485 | ) | (1,150 | ) | (816 | ) | ||||||||||||||||||||
Operating profit | 3,812 | 3,218 | 3,438 | 3,186 | 2,630 | 4,502 | 3,812 | 3,218 | 3,438 | 3,186 | ||||||||||||||||||||||||||||||
Profit/(loss) from joint ventures | 1 | (5 | ) | (1 | ) | (1 | ) | (1 | ) | |||||||||||||||||||||||||||||||
(Loss)/profit from joint ventures | (3 | ) | 1 | (5 | ) | (1 | ) | (1 | ) | |||||||||||||||||||||||||||||||
Profit/(loss) from associated undertakings | 28 | (5 | ) | (8 | ) | (7 | ) | (13 | ) | 59 | 28 | (5 | ) | (8 | ) | (7 | ) | |||||||||||||||||||||||
Loss on sale or restructuring of BZW | – | – | – | – | (30 | ) | ||||||||||||||||||||||||||||||||||
Profit/(loss) on disposal/termination of other Group undertakings | 4 | (3 | ) | (4 | ) | 214 | (108 | ) | ||||||||||||||||||||||||||||||||
Exceptional items | 45 | 4 | (3 | ) | (4 | ) | 214 | |||||||||||||||||||||||||||||||||
Profit on ordinary activities before tax | 3,845 | 3,205 | 3,425 | 3,392 | 2,478 | 4,603 | 3,845 | 3,205 | 3,425 | 3,392 | ||||||||||||||||||||||||||||||
Tax on profit on ordinary activities | (1,076 | ) | (955 | ) | (943 | ) | (901 | ) | (655 | ) | (1,289 | ) | (1,076 | ) | (955 | ) | (943 | ) | (901 | ) | ||||||||||||||||||||
Profit on ordinary activities after tax | 2,769 | 2,250 | 2,482 | 2,491 | 1,823 | 3,314 | 2,769 | 2,250 | 2,482 | 2,491 | ||||||||||||||||||||||||||||||
Profit attributable to minority and other non-equity interests | (25 | ) | (20 | ) | (36 | ) | (46 | ) | (52 | ) | ||||||||||||||||||||||||||||||
Minority interests (including non-equity interests) | (46 | ) | (25 | ) | (20 | ) | (36 | ) | (46 | ) | ||||||||||||||||||||||||||||||
Profit for the financial year attributable to the members of Barclays PLC | 2,744 | 2,230 | 2,446 | 2,445 | 1,771 | 3,268 | 2,744 | 2,230 | 2,446 | 2,445 | ||||||||||||||||||||||||||||||
Dividends | (1,340 | ) | (1,206 | ) | (1,110 | ) | (927 | ) | (746 | ) | (1,538 | ) | (1,340 | ) | (1,206 | ) | (1,110 | ) | (927 | ) | ||||||||||||||||||||
Profit retained for the financial year | 1,404 | 1,024 | 1,336 | 1,518 | 1,025 | 1,730 | 1,404 | 1,024 | 1,336 | 1,518 | ||||||||||||||||||||||||||||||
Selected financial statistics
Earnings per ordinary share | 42.3p | 33.7p | 36.8p | 40.4p | 29.6p | 51.2p | 42.3p | 33.7p | 36.8p | 40.4p | ||||||||||||||||||||||||||||||
Dividends per ordinary share | 20.5p | 18.35p | 16.625p | 14.50p | 12.50p | 24.00p | 20.50p | 18.35p | 16.63p | 14.50p | ||||||||||||||||||||||||||||||
Dividend cover (times) | 2.1 | 1.8 | 2.2 | 2.6 | 2.4 | |||||||||||||||||||||||||||||||||||
Dividend payout ratio | 46.9% | 48.5% | 54.5% | 45.2% | 35.9% | |||||||||||||||||||||||||||||||||||
Attributable profit before tax as a percentage of: | ||||||||||||||||||||||||||||||||||||||||
average shareholders’ funds | 23.5% | 21.0% | 23.9% | 33.8% | 29.2% | 26.7% | 23.6% | 21.0% | 23.9% | 33.8% | ||||||||||||||||||||||||||||||
Attributable profit after tax as a percentage of: | ||||||||||||||||||||||||||||||||||||||||
average shareholders’ funds | 16.9% | 14.7% | 17.4% | 24.8% | 21.5% | 19.2% | 17.0% | 14.7% | 17.4% | 24.8% | ||||||||||||||||||||||||||||||
average total assets (Note (b)) | 0.6% | 0.5% | 0.6% | 0.8% | 0.7% | 0.5% | 0.6% | 0.5% | 0.6% | 0.8% | ||||||||||||||||||||||||||||||
Average United States Dollar exchange rate used in preparing the accounts | 1.64 | 1.50 | 1.44 | 1.52 | 1.62 | 1.83 | 1.64 | 1.50 | 1.44 | 1.52 | ||||||||||||||||||||||||||||||
Average euro exchange rate used in preparing the accounts | 1.45 | 1.59 | 1.61 | 1.64 | 1.52 | 1.47 | 1.45 | 1.59 | 1.61 | 1.64 | ||||||||||||||||||||||||||||||
See Notes on page 63.74.
73
62
Financial data Barclays PLC
Consolidated balance sheet summary(a)
2003 | 2002 | 2001 | 2000 | 1999 | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||||||||||
restated | restated | restated | restated | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Loans and advances to banks and customers | 288,743 | 260,572 | 228,382 | 198,536 | 156,194 | 330,077 | 288,743 | 260,572 | 228,382 | 198,536 | ||||||||||||||||||||||||||||||
Other assets | 139,917 | 129,191 | 113,923 | 102,489 | 88,507 | 177,009 | 139,818 | 129,136 | 113,917 | 102,484 | ||||||||||||||||||||||||||||||
428,660 | 389,763 | 342,305 | 301,025 | 244,701 | 507,086 | 428,561 | 389,708 | 342,299 | 301,020 | |||||||||||||||||||||||||||||||
Infrastructure | 6,624 | 6,015 | 6,137 | 6,450 | 2,089 | 6,625 | 6,624 | 6,015 | 6,137 | 6,450 | ||||||||||||||||||||||||||||||
435,284 | 395,778 | 348,442 | 307,475 | 246,790 | 513,711 | 435,185 | 395,723 | 348,436 | 307,470 | |||||||||||||||||||||||||||||||
Retail life-fund assets attributable to policyholders | 8,077 | 7,284 | 8,170 | 8,711 | 8,040 | 8,378 | 8,077 | 7,284 | 8,170 | 8,711 | ||||||||||||||||||||||||||||||
Total assets | 443,361 | 403,062 | 356,612 | 316,186 | 254,830 | 522,089 | 443,262 | 403,007 | 356,606 | 316,181 | ||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Deposits by banks, customer accounts and debt securities in issue | 328,529 | 304,817 | 273,073 | 240,607 | 191,781 | 396,548 | 328,529 | 304,817 | 273,073 | 240,607 | ||||||||||||||||||||||||||||||
Other liabilities | 77,660 | 64,067 | 50,763 | 45,715 | 41,567 | 86,568 | 77,660 | 64,067 | 50,763 | 45,715 | ||||||||||||||||||||||||||||||
406,189 | 368,884 | 323,836 | 286,322 | 233,348 | 483,116 | 406,189 | 368,884 | 323,836 | 286,322 | |||||||||||||||||||||||||||||||
Capital resources | ||||||||||||||||||||||||||||||||||||||||
Undated loan capital | 6,310 | 6,678 | 5,054 | 4,022 | 1,749 | 6,149 | 6,310 | 6,678 | 5,054 | 4,022 | ||||||||||||||||||||||||||||||
Dated loan capital | 6,029 | 4,859 | 4,933 | 3,698 | 2,848 | 6,128 | 6,029 | 4,859 | 4,933 | 3,698 | ||||||||||||||||||||||||||||||
Minority and other interests | 283 | 156 | 134 | 250 | 352 | |||||||||||||||||||||||||||||||||||
Shareholders’ funds | 16,473 | 15,201 | 14,485 | 13,183 | 8,493 | |||||||||||||||||||||||||||||||||||
Minority interests (including non-equity interests) | 901 | 283 | 156 | 134 | 250 | |||||||||||||||||||||||||||||||||||
Shareholders’ funds: equity | 17,417 | 16,374 | 15,146 | 14,479 | 13,178 | |||||||||||||||||||||||||||||||||||
29,095 | 26,894 | 24,606 | 21,153 | 13,442 | 30,595 | 28,996 | 26,839 | 24,600 | 21,148 | |||||||||||||||||||||||||||||||
435,284 | 395,778 | 348,442 | 307,475 | 246,790 | 513,711 | 435,185 | 395,723 | 348,436 | 307,470 | |||||||||||||||||||||||||||||||
Retail life-fund liabilities attributable to policyholders | 8,077 | 7,284 | 8,170 | 8,711 | 8,040 | 8,378 | 8,077 | 7,284 | 8,170 | 8,711 | ||||||||||||||||||||||||||||||
Total liabilities and shareholders’ funds | 443,361 | 403,062 | 356,612 | 316,186 | 254,830 | 522,089 | 443,262 | 403,007 | 356,606 | 316,181 | ||||||||||||||||||||||||||||||
Weighted risk assets and capital ratios
Weighted risk assets | 188,997 | 172,748 | 158,873 | 147,040 | 115,878 | 218,601 | 188,997 | 172,748 | 158,873 | 147,040 | ||||||||||||||||||||||||||||||
Equity ratio | 6.5% | 6.6% | 6.6% | 6.2% | 7.5% | |||||||||||||||||||||||||||||||||||
Tier 1 ratio | 7.9% | 8.2% | 7.8% | 7.2% | 7.5% | 7.6% | 7.9% | 8.2% | 7.8% | 7.2% | ||||||||||||||||||||||||||||||
Risk asset ratio | 12.8% | 12.8% | 12.5% | 11.0% | 11.3% | 11.5% | 12.8% | 12.8% | 12.5% | 11.0% | ||||||||||||||||||||||||||||||
Selected financial statistics
Average shareholders’ funds as a percentage of average total assets (Note (b)) | 3.3% | 3.5% | 3.7% | 3.2% | 3.4% | 2.7% | 3.3% | 3.5% | 3.7% | 3.2% | ||||||||||||||||||||||||||||||
Net asset value per ordinary share | 251p | 231p | 217p | 198p | 142p | 270p | 250p | 230p | 217p | 198p | ||||||||||||||||||||||||||||||
Year-end United States Dollar exchange rate used in preparing the accounts | 1.78 | 1.61 | 1.45 | 1.49 | 1.62 | 1.92 | 1.78 | 1.61 | 1.45 | 1.49 | ||||||||||||||||||||||||||||||
Year-end euro exchange rate used in preparing the accounts | 1.41 | 1.54 | 1.64 | 1.60 | 1.61 | 1.41 | 1.41 | 1.54 | 1.64 | 1.60 | ||||||||||||||||||||||||||||||
(a) | The financial information on pages | |
(b) | For the purposes of this summary, the retail life-fund assets attributable to policyholders have been excluded from average total assets. | |
Note |
74
Barclays PLC Annual Report 2003 63
Business Descriptiondescription
Business Description
Introduction
UK Banking
UK Banking delivers banking solutions to Barclays is an international financialUK retail and business banking customers. It offers a range of integrated products and services group engaged primarily inand access to the expertise of other Group businesses. Customers are served through a variety of channels comprising: the branch network, automated teller machines, telephone banking, investmentonline banking and asset management. In termsrelationship managers. UK Banking is managed through two business areas, UK Retail Banking and UK Business Banking.
UK Retail Banking
UK Retail Banking comprises Personal Customers, Mortgages, Small Business and UK Premier. The bringing together of market capitalisation employed, Barclays is onethese businesses enables the building of the largest financial services groups in the UK. The Group also operates in many other countriesbroader and is a leading provider of global services to multinational corporationsdeeper relationships with both existing and financial institutions in the world’s main financial centres. Worldwide, the Barclays Group had 2,916 branches at 31st December 2003.
The Group is organised in Strategic Business Units (SBUs), which are supported by shared services. Each SBU has been tasked with identifyingnew customers. Personal Customers and implementing value maximising strategies, and achieving these by creating advantage for customers through superior products and services.
For reporting purposes, the SBUs have been organised into the following business groups or clusters:
Results are also provided for Head office functions and other operations. The results for Personal Financial Services and Business Banking are reported after allocating the costs of shared support functions, the UK branch network and other common infrastructure.
The structural changes in the Group’s organisation announced on 9th October 2003 took effect from 1st January 2004.
Personal Financial Services
Personal Financial Services (PFS) providesMortgages provide a wide range of products and services to over 14 million personalretail customers, throughout the United Kingdom, including current accounts, savings, mortgages, consumer loans and general insurance. These are available to customers through integrated channels comprising the branch network, automated teller machines, telephoneSmall Business provides banking and online banking.
PFS works closely with other businesses in the Group, in particular Barclays Private Clients, Barclaycard and Business Banking.
Openplan from Barclays and The Woolwich is an integrated banking service that links customers’ current account, savings and mortgage, allowing customers automatically to switch money to earn a higher rate of interest, avoid overdraft charges, offset credit balances against mortgage balances and borrow at mortgage rates. Openplan offers access through the branch, on the phone and over the internet.
Within PFS, the principal goal has been to do more business with more customers. This has been achieved by building broader and deeper relationships with the existing customer base as well as attracting new customers. There has also been a focus on increasing risk-adjusted returns and continuing to strengthen the quality of the lending portfolio.
Key business developments in 2003:
64
Barclays Private Clients
Barclays Private Clients serves affluent and high net worth clients, primarily in the UK and continental Europe, providing banking and asset management services.
The businesses have continued to maintain a strong focus on improving operational efficiency and developing a distinctive customer service.
The comparison with the 2002 results is impacted by the Caribbean business being accounted for as an associated undertaking, following the formation of FirstCaribbean on 11th October 2002, and by the acquisitions made during 2003.
The contribution recognised from the closed life assurance activities is reported separately to provide increased transparency in the financial reporting within Barclays Private Clients.
Barclays Private Clients works closely with other Group businesses, particularly Personal Financial Services, Business Banking, Barclays Global Investors and Barclays Capital, in order to enhance product development and customer service.
Key business developments in 2003:
Barclaycard
Barclaycard is one of the leading credit card businesses in Europe. In addition to its operations in the United Kingdom, Barclaycard is active in Germany, Spain, Greece, France, Italy and across Africa.
Barclaycard offers a full range of credit card services to individual566,000 small businesses. UK Premier provides banking, investment products and corporate customers, together with card payment facilitiesadvice to retailers and other businesses.some 273,000 affluent customers.
Barclaycard continued to grow both its domestic and international businesses through organic and non-organic activity in 2003.
Key business developments in 2003:
Barclays PLC Annual Report 2003 65
Business Description
Business Banking
UK Business Banking provides relationship banking to the Group’s large,larger and medium and small business customers in the United Kingdom. Customers are served by a network of relationship and industry sector specialist managers who provide local access to an extensive range of products and services, as well as offering business information and support. Customers are also offered access to business centres in continental Europe and to the products and expertise of other businesses in the Group.Group, particularly Barclays Capital.
The strategy to accelerate business growth is underpinned by the Value Aligned Performance Measurement (VAPM) system which is linked to targetsPrivate Clients and reward. VAPM helps demonstrate the additional value that is generated through the acquisition of new customers, together with the strengtheningInternational
Private Clients and International manages Barclays wealth management operations and the expansion of relationships with existing customers.Group’s international retail and commercial banking activities. It is managed as two distinct businesses.
KeyPrivate Clients
Private Clients serves affluent, high net worth and corporate clients, primarily in the UK and continental Europe, providing private banking, offshore banking, stockbroking and asset management services, as well as financial planning services to a broader customer base. Private Clients comprises two businesses: International and Private Banking; and Wealth Solutions (which includes Barclays Financial Planning, Barclays Stockbrokers and the Gerrard business, developmentswhich was acquired in 2003:
Barclays Africa
Barclays AfricaInternational
International provides a range of banking services, including current accounts, savings, investments, mortgages and consumer loans to personal and corporate customers in North Africa, sub-Saharanacross Spain, Portugal, France, Italy, the Caribbean, Africa and islands in the Indian Ocean. The portfolio comprises banking operations in Botswana, Egypt, Ghana, Kenya, Mauritius, Seychelles, South Africa, Tanzania, Uganda, ZambiaMiddle East. International also includes the results of the FirstCaribbean business, accounted for as an associated undertaking.
Barclaycard
Barclaycard is a multi-brand credit card and Zimbabwe.
Barclaysconsumer lending business with an increasing international presence and is one of the leading international bankscredit card businesses in Europe.
In the UK, Barclaycard operates the Barclaycard branded credit cards, Barclays branded consumer loans – particularly Barclayloan – and also comprises FirstPlus, Clydesdale Financial Services and Monument credit cards.
Outside the UK, Barclaycard International is active in the region serving 1.5mUnited States, Germany, Spain, Greece, Italy, Portugal, Republic of Ireland and across Africa. The acquisition of the US credit card issuer, Juniper Financial Corporation, was completed on 1st December 2004. Juniper provides a platform for the expansion of Barclaycard’s international business into the US credit card market.
Barclaycard Business processes card payments for retailers and merchants and issues cards to corporate customers. The strategy is to develop and grow the franchise through the migration of products skills and processes from
Barclaycard works closely with other parts of the Barclays Group.Group, including UK Retail Banking, UK Business Banking and International, to leverage their distribution capability.
Key business developments in 2003:
66
Barclays Capital
Barclays Capital is thea leading global investment banking division of Barclays, providingbank which provides large corporate, institutional and government clients with solutions to their financing and risk management needs.
The Barclays Capital business model is distinctive. It focuses on a broad span of financing and risk management services. It services in thea wide variety of client needs, from capital raising and managing foreign exchange, interest rate foreign exchange, commodities and credit markets combined with certain capabilities in equities. commodity risks, through to providing technical advice and expertise.
Activities are splitprimarily divided between two areas: Rates, which includes fixed income, foreign exchange, commodities, emerging markets, money markets sales, trading and research, prime brokerage and equity related activities; and Credit, which includes origination, sales, trading and research relating to loans, debt capital markets, structured capital markets, commercial mortgage backed securities, private equity and private equity.large asset leasing.
Barclays Capital works increasingly with other Group businesses, including Barclays Private Clients, 75
Business Banking and Description
Barclays Global Investors to provide a more integrated customer service and to develop business opportunities across the Group.
Key business developments in 2003:
Barclays Global Investors
Barclays Global Investors (BGI) is one of the world’s largest asset managers and a leading global provider of investment management products and services.
BGI offers structured investment strategies such as indexing, tacticalglobal asset allocation and risk-controlledrisk controlled active products, such asincluding hedge funds.
BGI also provides related investment services such as securities lending, cash management and portfolio transition services. Barclays Global InvestorsIn addition, BGI is the global product leader in Exchange Traded Funds (iShares), with over 100 funds for institutions and individuals trading in ten global markets. BGI’s investment philosophy focusesis founded on managing all dimensions of performance:performance with a consistent focus on controlling risk, return risk and cost.
Key business developments in 2003:
Barclays PLC Annual Report 2003 67
Business Description
Head office functionsOffice Functions and other operations
Other Operations
Head office functions comprise all the Group’s central activities,costs, including Groupthe following areas that fall within Central Support: Executive GroupManagement, Finance, Treasury, Marketing, and Communications, Human Resources, Group Strategy and Planning, Internal Audit, Marketing, Legal, Corporate Secretariat, Tax, Compliance and Risk. Central function costsCosts incurred wholly on behalf of the business units are recharged to them.
Transition Businesses comprise discontinued South American and Middle Eastern corporate banking businesses and other centrally managed Transition Businesses. These non-core relationships are now being managed separately with the objective of maximising the recovery from the assets concerned.
Central items include internal fees charged by Barclays Capital for structured capital markets activities, income from the management of the Group’s operational premises, property related services and other central items including activities which support the operating business and provide central information technology services.business.
Competition and outlookOutlook
The Barclays Group operates in a number of highly competitive environments. Competitors include other banks, brokerage firms, investment banking companies, credit card companies, mortgage companies, leasing companies, and a variety of other financial services and advisory companies.
The UK financial services market remains highly competitive and innovative. Competition comes both from incumbent players and a steady stream of new market entrants. The landscape is expected to remain highly competitive in all our businesses. Barclays remains at the forefront of market innovation to introduce new propositions to the market.
The landscape is expected to remain highly competitive in all our businesses. Wemarket, and we are confident that the integrated business model employed by the Group,Group’s portfolio of businesses, combined with rigorousa focus on improving franchise health and the continued application of managing for valuevalue-based management principles, will stand the Group in good stead to meet the challenges ahead.
The Group believes that the UK domestic economy is likely to perform well relative to the rest of Europe. A strong pick-up in external economic conditions – particularly from the United States – should help to bolster economic activityrecent growth in the UK further and encourage a modest recoveryeconomy may weaken in the Eurozone.
Financial markets recovered somewhat from the very low points reached in 2002, also reflecting the global economic recovery. Interest ratesshort term, driven by a cooling in the consumer market in response to a more subdued housing market and also by a weaker international economy. The US and UK bottomed outeconomy is expected to be more subdued, partly because of oil price strength but also because of the need to resolve imbalances in the latter part of 2003, creating conditionseconomy, in particular the federal and current account deficits. This may have important implications for modest rises overgrowth, interest rates and exchange rates around the next 12 months.world, and particularly for Continental Europe, where growth has been dependent on exports.
Group structure
Within Barclays Private Clients, the contribution recognised from the closed life assurance activities is reported separately to provide increased transparency.
The Group identified certain non-strategic operationsfinancial services industry has undergone consolidation in the Middle East which were previously reported within Barclays Capital. These are now separately managed with the objective of maximising the recovery from the assets concerned. These operations, together with South American Corporate Banking, which was separately identifiedrecent years, as companies involved in 2002, and residual balances from other Transition Businesses, are collectively reported as Transition Businesses within Head office functions and other operations.
The structural changes in the Group’s organisation announced on 9th October 2003 took effect from 1st January 2004.
68
Changes in accounting presentation
In 2003, the SEC adopted regulations relating to the presentationa broad range of financial data whichservices have merged, and this is not based on the Generally Accepted Accounting Principles (GAAP) applied by SEC reporting companies. These regulations are commonly referredexpected to continue. This consolidation could result in competition becoming more intense, as Regulation G.firms continue to compete with companies that may be larger, better capitalised or have stronger local presences in certain geographies.
Barclays has in the past published both Group statutory financial statements, as well as GroupSupervision and business further analyses which were designed to assist the understanding of underlying operating trends. In this Annual Report, Barclays presents its financial results solely on a GAAP basis.
As a consequence, goodwill amortisation, restructuring costs and costs directly associated with the integration of Woolwich plc are included in all presentations of Group operating expenses and operating profit, while the profit/(loss) from joint ventures and associates is taken into account below operating profit.
The analysis of results by business incorporates goodwill amortisation, restructuring costs, costs directly associated with the integration of Woolwich plc and profit/(loss) from joint ventures and associates in a manner consistent with the Group presentation detailed above. Additionally, exceptional items are now allocated out to individual businesses. This is a different treatment to that included in the Results Announcement where the analysis of results by business excludes goodwill amortisation and exceptional items, and separately identifies restructuring costs.
The prior period presentation has, where appropriate, been restated to conform with current year classification, and the change in accountancy policies discussed above.
Accounting developments in UK GAAP are described on pages 105 to 106 and those under US GAAP are described on pages 170 to 171.
Barclays PLC Annual Report 2003 69
Financial ReviewOverview
Introduction
Barclays is an international financial services group engagedinvolved primarily in Banking, Investment Banking and Asset Management, and has operations in some 60 countries. The Group’s operations, including its overseas offices subsidiary and associated undertakings, are subject to rules and regulations, including reserve and reporting requirements and conduct of business requirements imposed by the relevant central banks and regulatory authorities.
In the UK, the Financial Services Authority (FSA) is the independent body responsible for the regulation of deposit taking, life insurance and investment business. From 31st October 2004, the FSA assumed responsibility for the regulation of mortgage lending, sales and administration and from 14th January 2005, for the sale and administration of general insurance contracts. The FSA was established by the Government and it exercises statutory powers under the Financial Services and Markets Act 2000 (FSMA).
Barclays Bank PLC is authorised by the FSA to carry on a range of regulated activities within the UK and is subject to consolidated supervision. In its role as supervisor, the FSA is seeking to ensure the safety and soundness of financial institutions with the aim of strengthening, but not guaranteeing, the protection of customers.
The FSA’s continuing supervision of financial institutions authorised by it is conducted through a variety of regulatory tools, including the collection of information from statistical and prudential returns, reports obtained from skilled persons, visits to firms and regular meetings with management to discuss issues such as performance, risk management and strategy.
Under the FSA’s risk-based approach to supervision, the starting point for the FSA’s supervision of all financial institutions is based on a systematic analysis of the risk profile for each authorised firm. The FSA has adopted a homogeneous risk, processes and resourcing model in its approach to its supervisory responsibilities (known as the ARROW model) and the results of the risk assessment are used by the FSA to develop a risk mitigation programme for a firm. The FSA also promulgates requirements that banks and other financial institutions are required to meet on matters such as capital adequacy (see Capital ratios on pages 100 and 101), limits on large exposures to individual entities and groups of closely connected entities, and liquidity.
Banks, insurance companies and other financial institutions in the UK are subject to a single financial services compensation scheme (the Financial Services Compensation Scheme) where an authorised firm is unable or is likely to be unable to meet claims made against it due to its financial circumstances. Different levels of compensation are available to eligible claimants depending upon whether the protected claim is in relation to a deposit, a contract of insurance or protected investment business. The manager of the Scheme is able to make an offer of compensation or, in respect of insurance contracts, offer to continue cover or provide assistance to an insurance undertaking to
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Barclays PLC Annual Report 2004
allow it to continue insurance business in accordance with the rules of the Scheme. Most deposits made with branches of Barclays Bank PLC within the European Economic Area (EEA) which are denominated in sterling or other EEA currencies (including the euro) are covered by the Scheme. Most claims made in respect of designated investment business will also be protected claims if the business was carried on from the UK or from a branch of the bank or investment firm in another EEA member state. The Scheme establishes the maximum amounts of compensation payable in respect of protected claims: for eligible protected deposit claims, this is £31,700 (100% of the first £2,000 and 90% of the next £33,000) and for protected investment business, this is £48,000 (100% of the first £30,000 and 90% of the next £20,000). There is no maximum limit for protected insurance claims. The first £2,000 of a valid claim is paid in full together with 90% of the remaining loss.
Outside of the UK, the Group has operations (and main regulators) located in continental Europe in particular, France, Germany, Spain, Portugal and Italy (local central banks and other regulatory authorities); Asia Pacific (various regulatory authorities including the Hong Kong Monetary Authority, the Japanese FSA and the Monetary Authority of Singapore); Africa, where the Group’s operations are headquartered in Johannesburg, South Africa (The South African Reserve Bank) and the United States of America (the Federal Reserve Board and the Securities and Exchange Commission).
In the United States, Barclays PLC, Barclays Bank PLC and certain US subsidiary undertakings, branches and agencies of the Bank are subject to a comprehensive regulatory structure, involving numerous statutes, rules and regulations, including the International Banking Act of 1978, the Bank Holding Company Act of 1956, as amended, the Foreign Bank Supervision Enhancement Act of 1991 and the USA PATRIOT Act of 2001. Such laws and regulations impose limitations on the types of businesses, and the ways in which they may be conducted, in the United States and on the location and expansion of banking business there. The Bank’s operations are subject to extensive federal and state supervision and regulation by the Federal Reserve Board (FRB), the State of New York Banking Department (NYSB) and the Office of the Comptroller of the Currency (OCC). The deposits of Barclays Bank PLC branch are insured by the FDIC and subject to its regulations. The Investment Banking and Asset Management operations are subject to ongoing supervision and regulation by the Securities and Exchange Commission (SEC) as well as a comprehensive scheme of regulation under the US federal securities laws, as enforced by, for example, the National Association of Securities Dealers (NASD) and the OCC.
The UK has implemented the various requirements imposed by the European Union Directives on such matters as the carrying on the business of credit institutions and investment firms, capital adequacy, own funds and large exposures. These form part of the European Single Market programme, an important feature of which is the framework for the regulation of authorised firms. This framework is designed to enable a credit institution or investment firm authorised in one European Union member state to conduct banking or investment business through the establishment of branches or by the provision of services on a cross-border basis in other member states without the need for local authorisation. A number of other European Community Directives are being introduced, for example the Market Abuse Directive and the Markets in Financial Instruments Directive
which once in effect, will further shape and influence the UK regulatory agenda. Formal consultation is a key aspect of the UK Government’s reform programme and the Group has been reviewing and, where relevant, commenting on proposals both directly and through industry associations.
The Basel Committee on Banking Supervision and the European Commission have also issued a revised framework for the allocation of regulatory capital for credit risk and to introduce a capital adequacy requirement for operational risk. These bodies recognise that a more sophisticated approach is required to address both financial innovation and the increasingly complex risks faced by financial institutions. The revised Basel Capital Accord and the EU Capital Requirements Directive are expected to be phased in from the end of 2006.
Recent Developments
As announced on 23rd September 2004, Barclays is in discussion with Absa Group Limited (‘Absa’), a leading South African bank, in connection with a possible partial offer for a majority stake in Absa. A due diligence exercise has been completed and Barclays has submitted applications to the South African regulators to approve the possible transaction. It is not known how long the approval process will take. The discussions may or may not lead to an offer being made.
On 20th January 2005 Barclays announced that it had made an offer to acquire the wealth business of ING Securities Bank (France), consisting of ING Ferri and ING Private Banking, subject to consultation with employee representative bodies and finalising terms.
On 3rd February 2005, Barclays announced its plans to consolidate its core general insurance business from two suppliers to one and that discussions are well advanced with Norwich Union to provide services across the home, motor and travel insurance portfolio. Barclays also announced that it has agreed in principle to purchase 90% of Gresham Insurance from Legal & General. Barclays currently owns the remaining 10%. At the same time negotiations are under way for the sale of Gresham Insurance to Norwich Union.
On 4th February 2005, Barclays announced it had signed an agreement with ForeningsSparbanken (also known as Swedbank) to form a joint venture to provide credit cards in the Nordic market, subject to confirmatory due diligence and regulatory approvals.
On 17th February 2005, BSkyB and Barclaycard signed an agreement to launch a Sky-branded credit card which will be fully integrated with interactive television.
77
Financial review
Introduction
Barclays is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and asset management. In terms of market capitalisation, Barclays isinvestment management services. We are one of the largest financial services groupscompanies in the UK. The Group also operatesworld by market capitalisation. Operating in many otherover 60 countries around the world and is a leading provider of co-ordinated global services to multinational centres. Worldwide, the Barclays Group hasemploying over 2,900 branches78,000 people, we move, lend, invest and employs 74,800 people.protect money for over 18 million customers and clients worldwide.
Our business is affected by global economic conditions generally and particularly by conditions in the UK. The UK economy was stronger in 20032004 than 2002,2003, with the economy growing at 2.1%more than 3%. There was asome repositioning away from consumptionthe consumer towards corporate investment and government spending and a stronger trade balance.spending. The US economy embarked on a vigorous recovery, with uncertainties about the strength and durability of the recovery diminishing. There are signs at last thatsustained strong growth in 2004 whilst the Eurozone economy may be stabilising.achieved some recovery in its rate of growth from its level of 2003.
As a financial services group domiciled in the UK, the majority of our earnings arise from the UK. WeNonetheless with our global businesses and our international activities we believe that our diverse portfolio of businesses provides a broad spread of earnings capabilities and offeroffers greater resilience against exogenous events in any single business or geography.
The profitability of Barclays businesses could be adversely affected by a worsening of general economic conditions in the United KingdomUK or abroad. Factors such as the liquidity of the global financial markets;markets, the level and volatility of equity prices and interest rates;rates, investor sentiment; inflation;sentiment, inflation, and the availability and cost of credit, could significantly affect the activity level of customers. A continued market downturn would likely lead to a decline in the volume of transactions that Barclays executes for its customers and, therefore, lead to a decline in the income it receives from fees and commissions. In addition, changes in interest rate levels, yields curves and spreads may affect the interest rate margin realised between lending and borrowing costs.
Continuous improvementfocus on improvements in productivity provides the ability to respond flexibly to any pressure to income growth, which would help offset the impact on overall profitability.
Key drivers underpinning the financial performance are detailed in the subsequent pages of the ‘Financial Review’review’ section. These include, for net interest income, the volume and rate of growth of asset and liability balances, together with the margin on these balances. Non-interest income is driven primarily by net fees and commissions, andalthough it also comprisesincludes dealing profits and other operating income.
The principal drivers of expenses are staffing levels and their associated costs, including performance related expenditure, and the level of strategic investment spend and, in 2003, the move from a pension credit to a pension charge.spend.
Provisions are driven by the quantity and quality of lending and reflect the condition of the credit environment.
In addition to the risk factors outlined on pages 98 to 99,28 and 29, other potential impacts on Barclays profitability are the consequences of potential regulation or legislation.
Goals
Barclays primary focus is to deliver superior value to its shareholders. To achieve this we use an operating philosophy, the principles of value-based management (VBM), to develop strategy, allocate resources and manage performance.
In applying VBM principles, Barclays has developed a disciplined fact-based approach to strategy development and business planning, which aims to build sustainable competitive advantage. Individual businesses generate alternative business strategies to facilitate the selection of the most appropriate value-maximising option, in order to achieve profitable growth in all our businesses.
We use performance goals as an integral part of our value-based managementVBM disciplines. These are designed to stretch the thinking and ambition of our businesses. Goals have been set for four-year periods to align with the planning processes described above. In 1999,2004, we announced goals for the 2000 to 2003 period. Thisnew performance cycle has concluded and we commenced a new cyclegoals for the 2004 to 2007 period.
At the end of 1999, Barclays set a series of four-year performance goals for the period 2000 to 2003 inclusive. The primary goal wasremains to achieve top quartile total shareholder return (TSR) relative to a peer group of 11 other UK and international financial services institutions. TSR is defined as the value created for shareholders through share price appreciation, plus reinvested dividend payments.
For the four year period from 31st December 1999 to 31st December 2003, Barclays was positioned third within its peer group, thereby achieving its primary goal of top quartileThe TSR performance.
Barclays announced on 12th February 2004 its performance goals for the four-year period, 2004 to 2007 inclusive. Our primary goal, to achieve top quartile total shareholder return, remains unchanged from the prior goal period. The peer group is reviewed annually to ensure it aligns with our business mix and the scale of our ambition. The peer group for 2004 is:was: ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, JP Morgan & Chase, Lloyds TSB, Royal Bank of Scotland and UBS. For 2005 the peer group is unchanged.
For the first year of the new goal period, from 31st December 2003 to 31st December 2004, Barclays was positioned first within its peer group, thereby achieving its primary goal of top quartile TSR performance.
In addition, a secondary goals aregoal of economic profit (EP) is used to support the pursuit of top quartile TSR, economic profit (EP) and productivity. Barclays operating philosophy is ‘managing for value’.TSR. The strategies we follow and the actions we take are aligned to value creation for all stakeholders. Since the introduction of VBM, Barclays has used economic profitEP as its key internal financial measure, to support the achievement of our primary goal, to achieve top quartile total shareholder return.TSR goal. Barclays uses thisEP, a non-GAAP measure, as a key measureindicator of performance because it believes that it provides important discipline in decision making.Barclaysmaking. Barclays believes that EP encourages both profitable growth and the efficient use of capital. More information on the reconciliation of EP to profit before tax can be found on page 205.226.
We believe that, given current and expected market conditions, a compound annual growth rate in EP in the range of 10% to 13%, which would translate into cumulative EP generation of £7.3bn to £7.8bn, will be required to deliver top quartile shareholder returnsTSR over the 2004-2007 goal period.
Another supporting In the first year of the new performance goal relatesperiod, from 31st December 2003 to improved productivity. World class productivity is an important contributor31st December 2004, EP amounted to sustaining strong performance. All businesses are expected to meet or exceed top quartile productivity performance relative to comparable peers within their sector. Those already at top quartile cost:income performance are expected to deliver a 1% per annum improvement.£1.9bn, and was well ahead of plan.
We will continue to report progress against goals on a regular basis.
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Barclays PLC Annual Report 2004
Financial performance 2003
Performance 20041
The Group’s profit before tax in 20032004 increased 20% (£640m)758m) to £3,845m (2002: £3,205m)£4,603m (2003: £3,845m). Operating income increased 10%12% (£1,084m)1,534m) to £12,411m (2002: £11,327m)£13,945m (2003: £12,411m) whilst operating expenses rose 9%15% (£629m)1,091m) to £7,253m (2002: £6,624m)£8,350m (2003: £7,253m). A third of the increase in operating expenses (£200m) was attributable to the move to a pensions charge (£128m) from a pensions credit (£72m) in 2002 in respect of the Group’s main UK Pension schemes. Restructuring costs amounted to £209m (2002: £187m)£199m (2003: £209m). Goodwill amortisation was £265m (2002: £254m)£299m (2003: £265m). Provisions for bad and doubtful debts fell 9% (£137m)19% to £1,347m (2002: £1,484m). Provisions excluding the impact of Transition Businesses fell 3% (36m) to £1,324m (2002: £1,360m)£1,091m (2003: £1,347m). Earnings per share rose 26%21% to 42.3p (2002: 33.7p)51.2p (2003: 42.3p). Dividends per share rose 17% to 24p (2003: 20.5p). Return on average shareholders’ funds was 19%. Economic profit was up 32%, well ahead of our goal and a reflection of tight capital management as well as good business performance.
Non-performing lendingsloans decreased by £371m£320m to £4,155m.£3,985m. Potential problem loans increaseddecreased by £173m£571m to £1,477m.£756m. Coverage of non-performing lendings increasedloans decreased from 68.0%71.5% to 74.1%70.4% while the coverage of total potential credit risk lendingsloans increased from 52.8%54.6% to 54.6%59.2%.
Our capital position remained healthy. Shareholders’ funds increased by £1,272m£1,043m primarily due to profit retentions.retention. Total assets increased by £79bn to £522bn. Weighted risk assets increased by £16bn (9%£30bn (16%) up to £189bn.£219bn. The tier 1 capital ratio decreased from 8.2%7.9% to 7.9% while7.6% and the totalTotal risk asset ratio remained atdecreased from 12.8% to 11.5%. Total assets increased
Business Performance
There was good growth in profit before tax across all our business divisions with momentum in the core UK businesses and in our global product businesses. Our increasingly diverse and distinctive business mix is well positioned for future growth.
UK Banking grew profit before tax by £40bn to £443bn.
Personal Financial Services operating9%, driven primarily by a very strong performance in UK Business Banking, where profit increased 13% to £816m (2002: £720m). Operating incomebefore tax was up 7% at £3,109m (2002: £2,919m). Stronger lending19%, and deposit volumes and active margin management helped drive income momentum. Operating expenses rose 7% to £1,990m (2002: £1,865m),broadly flat profit before tax performance in UK Retail Banking.
UK Business Banking performed strongly with almost two-thirds of the increase attributable to the pensions charge and higher strategic investment spend. Provisions decreased 9% to £303m (2002: £334m) as both the quality of the loan portfolio and risk processes improved.
Barclays Private Clients operating profit for the ongoing business decreased 16% to £270m (2002: £323m). Business activity was impacted by significantly lower average equity markets and by lower average interest rates than in 2002. Operating income fell 4% to £1,350m (2002: £1,401m). Operating expenses including goodwill of £58m (2002: £45m), increased 1% to £1,049m (2002: £1,041m). The contribution from the closed life assurance activities was a loss of £77m (2002: loss £87m).
Barclaycard operating profit increased 16% to £689m (2002: £593m), with strong business volumes drivinggood income growth, of 16% to £1,830m (2002: £1,582m). Operating expenses rose 16% to £679m (2002: 587m)up 8%, reflecting strong growth in business volumes, increased marketing activity and higher strategic investment expenditure. Provisions increased 15% to £462m (2002: £402m).
Business Banking operating profit increased 8% to £1,299m (2002: £1,206m) reflecting loan volume growth and stable lending margins, the benefits of tight cost management and well controlled risk. Operating income grew 5% to £2,628m (2002: £2,514m) reflectingvery good risk management accentuated by one large recovery.
In UK Retail Banking the impactfocus in 2004 was on restructuring the business which included adding additional customer facing staff, upgrading branch management and investing in technology. There were encouraging signs of progress in 2004 with good balance growth in current accounts, premier and small business but a weaker contribution from mortgages where the implementationeffect of the Competition Commission Inquiry transitional pricing remedy. Operating expenses of £1,080m (2002: £1,082m) were flat relative to 2002 and included cost savings realiseda decline in the back office.
Barclays Africa operating profit increased 27% to £112m (2002: £88m). Operating income was up 18% at £325m (2002; £275m) driven by strong lending growth in selected markets. Operating expenses rose 16% to £186m (2002: £160m). Provisions were steady at £27m.
Barclays Capital operating profit increased 35% to £782m (2002: £578m). Operating income grew 18% to a record £2,652m (2002: £2,238m), with secondary income up 17%book, rising base rates and primary income up 16%. Operating expenses rose 22% to £1,618m (2002: £1,326m) and reflected increased business as usual costs from higher business volumes and headcount growth, performance-based revenue related costs and increased strategic investment spend. Provisions declined 25% to £252m (2002: £334m) reflecting continued improvements in the quality of the loan book and in the corporate credit environment.
Barclays Global Investors operating profit increased 84% to £180m (2002: £98m). Operating income, predominantly fees and commissions, rose 22% to £672m (2002: £550m) reflecting growth in assets under management, good investment performance and increased higher margin business. Operating expenses increased 9% to £492m (2002: £452m).
Barclays PLC Annual Report 2003 71
Financial ReviewResults by Nature of Income and Expense
Results by Nature of Income and Expense
Comparative figures have been restated as a result of the changes in accounting policy and accounting presentation as set out on pages 105 and 106.
Net interest income
Net interest income
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Interest receivable | 12,427 | 12,044 | 13,458 | |||||||||
Interest payable | (5,823 | ) | (5,839 | ) | (7,492 | ) | ||||||
6,604 | 6,205 | 5,966 | ||||||||||
Group net interest income increased by 6% to £6,604m, reflecting growth in balances which more than offset a 14 basis point fall versus 2002 in the Group net interest margin to 2.61% (2002: 2.75%).
The Group net interest margin of 2.61% (2002: 2.75%) includes 0.48% (2002: 0.55%) arising from the benefit of free funds. A component of the benefit of free funds is the hedge against short-term interest rate movements. The contribution of the hedge in 2003 was 0.19% (2002: 0.22%).
Average interest earning assets increased by 12% to £253bn (2002: £225bn), primarily due to a £9bn increase in average loans and advances to customers, largely in Personal Financial Services, Barclaycard and Business Banking and an £18bn increase in average holdings of debt securities balances, predominantly in Barclays Capital.
Domestic average interest earning assets increased by 7% to £162bn (2002: £152bn), predominantly driven by the £5bn increase in Business Banking average lending balances and a £4bn increase in average mortgage balances in Personal Financial Services. International average interest earning assets increased by 23% to £90bn (2002: £73bn), primarily driven by an increase in Barclays Capital wholesale activities.
The 14 basis points fall in the Group net interest margin was primarily attributable to a fall in the international net interest margin and a change in the mix of both assets and liabilities.
The domestic net interest margin rose by 3 basis points to 3.64% (2002: 3.61%), reflecting active management of margins across the UK businesses in competitive market conditions. Net interest margin improved relative to 2002 in mortgages and consumer finance and remained stable in retail savings and corporate lending.
The reduction of 19 basis points in the international margin was mainly as a result of an increase in higher quality assets in Barclays Capital, the conversion to associate status of the Caribbean business, a change in the currency mix of the portfolio and the general fall in global interest rates.
Net interestearly redemption income in 2002impacted performance. Costs increased by 4% to £6,205m (2001: £5,966), reflecting growth in the average interest earning assets by 10% to £225bn. This was primarily due to a £6bn increase in UK mortgage balances, £4bn increase in debt securities holdings and £5bn of lending to banks.
In 2002, overall banking margins were 16 basis points down on 2001 to 2.75%. The adverse impact on the margin was largely due to the low interest rate environment, the competitive market conditions in the UK, particularly in the mortgage market, an increase in the non performing loans in the US and the managing down of the higher yielding South American Corporate Banking business.
In 2002, the benefit of free funds fell 0.08% to 0.33% as a result of the reduction in interest rates. However, the overall benefit of free funds on a hedged basis rose to 0.55% reflecting an increase in the effective rate of the hedge more than offsetting the fall in the liability interest rate.
Prevailing average interest rates
2003 | 2002 | 2001 | ||||||||||
% | % | % | ||||||||||
United Kingdom: | ||||||||||||
Barclays Bank PLC base rate | 3.69 | 4.00 | 5.12 | |||||||||
London Inter-Bank Offered Rate (LIBOR): | ||||||||||||
three-month sterling | 3.74 | 4.06 | 5.04 | |||||||||
three-month eurodollar | 1.21 | 1.80 | 3.78 | |||||||||
United States prime rate | 4.12 | 4.68 | 6.92 | |||||||||
Average interest earning assets and liabilities –banking business
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Average interest earning assets: | ||||||||||||
Group | 252,737 | 225,178 | 205,017 | |||||||||
Domestic | 162,434 | 151,810 | 141,087 | |||||||||
International | 90,303 | 73,368 | 63,930 | |||||||||
Average interest bearing liabilities: | ||||||||||||
Group | 224,778 | 199,708 | 184,105 | |||||||||
Domestic | 136,939 | 130,045 | 122,422 | |||||||||
International | 87,839 | 69,663 | 61,683 | |||||||||
72
Yields, spreads and margins – banking business(a)
2003 | 2002 | 2001 | ||||||||||
% | % | % | ||||||||||
Gross yield(b) | ||||||||||||
Group | 4.92 | 5.35 | 6.56 | |||||||||
Domestic | 5.57 | 5.97 | 7.10 | |||||||||
International | 3.75 | 4.06 | 5.38 | |||||||||
Interest spread(c) | ||||||||||||
Group | 2.33 | 2.42 | 2.50 | |||||||||
Domestic | 3.28 | 3.22 | 3.23 | |||||||||
International | 0.68 | 0.80 | 0.91 | |||||||||
Interest margin(d) | ||||||||||||
Group | 2.61 | 2.75 | 2.91 | |||||||||
Domestic | 3.64 | 3.61 | 3.75 | |||||||||
International | 0.77 | 0.96 | 1.07 | |||||||||
The net interest income and average balances of the trading business are shown separately on the average balance sheet on pages 84 to 87.
Non-interest income
Net fees and commissions
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Fees and commissions receivable | 4,896 | 4,454 | 4,202 | |||||||||
Less: fees and commissions payable | (633 | ) | (529 | ) | (465 | ) | ||||||
4,263 | 3,925 | 3,737 | ||||||||||
Group net fees and commissions increased by £338m (9%) to £4,263m, reflecting increases in most businesses, partially offset by a reduction in Barclays Private Clients.
In Personal Financial Services, net fees and commissions increased 1% (£8m) to £802m (2002: £794m). Underlying this were good performances from fee-based current accounts and consumer finance, largely offset by continued weakness in the independent financial adviser (IFA) business.
In Barclays Private Clients, net fees and commissions decreased 13% (£79m) to £515m (2002: £594m). This reflected the impact of lower average equity market levels in 2003 on sales of investment products and on fund management fees, together3% with the absence of the contribution from the Caribbean business. The average level of the FTSE 100 Index was 12% lower than in the prior year at 4,051 (2002: 4,599). Fee income improved significantly in the second half of 2003, reflecting volume growth and the recovery in equity markets towards the year end. Average daily deal volumes in UK retail stockbroking, including Charles Schwab Europe, increased to 8,350 (2002: 6,300). The stockbroking business maintained its leading UK position with a 19% (2002: 12%) market share of client order business.
In Barclaycard, net fees and commissions increased 14% (£97m) to £793m (2002: £696m), as a result of higher cardholder activity and good volume growth within the merchant acquiring business.
In Business Banking, net fees and commissions increased 7% (£61m) to £925m (2002: £864m), driven by lending related fees which rose strongly, reflecting the growth in the balance sheet. Foreign exchange commission income grew due to increased business volumes. Money transmission income fell as a result of the alternative offer made in response to the Competition Commission Inquiry transitional pricing remedy and the targeted migration of transactions to electronic channels.
Net fees and commissions in Barclays Africa rose 17% (£19m) to £133m (2002: £114m), reflecting growth in fee-based services, treasury profits and the impact of the acquisition of BNPI Mauritius in 2002.
In Barclays Capital, net fees and commissions increased 16% (£74m) to £537m (2002: £463m), with good performances across the Credit businesses.
In Barclays Global Investors, net fees and commissions increased 23% (£124m) to £662m (2002: £538m), reflecting good income generation across a diverse range of products, distribution channels and geographies. The increase was largely driven by growth of investment management fees. These resulted from strong net new sales, growth in the sales of higher margin products, good investment performance and the recovery in equity markets towards the year end, which more than compensated for the adverse impact of foreign exchange translation movements. Actively managed assets now generate over 60% of management fees and over 50% of total income. Securities lending income growth was good, benefiting from higher volumes.
Barclays PLC Annual Report 2003 73
Financial ReviewResults by Nature of Income and Expense
In 2002, net fees and commissions increased by £188m to £3,925m (2001: £3,737), primarily due to the impact of replacing annual fees with fees based on account activity in Barclaycard and the strong performance from primary bonds and structured capital markets in Barclays Capital. Barclaycard and Barclays Capital contributed £696m and £463m respectively.
Barclays Private Clients and Barclays Global Investors contributed increases totalling £47m. Business Banking contributed an increase of £31m. In Barclays Africa, there was a £16m reduction principally due to the situation in Zimbabwe. In Personal Financial Services, there was a reduction of £12m reflecting lower income from independent financial advice.
Personal Financial Services, Barclays Private Clients and Business Banking fees and commissions included £135m (2001:£129m) in respect of foreign exchange income on customer transactions with Barclays Capital.
Dealing profits
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Rates related business | 909 | 876 | 823 | |||||||||
Credit related business | 145 | (43 | ) | 188 | ||||||||
1,054 | 833 | 1,011 | ||||||||||
Almost all the Group’s dealing profits are generated in Barclays Capital.
Dealing profits grew 27% to £1,054m, driven by significant growth in client transaction volumes, particularly in continental Europe. The strong performances in the Credit businesses, principally in corporate bonds, were due to credit spreads tightening in the secondary bond markets. The growth in Rates related businesses reflected good results from equity related activities and money markets. Fixed income, foreign exchange and commodities continued to make good contributions.
Total foreign exchange income was £498m (2002: £496m) and consisted of revenues earned from both retail and wholesale activities. The foreign exchange income earned on customer transactions by Personal Financial Services, Barclays Private Clients, Barclaycard, Business Banking, Barclays Africa and Barclays Global Investors, both externally and with Barclays Capital, is reported in those business units, within fees and commissions.
Dealing profits in 2002 fell to £833m (2001: £1,011m). The fall resulted from poor conditions in the credit and equity markets with losses in the Credit businesses partially offset by good performances in Rates.
Other operating income
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Premium income on insurance underwriting | 264 | 178 | 158 | |||||||||
Profits on disposal of investment securities | 73 | 58 | 37 | |||||||||
Loss/income from the long-term assurance business | (33 | ) | (51 | ) | 127 | |||||||
Property rentals | 15 | 20 | 30 | |||||||||
Dividend income from equity shares | 6 | 7 | 8 | |||||||||
Other income | 165 | 152 | 68 | |||||||||
490 | 364 | 428 | ||||||||||
Other operating income increased by £126m (35%) to £490m (2002: £364m).
Premium income on insurance underwriting rose by £86m to £264m (2002: £178m) as a result of a good increase from consumer lending activities, a favourable claims experience and a one-off income gain of £43m resulting from an adjustment to insurance reserves.
Profits on disposal of investment securities primarily reflects realisations in the private equity business within Barclays Capital.
The substantial majority of the Group’s long-term assurance activity is based in the UK. This UK business, which closed to new business following the Legal & General alliance in 2001, was the main contributor to the loss of £33m for 2003 and the losses experienced in 2002.
Income from the long-term assurance business reflects an investment gain compared to a loss in 2002 and increased income from the ongoing life business. These were partially offset by a reduction in the benefit of actuarial assumptions and other movements and the costs of redress for customers in respect of sales of endowment policies of £95m (2002: £19m).
Other operating income in 2002 decreased by 15% (£64m) to £364m (2001:£428m). This was primarily due to a loss of £51m (2001: income £127m) relating to the long-term assurance business mainly arising from the impact of stock market movements during the year.
This was partially offset by a revision of estimated amounts expected to be repaid on banking liabilities caused by the alignment of Woolwich to Barclays practice, (£59m). In addition, premium income on insurance underwriting increased by £20m and a restructuring of the loan portfolio generated a further £39m.
74
Administrative expenses – staff costs
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Salaries and accrued incentive payments | 3,441 | 3,159 | 3,149 | |||||||||
Social security costs | 278 | 240 | 243 | |||||||||
Pension costs | 180 | (27 | ) | (17 | ) | |||||||
Post-retirement health care | 19 | 15 | – | |||||||||
Other staff costs | 377 | 368 | 339 | |||||||||
4,295 | 3,755 | 3,714 | ||||||||||
Staff costsStaff costs increased by 14% to £4,295m (2002: £3,755m).
Salaries and accrued incentive payments increased by 9% (£282m) to £3,441m (2002: £3,159m) reflecting increased performance related payments primarily within Barclays Capital and Barclays Global Investors.
Pension costs comprise all UK and international pension schemes. Included in the costs is the charge of £128m (2002: £72m credit) in respect of the Group’s main UK pension schemes.
Permanent and contract staff numbers increased by 100 during 2003. The implementation of restructuring programmes resulted in a decrease of 4,400 staff. This was more than offset by an increase of 3,700 staff from the acquisitions of Charles Schwab Europe, Clydesdale Financial Services, Banco Zaragozano and Gerrard and the recruitment of an additional 500 staff in Barclaycard and 300 staff elsewhere.
Staff costs in 2002 were 1% higher than in 2001. Salaries and accrued incentive payments were broadly flat, with the impact of the UK annual pay award offset by a reduction in Group staff and payments to temporary staff. Increased costs in Barclays Global Investors were in line with improved performance and more than offset by a reduction in Barclays Capital.
Staff numbers(a)
2003 | 2002 | 2001 | ||||||||||
By class of business | ||||||||||||
Personal Financial Services(b) | 25,800 | 27,200 | 29,700 | |||||||||
Barclays Private Clients(c) | 13,000 | 10,700 | 12,900 | |||||||||
Barclaycard(d) | 5,300 | 4,700 | 4,200 | |||||||||
Business Banking(e) | 9,000 | 9,700 | 9,900 | |||||||||
Barclays Africa(f) | 6,800 | 7,500 | 8,000 | |||||||||
Barclays Capital | 5,700 | 5,500 | 5,500 | |||||||||
Barclays Global Investors | 2,000 | 2,100 | 2,100 | |||||||||
Head office functions and other operations(g) | 7,200 | 7,300 | 6,300 | |||||||||
Total Group permanent and contract staff worldwide | 74,800 | 74,700 | 78,600 | |||||||||
Temporary and agency staff worldwide | 4,100 | 3,700 | 4,600 | |||||||||
Total including temporary and agency staff | 78,900 | 78,400 | 83,200 | |||||||||
By geographic segments | ||||||||||||
United Kingdom | 58,000 | 59,000 | 60,400 | |||||||||
Non-United Kingdom | 16,800 | 15,700 | 18,200 | |||||||||
74,800 | 74,700 | 78,600 | ||||||||||
Staff numbers
Barclays PLC Annual Report 2003 75
Financial ReviewResults by Nature of Income and Expense
Administrative expenses – other
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Property and equipment expenses | ||||||||||||
Hire of equipment | 8 | 12 | 16 | |||||||||
Property rentals | 184 | 180 | 183 | |||||||||
Other property and equipment expenses | 901 | 793 | 775 | |||||||||
1,093 | 985 | 974 | ||||||||||
Other administrative expenses | ||||||||||||
Stationery, postage and telephones | 311 | 294 | 318 | |||||||||
Advertising and market promotion | 237 | 238 | 212 | |||||||||
Travel, accommodation and entertainment | 145 | 136 | 143 | |||||||||
Subscriptions and publications | 91 | 86 | 83 | |||||||||
Sundry losses, provisions and write-offs | 128 | 121 | 141 | |||||||||
Consultancy fees | 56 | 85 | 133 | |||||||||
Professional fees | 159 | 161 | 137 | |||||||||
Other expenses | 184 | 206 | 162 | |||||||||
1,311 | 1,327 | 1,329 | ||||||||||
2,404 | 2,312 | 2,303 | ||||||||||
Administrative expenses – other rose by 4% (£92m) to £2,404m (2002: £2,312m). Property and equipment expenses increased by 11% (£108m) to £1,093m as a result of increased outsourced processing, information technology costs, and property repairs and maintenance.
Other administrative expenses were broadly flat at £1,311m (2002: £1,327m). Increases across a number of expense categories reflected higher business activity and were more than offset by reductions in a number of other categories including consultancy spend and other expenses.
In 2002, administrative expenses – other were broadly flat at £2,312m (2001: £2,303m). Property and equipment expenses were £11m higher, reflecting higher external information technology costs.
Other administrative expenses reduced by £2m to £1,327m (2001: £1,329m). Increased advertising and market promotion expenditure, including costs relating to the launch of Barclaycard Direct, Openplan from Barclays and other campaigns, were offset by reductions in other areas.
Depreciation
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Property depreciation | 93 | 93 | 105 | |||||||||
Equipment depreciation | 196 | 198 | 194 | |||||||||
Loss on sale of equipment | – | 12 | 9 | |||||||||
289 | 303 | 308 | ||||||||||
Goodwill amortisation
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Woolwich plc | 206 | 206 | 206 | |||||||||
Other | 59 | 48 | 23 | |||||||||
265 | 254 | 229 | ||||||||||
Other goodwill amortisation increased in 2003, primarily as a result of the acquisition of Banco Zaragozano in July 2003.
Provisions for bad and doubtful debts
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Specific charge | 1,320 | 1,486 | 1,165 | |||||||||
General charge/(release) | 27 | (2 | ) | (16 | ) | |||||||
1,347 | 1,484 | 1,149 | ||||||||||
Provisions fell 9% (£137m) to £1,347m (2002: £1,484m). Provisions excluding the impact of Transition Businesses, mainly Argentina in 2002, fell 3% (£36m) to £1,324m (2002: £1,360m). The Group’s provisions charge improved significantly to 0.73% (2002: 0.85%) of average banking loans and advances.
Business Banking provisions increased broadly in line with portfolio growth. Provisions fell in Barclays Capital reflecting the ongoing improvement in the loan book and the continued recovery in the large corporate credit environment.
Provisions fell in Personal Financial Services with an improvement in the quality of the loan portfolio and improved risk management. The reduction occurred in the unsecured lending portfolio. Provisions for mortgages remained at a very low rate. Barclaycard provisions increased in line with continued portfolio growth.
While the specific provisions balance declined, the year-end general provision stock increased by 8% (£58m) to £795m (2002: £737m). Improvement in the credit quality of the portfolio as a whole was offset by portfolio growth, credit considerations relating to particular customer segments, and acquisitions, especially Banco Zaragozano.
In 2002, the net provisions charge for bad and doubtful debts increased by £335m to £1,484m. The greater part of this increase occurred in the Barclays Capital (£231m), reflecting difficult economic conditions in the telecommunications and energy sectors, particularly in the US. Provisions also increased in South American Corporate Banking mainly related to Argentina (£96m).
Bad debt provisions declined by 13% in Personal Financial Services –reflecting in part improvements in risk management – and grew in other businesses broadly in line with the growth in those portfolios.
76
Profit/(loss) from joint ventures andassociated undertakings
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Profit/(loss) from joint ventures | 1 | (5 | ) | (1 | ) | |||||||
Profit/(loss) from associated undertakings | 28 | (5 | ) | (8 | ) | |||||||
29 | (10 | ) | (9 | ) | ||||||||
In 2003, the profit from associated undertakings for the year primarily relates to the investment in FirstCaribbean (including goodwill amortisation of £7m).
In 2002, the loss from joint ventures related primarily to an entity within Personal Financial Services. The loss from associated undertakings included a loss of £9m relating to FirstCaribbean integration and restructuring costs. It also included £1m relating to the amortisation of the goodwill arising on completion of the Caribbean transaction.
(Loss)/profit on disposal/terminationof Group undertakings
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Profit on disposal of other Group undertakings | 4 | 8 | (4 | ) | ||||||||
Loss on termination of Group activities | – | (11 | ) | – | ||||||||
4 | (3 | ) | (4 | ) | ||||||||
TaxThe overall tax charge is explained in the following table:
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Tax charge at average United Kingdom corporation tax rate of 30% (2001: 30%; 2000: 30%) | 1,153 | 961 | 1,027 | |||||||||
Prior year adjustments | (21 | ) | (25 | ) | 34 | |||||||
Effect of change in non-allowable general provisions | 2 | (2 | ) | (11 | ) | |||||||
Effect of non-allowable property write-downs and depreciation | 13 | 12 | 17 | |||||||||
Net effect of differing tax rates overseas | (95 | ) | (70 | ) | (65 | ) | ||||||
Net effect of overseas losses not available for relief in the United Kingdom | (12 | ) | (40 | ) | (17 | ) | ||||||
Other non-allowable expenses | (28 | ) | 8 | (21 | ) | |||||||
Gains covered by capital losses brought forward | (44 | ) | (3 | ) | (49 | ) | ||||||
Goodwill | 74 | 69 | 67 | |||||||||
Other items | 34 | 45 | (39 | ) | ||||||||
Overall tax charge | 1,076 | 955 | 943 | |||||||||
Effective tax rate % | 28.0 | 29.8 | 27.5 | |||||||||
The charge for the year is based upon the UK corporation tax rate of 30% for the calendar year 2003 (2002: 30%). The effective rate of tax was 28.0% (2002: 29.8%). The decrease in the rate was primarily due to the beneficial effects of lower tax on overseas income, recognition of agreed capital gains tax losses and certain non-taxable gains, partially offset by the absence of tax relief on goodwill.
Barclays PLC Annual Report 2003 77
Financial ReviewAnalysis of Results by Business
Analysis of Results by Business
The following section analyses the Group’s performance within the businesses. Inter-business activities are included within these figures. The total income and expenditure for the businesses therefore does not necessarily equate to the amounts reported in the Group’s results.
Comparative figures have been restated as a result of the changes in accounting policy and accounting presentation as set out on pages 105 and 106.
The analysis of results by business incorporates goodwill amortisation, restructuring costs, costs directly associated with the integration of Woolwich plc and profit/(loss) from joint ventures and associates in a manner consistent with the Group presentation detailed above. Additionally, exceptional items are now allocated out to individual businesses. This is a different treatment to that included in the Results Announcement where the analysis of results by business excludes goodwill amortisation and exceptional items, and separately identifies restructuring costs.
Personal Financial Services
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 1,949 | 1,834 | 1,911 | |||||||||
Net fees and commissions | 802 | 794 | 805 | |||||||||
Other operating income | 358 | 291 | 193 | |||||||||
Operating income | 3,109 | 2,919 | 2,909 | |||||||||
Goodwill amortisation | (151 | ) | (151 | ) | (151 | ) | ||||||
Other operating expenses | (1,839 | ) | (1,714 | ) | (1,735 | ) | ||||||
Operating expenses | (1,990 | ) | (1,865 | ) | (1,886 | ) | ||||||
Operating profit before provisions | 1,119 | 1,054 | 1,023 | |||||||||
Provisions for bad and doubtful debts | (303 | ) | (334 | ) | (375 | ) | ||||||
Operating profit | 816 | 720 | 648 | |||||||||
Profit from associated undertakings | 6 | 3 | 4 | |||||||||
Exceptional items | (1 | ) | (11 | ) | (8 | ) | ||||||
Profit on ordinary activities before tax | 821 | 712 | 644 | |||||||||
Personal Financial Services operating profit increased 13% (£96m) to £816m (2002: £720m), reflecting good income momentum, continued good cost control and reduced provisions.
Operating income increased 7% (£190m) to £3,109m (2002: £2,919m). Net revenue (operating income less provisions) increased 9% to £2,806m (2002: £2,585m).
Operating income growth was broadly based: general insurance rose 32%; consumer finance rose 15%; mortgages rose 10%; and current accounts and savings rose 2%. Income from independent financial advice fell 28%.
Net interest income increased 6% (£115m) to £1,949m (2002: £1,834m). Growth resulted from higher average product balances and improved asset margins. The retail savings margin remained stable.
Consumer finance experienced good growth in average balances, up 6% to £6.8bn (2002: £6.4bn), and improved margins. Sales of the key Barclayloan product were particularly strong, increasing 32%.
A significant part of the new consumer loan business was in the better risk grades.
Average savings balances increased 6% to £30.9bn (2002: £29.2bn), after transferring some balances to Barclays Private Clients in the second half of 2003. Excluding the impact of the transfer average savings balances increased 9% to £31.8bn (2002: £29.2bn). Barclays branded savings continued to perform strongly, growing 19%. This was a market leading performance driven by Openplan.
Average residential mortgage balances increased 8% to £59.0bn (2002: £54.5bn). The selective approach taken to certain sectors of the mortgage market has been maintained throughout 2003. Gross advances were £18.3bn (2002: £22.2bn), a gross market share of 7% (2002: 10%). Net lending of £2.0bn (2002: £6.9bn) represented a net market share of 2% (2002: 9%). UK residential mortgage balances ended the period at £59.8bn (31st December 2002: £57.8bn). The interest spread on new mortgage business increased.
Net fees and commissions increased 1% (£8m) to £802m (2002: £794m). Underlying this were good performances from fee-based current accounts and consumer finance, largely offset by continued weakness in the independent financial adviser (IFA) business.
Other operating income increased by 23% (£67m) to £358m (2002: £291m). This resulted from a strong performance in general insurance activities, reflecting increased sales of personal protection insurance products, and a more favourable claims experience. A one-off income gain of £43m arose through an adjustment to insurance reserves.
Contributing to the overall increase in operating income has been the continued success of Openplan. Customer numbers now total 2.6m (2002: 2m), with deeper customer relationships evident through significantly higher product penetration and income contribution than for non-Openplan relationships. The percentage of new to Group customers in Openplan has increased. Openplan from Barclays has attracted 1.25m customers (2002: 0.78m) across the UK. Product penetration was an average of 4.6 products per customer, well above the average of 2.6 outside Openplan. Annual customer income was £397, relative to £249 outside Openplan. Openplan from Woolwich customer numbers rose to 1.40m (2002: 1.21m) with average product penetration of 3.2 products per customer relative to 1.5 outside Openplan. Annual customer income was £311, relative to £165 outside Openplan.
Operating expenses rose 7% (£125m) to £1,990m (2002: £1,865m), with aroundalmost half of the increase attributable to the impact ofnew regulatory environment, particularly in the pension charge of £40m (2002: credit £20m). Business as usual costs were tightly managed to improve operational efficiency,mortgage and staff numbers continued to decline. Headcountgeneral insurance businesses. Provisions fell to 25,800 (2002: 27,200). Strategic investment spend increased. Integration costs associated with the Woolwich integration reduced to £50m (2002: £70m). Operating expenses included goodwill of £151m (2002: £151m).
Provisions decreased 9% (£31m) to £303m (2002: £334m)44%, reflecting the overall quality of the lendingloan portfolio improvements to risk management processes and a reductionbut also the release of provisions in problem loans. Coverage ratios improved. The loan to value ratio within the mortgage book on a current valuation basis averaged 40% (2002: 45%).business.
Personal Financial Services operating profitProfit before tax in 2002Private Clients and International was £720m (2001: £648m). Operating income was steady at £2,919m (2001: £2,909m).
78
Net interest income in 2002 was £1,834m (2001: £1,911m). Margin pressures, particularly within mortgages, were actively managed with increased balances mitigating some of the compression.
Net fees and commissions in 2002 were £794m (2001: £805m).
Other operating income in 2002 was £291m (2001: £193m)up 60%. The contribution from payment protection income increased strongly (18%) to £171m (2001: £145m) reflecting consumer lending activities. An increase of £59m resulted from a revision of the estimated amounts expected to be repaid on banking liabilitiesimproved performance in the light of experience since the Woolwich acquisition in 2000 and to align Woolwich with Barclays practice.
Operating expenses in 2002 fell 1% to £1,865m (2001: £1,886m) despite significant continued investment in infrastructure and the higher costs associated with increased business volumes.
Provisions in 2002 were £334m (2001: £375m) despite growth in lending balances. This primarilythis division reflected the implementationbenefits of specific initiatives to improve the overall risk profile of our lending portfolio, particularly in relation to consumer loans and current accounts.
Barclays Private Clients
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 804 | 788 | 870 | |||||||||
Net fees and commissions | 515 | 594 | 567 | |||||||||
Other operating income | 31 | 19 | (11 | ) | ||||||||
Operating income | 1,350 | 1,401 | 1,426 | |||||||||
Goodwill amortisation | (58 | ) | (45 | ) | (45 | ) | ||||||
Other operating expenses | (991 | ) | (996 | ) | (960 | ) | ||||||
Operating expenses | (1,049 | ) | (1,041 | ) | (1,005 | ) | ||||||
Operating profit before provisions | 301 | 360 | 421 | |||||||||
Provisions for bad and doubtful debts | (31 | ) | (37 | ) | (36 | ) | ||||||
Operating profit – ongoing business | 270 | 323 | 385 | |||||||||
Profit/(loss) from associated undertakings | 16 | (8 | ) | – | ||||||||
Exceptional items | 7 | (2 | ) | 4 | ||||||||
Profit on ordinary activities before tax – ongoing business | 293 | 313 | 389 | |||||||||
Contribution from closed life assurance activities | (77 | ) | (87 | ) | 123 | |||||||
Profit on ordinary activities before tax | 216 | 226 | 512 | |||||||||
Barclays Private Clients operating profit for the ongoing business fell 16% (£53m) to £270m (2002: £323m). Barclays Private Clients profit before tax for the ongoing business including the contribution of FirstCaribbean and exceptional items, decreased 6% to £293m (2002: £313m).
Net interest income increased 2% (£16m) to £804m (2002: £788m). The increase reflected a resilient core banking performance, the continued success of Openplan in Spain and the inclusion of Banco Zaragozano, which together more than offset the absence of the contribution from the Caribbean business. Average customer deposits increased 5% to £41bn (2002: £39bn), including the transfer of some client savings balances from Personal Financial Services in the second half of 2003.
Excluding the impact of the transfer, average customer deposits increased 3% to £40bn (£39bn). Average loans increased 44% to £13bn (2002: £9bn). Margins remained broadly stable.
Net fees and commissions decreased 13% (£79m) to £515m (2002: £594m). This reflected the impact of lower average equity market levels in 2003 on sales of investment products and on fund management fees, together with the absence of the contribution from the Caribbean business. The average level of the FTSE 100 Index was 12% lower than in the prior year at 4,051 (2002: 4,599). Fee incomeinvestments (organic and non-organic) helped by stronger markets. This included a significantly improved significantly in the second half of 2003, reflecting volume growth and the recovery in equity markets towards the year end. Average daily deal volumes in UK retail stockbroking, including Charles Schwab Europe, increased to 8,350 (2002: 6,300). The stockbroking business maintained its leading UK position with a 19% (2002: 12%) market share of client order business.
Operating expenses increased 1% (£8m) to £1,049m (2002: £1,041m). The tight control of costs, together with the impact of the deconsolidation of the Caribbean business, fully mitigated the additional pensions charge of £28m (2002: credit £13m), the inclusion of costs relating to Banco Zaragozano and Charles Schwab Europe, and increased restructuring charges. Operating expenses included goodwill of £58m (2002: £45m).
Provisions decreased £6m to £31m (2002: £37m), reflecting the impact of the Caribbean transaction.
Total customer funds, comprising customer deposits and assets under management (including assets managed by Legal & General under the strategic alliance), increased £24bn to £109bn (31st December 2002: £85bn). This was due to the inclusion of funds relating to the acquired businesses of Charles Schwab Europe, Banco Zaragozano and Gerrard (which together amounted to £19bn), the impact of new business, favourable exchange rate movements and improved stock market levels. Customer deposits increased by £5bn to £44bn (31st December 2002: £39bn), reflecting the inclusion of Banco Zaragozano and savings balances of £1.9bn which were transferred from Personal Financial Services in the second half of 2003.
Sales of Legal & General life and pensions products have fallen in line with industry trends. Sales of funds and bonds were impacted by reduced customer demand for investment products.
Openplan in UK Premier attracted £1.1bn of new mortgage balances together with £1.3bn of additional savings in the year.
Income in Spain, excluding Banco Zaragozano, continued to grow significantly in 2003, increasing 22% (£32m) to £179m (2002: £147m). This reflected the continued success of Openplan mortgage products together with favourable exchange rate movements. 15,000 new customers were recruited to Openplan in Spain in 2003.
The first benefits of the integration of Banco Zaragozano were evident: sales of non-core assets totalling some £175m, representing 23% of the purchase consideration; progress has been made on the combination of Head office functions and technology integration; and Barclays products have been successfully launched into the Banco Zaragozano customer base. The majority of the restructuring costs will be borne in 2004 and 2005.
The contributionperformance from the closed life assurance activities, a loss of £77m (2002: loss of £87m), comprises the embedded value of the closed Barclays Life fund and former Woolwich Life fund together with the costs relating to redress for customersactivities.
Profit before tax in respect of sales of endowment policies. Of the loss of £77m in the Group’s results, £42m is included within other operating income and £35m within net interest income.
Barclays PLC Annual Report 2003 79
Financial ReviewAnalysis of Results by Business
Total costs relating to customer redress in respect of mortgage endowment policies were £95m (2002: £19m).
Barclays Private Clients, operating profit infor the ongoing business, in 2002 fell 16% to £323m (2001: £385m), due primarily to the weaker interest rate environment in 2002 and margin compression.
On 11th October 2002, the Caribbean businesses of Barclays and Canadian Imperial Bank of Commerce were combined to form FirstCaribbean International Bank Ltd, and the interest in FirstCaribbean was accounted for as an associated undertaking thereafter.
Operating incomeincreased 42% benefiting from the ongoing business in 2002 decreased 2% to £1,401m (2001: £1,426m).
Net interest income from the ongoing business in 2002 decreased 9% to £788m (2001: £870m). The increased income generated from higher average customer deposits and average loans was offset by margin compression and the effects of lower interest rates.
Net fees and commissions from the ongoing business in 2002 increased 5% to £594m (2001: £567m) resulting from commission income associated with the regulated sales force which was previously offset against costs and borne within the life assurance fund.
Operating expenses in 2002 increased 4% to £1,041m (2001: £1,005m). Costs were tightly managed and were lower than 2001 when excluding the £72m (2001: £31m) of costs attributable to the change in treatment of the regulated sales force.
The loss of £87m from the closed life assurance activities in 2002 compared to a profit of £123m in 2001, was due to the impact of declining equity markets in 2002 in addition to one-off benefits in 2001 such as the gain of £45m from the Legal & General Strategic Alliance.
Barclaycard
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 1,037 | 886 | 815 | |||||||||
Net fees and commissions | 793 | 696 | 577 | |||||||||
Other operating income | – | – | 1 | |||||||||
Operating income | 1,830 | 1,582 | 1,393 | |||||||||
Goodwill amortisation | (33 | ) | (22 | ) | (6 | ) | ||||||
Other operating expenses | (646 | ) | (565 | ) | (505 | ) | ||||||
Operating expenses | (679 | ) | (587 | ) | (511 | ) | ||||||
Operating profit before provisions | 1,151 | 995 | 882 | |||||||||
Provisions for bad and doubtful debts | (462 | ) | (402 | ) | (381 | ) | ||||||
Operating profit | 689 | 593 | 501 | |||||||||
Profit/(loss) from joint ventures | 2 | (4 | ) | (4 | ) | |||||||
Exceptional items | – | 2 | (9 | ) | ||||||||
Profit on ordinary activities before tax | 691 | 591 | 488 | |||||||||
Barclaycard operating profit increased 16% (£96m) to £689m (2002: £593m).
Operating income increased 16% (£248m) to £1,830m (2002: £1,582m). Net revenue (operating income less provisions) increased 16% (£188m) to £1,368m (2002: £1,180m).
Net interest income increased 17% (£151m) to £1,037m (2002: £886m), due to good growth in UK average extended credit balances, up 14% to £7.4bn (2002: £6.5bn). Growth in new UK customers remained strong up 27%, with 1,547,000 (2002: 1,218,000) recruited in the period.
Net fees and commissions increased 14% (£97m) to £793m (2002: £696m), as a result of higher cardholder activity and good volume growth within the merchant acquiring business.
Operating expenses increased 16% (£92m) to £679m (2002: £587m). The increase reflected higher business volumes and greater marketing activity. Strategic investment spend increased as Barclaycard enhanced operational capabilities. Operating expenses included goodwill of £33m (2002: £22m).
Provisions increased 15% (£60m) to £462m (2002: £402m), in line with the growth in lending.
Barclaycard International made a profit of £4m (2002: loss £14m) whilst maintaining significant ongoing investment in the existing businesses and launching into new markets. Income increased by 48% and average extended credit balances rose by 43%. The number of Barclaycard International cards in issue rose to 1.42m (2002: 1.28m).
Net interest income in 2002 increased 9% to £886m (2001: £815m). This was mainly due to good growth in average UK extended credit balances, up 9% to £6.5bn (2001: £6.0bn).
Net fees and commissions in 2002 increased 21% to £696m (2001: £577m), principally as a result of replacing UK annual fees with fees based on account activity.
Operating expenses in 2002 increased by 15% to £587m (2001: £511m). Included in operating expenses was goodwill of £22m (2001: £6m).
Provisions in 2002 increased 6% to £402m (2001: £381m) in line with the growth in average extended credit balances.
Business Banking
2003 | 2002 | 2001 | ||||||||||
��m | £m | £m | ||||||||||
Net interest income | 1,665 | 1,626 | 1,553 | |||||||||
Net fees and commissions | 925 | 864 | 833 | |||||||||
Other operating income | 38 | 24 | (4 | ) | ||||||||
Operating income | 2,628 | 2,514 | 2,382 | |||||||||
Goodwill amortisation | (9 | ) | (21 | ) | (12 | ) | ||||||
Other operating expenses | (1,071 | ) | (1,061 | ) | (1,111 | ) | ||||||
Operating expenses | (1,080 | ) | (1,082 | ) | (1,123 | ) | ||||||
Operating profit before provisions | 1,548 | 1,432 | 1,259 | |||||||||
Provisions for bad and doubtful debts | (249 | ) | (226 | ) | (210 | ) | ||||||
Operating profit | 1,299 | 1,206 | 1,049 | |||||||||
Profit/(loss) from associated undertakings | 3 | (2 | ) | (11 | ) | |||||||
Exceptional items | (1 | ) | 6 | 1 | ||||||||
Profit on ordinary activities before tax | 1,301 | 1,210 | 1,039 | |||||||||
Business Banking operating profit increased 8% (£93m) to £1,299m (2002: £1,206m), as a result of good income growth, continued tight cost management and well-controlled risk. Operating income increased 5% (£114m) to £2,628m (2002: £2,514m). Net revenue (operating income less provisions) increased 4% (£91m) to £2,379m (2002: £2,288m).
80
Net interest income increased 2% (£39m) to £1,665m (2002: £1,626m). Average lending balances increased 11% to £47.0bn (2002: £42.3bn) and average deposit balances increased 5% to £46.2bn (2002: £43.9bn). Lending margins were maintained and lending growth was concentrated towards higher quality large and medium business customers. The impact of the Competition Commission Inquiry transitional pricing remedy and the lower interest rate environment contributed to lower deposit margins.
Net fees and commissions increased 7% (£61m) to £925m (2002: £864m), driven by lending related fees which rose strongly, reflecting the growth in the balance sheet. Foreign exchange commission income grew due to increased business volumes. Money transmission income fell as a result of the alternative offer made in response to the Competition Commission Inquiry transitional pricing remedy and the targeted migration of transactions to electronic channels.
Operating expenses of £1,080m (2002: £1,082m) were flat relative to 2002. Business as usual costs reduced, with cost savings from the back office more than offsetting the impact of the pension charge of £50m (2002: credit £26m). Headcount fell to 9,000 (2002: 9,700). Strategic investment spend increased, and was focused on improving direct channels, realising cost savings and enhancing the shared technology infrastructure. Operating expenses included goodwill of £9m (2002: £21m).
Provisions increased 10% (£23m) to £249m (2002: £226m). The increase was in line with lending growth. The lending portfolio remained well diversified by sector and the overall quality of the portfolio, as defined by risk grade, was maintained.
Business Banking operating profit in 2002 increased by 15% to £1,206m (2001: £1,049m) reflecting improved income growth and tight cost management.
Net interest income in 2002 increased 5% to £1,626m (2001: £1,553m) partly as a result of increased volumes.
Net fees and commissions in 2002 increased 4% to £864m (2001: £833m). Lending related fees increased strongly and included an increased contribution from leveraged finance. Money transmission income fell as a result of price competition and a reduction in average fee levels due to the migration to more efficient, lower cost, electronic payment mechanisms. Foreign exchange related income was flat despite a reduction in volumes.
Operating expenses in 2002 fell 4% to £1,082m (2001: £1,123m). Included in operating expenses was goodwill of £21m (2001: £12m).
Provisions in 2002 increased 8% to £226m (2001: £210m).
Barclays Africa
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 187 | 160 | 176 | |||||||||
Net fees and commissions | 133 | 114 | 130 | |||||||||
Other operating income | 5 | 1 | 6 | |||||||||
Operating income | 325 | 275 | 312 | |||||||||
Goodwill amortisation | (1 | ) | (1 | ) | (1 | ) | ||||||
Other operating expenses | (185 | ) | (159 | ) | (164 | ) | ||||||
Operating expenses | (186 | ) | (160 | ) | (165 | ) | ||||||
Operating profit before provisions | 139 | 115 | 147 | |||||||||
Provisions for bad and doubtful debts | (27 | ) | (27 | ) | (25 | ) | ||||||
Operating profit | 112 | 88 | 122 | |||||||||
Profit from joint ventures | – | – | – | |||||||||
Profit on ordinary activities before tax | 112 | 88 | 122 | |||||||||
Barclays Africa operating profit increased 27% (£24m) to £112m (2002: £88m) driven by strong customer lending.
Operating income increased 18% (£50m) to £325m (2002: £275m).
Net interest income increased 17% (£27m) to £187m (2002: £160m), the growth being largely attributable to the acquisition of BNPI Mauritius and expansion in selected markets. There was a 20% increase in customer lending to £1.8bn (2002: £1.5bn) and a 12% rise in customer deposits to £2.8bn (2002: £2.5bn).
Net fees and commissions rose 17% (£19m) to £133m (2002: £114m), reflecting growth in fee-based services, treasury profits and the impact of the acquisition of BNPI Mauritius in 2002.
Operating expenses increased 16% (£26m) to £186m (2002: £160m), due to increased infrastructure investment, further development of the business and the relocation of Head office functions. Operating expense included goodwill of £1m (2002: £1m).
Provisions remained steady at £27m, notwithstanding strong lending growth, and reflected improved portfolio quality and recoveries.
Operating profit in 2002 decreased 28% to £88m (2001: £122m) primarily attributable to the situation in Zimbabwe.
Operating income in 2002 fell 12% to £275m (2001: £312m) primarily attributable to the situation in Zimbabwe.
Operating expenses in 2002 fell 3% to £160m (2001: £165m).
Provisions in 2002 increased 8% to £27m (2001: £25m).
Barclays PLC Annual Report 2003 81
Financial ReviewAnalysis of Results by Business
Barclays Capital
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 964 | 889 | 639 | |||||||||
Dealing profits | 1,042 | 827 | 1,006 | |||||||||
Net fees and commissions | 537 | 463 | 389 | |||||||||
Other operating income | 109 | 59 | 53 | |||||||||
Operating income | 2,652 | 2,238 | 2,087 | |||||||||
Goodwill amortisation | – | (2 | ) | (1 | ) | |||||||
Other operating expenses | (1,618 | ) | (1,324 | ) | (1,329 | ) | ||||||
Operating expenses | (1,618 | ) | (1,326 | ) | (1,330 | ) | ||||||
Operating profit before provisions | 1,034 | 912 | 757 | |||||||||
Provisions for bad and doubtful debts | (252 | ) | (334 | ) | (103 | ) | ||||||
Operating profit | 782 | 578 | 654 | |||||||||
Profit from associated undertakings | 1 | 1 | – | |||||||||
Profit on ordinary activities before tax | 783 | 579 | 654 | |||||||||
Barclays Capital operating profit increased 35% (£204m) to £782m (2002: £578m). This was due to very strong operating income growth and the improved credit environment. Revenue related costs increased with the strong performance.
Operating income increased 18% (£414m) to a record £2,652m (2002: £2,238m) and reflected broadly based growth across most of the product areas in Rates and Credit. Average DVaR rose 13%, to £26m (2002: £23m). Net revenue (operating income less provisions) increased by 26% to £2,400m (2002: £1,904m).
Secondary income, comprising dealing profits and net interest income, and which is primarily generated from providing client risk management and financing solutions, increased 17% (£290m) to £2,006m (2002: £1,716m).
Dealing profits grew 26% (£215m) to £1,042m (2002: £827m), driven by significant growth in client transaction volumes, particularly in continental Europe. The strong performance in the Credit businesses, principally in corporate bonds, was due to credit spreads tightening in the secondary bond markets. The growth in the Rates businesses reflected good results from equity related activities and money markets. Fixed income, foreign exchange and commodities continued to make good contributions. Net interest income grew 8% (£75m) to £964m (2002: £889m) due to balance sheet growth in higher quality assets, partially offset by margin compression. Corporate lending remained tightly managed and the credit portfolio continued to decline, with drawn credit balances falling to £7bn (31st December 2002: £10bn).
Primary income, comprising net fees and commissions, increased 16% (£74m) to £537m (2002: £463m), with good performances across the Credit businesses. Net fees and commissions included £89m (2002: £87m) of internal fees for structured capital markets activities arranged by Barclays Capital.
Other operating income increased to £109m (2002: £59m) as a result of a number of private equity and structured capital markets investment realisations.
Operating expenses increased 22% (£292m) to £1,618m (2002: £1,326m). Business as usual costs grew as a result of higher business volumes and increased front-office headcount. Revenue related costs increased due to the strong financial performance. Strategic investment spend increased as product and distribution development accelerated, particularly in the second half of 2003. The ratio of staff costs to net revenue improved to 53% (2002: 54%). There was no goodwill amortisation in 2003 (2002: £2m).
Provisions fell 25% (£82m) to £252m (2002: £334m). This reflected the ongoing improvement in the quality of the loan book and continued recovery in the large corporate credit environment.
Operating profit in 2002 fell 12% to £578m (2001: £654m), with good income growth offset by increased provisions, as difficult economic conditions affected specific sectors.
Operating income grew 7% to £2,238m (2001: £2,087m) reflecting the strength of the Barclays Capital business model and continued progress in building the client franchise. Secondary income increased 4% to £1,716m (2001: £1,645m) driven by strong net interest income. Primary income increased by 19% to £463m (2001: £389m) driven by the Credit businesses.
Operating expenses fell slightly to £1,326m (2001: £1,330m) as revenue related costs were reduced in line with performance. Included in operating expenses was goodwill of £2m (2001: £1m).
Provisions in 2002 were significantly higher at £334m (2001: £103m). The increase reflected difficult economic conditions (particularly in the US during 2002), primarily in the telecommunications and energy sectors.
82
Barclays Global Investors
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 9 | 12 | 5 | |||||||||
Net fees and commissions | 662 | 538 | 518 | |||||||||
Other operating income | 1 | – | – | |||||||||
Operating income | 672 | 550 | 523 | |||||||||
Goodwill amortisation | (12 | ) | (13 | ) | (13 | ) | ||||||
Other operating expenses | (480 | ) | (439 | ) | (444 | ) | ||||||
Operating expenses | (492 | ) | (452 | ) | (457 | ) | ||||||
Operating profit | 180 | 98 | 66 | |||||||||
Loss from joint ventures | (1 | ) | (1 | ) | (1 | ) | ||||||
Exceptional items | – | – | 6 | |||||||||
Profit on ordinary activities before tax | 179 | 97 | 71 | |||||||||
Barclays Global Investors operating profit increased 84% (£82m) to £180m (2002: £98m) and reflected very strong top-line income growth and good controlcost control. The integrations of costs.Charles Schwab Europe and the Gerrard business progressed well. In International, profit before tax increased by 14%. This represented good progress across all geographies: Africa; Spain; Portugal; France; Italy; and the Caribbean. The merging of Banco Zaragozano with Barclays Spain to create one Spanish business is well ahead of schedule and there has been a very good response amongst the Banco Zaragozano network to Barclays products.
Net fees and commissions increased 23% (£124m) to £662m (2002: £538m), reflecting good income generation across a diverse range of products, distribution channels and geographies. The increase was largely driven byBarclaycard delivered profit before tax growth of investment management fees. These resulted from strong net new sales,5% in a year where volume growth in the sales of higher margin products, good investment performance and the recovery in equity markets towards the year end, which more than compensated for the adverse impact of foreign exchange translation movements. Activelysuccessive interest rate rises and intense competition. Income growth was 6%. There was a high level of investment in both the UK business and internationally, managed assets now generate over 60%within cost growth of management fees6%. Performance was strong in our multi-branded business such as Monument and overFirst Plus. Barclaycard International delivered a profit of £8m (2003: £4m) despite absorbing significant ongoing investment. The acquisition of Juniper was an important strategic move into the US credit card market.
Barclays Capital had another record year, with profit before tax up 25%. Income grew by 24%, reflecting the return on investment in prior years. Client activity was up sharply, leading to good volume growth in both primary and secondary markets. A significant level of investment for future revenue growth was funded by the business and reflected in costs which grew 37%. Approximately 50% of total income. Securities lendingthe cost base is variable and despite accelerating the pace of growth, income growth was good, benefiting from higher volumes.
Operating expenses increased by 9% (£40m) to £492m (2002: £452m), due to higher revenue related costs, partly offset by the impact of foreign exchange translation movements. Operating expenses included goodwill of £12m (2002: £13m).
Growth in income and costs was constrained by foreign exchange translation movements. Approximately 56% of Barclays Global Investors income was in US Dollars and 31% in Sterling.
Total assets under management increased 29% (£136bn) to £598bn (31st December 2002: £462bn). This growth came from £67bn of net new assets and £134bn attributable to market movements, offset by £65bn of adverse exchange rate movements. Assets under management comprise: £410bn (69%) indexed assets; £125bn (21%) active assets; and £63bn (10%) managed cash assets.per head remained broadly flat.
Barclays Global Investors operating(BGI) had another excellent year with profit before tax up 85%. Profits have more than quadrupled during the last three years. Income grew 33% and assets under management were £709bn (2003: £598bn). BGI continued to diversify its product range and in 2002 increased 48% (£32m) to £98m (2001: £66m) reflecting strong asset gathering, a greater proportion of higher margin active funds business, good investment performance across a range of products and ongoing cost management.
Fees and commissions in 2002 increased by 4% (£20m) to £538m (2001: £518m) despite significantly lower stock market levels. The increase reflected the continued expansionparticular made significant advances in the advanced active business and growth of Global iShares (Exchange Traded Funds).
Operating costs in 2002 fell by 1% to £452m (2001: £457m). Increased performance related pay was offset by improved efficiency andexchange traded funds (iShares) where it is the impact of exchange rate translation movements.
Head office functions and other operations
2003 | 2002(a) | 2001(a) | ||||||||||
£m | £m | £m | ||||||||||
Head office functions | (149 | ) | (121 | ) | (79 | ) | ||||||
Transition businesses | (25 | ) | (119 | ) | (11 | ) | ||||||
Central items | (84 | ) | (58 | ) | (15 | ) | ||||||
Loss on ordinary activities before tax | (258 | ) | (298 | ) | (105 | ) | ||||||
Head office functions net costs increased 23% (£28m) to £149m (2002: £121m). This increase included a pension charge of £5m (2002: credit £4m).
The improved performance of Transition Businesses, from a loss of £119m to a loss of £25m, primarily reflected a reduced provisions charge of £7m (2002: £132m) in respect of various South American Corporate Banking exposures.
Central items include internal fees charged by Barclays Capital for sructured capital markets activities of £89m (2002: £87m). Central items increased from £58m to £84m, primarily reflecting a £16m increase in the centrally held information technology services costs.
Head office functions net costs increased in 2002 by 53% (£42m) to £121m. This increase relates primarily to £34m in increased expenditure related to marketing and central system costs, relative to 2001. The increased loss in the Transitional Businesses in 2002 relates to increased provisioning in South America Corporate Banking of £132m.
Central items in 2002 include internal fees charged by Barclays Capital for structured capital markets activities of £87m (2001: £61m).
Barclays PLC Annual Report 2003 83
Financial ReviewAverage Balance Sheet
Average balance sheet and net interest income (year ended 31st December)
2003 | 2002 | 2001 | |||||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | ||||||||||||||||||||||||||||||||||
balance | Interest | rate | balance | Interest | rate | balance | Interest | rate | |||||||||||||||||||||||||||||||
£m | £m | % | £m | £m | % | £m | £m | % | |||||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||||||||
Treasury bills and other eligible bills: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 4,048 | 121 | 3.0 | 4,496 | 158 | 3.5 | 3,952 | 189 | 4.8 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 1,222 | 66 | 5.4 | 960 | 66 | 6.9 | 1,114 | 89 | 8.0 | ||||||||||||||||||||||||||||||
Loans and advances to banks: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 14,012 | 574 | 4.1 | 12,560 | 561 | 4.5 | 7,615 | 346 | 4.5 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 4,272 | 108 | 2.5 | 5,535 | 161 | 2.9 | 5,827 | 265 | 4.5 | ||||||||||||||||||||||||||||||
Loans and advances to customers: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 135,373 | 7,804 | 5.8 | 126,306 | 7,712 | 6.1 | 116,279 | 8,406 | 7.2 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 26,323 | 1,136 | 4.3 | 25,896 | 1,132 | 4.4 | 23,573 | 1,498 | 6.4 | ||||||||||||||||||||||||||||||
Lease receivables: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 4,520 | 215 | 4.8 | 4,245 | 209 | 4.9 | 4,384 | 245 | 5.6 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 265 | 19 | 7.2 | 222 | 15 | 6.8 | 226 | 18 | 8.0 | ||||||||||||||||||||||||||||||
Debt securities: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 58,435 | 2,174 | 3.7 | 40,115 | 1,790 | 4.5 | 36,858 | 2,069 | 5.6 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 4,267 | 210 | 4.9 | 4,843 | 240 | 5.0 | 5,189 | 333 | 6.4 | ||||||||||||||||||||||||||||||
Average assets of banking business | 252,737 | 12,427 | 4.9 | 225,178 | 12,044 | 5.3 | 205,017 | 13,458 | 6.6 | ||||||||||||||||||||||||||||||
Average assets of trading business | 189,446 | 5,001 | 2.6 | 160,647 | 4,372 | 2.7 | 132,904 | 5,437 | 4.1 | ||||||||||||||||||||||||||||||
Total average interest earning assets | 442,183 | 17,428 | 3.9 | 385,825 | 16,416 | 4.2 | 337,921 | 18,895 | 5.6 | ||||||||||||||||||||||||||||||
Provisions | (2,796 | ) | (2,808 | ) | (2,513 | ) | |||||||||||||||||||||||||||||||||
Non-interest earning assets | 53,428 | 46,753 | 48,796 | ||||||||||||||||||||||||||||||||||||
Total average assets and interest income | 492,815 | 17,428 | 3.5 | 429,770 | 16,416 | 3.8 | 384,204 | 18,895 | 4.9 | ||||||||||||||||||||||||||||||
Percentage of total average assets in offices outside the United Kingdom | 26.6% | 27.2% | 27.5% | ||||||||||||||||||||||||||||||||||||
Average interest earning assets and net interest income: | |||||||||||||||||||||||||||||||||||||||
Banking business | 252,737 | 6,606 | 2.6 | 225,178 | 6,188 | 2.7 | 205,017 | 5,970 | 2.9 | ||||||||||||||||||||||||||||||
Trading business | 189,446 | 68 | – | 160,647 | 75 | – | 132,904 | (387 | ) | (0.3 | ) | ||||||||||||||||||||||||||||
Non margin interest | (2 | ) | – | 17 | – | (4 | ) | – | |||||||||||||||||||||||||||||||
Total average interest earning assets and net interest income | 442,183 | 6,672 | 1.5 | 385,825 | 6,280 | 1.6 | 337,921 | 5,579 | 1.7 | ||||||||||||||||||||||||||||||
Total average interest earning assets related to: | |||||||||||||||||||||||||||||||||||||||
Interest income | 17,428 | 3.9 | 16,416 | 4.2 | 18,895 | 5.6 | |||||||||||||||||||||||||||||||||
Interest expense | (10,754 | ) | (2.4 | ) | (10,153 | ) | (2.6 | ) | (13,312 | ) | (3.9 | ) | |||||||||||||||||||||||||||
Adjustment for non margin interest | (2 | ) | – | 17 | – | (4 | ) | – | |||||||||||||||||||||||||||||||
6,672 | 1.5 | 6,280 | 1.6 | 5,579 | 1.7 | ||||||||||||||||||||||||||||||||||
84
Average balance sheet and net interest income (year ended 31st December)
2003 | 2002 | 2001 | |||||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | ||||||||||||||||||||||||||||||||||
balance | Interest | rate | balance | Interest | rate | balance | Interest | rate | |||||||||||||||||||||||||||||||
£m | £m | % | £m | £m | % | £m | £m | % | |||||||||||||||||||||||||||||||
Liabilities and shareholders’ funds | |||||||||||||||||||||||||||||||||||||||
Deposits by banks: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 40,959 | 993 | 2.4 | 31,880 | 987 | 3.1 | 27,547 | 1,144 | 4.2 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 10,100 | 184 | 1.8 | 8,908 | 200 | 2.2 | 10,548 | 366 | 3.5 | ||||||||||||||||||||||||||||||
Customer accounts – demand deposits: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 18,788 | 170 | 0.9 | 16,260 | 164 | 1.0 | 14,646 | 209 | 1.4 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 3,497 | 48 | 1.4 | 1,846 | 27 | 1.5 | 1,734 | 37 | 2.1 | ||||||||||||||||||||||||||||||
Customer accounts – savings deposits: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 45,565 | 999 | 2.2 | 41,722 | 982 | 2.4 | 37,341 | 1,153 | 3.1 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 813 | 26 | 3.2 | 1,262 | 32 | 2.5 | 1,297 | 50 | 3.9 | ||||||||||||||||||||||||||||||
Customer accounts – other time deposits – retail: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 35,228 | 1,171 | 3.3 | 40,075 | 1,303 | 3.3 | 38,521 | 1,906 | 4.9 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 3,678 | 103 | 2.8 | 5,479 | 139 | 2.5 | 5,611 | 251 | 4.5 | ||||||||||||||||||||||||||||||
Customer accounts – other time deposits – wholesale: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 57,364 | 1,634 | 2.8 | 35,607 | 1,175 | 3.3 | 31,474 | 1,316 | 4.2 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 8,193 | 247 | 3.0 | 7,959 | 231 | 2.9 | 7,240 | 340 | 4.7 | ||||||||||||||||||||||||||||||
Debt securities in issue: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 34,811 | 949 | 2.7 | 28,596 | 1,061 | 3.7 | 30,378 | 1,546 | 5.1 | ||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 11,906 | 244 | 2.0 | 11,728 | 339 | 2.9 | 11,083 | 522 | 4.7 | ||||||||||||||||||||||||||||||
Dated and undated loan capital and other subordinated liabilities principally in offices in the United Kingdom | 12,312 | 684 | 5.6 | 11,012 | 645 | 5.9 | 9,165 | 601 | 6.6 | ||||||||||||||||||||||||||||||
Internal funding of trading business | (58,436 | ) | (1,631 | ) | (2.8 | ) | (42,626 | ) | (1,429 | ) | (3.4 | ) | (42,480 | ) | (1,953 | ) | (4.6 | ) | |||||||||||||||||||||
Average liabilities of banking business | 224,778 | 5,821 | 2.6 | 199,708 | 5,856 | 2.9 | 184,105 | 7,488 | 4.1 | ||||||||||||||||||||||||||||||
Average liabilities of trading business | 191,240 | 4,933 | 2.6 | 162,858 | 4,297 | 2.6 | 134,609 | 5,824 | 4.3 | ||||||||||||||||||||||||||||||
Total average interest bearing liabilities | 416,018 | 10,754 | 2.6 | 362,566 | 10,153 | 2.8 | 318,714 | 13,312 | 4.2 | ||||||||||||||||||||||||||||||
Interest free customer deposits: | |||||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 13,819 | 11,614 | 10,282 | ||||||||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 1,260 | 2,132 | 2,151 | ||||||||||||||||||||||||||||||||||||
Other non-interest bearing liabilities | 45,276 | 38,172 | 38,828 | ||||||||||||||||||||||||||||||||||||
Minority and other interests and shareholders’ funds | 16,442 | 15,286 | 14,229 | ||||||||||||||||||||||||||||||||||||
Total average liabilities, shareholders’ funds and interest expense | 492,815 | 10,754 | 2.2 | 429,770 | 10,153 | 2.4 | 384,204 | 13,312 | 3.5 | ||||||||||||||||||||||||||||||
Percentage of total average non-capital liabilities in offices outside the United Kingdom | 23.1 | % | 25.5 | % | 26.4 | % | |||||||||||||||||||||||||||||||||
Barclays PLC Annual Report 2003 85
Financial ReviewAverage Balance Sheet
Changes in net interest income – volume and rate analysis
The following tables allocate changes in net interest income between changes in volume and changes in interest rates for the last two years. Volume and rate variances have been calculated on the movement in the average balances and the change in the interest rates on average interest earning assets and average interest bearing liabilities. Where variances have arisen from changes in both volumes and interest rates, these have been allocated proportionately between the two.
2003/2002 Change due | 2002/2001 Change due | |||||||||||||||||||||||
to increase/(decrease) in: | to increase/(decrease) in: | |||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||
change | Volume | Rate | change | Volume | Rate | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Interest receivable | ||||||||||||||||||||||||
Treasury bills and other eligible bills: | ||||||||||||||||||||||||
in offices in the United Kingdom | (37 | ) | (15 | ) | (22 | ) | (31 | ) | 24 | (55 | ) | |||||||||||||
in offices outside the United Kingdom | – | 16 | (16 | ) | (23 | ) | (11 | ) | (12 | ) | ||||||||||||||
(37 | ) | 1 | (38 | ) | (54 | ) | 13 | (67 | ) | |||||||||||||||
Loans and advances to banks: | ||||||||||||||||||||||||
in offices in the United Kingdom | 13 | 62 | (49 | ) | 215 | 221 | (6 | ) | ||||||||||||||||
in offices outside the United Kingdom | (53 | ) | (34 | ) | (19 | ) | (104 | ) | (13 | ) | (91 | ) | ||||||||||||
(40 | ) | 28 | (68 | ) | 111 | 208 | (97 | ) | ||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||
in offices in the United Kingdom | 92 | 536 | (444 | ) | (694 | ) | 685 | (1,379 | ) | |||||||||||||||
in offices outside the United Kingdom | 4 | 19 | (15 | ) | (366 | ) | 137 | (503 | ) | |||||||||||||||
96 | 555 | (459 | ) | (1,060 | ) | 822 | (1,882 | ) | ||||||||||||||||
Lease receivables: | ||||||||||||||||||||||||
in offices in the United Kingdom | 6 | 13 | (7 | ) | (36 | ) | (8 | ) | (28 | ) | ||||||||||||||
in offices outside the United Kingdom | 4 | 3 | 1 | (3 | ) | – | (3 | ) | ||||||||||||||||
10 | 16 | (6 | ) | (39 | ) | (8 | ) | (31 | ) | |||||||||||||||
Debt securities: | ||||||||||||||||||||||||
in offices in the United Kingdom | 384 | 718 | (334 | ) | (279 | ) | 172 | (451 | ) | |||||||||||||||
in offices outside the United Kingdom | (30 | ) | (28 | ) | (2 | ) | (93 | ) | (21 | ) | (72 | ) | ||||||||||||
354 | 690 | (336 | ) | (372 | ) | 151 | (523 | ) | ||||||||||||||||
Total banking business interest receivable: | ||||||||||||||||||||||||
in offices in the United Kingdom | 458 | 1,314 | (856 | ) | (825 | ) | 1,094 | (1,919 | ) | |||||||||||||||
in offices outside the United Kingdom | (75 | ) | (24 | ) | (51 | ) | (589 | ) | 92 | (681 | ) | |||||||||||||
383 | 1,290 | (907 | ) | (1,414 | ) | 1,186 | (2,600 | ) | ||||||||||||||||
Total trading business interest receivable | 629 | 764 | (135 | ) | (1,065 | ) | 989 | (2,054 | ) | |||||||||||||||
Total interest receivable | 1,012 | 2,054 | (1,042 | ) | (2,479 | ) | 2,175 | (4,654 | ) | |||||||||||||||
86
Changes in net interest income – volume and rate analysis
2003/2002 Change due | 2002/2001 Change due | |||||||||||||||||||||||
to increase/(decrease) in: | to increase/(decrease) in: | |||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||
change | Volume | Rate | change | Volume | Rate | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Interest payable | ||||||||||||||||||||||||
Deposits by banks: | ||||||||||||||||||||||||
in offices in the United Kingdom | 6 | 246 | (240 | ) | (157 | ) | 162 | (319 | ) | |||||||||||||||
in offices outside the United Kingdom | (16 | ) | 25 | (41 | ) | (166 | ) | (51 | ) | (115 | ) | |||||||||||||
(10 | ) | 271 | (281 | ) | (323 | ) | 111 | (434 | ) | |||||||||||||||
Customer accounts – demand deposits: | ||||||||||||||||||||||||
in offices in the United Kingdom | 6 | 24 | (18 | ) | (45 | ) | 21 | (66 | ) | |||||||||||||||
in offices outside the United Kingdom | 21 | 23 | (2 | ) | (10 | ) | 2 | (12 | ) | |||||||||||||||
27 | 47 | (20 | ) | (55 | ) | 23 | (78 | ) | ||||||||||||||||
Customer accounts – savings deposits: | ||||||||||||||||||||||||
in offices in the United Kingdom | 17 | 87 | (70 | ) | (171 | ) | 125 | (296 | ) | |||||||||||||||
in offices outside the United Kingdom | (6 | ) | (13 | ) | 7 | (18 | ) | (1 | ) | (17 | ) | |||||||||||||
11 | 74 | (63 | ) | (189 | ) | 124 | (313 | ) | ||||||||||||||||
Customer accounts – other time deposits – retail: | ||||||||||||||||||||||||
in offices in the United Kingdom | (132 | ) | (161 | ) | 29 | (603 | ) | 74 | (677 | ) | ||||||||||||||
in offices outside the United Kingdom | (36 | ) | (49 | ) | 13 | (112 | ) | (6 | ) | (106 | ) | |||||||||||||
(168 | ) | (210 | ) | 42 | (715 | ) | 68 | (783 | ) | |||||||||||||||
Customer accounts – other time deposits – wholesale: | ||||||||||||||||||||||||
in offices in the United Kingdom | 459 | 638 | (179 | ) | (141 | ) | 159 | (300 | ) | |||||||||||||||
in offices outside the United Kingdom | 16 | 7 | 9 | (109 | ) | 31 | (140 | ) | ||||||||||||||||
475 | 645 | (170 | ) | (250 | ) | 190 | (440 | ) | ||||||||||||||||
Debt securities in issue: | ||||||||||||||||||||||||
in offices in the United Kingdom | (112 | ) | 203 | (315 | ) | (485 | ) | (86 | ) | (399 | ) | |||||||||||||
in offices outside the United Kingdom | (95 | ) | 5 | (100 | ) | (183 | ) | 29 | (212 | ) | ||||||||||||||
(207 | ) | 208 | (415 | ) | (668 | ) | (57 | ) | (611 | ) | ||||||||||||||
Dated and undated loan capital and other subordinated liabilities principally in offices in the United Kingdom | 39 | 73 | (34 | ) | 44 | 113 | �� | (69 | ) | |||||||||||||||
Internal funding of trading businesses | (202 | ) | (469 | ) | 267 | 524 | (7 | ) | 531 | |||||||||||||||
Total banking business interest payable: | ||||||||||||||||||||||||
in offices in the United Kingdom | 81 | 641 | (560 | ) | (1,034 | ) | 561 | (1,595 | ) | |||||||||||||||
in offices outside the United Kingdom | (116 | ) | (2 | ) | (114 | ) | (598 | ) | 4 | (602 | ) | |||||||||||||
(35 | ) | 639 | (674 | ) | (1,632 | ) | 565 | (2,197 | ) | |||||||||||||||
Total trading business interest payable | 636 | 734 | (98 | ) | (1,527 | ) | 1,055 | (2,582 | ) | |||||||||||||||
Total interest payable | 601 | 1,373 | (772 | ) | (3,159 | ) | 1,620 | (4,779 | ) | |||||||||||||||
Movement in net interest income | ||||||||||||||||||||||||
Increase/(decrease) in interest receivable | 1,012 | 2,054 | (1,042 | ) | (2,479 | ) | 2,175 | (4,654 | ) | |||||||||||||||
(Decrease)/increase in interest payable | (601 | ) | (1,373 | ) | 772 | 3,159 | (1,620 | ) | 4,779 | |||||||||||||||
411 | 681 | (270 | ) | 680 | 555 | 125 | ||||||||||||||||||
Movement in non-margin interest | (19 | ) | 21 | |||||||||||||||||||||
392 | 701 | |||||||||||||||||||||||
Barclays PLC Annual Report 2003 87
Financial ReviewTotal Assets and Liabilities and Capital Resources
Total Assets and Liabilities
The Group’s balance sheet grew by 10% (£40bn) to £443bn (31st December 2002: £403bn). Weighted risk assets rose by 9% (£16bn) to £189bn (31st December 2002: £173bn).
Within Personal Financial Services, total assets increased 4% to £77.3bn (31st December 2002: £74.6bn). Weighted risk assets increased by 3% to £42.4bn (31st December 2002: £41.1bn). This was mainly attributable to steady growth in UK residential mortgage balances, up 3% to £59.8bn (2002: £57.8bn) and to good growth in unsecured lending.
Barclays Private Clients total assets (including the assets of the closed life assurance activities) grew 52% (£7.7bn) to £22.5bn (31st December 2002: £14.8bn), primarily as a result of the growth of Openplan in Spain and the inclusion of assets relating to the acquired business of Banco Zaragozano. Weighted risk assets increased 29% to £15.1bn (31st December 2002: £11.7bn), largely reflecting the growth in Openplan assets in Spain and the impact of the acquisition of Banco Zaragozano.
Barclaycard total assets increased 15% to £12.5bn (31st December 2002: £10.9bn). Weighted risk assets decreased by 2% to £9.8bn (31st December 2002: £10.0bn), reflecting the effect of securitised credit card receivables.
Within Business Banking, total assets grew by 10% to £52.2bn (31st December 2002: £47.4bn). Weighted risk assets increased by 9% to £55.0bn (31st December 2002: £50.4bn) as a result of strong growth in lending balances. Lending growth was directed towards higher quality large and medium business customers.
Barclays Capital total assets grew 11% to £263.2bn (31st December 2002: £236.5bn) primarily due to increases in low risk, high quality reverse repos and debt securities. Reverse repo balances, which are fully collateralised, increased £17.1bn, driven by growth in client transactions. The increase in debt securities of £6.7bn arose primarily in governments and high-grade corporates. Total weighted risk assets increased 15% (£7.8bn) to £61.3bn (31st December 2002: £53.5bn), broadly in line with the growth in assets.
Capital Resources
The Group manages both its debt and equity capital actively. The Group’s authority to buy back equity was renewed at the 2003 AGM to provide additional flexibility in the management of the Group’s capital resources.
2003 | 2002 | 2001 | |||||||||||
restated | restated | ||||||||||||
£m | £m | £m | |||||||||||
Barclays PLC Group | |||||||||||||
Shareholders’ funds | 16,473 | 15,201 | 14,485 | ||||||||||
Minority and other interests | 283 | 156 | 134 | ||||||||||
16,756 | 15,357 | 14,619 | |||||||||||
Undated loan capital | 6,310 | 6,678 | 5,054 | ||||||||||
Dated loan capital | 6,029 | 4,859 | 4,933 | ||||||||||
Total capital resources | 29,095 | 26,894 | 24,606 | ||||||||||
Total capital resources increased in the year by £2,201m.
Equity shareholders’ funds increased by £1,272m reflecting profit retentions of £1,404m, net proceeds of share issues of £149m, offset by share repurchases of £204m, exchange rate losses of £29m, shares to QUEST of £36m and £12m other movements.
Loan capital rose by £802m reflecting raisings of £1,926m, offset by redemptions of £974m, exchange rate movements of £146m and amortisation of issue expenses of £4m.
2003 | 2002 | 2001 | |||||||||||
£m | £m | £m | |||||||||||
Barclays Bank PLC Group | |||||||||||||
Shareholders’ funds | 16,485 | 15,205 | 14,485 | ||||||||||
Minority interests | 283 | 156 | 134 | ||||||||||
16,768 | 15,361 | 14,619 | |||||||||||
Undated loan capital | 6,310 | 6,678 | 5,054 | ||||||||||
Dated loan capital | 6,029 | 4,859 | 4,933 | ||||||||||
Total capital resources | 29,107 | 26,898 | 24,606 | ||||||||||
Capital resources for Barclays Bank PLC Group differ from Barclays PLC Group by £12m (2002: £4m).market leader.
Capital ratiosStrengthCapital adequacyOur capital position and strong credit rating are sources of competitive advantage. At the useend of regulatory capital are monitored by the Group, employing techniques based on the guidelines developed by the Basel Committee on Banking Supervision (the Basel Committee) and European Community Directives, as implemented by the Financial Services Authority (FSA) for supervisory purposes.
These techniques include the risk asset ratio calculation, which the FSA regards as a key supervisory tool. The FSA sets ratio requirements for individual banks in the UK at or above the internationally agreed minimum of 8%. The ratio calculation involves the application of designated risk weightings to reflect an estimate of credit, market and other risks associated with broad categories of transactions and counterparties. Regulatory guidelines define three ‘Tiers’ of capital resources. Tier 1 capital, comprising mainly shareholders’ funds and including Reserve Capital Instruments and Tier One Notes, is the highest tier and can be used to meet trading and banking activity requirements. Tier 2 includes perpetual, medium-term and long-term subordinated debt, general provisions for bad and doubtful debts and fixed asset revaluation reserves. Tier 2 capital can be used to support both trading and banking activities. Tier 3 capital comprises short-term subordinated debt with a minimum original maturity of two years. The use of tier 3 capital is restricted to trading activities only and it is not eligible to support counterparty or settlement risk. The aggregate of tiers 2 and 3 capital included in the risk asset ratio calculation may not exceed tier 1 capital.
88
Capital adequacy data
2003 | 2002 | ||||||||||||
£m | £m | ||||||||||||
Weighted risk assets | |||||||||||||
Banking book | |||||||||||||
on-balance sheet | 133,816 | 128,691 | |||||||||||
off-balance sheet | 22,987 | 21,999 | |||||||||||
Associated undertakings and joint ventures | 2,830 | 3,065 | |||||||||||
Total banking book | 159,633 | 153,755 | |||||||||||
Trading book | |||||||||||||
Market risks | 13,861 | 7,988 | |||||||||||
Counterparty and settlement risks | 15,503 | 11,005 | |||||||||||
Total trading book | 29,364 | 18,993 | |||||||||||
Total weighted risk assets | 188,997 | 172,748 | |||||||||||
The following table analyses capital resources at 31st December 2003, as defined for regulatory purposes:
2003 | 2002 | |||||||||||||||
Barclays | Barclays | Barclays | Barclays | |||||||||||||
PLC | Bank PLC | PLC | Bank PLC | |||||||||||||
Group | Group | Group | Group | |||||||||||||
Capital resources | £m | £m | £m | £m | ||||||||||||
Tier 1 Called up share capital | 1,636 | 2,302 | 1,642 | 2,293 | ||||||||||||
Eligible reserves | 14,663 | 13,997 | 13,408 | 12,757 | ||||||||||||
Minority interests – equity | 637 | 637 | 522 | 522 | ||||||||||||
Reserve Capital Instruments(a) | 1,705 | 1,705 | 1,771 | 1,771 | ||||||||||||
Tier One Notes(a) | 960 | 960 | 1,019 | 1,019 | ||||||||||||
Less: goodwill | (4,607 | ) | (4,607 | ) | (4,158 | ) | (4,158 | ) | ||||||||
Total qualifying Tier 1 capital | 14,994 | 14,994 | 14,204 | 14,204 | ||||||||||||
2003 | 2002 | ||||||||||
£m | £m | ||||||||||
Tier 2 | |||||||||||
Revaluation reserves | 25 | 25 | |||||||||
General provisions | 795 | 737 | |||||||||
Qualifying subordinated liabilities(b) | |||||||||||
Undated loan capital | 3,636 | 3,854 | |||||||||
Dated loan capital | 5,652 | 4,573 | |||||||||
Other(c) | 2 | 2 | |||||||||
Total qualifying Tier 2 capital | 10,110 | 9,191 | |||||||||
Tier 3: short-term subordinated liabilities(b) | 280 | 203 | |||||||||
Less: Supervisory deductions Investments not consolidated for supervisory purposes(d) | (979 | ) | (1,288 | ) | |||||||
Other deductions | (182 | ) | (119 | ) | |||||||
Total deductions | (1,161 | ) | (1,407 | ) | |||||||
Total net capital resources | 24,223 | 22,191 | |||||||||
Capital ratios
2003 | 2002 | ||||||||||||||||
Barclays | Barclays | Barclays | Barclays | ||||||||||||||
PLC | Bank PLC | PLC | Bank PLC | ||||||||||||||
Group | Group | Group | Group | ||||||||||||||
£m | £m | £m | £m | ||||||||||||||
% | % | % | % | ||||||||||||||
Capital ratios Equity Tier 1 ratio(e) | 6.5 | 6.5 | 6.6 | 6.6 | |||||||||||||
Tier 1 ratio | 7.9 | 7.9 | 8.2 | 8.2 | |||||||||||||
Risk asset ratio | 12.8 | 12.8 | 12.8 | 12.8 | |||||||||||||
The growth in net capital resources of 9.2% (£2.0bn) was offset by the impact of 9.4% (£16.2bn) growth in weighted risk assets. The2004, our risk asset ratio was steady at 12.8% (31st December 2002: 12.8%). The Tier 1 ratio fell from 8.2% to 7.9%. The Equity Tier 1 ratio fell to 6.5% (2002: 6.6%).
Within total net capital, Tier11.5%, and our tier 1 capital rose by £0.8bn primarily reflecting retained profits of £1.4bnratio was 7.6%. This strong capital position enhances our ability to pay dividends and an increaseinvest confidently in business growth. When we look at the balance sheet, we focus capital management on five areas: maintaining our double A credit rating; generating sufficient capital to support weighted risk asset growth in the deduction for goodwillbusiness; financing corporate activity, delivering dividend growth; and using share buy-backs to manage any excess capital. In 2004 we bought back almost £700m of £0.4bn. Tier 2 capital increased by £0.9bn and Tier 3 capital by £0.1bn. Supervisory deductions decreased by £0.2bn.
Equity Tier 1 capital rose by £0.9bn.
The increase in weighted risk assets is primarily accounted for by a rise of 54.6% (£10.4bn) in the Trading book. Banking book weighted risk assets grew 3.8% (£5.9bn).stock.
Barclays PLC Annual Report 2003 89
1 | The analysis of results by business includes goodwill amortisation. This differs from the announcement of results dated 10th February 2005, where the analysis of results by business excludes goodwill amortisation. |
79
Financial ReviewDeposits and Short-term Borrowings
Deposits
Average: year ended 31st December | |||||||||||||||
2003 | 2002 | 2001 | |||||||||||||
£m | £m | £m | |||||||||||||
Deposits by banks | |||||||||||||||
Offices in the United Kingdom | 41,034 | 31,966 | 27,602 | ||||||||||||
Offices outside the United Kingdom: | |||||||||||||||
Other European Union | 2,696 | 1,894 | 3,342 | ||||||||||||
United States | 597 | 2,213 | 2,667 | ||||||||||||
Rest of the World | 6,815 | 4,909 | 4,638 | ||||||||||||
51,142 | 40,982 | 38,249 | |||||||||||||
Customer accounts | |||||||||||||||
Offices in the United Kingdom | 170,689 | 145,192 | 132,209 | ||||||||||||
Offices outside the United Kingdom: | |||||||||||||||
Other European Union | 6,935 | 5,418 | 5,202 | ||||||||||||
United States | 3,671 | 3,964 | 3,550 | ||||||||||||
Rest of the World | 6,827 | 9,188 | 9,182 | ||||||||||||
188,122 | 163,762 | 150,143 | |||||||||||||
Average deposits (excluding trading balances) are analysed by type in the average balance sheet on page 85 and are based on the location of the office in which the deposits are recorded.
‘Demand deposits’ in offices in the UK are mainly current accounts with credit balances, obtained through the UK branch network.
‘Savings deposits’ in offices in the UK are also obtained through, and administered by, the UK branch network. Interest rates are varied from time to time in response to competitive conditions. These deposits are not drawn against by cheque or similar instrument.
‘Other time deposits – retail’ in offices in the UK are interest bearing and also are not drawn against by cheque or similar instrument. They are generally distinguished from savings deposits by having fixed maturity requirements and from wholesale deposits by being collected, in the main, through the UK branch network.
‘Other time deposits – wholesale’ in offices in the UK are obtained through the London money market and are booked mainly within the Group’s money market operations. These deposits are of fixed maturity and bear interest rates which relate to the London inter-bank money market rates.
‘Other time deposits’ includes commercial paper and inter-bank funds.
Although the types of deposit products offered through offices located outside the UK are broadly similar to those described above, they are tailored to meet the specific requirements of local markets.
A further analysis of Deposits by banks and Customer accounts is given in Note 26 and Note 27 to the accounts on pages 129 and 130.
Short-term Borrowings
Short-term borrowings include Deposits by banks as reported in ‘Deposits’, Commercial paper and negotiable certificates of Deposit.
Deposits by banks (excluding trading business)Deposits by banks are taken from a wide range of counterparties and generally have maturities of less than one year.
2003 | 2002 | 2001 | |||||||||||||
£m | £m | £m | |||||||||||||
Year-end balance | 57,641 | 48,751 | 45,837 | ||||||||||||
Average balance | 51,059 | 40,788 | 38,095 | ||||||||||||
Maximum balance | 77,195 | 56,414 | 53,621 | ||||||||||||
Average interest rate during year | 2.3% | 2.9% | 4.0% | ||||||||||||
Year-end interest rate | 2.5% | 2.6% | 3.3% | ||||||||||||
Commercial paperCommercial paper is issued by the Group, mainly in the United States, generally in denominations of not less than $100,000, with maturities of up to 270 days.
2003 | 2002 | 2001 | |||||||||||||
£m | £m | £m | |||||||||||||
Year-end balance | 4,426 | 5,192 | 3,268 | ||||||||||||
Average balance | 3,288 | 4,818 | 2,669 | ||||||||||||
Maximum balance | 6,284 | 5,234 | 4,419 | ||||||||||||
Average interest rate during year | 1.1% | 2.0% | 3.0% | ||||||||||||
Year-end interest rate | 1.6% | 1.6% | 2.0% | ||||||||||||
Negotiable certificates of depositNegotiable certificates of deposits are issued mainly in the UK and US, generally in denominations of not less than $100,000.
2003 | 2002 | 2001 | |||||||||||||
£m | £m | £m | |||||||||||||
Year-end balance | 28,536 | 30,045 | 28,258 | ||||||||||||
Average balance | 33,013 | 27,111 | 30,209 | ||||||||||||
Maximum balance | 40,274 | 36,780 | 37,686 | ||||||||||||
Average interest rate during year | 2.2% | 3.3% | 4.7% | ||||||||||||
Year-end interest rate | 2.1% | 2.8% | 3.0% | ||||||||||||
90
Financial ReviewSecurities
review
Securities
The following table analyses the book value and valuation of securities.
2003 | 2002 | 2001 | |||||||||||||||||||||||||||
Book value | Valuation | Book value | Valuation | Book value | Valuation | ||||||||||||||||||||||||
restated | restated | restated | restated | ||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||
Investment securities | |||||||||||||||||||||||||||||
Debt securities: | |||||||||||||||||||||||||||||
United Kingdom government | 565 | 621 | 1,465 | 1,496 | 1,500 | 1,499 | |||||||||||||||||||||||
Other government | 16,347 | 16,772 | 18,963 | 19,564 | 15,152 | 15,330 | |||||||||||||||||||||||
Other public bodies | 78 | 79 | 17 | 17 | 3 | 3 | |||||||||||||||||||||||
Mortgage-backed securities | 3,074 | 3,077 | 4,693 | 4,704 | 244 | 255 | |||||||||||||||||||||||
Corporate issuers | 13,826 | 13,966 | 12,601 | 12,666 | 12,977 | 12,987 | |||||||||||||||||||||||
Other issuers | 3,691 | 3,695 | 2,529 | 2,530 | 1,168 | 1,170 | |||||||||||||||||||||||
Equity shares | 954 | 1,134 | 505 | 509 | 194 | 215 | |||||||||||||||||||||||
38,535 | 39,344 | 40,773 | 41,486 | 31,238 | 31,459 | ||||||||||||||||||||||||
Other securities | |||||||||||||||||||||||||||||
Debt securities: | |||||||||||||||||||||||||||||
United Kingdom government | 2,084 | 2,084 | 1,025 | 1,025 | 1,284 | 1,284 | |||||||||||||||||||||||
Other government | 28,011 | 28,011 | 25,385 | 25,385 | 15,659 | 15,659 | |||||||||||||||||||||||
Other public bodies | 4,513 | 4,513 | 2,438 | 2,438 | 1,091 | 1,091 | |||||||||||||||||||||||
Bank and building society certificates of deposit | 5,796 | 5,796 | 12,027 | 12,027 | 15,376 | 15,376 | |||||||||||||||||||||||
Other issuers | 19,408 | 19,408 | 13,086 | 13,086 | 14,470 | 14,470 | |||||||||||||||||||||||
Equity shares | 6,905 | 6,905 | 2,624 | 2,624 | 2,924 | 2,924 | |||||||||||||||||||||||
105,252 | 106,061 | 97,358 | 98,071 | 82,042 | 82,263 | ||||||||||||||||||||||||
Investment debt securities include government securities held as part of the Group’s treasury management portfolio for asset and liability, liquidity and regulatory purposes and are for use on a continuing basis in the activities of the Group. In addition, the Group holds as investments listed and unlisted corporate securities. Investment securities are valued at cost, adjusted for the amortisation of premiums or discounts to redemption, less any provision for diminution in value.
Other securities comprise dealing securities which are valued at market value.
Bank and building society certificates of deposit are freely negotiable and have original maturities of up to five years, but are typically held for shorter periods.
A further analysis of the book value and valuation of securities is given in Notes 17 and 18 to the accounts on pages 124 and 125.
In addition to UK government securities shown above, at 31st December 2003 and 2002 the Group held the following government securities which exceeded 10% of shareholders’ funds.
2003 | 2002 | |||||||||||||||
Book value | Valuation | Book value | Valuation | |||||||||||||
£m | £m | £m | £m | |||||||||||||
United States government securities | 10,155 | 10,203 | 12,728 | 12,811 | ||||||||||||
Japanese government securities | 9,802 | 9,806 | 7,060 | 7,080 | ||||||||||||
Italian government securities | 5,770 | 5,835 | 7,944 | 8,090 | ||||||||||||
German government securities | 4,468 | 4,504 | 3,026 | 3,048 | ||||||||||||
French government securities | 2,674 | 2,697 | 1,518 | 1,518 | ||||||||||||
Spanish government securities | 2,594 | 2,650 | 2,890 | 2,988 | ||||||||||||
Maturities and weighted average yield of investment debt securities
Maturing within | Maturing after one but | Maturing after five but | Maturing after | |||||||||||||||||||||||||||||||||||||
one year: | within five years: | within ten years: | ten years: | |||||||||||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | yield | |||||||||||||||||||||||||||||||
£m | % | £m | % | £m | % | £m | % | £m | % | |||||||||||||||||||||||||||||||
Government | 2,709 | 4.2 | 6,281 | 4.7 | 6,345 | 3.9 | 1,577 | 3.0 | 16,912 | 4.2 | ||||||||||||||||||||||||||||||
Other public bodies | 49 | 4.2 | 29 | 3.4 | – | – | – | – | 78 | 3.8 | ||||||||||||||||||||||||||||||
Other issuers | 5,804 | 2.9 | 8,981 | 2.7 | 1,033 | 4.1 | 4,773 | 3.4 | 20,591 | 3.0 | ||||||||||||||||||||||||||||||
Total book value | 8,562 | 3.3 | 15,291 | 3.5 | 7,378 | 3.9 | 6,350 | 3.3 | 37,581 | 3.5 | ||||||||||||||||||||||||||||||
Total valuation | 8,722 | 15,502 | 7,541 | 6,445 | 38,210 | |||||||||||||||||||||||||||||||||||
The weighted average yield for each range of maturities is calculated by dividing the annualised interest income prevailing at 31st December 2003 by the book value of securities held at that date. Yields on certain US securities, which are exempt from tax, have been calculated using interest income adjusted to reflect a taxable equivalent basis.
Barclays PLC Annual Report 2003 91
Financial Review
Critical Accounting Estimates
Critical Accounting Estimates
UK accounting standards require that the Group adopt the accounting policies and estimation techniques that the Directors believe are most appropriate in the circumstances for the purpose of giving a true and fair view of the Group’s state of affairs, profit and cash flows. However, different policies, estimation techniques and assumptions in critical areas could lead to materially different results. The accounting policies and estimation techniques to be used in the 2005 consolidated accounts will be impacted by the conversion to International Financial Reporting Standards, as discussed on pages 115 and 116.
The following are estimates which are considered to be the most complex and involve significant amounts of management valuation judgements, often in areas which are inherently uncertain.
Bad and doubtful debtsDoubtful Debts
The estimation of potential credit losses is inherently uncertain and depends upon many factors, including general economic conditions, changes in individual customer’s circumstances, structural changes within industries that alter competitive positions, and other external factors such as legal and regulatory requirements and other governmental policy changes.
Specific provisions are raised when the Group considers that the creditworthiness of a borrower has deteriorated such that the recovery of the whole or part of an outstanding advance is in serious doubt.
For larger accounts this is usually done on an individual basis and all relevant considerations that have a bearing on the expected future cash flows are taken into account, for example, the business prospects for the customer, the realisable value of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out process. Subjective judgements are made in this process that may vary from person to person and team to team. Furthermore, judgements change with time as new information becomes available or as workout strategies evolve, resulting in frequent revisions to the specific provisions as individual decisions are taken, case by case.
Within the retail and small businesses portfolios which are comprised of large numbers of small homogeneous assets, statistical techniques are used to raise specific provisions on a portfolio basis, based on historical recovery rates. These statistical analyses use as primary inputs the extent to which accounts in the portfolio are in arrears and historical information on the eventual losses encountered from such delinquent portfolios. There are many such models in use, each tailored to a product, line of business or customer category. The models are updated from time to time. However, experience suggests that the models are reliable and stable, stemming from the very large numbers of accounts from which the model building information is drawn. These models do not contain judgemental inputs, but judgement and knowledge is needed in selecting the statistical methods to use when the models are developed or revised.
General provisions are raised to cover losses which are known from previous historical experience to be present in loans and advances at the balance sheet date, but which have not yet been specifically identified. These provisions are adjusted at least half-yearly by an appropriate charge or release of general provision based on statistical analyses, other information about customers and judgements by management and the Board.
In outline, the statistical analyses are performed on a portfolio basis as follows: For larger accounts, gradings are used to rate the credit quality of borrowers. Each grade corresponds to an expected default frequency and is calculated by using statistical methodologies and expert judgement. To ensure that the result is as accurate as possible, several different sources may be used to rate a borrower (e.g. internal model, external vendor model, ratings by credit rating agencies and the knowledge and experience of the credit officers). The general provision also takes into account the expected severity of loss at default, i.e. the amount outstanding when default occurs that is not subsequently recovered. Recovery is usually substantial and depends, for example, on the level of security held in relation to each loan, and the bank’sBank’s position relative to other claimants. Also taken into account is the expected exposure at default. Both loss given default and exposure at default are statistically derived values.
For the large numbers of retail accounts, the approach is in principle the same as for the corporate and business accounts. However, individual consideration of accounts is not practicable, and statistical methodologies are used to assess the loss in portfolios of accounts.
The general provision also includes a specifically identified element to cover country transfer risk calculated on a basis consistent with the overall general provision calculation.
In establishing the level of the general provision, management judgement is applied to the results of the statistical analyses. This is applied at business level where management takes account of the quality of the statistical analyses and the relevance of historical data used in the analyses to individual or groups of customers, current information, and the general economic and environmental factors mentioned above.
Further information on credit risk provisioning is set out on page 41.43.
Fair valueValue of financial instrumentsFinancial Instruments
Some of the Bank’s financial instruments are carried at fair value, including derivatives and debt securities held for trading purposes.
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Financial instruments entered into as trading transactions, together with any associated hedging, are measured at fair value and the resultant profits and losses are included in dealing profits, along with interest and dividends arising from long and short positions and funding costs relating to trading activities. Assets and liabilities resulting from gains and losses on derivative and foreign exchange contracts are reported gross in other assets or liabilities, reduced by the effects of qualifying netting agreements with counterparties.
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Barclays PLC Annual Report 2004
Financial instruments are either priced with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using financial markets pricing models, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value. These models use as their basis independently sourced market parameters including, for example, interest rate yield curves, equities and commodities prices, option volatilities and currency rates. Most market parameters are either directly observable or are implied from instrument prices. However, where no observable price is available then instrument fair value will include a provision for the uncertainty in the market parameter based on sale price or subsequent traded levels.
92
The calculation of fair value for any financial instrument may require adjustment of quoted price or model value to reflect the cost of credit risk (where not embedded in underlying models or prices used), hedging costs not captured in pricing models and adjustments to reflect the cost of exiting illiquid or other significant positions. The process of calculating fair value on illiquid instruments or from a valuation model may require estimation of certain pricing parameters, assumptions or model characteristics. These estimates are calibrated against industry standards, economic models and observed transaction prices. Changes to assumptions or estimated levels can potentially impact the fair value of an instrument as reported. The valuation model used for a particular instrument, the quality and liquidity of market data used for pricing, other fair value adjustments not specifically captured by the model, market data and assumptions or estimates in these are all subject to internal review and approval procedures and consistent application between accounting periods. Under US GAAP the unrealised gain or loss at the inception of a derivative contract is not recognised in the profit and loss account unless obtained using observable market data.
Certain financial instruments which are held on an accruals basis under UK GAAP are required to be measured at fair value under US GAAP. The Group does not manage its business with regard to reported trends on a US GAAP basis. Fair value adjustments to net income or other comprehensive income under US GAAP in current or past periods are not necessarily indicative of the magnitude or direction of such adjustments in subsequent periods.
The fair value of financial instruments is provided in Note 4638 on pages 150 to 151.166 and 167.
Goodwill
Determining the period over which to amortise goodwill, where amortisation is applicable under GAAP, requires the assessment of its useful economic life. This assessment involves making judgements over the nature of the acquired business, the economic environment in which it operates and the period of time over which the value of the business is expected to exceed the values of net assets. As a starting point, businesses acquired which operate in more volatile economic environments, such as emerging markets, are considered to have a useful economic life of five years, in other cases 20 years is generally used.
Management also have to consider at least annually whether the current carrying value of goodwill is impaired. This is particularly important under USGAAPUS GAAP where goodwill is not being amortised. ForThe first step of the purposesimpairment review process requires the identification of such impairment reviews,independent operating units, by dividing the Group business into as many largely independent income streams as is reasonably practicable. The goodwill is then allocated to business segments that representthese independent operating units. The first element of this allocation is based on the areas of the business expected to benefit from the synergies derived from the acquisition. The second element reflects the allocation of the net assets acquired and the difference between the consideration paid for those net assets and their fair value. This allocation is reviewed following business reorganisation. The carrying value of the operating unit, including the allocated goodwill, is compared to its fair value to determine whether any impairment exists. Detailed calculations may need to be carried out taking into consideration changes in the market in which a business operates (e.g. competition activity, regulatory change) into consideration. In the absence of readily available market price data this calculation is usually based upon discounting expected cash flows at the Group’s cost of equity, the determination of both of which requires the exercise of judgement.
Pensions
The Group operatesprovides pension plans for employees in most parts of the world. Arrangements for staff retirement benefits vary from country to country and are made in accordance with local regulations and customs. For defined contribution schemes, the pension cost recognised in the profit and loss account represents the contributions payable to the scheme. The majority of UK staff are members of The Barclays Bank UK Retirement Fund (the UK Fund) which comprises four sections. These are a defined benefit pension schemes, details ofscheme (the 1964 Pension Scheme) and a defined contribution scheme (the Retirement Investment Scheme), which are given in Note 4 on page 115both now closed to new members, a hybrid scheme, afterwork, and Note 60 on page 161.a defined contribution scheme, the Pension Investment Plan. The pension cost for these schemes is assessed in accordance with the advice of a qualified actuary, using the projected unit method. Variations from the regular cost are allocated over the expected average service lives of current employees. Provisions for pensions arise when the profit and loss account charge exceeds the contribution to the scheme as a result of actuarial valuations. These provisions will be eliminated over the estimated service lives of the employees.
In determining this cost the actuarial value of the assets and liabilities of the scheme are calculated. This involvescalculated, modelling their future growth, based on key assumptions agreed by management. The main financial assumptions used in the actuarial valuations, as the basis of calculation of the 2004 pension charge/credit relate to inflation, rate of increase in salaries, rate of increase for pensions in payment and requires managementdeferred pensions, and rate used to make assumptions as to, inter alia, price inflation, dividend growth, pension increases, earnings growth and return on new investment and employee lives.discount scheme liabilities. There is an acceptable range in which these estimatesassumptions can validly fall. If different estimatesassumptions within that range had been chosen, the cost recognised in the accounts could be significantly altered. The estimates usedapproach taken to calculating the pension charge in the calculationaccounts for the 1964 Pension Scheme is to take assets and liabilities at market value with effect from 1st January 2004.
81
Financial review
Critical accounting estimates
The principal financial assumptions used to derive the pensions charge for 2004 were as follows:
Price inflation | 2.75 | % | ||
Pension increases | 2.75 | % | ||
Earnings growth | 4.25 | % | ||
afterwork Credit Account revaluation rate | 3.75 | % | ||
Return on future investments: | ||||
1964 Scheme | 7.0 | % | ||
afterwork | 6.75 | % | ||
Discount rate for assessing accrued liabilities: | ||||
1964 Scheme | 6.6 | % | ||
afterwork | 6.75 | % | ||
In calculating the pension expense for the UK schemes and in determining the expected rate of return, the Group uses the value of assets at the start of the 2003 pension credityear. The UK Schemes’ assets were allocated 48% to equities, 12% to corporate bonds, 18% to UK gilts, 10% to property and 12% to other investments at 31st December 2004 and 49% to equities, 11% to corporate bonds, 20% to UK gilts, 9% to property and 11% to other investments at 31st December 2003. The year-end allocations are described on page 115.within the schemes’ target ranges.
Shareholders’ interestInterest in the retail long-term assurance fundRetail Long-term Assurance Fund
Changes in the net present value of the profits inherent in the in-force policies of the retail long-term assurance fund are included in the profit and loss account. In estimating the net present value of the profits inherent in the in-force policies, the calculations use assumed economic parameters (future investment returns, expense inflation and risk discount rate), taxation, mortality, persistency, expenses and the required levels of regulatory and solvency capital. The returns on fixed interest investments are set to market yields at the period end. The returns on UK and overseas equities and property are set relative to fixed interest returns. The expense inflation assumption reflects long-term expectations of both earnings and retail price inflation.
The risk discount rate is set to market yields on Government securities plus a margin to allow for the risks borne. The mortality, persistency and expense assumptions are chosen to represent best estimates of future experience and are based on current business experience. As with the pension calculation, there is an acceptable range in which these estimates can validly fall, and the income recognised in the accounts could be significantly altered if different estimates had been chosen.
Tax
The taxation charge in the accounts for amounts due to fiscal authorities in the various territories in which the Group operates includes estimates based on a judgement of the application of law and practice in certain cases to determine the quantification of any liability arising. In arriving at such estimates, management assesses the relative merits and risks of the tax treatment assumed taking into account statutory, judicial and regulatory guidance;guidance and, where appropriate, external advice.
All of the Group’s significant accounting policies, including those mentioned above, and information about the estimation techniques used to enable the accounting policies to be applied, are set out on pages 101110 to 106.116.
82
Barclays PLC Annual Report 2004
Financial review
Results by Nature of Income and Expense
Comparative figures have been restated as a result of the changes in accounting policy and accounting presentation as set out on pages 115 and 117.
Net interest income
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Interest receivable | 13,665 | 12,427 | 12,044 | |||||||||
Interest payable | (6,823 | ) | (5,823 | ) | (5,839 | ) | ||||||
6,842 | 6,604 | 6,205 | ||||||||||
Group net interest margin(a)
2004 | 2003 | 2002 | ||||||||||
% | % | % | ||||||||||
Group | 2.59 | 2.61 | 2.75 | |||||||||
Domestic | 3.48 | 3.64 | 3.61 | |||||||||
International | 0.81 | 0.77 | 0.96 | |||||||||
Note
(a) | Domestic business is conducted primarily in the UK in Sterling. International business is conducted primarily in foreign currencies. In addition to the business carried out by overseas branches and subsidiaries, some international business is transacted in the UK. Interest margin is net interest income as a percentage of average interest earning assets. | |
The margins shown above exclude non-margin related items, including profits and losses on the repurchase of loan capital and the unwinding of the discount on vacant leasehold property provisions. | ||
Group net interest income increased 4% (£238m) to £6,842m (2003: £6,604m), reflecting growth in balances which more than offset a 2 basis points fall in the Group net interest margin to 2.59%. |
The Group net interest margin of 2.59% (2003: 2.61%) includes 0.42% (2003: 0.48%) arising from the benefit of free funds. A component of the benefit of free funds is the structural hedge against short-term interest rate movements. The contribution of the structural hedge has decreased to 0.12% (2003: 0.19%) largely due to the impact of higher short-term interest rates.
Group average interest earning assets increased £11bn to £264bn (2003: £253bn). Domestic average interest earning assets increased £14bn to £176bn (2003: £162bn). This reflected increases across the businesses. International average interest earning assets remained broadly stable at £88bn (2003: £90bn).
The domestic net interest margin fell 16 basis points to 3.48% (2003: 3.64%). This was attributable to the margin pressure in the mortgage business, the impact of base rate rises during the year, higher funding costs, increased promotional balance transfer activity in the cards business and the impact of the structural hedge. This was partially offset by increased margins in retail savings, Business Banking loans and Barclays Capital banking activities. Margins in other areas remained broadly stable.
The international net interest margin increased by 4 basis points to 0.81% (2003: 0.77%) largely due to a change in the mix of both assets and liabilities in Barclays Capital banking activities.
The Group net interest margin was impacted by the factors described above with the reduction largely mitigated by an increase in the proportion of domestic interest earning assets.
Net interest income in 2003 increased by 6% to £6,604m (2002: £6,205), reflecting growth in the average interest earning assets by 12% to £253bn. This was primarily due to a £4bn increase in UK mortgage balances and £18bn increase in debt securities holdings.
In 2003, overall banking margins were 14 basis points down on 2002 to 2.61%. The adverse impact on the margin was largely due to an increase in higher quality assets in Barclays Capital, the conversion to associate status of the Caribbean business, a change in the currency mix of the portfolio and the general fall in global interest rates.
Prevailing average interest rates
2004 | 2003 | 2002 | ||||||||||
% | % | % | ||||||||||
United Kingdom: | ||||||||||||
Barclays Bank PLC base rate | 4.38 | 3.69 | 4.00 | |||||||||
London Inter-Bank Offered Rate (LIBOR): three-month Sterling | 4.64 | 3.74 | 4.06 | |||||||||
three-month US dollar | 1.62 | 1.21 | 1.80 | |||||||||
United States prime rate | 4.34 | 4.12 | 4.68 | |||||||||
83
Financial review
Average balance sheet and net interest income (year ended 31st December)
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
balance | Interest | rate | balance | Interest | rate | balance | Interest | rate | ||||||||||||||||||||||||||||
£m | £m | % | £m | £m | % | £m | £m | % | ||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Treasury bills and other eligible bills: | ||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 1,786 | 68 | 3.8 | 4,048 | 121 | 3.0 | 4,496 | 158 | 3.5 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 1,988 | 63 | 3.2 | 1,222 | 66 | 5.4 | 960 | 66 | 6.9 | |||||||||||||||||||||||||||
Loans and advances to banks: | ||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 18,431 | 691 | 3.7 | 14,012 | 574 | 4.1 | 12,560 | 561 | 4.5 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 3,689 | 93 | 2.5 | 4,272 | 108 | 2.5 | 5,535 | 161 | 2.9 | |||||||||||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 143,643 | 8,801 | 6.1 | 135,373 | 7,804 | 5.8 | 126,306 | 7,712 | 6.1 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 28,486 | 1,262 | 4.4 | 26,323 | 1,136 | 4.3 | 25,896 | 1,132 | 4.4 | |||||||||||||||||||||||||||
Lease receivables: in offices in the United Kingdom | 5,562 | 252 | 4.5 | 4,520 | 215 | 4.8 | 4,245 | 209 | 4.9 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 369 | 21 | 5.6 | 265 | 19 | 7.2 | 222 | 15 | 6.8 | |||||||||||||||||||||||||||
Debt securities: in offices in the United Kingdom | 51,508 | 2,077 | 4.0 | 58,435 | 2,174 | 3.7 | 40,115 | 1,790 | 4.5 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 8,624 | 337 | 3.9 | 4,267 | 210 | 4.9 | 4,843 | 240 | 5.0 | |||||||||||||||||||||||||||
Average assets of banking business | 264,086 | 13,665 | 5.2 | 252,737 | 12,427 | 4.9 | 225,178 | 12,044 | 5.3 | |||||||||||||||||||||||||||
Average assets of trading business | 295,304 | 7,195 | 2.4 | 189,446 | 5,001 | 2.6 | 160,647 | 4,372 | 2.7 | |||||||||||||||||||||||||||
Total average interest earning assets | 559,390 | 20,860 | 3.7 | 442,183 | 17,428 | 3.9 | 385,825 | 16,416 | 4.2 | |||||||||||||||||||||||||||
Provisions | (2,907 | ) | (2,796 | ) | (2,808 | ) | ||||||||||||||||||||||||||||||
Non-interest earning assets | 68,396 | 53,428 | 46,753 | |||||||||||||||||||||||||||||||||
Total average assets and interest income | 624,879 | 20,860 | 3.3 | 492,815 | 17,428 | 3.5 | 429,770 | 16,416 | 3.8 | |||||||||||||||||||||||||||
Percentage of total average assets in offices outside the United Kingdom | 27.8 | % | 26.6 | % | 27.2 | % | ||||||||||||||||||||||||||||||
Average interest earning assets and net interest income: | ||||||||||||||||||||||||||||||||||||
Banking business | 264,086 | 6,844 | 2.6 | 252,737 | 6,606 | 2.6 | 225,178 | 6,188 | 2.7 | |||||||||||||||||||||||||||
Trading business | 295,304 | (219 | ) | (0.1 | ) | 189,446 | 68 | – | 160,647 | 75 | – | |||||||||||||||||||||||||
Non margin interest | (2 | ) | – | (2 | ) | – | 17 | – | ||||||||||||||||||||||||||||
Total average interest earning assets and net interest income | 559,390 | 6,623 | 1.2 | 442,183 | 6,672 | 1.5 | 385,825 | 6,280 | 1.6 | |||||||||||||||||||||||||||
Total average interest earning assets related to: | ||||||||||||||||||||||||||||||||||||
Interest income | 20,860 | 3.7 | 17,428 | 3.9 | 16,416 | 4.2 | ||||||||||||||||||||||||||||||
Interest expense | (14,235 | ) | (2.5 | ) | (10,754 | ) | (2.4 | ) | (10,153 | ) | (2.6 | ) | ||||||||||||||||||||||||
Adjustment for non margin interest | (2 | ) | – | (2 | ) | – | 17 | – | ||||||||||||||||||||||||||||
6,623 | 1.2 | 6,672 | 1.5 | 6,280 | 1.6 | |||||||||||||||||||||||||||||||
84
Barclays PLC Annual Report 2003 932004
Average balance sheet and net interest income (year ended 31st December)
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
balance | Interest | rate | balance | Interest | rate | balance | Interest | rate | ||||||||||||||||||||||||||||
£m | £m | % | £m | £m | % | £m | £m | % | ||||||||||||||||||||||||||||
Liabilities and shareholders’ funds | ||||||||||||||||||||||||||||||||||||
Deposits by banks: | ||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 46,669 | 1,225 | 2.6 | 40,959 | 993 | 2.4 | 31,880 | 987 | 3.1 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 16,610 | 310 | 1.9 | 10,100 | 184 | 1.8 | 8,908 | 200 | 2.2 | |||||||||||||||||||||||||||
Customer accounts – demand deposits: | ||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 20,829 | 310 | 1.5 | 18,788 | 170 | 0.9 | 16,260 | 164 | 1.0 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 3,317 | 31 | 0.9 | 3,497 | 48 | 1.4 | 1,846 | 27 | 1.5 | |||||||||||||||||||||||||||
Customer accounts – savings deposits: | ||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 47,583 | 1,325 | 2.8 | 45,565 | 999 | 2.2 | 41,722 | 982 | 2.4 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 1,117 | 21 | 1.9 | 813 | 26 | 3.2 | 1,262 | 32 | 2.5 | |||||||||||||||||||||||||||
Customer accounts – other time deposits – retail: | ||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 34,518 | 1,306 | 3.8 | 35,228 | 1,171 | 3.3 | 40,075 | 1,303 | 3.3 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 4,526 | 118 | 2.6 | 3,678 | 103 | 2.8 | 5,479 | 139 | 2.5 | |||||||||||||||||||||||||||
Customer accounts – other time deposits – wholesale: | ||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 58,023 | 1,798 | 3.1 | 57,364 | 1,634 | 2.8 | 35,607 | 1,175 | 3.3 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 13,262 | 342 | 2.6 | 8,193 | 247 | 3.0 | 7,959 | 231 | 2.9 | |||||||||||||||||||||||||||
Debt securities in issue: | ||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 32,303 | 1,052 | 3.3 | 34,811 | 949 | 2.7 | 28,596 | 1,061 | 3.7 | |||||||||||||||||||||||||||
in offices outside the United Kingdom | 17,218 | 336 | 2.0 | 11,906 | 244 | 2.0 | 11,728 | 339 | 2.9 | |||||||||||||||||||||||||||
Dated and undated loan capital and other subordinated liabilities principally in offices in the United Kingdom | 12,740 | 692 | 5.4 | 12,312 | 684 | 5.6 | 11,012 | 645 | 5.9 | |||||||||||||||||||||||||||
Internal funding of trading business | (72,291 | ) | (2,045 | ) | (2.8 | ) | (58,436 | ) | (1,631 | ) | (2.8 | ) | (42,626 | ) | (1,429 | ) | (3.4 | ) | ||||||||||||||||||
Average liabilities of banking business | 236,424 | 6,821 | 2.9 | 224,778 | 5,821 | 2.6 | 199,708 | 5,856 | 2.9 | |||||||||||||||||||||||||||
Average liabilities of trading business | 305,869 | 7,414 | 2.4 | 191,240 | 4,933 | 2.6 | 162,858 | 4,297 | 2.6 | |||||||||||||||||||||||||||
Total average interest bearing liabilities | 542,293 | 14,235 | 2.6 | 416,018 | 10,754 | 2.6 | 362,566 | 10,153 | 2.8 | |||||||||||||||||||||||||||
Interest free customer deposits: | ||||||||||||||||||||||||||||||||||||
in offices in the United Kingdom | 15,351 | 13,819 | 11,614 | |||||||||||||||||||||||||||||||||
in offices outside the United Kingdom | 1,294 | 1,260 | 2,132 | |||||||||||||||||||||||||||||||||
Other non-interest bearing liabilities | 48,613 | 45,392 | 38,184 | |||||||||||||||||||||||||||||||||
Minority and other interests and shareholders’ funds | 17,328 | 16,326 | 15,274 | |||||||||||||||||||||||||||||||||
Total average liabilities, shareholders’ funds and interest expense | 624,879 | 14,235 | 2.3 | 492,815 | 10,754 | 2.2 | 429,770 | 10,153 | 2.4 | |||||||||||||||||||||||||||
Percentage of total average non-capital liabilities in offices outside the United Kingdom | 26.7 | % | 23.1 | % | 25.5 | % | ||||||||||||||||||||||||||||||
(a) | Loans and advances to customers and banks include all doubtful lendings, including non-accrual lendings. Interest receivable on such lendings has been included to the extent to which either cash payments have been received or interest has been accrued in accordance with the income recognition policy of the Group. | |
(b) | Average balances are based upon daily averages for most UK banking operations and monthly averages elsewhere. | |
(c) | The average balance sheet does not include the retail life-fund assets attributable to policyholders nor the related liabilities. | |
(d) | Interest payable on average liabilities of banking business excludes non-margin interest. |
85
Financial Reviewreview
Average balance sheet
Changes in net interest income – volume and rate analysis
The following tables allocate changes in net interest income between changes in volume and changes in interest rates for the last two years. Volume and rate variances have been calculated on the movement in the average balances and the change in the interest rates on average interest earning assets and average interest bearing liabilities. Where variances have arisen from changes in both volumes and interest rates, these have been allocated proportionately between the two.
2004/2003 Change due | 2003/2002 Change due | |||||||||||||||||||||||
to increase/(decrease) in: | to increase/(decrease) in: | |||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||
change | Volume | Rate | change | Volume | Rate | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Interest receivable | ||||||||||||||||||||||||
Treasury bills and other eligible bills: | ||||||||||||||||||||||||
in offices in the United Kingdom | (53 | ) | (80 | ) | 27 | (37 | ) | (15 | ) | (22 | ) | |||||||||||||
in offices outside the United Kingdom | (3 | ) | 31 | (34 | ) | – | 16 | (16 | ) | |||||||||||||||
(56 | ) | (49 | ) | (7 | ) | (37 | ) | 1 | (38 | ) | ||||||||||||||
Loans and advances to banks: | ||||||||||||||||||||||||
in offices in the United Kingdom | 117 | 169 | (52 | ) | 13 | 62 | (49 | ) | ||||||||||||||||
in offices outside the United Kingdom | (15 | ) | (15 | ) | – | (53 | ) | (34 | ) | (19 | ) | |||||||||||||
102 | 154 | (52 | ) | (40 | ) | 28 | (68 | ) | ||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||
in offices in the United Kingdom | 997 | 492 | 505 | 92 | 536 | (444 | ) | |||||||||||||||||
in offices outside the United Kingdom | 126 | 95 | 31 | 4 | 19 | (15 | ) | |||||||||||||||||
1,123 | 587 | 536 | 96 | 555 | (459 | ) | ||||||||||||||||||
Lease receivables: | ||||||||||||||||||||||||
in offices in the United Kingdom | 37 | 48 | (11 | ) | 6 | 13 | (7 | ) | ||||||||||||||||
in offices outside the United Kingdom | 2 | 6 | (4 | ) | 4 | 3 | 1 | |||||||||||||||||
39 | 54 | (15 | ) | 10 | 16 | (6 | ) | |||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
in offices in the United Kingdom | (97 | ) | (270 | ) | 173 | 384 | 718 | (334 | ) | |||||||||||||||
in offices outside the United Kingdom | 127 | 178 | (51 | ) | (30 | ) | (28 | ) | (2 | ) | ||||||||||||||
30 | (92 | ) | 122 | 354 | 690 | (336 | ) | |||||||||||||||||
Total banking business interest receivable: | ||||||||||||||||||||||||
in offices in the United Kingdom | 1,001 | 359 | 642 | 458 | 1,314 | (856 | ) | |||||||||||||||||
in offices outside the United Kingdom | 237 | 295 | (58 | ) | (75 | ) | (24 | ) | (51 | ) | ||||||||||||||
1,238 | 654 | 584 | 383 | 1,290 | (907 | ) | ||||||||||||||||||
Total trading business interest receivable | 2,194 | 2,605 | (411 | ) | 629 | 764 | (135 | ) | ||||||||||||||||
Total interest receivable | 3,432 | 3,259 | 173 | 1,012 | 2,054 | (1,042 | ) | |||||||||||||||||
86
Barclays PLC Annual Report 2004
Changes in net interest income – volume and rate analysis
2004/2003 Change due | 2003/2002 Change due | |||||||||||||||||||||||
to increase/(decrease) in: | to increase/(decrease) in: | |||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||
change | Volume | Rate | change | Volume | Rate | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Interest payable | ||||||||||||||||||||||||
Deposits by banks: | ||||||||||||||||||||||||
in offices in the United Kingdom | 232 | 146 | 86 | 6 | 246 | (240 | ) | |||||||||||||||||
in offices outside the United Kingdom | 126 | 121 | 5 | (16 | ) | 25 | (41 | ) | ||||||||||||||||
358 | 267 | 91 | (10 | ) | 271 | (281 | ) | |||||||||||||||||
Customer accounts – demand deposits: | ||||||||||||||||||||||||
in offices in the United Kingdom | 140 | 20 | 120 | 6 | 24 | (18 | ) | |||||||||||||||||
in offices outside the United Kingdom | (17 | ) | (2 | ) | (15 | ) | 21 | 23 | (2 | ) | ||||||||||||||
123 | 18 | 105 | 27 | 47 | (20 | ) | ||||||||||||||||||
Customer accounts – savings deposits: | ||||||||||||||||||||||||
in offices in the United Kingdom | 326 | 46 | 280 | 17 | 87 | (70 | ) | |||||||||||||||||
in offices outside the United Kingdom | (5 | ) | 8 | (13 | ) | (6 | ) | (13 | ) | 7 | ||||||||||||||
321 | 54 | 267 | 11 | 74 | (63 | ) | ||||||||||||||||||
Customer accounts – other time deposits – retail: | ||||||||||||||||||||||||
in offices in the United Kingdom | 135 | (24 | ) | 159 | (132 | ) | (161 | ) | 29 | |||||||||||||||
in offices outside the United Kingdom | 15 | 22 | (7 | ) | (36 | ) | (49 | ) | 13 | |||||||||||||||
150 | (2 | ) | 152 | (168 | ) | (210 | ) | 42 | ||||||||||||||||
Customer accounts – other time deposits – wholesale: | ||||||||||||||||||||||||
in offices in the United Kingdom | 164 | 19 | 145 | 459 | 638 | (179 | ) | |||||||||||||||||
in offices outside the United Kingdom | 95 | 135 | (40 | ) | 16 | 7 | 9 | |||||||||||||||||
259 | 154 | 105 | 475 | 645 | (170 | ) | ||||||||||||||||||
Debt securities in issue: | ||||||||||||||||||||||||
in offices in the United Kingdom | 103 | (72 | ) | 175 | (112 | ) | 203 | (315 | ) | |||||||||||||||
in offices outside the United Kingdom | 92 | 104 | (12 | ) | (95 | ) | 5 | (100 | ) | |||||||||||||||
195 | 32 | 163 | (207 | ) | 208 | (415 | ) | |||||||||||||||||
Dated and undated loan capital and other subordinated liabilities principally in offices in the United Kingdom | 8 | 23 | (15 | ) | 39 | 73 | (34 | ) | ||||||||||||||||
Internal funding of trading businesses | (414 | ) | (392 | ) | (22 | ) | (202 | ) | (469 | ) | 267 | |||||||||||||
Total banking business interest payable: | ||||||||||||||||||||||||
in offices in the United Kingdom | 694 | (234 | ) | 928 | 81 | 641 | (560 | ) | ||||||||||||||||
in offices outside the United Kingdom | 306 | 388 | (82 | ) | (116 | ) | (2 | ) | (114 | ) | ||||||||||||||
1,000 | 154 | 846 | (35 | ) | 639 | (674 | ) | |||||||||||||||||
Total trading business interest payable | 2,481 | 2,795 | (314 | ) | 636 | 734 | (98 | ) | ||||||||||||||||
Total interest payable | 3,481 | 2,949 | 532 | 601 | 1,373 | (772 | ) | |||||||||||||||||
Movement in net interest income | ||||||||||||||||||||||||
Increase/(decrease) in interest receivable | 3,432 | 3,259 | 173 | 1,012 | 2,054 | (1,042 | ) | |||||||||||||||||
(Decrease)/increase in interest payable | (3,481 | ) | (2,949 | ) | (532 | ) | (601 | ) | (1,373 | ) | 772 | |||||||||||||
(49 | ) | 310 | (359 | ) | 411 | 681 | (270 | ) | ||||||||||||||||
Movement in non-margin interest | – | (19 | ) | |||||||||||||||||||||
(49 | ) | 392 | ||||||||||||||||||||||
87
Financial review
Results by nature of income and expense
Net fees and commissions
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Fees and commissions receivable | 5,672 | 4,896 | 4,454 | |||||||||
Less: fees and commissions payable | (706 | ) | (633 | ) | (529 | ) | ||||||
4,966 | 4,263 | 3,925 | ||||||||||
Group net fees and commissions increased 16% (£703m) to £4,966m (2003: £4,263m), reflecting good growth across all businesses.
Fees and commissions receivable rose 16% (£776m) to £5,672m in 2004 (2003: £4,896m) driven by increases in: Barclays Global Investors, reflecting strong income generation across both the active and index businesses; Barclays Capital, with good contributions from origination and advisory activities; and Private Clients, as a result of stronger business volumes and the acquisition of Gerrard. Good growth was also achieved in UK Banking and in Barclaycard.
In 2003, net fees and commissions increased by £338m to £4,263m primarily driven by increases in: Barclays Global Investors, reflecting growth of investment management fees; Barclaycard as a result of higher cardholder activity and good volume growth within the merchant acquiring business and Barclays Capital, with good performances across the Credit businesses.
Dealing profits
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Rates related business | 1,141 | 909 | 876 | |||||||||
Credit related business | 352 | 145 | (43 | ) | ||||||||
1,493 | 1,054 | 833 | ||||||||||
Almost all the Group’s dealing profits are generated in Barclays Capital.
Dealing profits increased 42% (£439m) to £1,493m (2003: £1,054m), with very strong performances in both the Rates and Credit businesses. This reflected higher volumes of client led activity throughout the year across a broad range of products and the continued benefit of headcount investments to broaden product depth and geographical reach. The very strong growth in the Rates businesses was across equity related activities, foreign exchange and fixed income. The very strong performance in the Credit businesses reflected an increase in the contribution from credit derivatives.
Total foreign exchange income was £520m (2003: £498m) and consisted of revenues earned from both retail and wholesale activities. The foreign exchange income earned on customer transactions by UK Banking, Private Clients and International and Barclaycard, both externally and within Barclays Capital, is reported in those business units, within fees and commissions.
Dealing profits in 2003 grew 27% to £1,054m (2002: £833m) driven by significant growth in client transaction volumes, particularly in continental Europe. There were strong performances in the Credit business and good contributions from Rates.
Other operating income
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Net premium income on insurance underwriting | 211 | 264 | 178 | |||||||||
Gain on disposal of investment securities | 181 | 73 | 58 | |||||||||
Income/loss from the long-term assurance business | 58 | (33 | ) | (51 | ) | |||||||
Property rentals | 9 | 15 | 20 | |||||||||
Dividend income from equity shares | 17 | 6 | 7 | |||||||||
Other income | 168 | 165 | 152 | |||||||||
644 | 490 | 364 | ||||||||||
Other operating income increased 31% (£154m) to £644m (2003: £490m).
Net premium income on insurance underwriting decreased 20% (£53m) to £211m (2003: £264m), primarily due to a provision relating to the early termination of contracts.
Gain on disposal of investment securities rose by £108m to £181m (2003: £73m), predominantly due to a number of realisations in the private equity business within Barclays Capital.
Virtually all the Group’s long-term assurance activity is based in the UK and was the main component of the £58m contribution. This included costs of redress for customer claims in respect of endowment policies of £97m (2003: £95m).
Dividend income increased by £11m to £17m (2003: £6m) as a result of a significant dividend received from an investment.
Other income was flat at £168m (2003: £165m). This reflected a reduction of £98m in income, primarily in UK Retail Banking, from the revision of estimated amounts expected to be repaid on banking liabilities. This was offset by realisations on structured capital market transactions.
Other operating income in 2003 increased by 35% (£126m) to £490m (2002: £364m). This was primarily due to premium income on insurance underwriting which rose by £86m to £264m as a result of a good increase from consumer lending activities, a favourable claims experience and a one-off income gain of £43m from an adjustment to insurance reserves.
In addition, profits on disposal of investment securities rose by £15m primarily reflecting realisations in the private equity business within Barclays Capital.
88
Barclays PLC Annual Report 2004
Administrative expenses – staff costs
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Salaries and accrued incentive payments | 4,043 | 3,441 | 3,159 | |||||||||
Social security costs | 339 | 278 | 240 | |||||||||
Pension costs | 160 | 180 | (27 | ) | ||||||||
Post-retirement health care | 22 | 19 | 15 | |||||||||
Other staff costs | 434 | 377 | 368 | |||||||||
4,998 | 4,295 | 3,755 | ||||||||||
Staff costs
Staff costs increased by 16% (£703m) to £4,998m (2003: £4,295m).
Salaries and accrued incentive payments rose by 17% (£602m) to £4,043m (2003: £3,441m) principally reflecting increased performance related payments primarily within Barclays Capital and Barclays Global Investors, increased headcount, and the impact of the businesses acquired in 2003.
Pension costs comprise all UK and international pension schemes. Included in the costs is a charge of £103m (2003: £128m) in respect of the Group’s main UK pension schemes.
Staff costs in 2003 were 14% higher than 2002. Salaries and accrued incentive payments increased by 9% reflecting increased performance related payments primarily within Barclays Capital and Barclays Global Investors. Pension costs in 2002 reflected a £72m credit in respect of the Group’s main UK pension schemes.
Staff numbers
2004 | 2003 | 2002 | ||||||||||
By class of business | ||||||||||||
UK Banking | 41,800 | 41,000 | 43,900 | |||||||||
UK Retail Banking UK Business Banking | 34,400 7,400 | 34,000 7,000 | 36,300 7,600 | |||||||||
Private Clients & International | 19,300 | 19,000 | 16,900 | |||||||||
Private Clients International | 7,200 12,100 | 6,900 12,100 | 6,400 10,500 | |||||||||
Barclaycard | 6,700 | 6,200 | 5,600 | |||||||||
Barclays Capital | 7,800 | 5,800 | 5,600 | |||||||||
Barclays Global Investors | 1,900 | 2,000 | 2,000 | |||||||||
Head office functions and other operations | 900 | 800 | 700 | |||||||||
Total Group permanent and contract staff worldwide | 78,400 | 74,800 | 74,700 | |||||||||
Temporary and agency staff worldwide | 4,300 | 4,100 | 3,700 | |||||||||
Total including temporary and agency staff | 82,700 | 78,900 | 78,400 | |||||||||
By geographic segments | ||||||||||||
United Kingdom | 60,000 | 58,000 | 59,000 | |||||||||
Non-United Kingdom | 18,400 | 16,800 | 15,700 | |||||||||
78,400 | 74,800 | 74,700 | ||||||||||
Staff numbers are shown on a full-time equivalent basis UK permanent and contract staff.
During 2004, staff numbers permanent and contract staff increased by 3,600. The implementation of restructuring programmes resulted in a decrease of 2,100 staff, but this was more than offset by the recruitment of additional staff throughout the Group and 400 staff from the acquisition of Juniper. Significant areas of recruitment were Barclays Capital to support the expansion of their business, and Barclaycard through the growth of Barclaycard International and the addition of front-office staff to improve customer service in Barclaycard UK; and UK Banking, mostly from the recruitment of frontline staff in both UK Retail Banking and UK Business Banking.
Head office functions and other operations includes staff undertaking activities which support and provide central information technology services and their costs are predominantly passed on to the businesses.
In 2003, Private Clients and International staff numbers increased by 3,500 as a result of the acquisition of Charles Schwab Europe, Banco Zaragozano and Gerrard. This increase was partially offset by restructuring initiatives.
UK Retail Banking staff numbers decreased in 2003 by 2,300. 1,400 of this decrease was a result of a number of productivity initiatives.
Administrative expenses – other
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Property and equipment expenses | ||||||||||||
Hire of equipment | 9 | 8 | 12 | |||||||||
Property rentals | 197 | 184 | 180 | |||||||||
Other property and equipment expenses | 835 | 793 | 725 | |||||||||
1,041 | 985 | 917 | ||||||||||
Other administrative expenses | ||||||||||||
Stationery, postage and telephones | 324 | 311 | 294 | |||||||||
Advertising and market promotion | 264 | 237 | 238 | |||||||||
Travel, accommodation and entertainment | 174 | 145 | 136 | |||||||||
Subscriptions and publications | 130 | 91 | 86 | |||||||||
Sundry losses, provisions and write-offs | 185 | 128 | 121 | |||||||||
Consultancy fees | 67 | 56 | 85 | |||||||||
Professional fees | 234 | 159 | 161 | |||||||||
Other expenses | 339 | 292 | 274 | |||||||||
1,717 | 1,419 | 1,395 | ||||||||||
2,758 | 2,404 | 2,312 | ||||||||||
In 2004, administrative expenses – other rose by 15% (£354m) to £2,758m (2003: £2,404m).
89
Financial review
Results by nature of income and expense
Other administrative expenses increased by 21% (£298m) to £1,717m (2003: £1,419m). This increase reflects increased business activity. Professional costs have increased due to business growth within Barclays Capital, integration of acquisitions and increased outsourcing costs. Increase in subscriptions and publications, travel, accommodation and entertainment primarily reflect business growth across the businesses. Other expenses increased due to new outsourced contracts signed in 2004.
Property and equipment expenses increased by 6% (£56m) to £1,041m (2003: £985m) as a result of increased information technology costs and property repairs and maintenance. Also included is a £23m cost increase relating to the relocation of Barclays headquarters to Canary Wharf.
In 2003, administrative expenses – other rose by 4% (£92m) to £2,404m (2002: £2,312m). This increase reflected increased outsourced processing costs, partially offset by reduced consultancy spend.
Depreciation and amortisation
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Depreciation | ||||||||||||
Property depreciation | 86 | 93 | 93 | |||||||||
Equipment depreciation | 209 | 196 | 210 | |||||||||
295 | 289 | 303 | ||||||||||
Amortisation | ||||||||||||
Goodwill amortisation | 299 | 265 | 254 | |||||||||
Provisions for bad and doubtful debts
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Specific charge | 1,301 | 1,320 | 1,486 | |||||||||
General (release)/charge | (210 | ) | 27 | (2 | ) | |||||||
1,091 | 1,347 | 1,484 | ||||||||||
The credit environment both in retail and in corporate and wholesale businesses was relatively benign in 2004. This led to a lower level of potential problem and non-performing loans and lower provision charges.
Overall, the Group provision charge declined 19% to £1,091m (2003: £1,347m). This resulted from a substantial decrease in the corporate and wholesale provisions charge, while the retail provisions charge was steady. As a percentage of average banking loans and advances, the provisions rate fell to 0.54% (2003: 0.73%).
In the corporate and wholesale businesses, non-performing and potential problem loans in total fell by 29% to £2,062m from £2,920m in 2003, reflecting the continuing strong corporate credit environment. The corporate and wholesale provisions charge declined to £284m (2003: £543m). The reduction in the provisions charge included an exceptional recovery of £57m in UK Business Banking.
In retail, non-performing loans and potential problem loans remained steady at £2,679m (2003: £2,712m). The provisions charge in the retail businesses was also steady at £807m (2003: £804m). The provisions charge increased in Barclaycard (the card and unsecured consumer lending business) due to volume growth and the maturation of new customer recruitment. The provisions charge included a release of £40m associated with the UK mortgage business, following a review of the portfolio and the current loss experience.
In 2003 provisions fell 9% (£137m) to £1,347m. Provisions, excluding the impact of Transition Businesses, fell £36m to £1,324m. As a ratio of average banking loans and advances, the Group’s provisions charge improved significantly to 0.73% from 0.85% in 2002.
Business Banking provisions increased broadly in line with portfolio growth. Provisions fell in Barclays Capital reflecting the ongoing improvement in the loan book and the continued recovery in the large corporate credit environment.
Provisions fell in the UK Retail businesses with an improvement in the quality of the loan portfolio and improved risk management. The reduction occurred in the unsecured lending portfolio. Provisions for mortgages remained at a very low rate. Barclaycard provisions increased in line with continued portfolio growth.
Profit/(loss) from joint ventures and associated undertakings
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
(Loss)/profit from joint ventures | (3 | ) | 1 | (5 | ) | |||||||
Profit/(loss) from associated undertakings | 59 | 28 | (5 | ) | ||||||||
56 | 29 | (10 | ) | |||||||||
In 2004 and 2003, the profit from associated undertakings primarily relates to the investment in FirstCaribbean.
The profit from FirstCaribbean reflects good operating performance and includes a gain of £28m on the disposal of shares held in Republic Bank Limited.
Exceptional items
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Profit on disposal of Group and associated undertakings | 45 | 4 | 8 | |||||||||
Loss on termination of Group activities | – | – | (11 | ) | ||||||||
45 | 4 | (3 | ) | |||||||||
The profit on disposal relates mainly to the disposal of its shareholding in Edotech, an investment in a management buy-out of the former Barclays in-house statement printing operation.
90
Barclays PLC Annual Report 2004
Tax
The overall tax charge is explained in the following table:
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Tax charge at average United Kingdom corporation tax rate of 30% (2003: 30%; 2002: 30%) | 1,381 | 1,153 | 961 | |||||||||
Prior year adjustments | (12 | ) | (21 | ) | (25 | ) | ||||||
Effect of change in non-allowable general provisions | 2 | 2 | (2 | ) | ||||||||
Effect of non-allowable property write-downs and depreciation | 20 | 13 | 12 | |||||||||
Net effect of differing tax rates overseas | (110 | ) | (95 | ) | (70 | ) | ||||||
Net effect of overseas losses not available for relief in the United Kingdom | 24 | (12 | ) | (40 | ) | |||||||
Other non-allowable expenses | (5 | ) | (28 | ) | 8 | |||||||
Gains covered by capital losses brought forward | (51 | ) | (44 | ) | (3 | ) | ||||||
Goodwill | 71 | 74 | 69 | |||||||||
Other items | (31 | ) | 34 | 45 | ||||||||
Overall tax charge | 1,289 | 1,076 | 955 | |||||||||
Effective tax rate % | 28.0 | 28.0 | 29.8 | |||||||||
The charge for the year is based upon a UK corporation tax rate of 30% for the calendar year 2004 (2003: 30%). The effective rate of tax for 2004 was 28% (2003: 28%). This is lower than the standard rate primarily due to the beneficial effects of lower tax on overseas income and certain non-taxable gains offset by the absence of tax relief on goodwill.
UK GAAP compared with US GAAP
The Group also provides results on the basis of accounting principles generally accepted in the United States (US GAAP). The impact on net income and shareholders’ equity of applying US GAAP is set out below. The individual UK/US GAAP adjustments are discussed in Note 52 on pages 182 to 208.
Attributable profit (UK GAAP)/Net income (US GAAP)
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Barclays PLC Group | ||||||||||||
Attributable profit (UK GAAP)/ | ||||||||||||
Net income (US GAAP) | ||||||||||||
UK GAAP | 3,268 | 2,744 | 2,230 | |||||||||
US GAAP | 3,032 | 1,740 | 2,476 | |||||||||
Barclays Bank PLC Group | ||||||||||||
Attributable profit (UK GAAP)/ | ||||||||||||
Net income (US GAAP) | ||||||||||||
UK GAAP | 3,279 | 2,744 | 2,228 | |||||||||
US GAAP | 3,137 | 1,842 | 2,578 | |||||||||
Shareholders’ funds (UK GAAP)/Shareholders’ equity (US GAAP)
2004 | 2003 | |||||||||||
£m | £m | |||||||||||
Barclays PLC Group | ||||||||||||
Shareholders’ funds (UK GAAP)/ | ||||||||||||
Shareholders’ equity (US GAAP) | ||||||||||||
UK GAAP(a) | 17,417 | 16,374 | ||||||||||
US GAAP | 16,953 | 16,830 | ||||||||||
Barclays Bank PLC Group | ||||||||||||
Shareholders’ funds (UK GAAP)/ | ||||||||||||
Shareholders’ equity (US GAAP) | ||||||||||||
UK GAAP | 18,271 | 16,485 | ||||||||||
US GAAP | 19,594 | 18,646 | ||||||||||
The Group does not manage its business with regard to reported trends on a US GAAP basis. Consequently the level of adjustment from the application of US GAAP in current or past periods is not necessarily indicative of the magnitude or direction of such adjustment in subsequent periods.
91
Financial review
Analysis of Results by Business
The analysis of results by business includes goodwill amortisation. This differs from the announcement of results dated 10th February 2005, where the analysis of results by business excludes goodwill amortisation.
UK Banking
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 3,466 | 3,301 | 3,226 | |||||||||
Net fees and commissions | 1,930 | 1,807 | 1,708 | |||||||||
Other operating income | 250 | 397 | 291 | |||||||||
Operating income | 5,646 | 5,505 | 5,225 | |||||||||
Goodwill amortisation Other operating expenses | (176 (3,019 | ) ) | (172 (2,903 | ) ) | (184 (2,811 | ) ) | ||||||
Operating expenses | (3,195 | ) | (3,075 | ) | (2,995 | ) | ||||||
Operating profit before provisions | 2,451 | 2,430 | 2,230 | |||||||||
Provisions for bad and doubtful debts | (199 | ) | (326 | ) | (324 | ) | ||||||
Operating profit | 2,252 | 2,104 | 1,906 | |||||||||
Profit from associated undertakings | 4 | 10 | 3 | |||||||||
Exceptional items | 42 | (11 | ) | (5 | ) | |||||||
Profit on ordinary activities before tax | 2,298 | 2,103 | 1,904 | |||||||||
UK Banking managed its portfolio of businesses to deliver good profit growth in a year of extensive business reorganisation. UK Banking profit before tax increased 9% (£195m) to £2,298m (2003: £2,103m) as a result of a very strong performance from UK Business Banking and a broadly flat contribution from UK Retail Banking.
UK Banking profit before tax in 2003 increased 10% to £2,103m (2002: £1,904m).
Operating income increased 5% to £5,505m (2002: £5,225m), whilst operating expenses increased 3% to £3,075m (2002: £2,995m).
UK Retail Banking
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 2,059 | 2,000 | 1,979 | |||||||||
Net fees and commissions | 1,117 | 1,074 | 1,036 | |||||||||
Other operating income | 239 | 365 | 292 | |||||||||
Operating income | 3,415 | 3,439 | 3,307 | |||||||||
Goodwill amortisation Other operating expenses | (158 (2,270 | ) ) | (158 (2,188 | ) ) | (158 (2,082 | ) ) | ||||||
Operating expenses | (2,428 | ) | (2,346 | ) | (2,240 | ) | ||||||
Operating profit before provisions | 987 | 1,093 | 1,067 | |||||||||
Provisions for bad and doubtful debts | (60 | ) | (107 | ) | (138 | ) | ||||||
Operating profit | 927 | 986 | 929 | |||||||||
Profit from associated undertakings | – | 7 | 5 | |||||||||
Exceptional items | 42 | (10 | ) | (11 | ) | |||||||
Profit on ordinary activities before tax | 969 | 983 | 923 | |||||||||
UK Retail Banking profit before tax decreased 1% (£14m) to £969m (2003: £983m).
Operating income was broadly flat at £3,415m (2003: £3,439m). There were strong performances in current accounts and UK Premier. The performance in the mortgage business was impacted by margin pressure. Net revenue (operating income less provisions) was also broadly flat at £3,355m (2003: £3,332m).
Net interest income increased 3% (£59m) to £2,059m (2003: £2,000m). Growth was driven by higher customer deposit balances particularly in Personal Customer current accounts and UK Premier deposits, together with an increase in the retail savings margin. This growth was partially offset by a reduced contribution from the mortgage business. The favourable impact of higher average UK mortgage balances was more than offset by margin pressure, due to a fall in the proportion of the mortgage portfolio on the standard variable rate, the impact of successive base rate increases and a reduction in early redemption income.
UK residential mortgage balances ended the period at £61.7bn (2003: £59.8bn). Gross advances were £17.5bn (2003: £18.3bn) and net lending was £1.9bn (2003: £2.0bn). The loan to value ratio within the mortgage book on a current valuation basis averaged 35% (2003: 40%).
Average overdraft balances within Personal Customers increased by 9%. Average customer deposit balances increased 5% to £68.5bn (2003: £65bn). Personal Customer average current account balances increased 10%. There was strong growth in UK Premier with average deposits up 15%, and in Small Business where average deposit balances were 7% higher. Retail average savings balances increased by 1% in a highly competitive market.
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Barclays PLC Annual Report 2004
Net fees and commissions increased 4% (£43m) to £1,117m (2003: £1,074m), driven by strong growth in value added fee-based current account income.
Other operating income decreased 35% (£126m) to £239m (2003: £365m). The majority of the decrease was attributable to a reduction of £89m in income from the revision of estimated amounts expected to be repaid on banking liabilities. There was also lower net premium income on insurance underwriting due to a provision relating to the early termination of contracts.
Operating expenses rose 3% (£82m) to £2,428m (2003: £2,346m). Almost half of the cost increase (£40m) was attributable to preparations for a new regulatory environment, particularly in the mortgage and general insurance businesses. There was significant investment in the business infrastructure and restructuring costs were incurred in reorganising the business. This included adding 1,000 customer-facing staff, an upgrade in branch management capability and investment in new technology.
Provisions decreased 44% (£47m) to £60m (2003: £107m). The quality of the loan portfolio improved and mortgage balances in arrears remained at a low level. The reduction in the provisions charge included a release of £40m associated with the UK mortgage business following a review of the portfolio and the current loss experience.
The exceptional item of £42m was predominantly in respect of the profit on the sale of a shareholding in Edotech, a former Barclays in-house statement printing operation.
UK Retail Banking profit before tax in 2003 was £983m (2002: £923m).
Operating income increased 4% to £3,439m (2002: £3.307m).
Net interest income rose by 1% to £2,000m (2002: £1,979m). There was an increase in the spread on new mortgage business whilst the margin for Personal Customers retail savings remained stable. Net fees and commissions in 2003 were 4% higher at £1,074m (2002: £1,036m).
Other operating income increased by 25% to £365m (2002: £292m). This resulted from a strong performance in general insurance, reflecting increased sales of payment protection insurance products, a more favourable claims experience and a one off gain of £43m arising from an adjustment to insurance reserves.
Operating costs increased 5% to £2,346m (2002: £2,240m), with a major contributor to growth being an increase in pension costs.
Provisions fell by 22% to £107m (2002: £138m), reflecting the overall quality of the lending portfolio and improvements to risk management processes.
UK Business Banking
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 1,407 | 1,301 | 1,247 | |||||||||
Net fees and commissions | 813 | 733 | 672 | |||||||||
Other operating income | 11 | 32 | (1 | ) | ||||||||
Operating income | 2,231 | 2,066 | 1,918 | |||||||||
Goodwill amortisation | (18 | ) | (14 | ) | (26 | ) | ||||||
Other operating expenses | (749 | ) | (715 | ) | (729 | ) | ||||||
Operating expenses | (767 | ) | (729 | ) | (755 | ) | ||||||
Operating profit before provisions | 1,464 | 1,337 | 1,163 | |||||||||
Provisions for bad and doubtful debts | (139 | ) | (219 | ) | (186 | ) | ||||||
Operating profit | 1,325 | 1,118 | 977 | |||||||||
Profit from associated undertakings | 4 | 3 | (2 | ) | ||||||||
Exceptional items | – | (1 | ) | 6 | ||||||||
Profit on ordinary activities before tax | 1,329 | 1,120 | 981 | |||||||||
UK Business Banking profit before tax increased 19% (£209m) to £1,329m (2003: £1,120m), as a result of good income growth, a continued focus on cost management and a significantly reduced provision charge. Both Larger Business and Medium Business performed well.
Operating income increased 8% (£165m) to £2,231m (2003: £2,066m). Net revenue (operating income less provisions) increased 13% (£245m) to £2,092m (2003: £1,847m).
Net interest income increased 8% (£106m) to £1,407m (2003: £1,301m), as a result of strong balance sheet growth. Average lending balances increased 11% to £44.6bn (2003: £40.2bn); the quality of the new lending was good and the overall credit profile of the portfolio was maintained. Average deposit balances increased 9% to £41.5bn (2003: £37.9bn). There was an improvement in the lending margin and a modest decline in the deposit margin. There was a lower contribution from the structural hedge.
Net fees and commissions increased 11% (£80m) to £813m (2003: £733m), driven by significantly higher lending related fees.
Operating expenses increased 5% (£38m) to £767m (2003: £729m), reflecting higher business volumes and increased expenditure on frontline staff and marketing. The cost of regulatory compliance programmes also increased.
Provisions decreased 37% (£80m) to £139m (2003: £219m). The provisions performance was driven by the impact of significantly lower potential problem loans and non-performing loans and the benefit of a single recovery of £57m.
93
Financial review
Analysis of results by business
UK Business Banking profit before tax increased strongly in 2003 to £1,120m (2002: £981m), despite the negative impact on income from the Competition Committee Inquiry remedies.
Operating income grew 8% to £2,066m (2002: £1,918m). Net interest increased 4% to £1,301m (2002: £1,247m), benefiting from higher average balances. Net fees and commissions increased by 9% to £733m (2002: £672m), with lending fees rising strongly.
Operating costs fell 3% to £729m (2002: £755m) with business as usual costs reduced as cost savings achieved more than offset higher pension costs, together with a lower goodwill charge.
Provisions increased 18% to £219m (2002: £186m).
Private Clients and International
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 836 | 749 | 698 | |||||||||
Net fees and commissions | 850 | 683 | 751 | |||||||||
Other operating income | 47 | 36 | 26 | |||||||||
Operating income | 1,733 | 1,468 | 1,475 | |||||||||
Goodwill amortisation Other operating expenses | (64 (1,304 | ) ) | (42 (1,096 | ) ) | (29 (1,054 | ) ) | ||||||
Operating expenses | (1,368 | ) | (1,138 | ) | (1,083 | ) | ||||||
Operating profit before provisions | 365 | 330 | 392 | |||||||||
Provisions for bad and doubtful debts | (30 | ) | (36 | ) | (40 | ) | ||||||
Operating profit – ongoing business | 335 | 294 | 352 | |||||||||
Profit/(loss) from associated undertakings | 49 | 17 | (8 | ) | ||||||||
Exceptional items | – | 7 | (2 | ) | ||||||||
Profit on ordinary activities before tax – ongoing business | 384 | 318 | 342 | |||||||||
Contribution from closed life assurance activities | (4 | ) | (80 | ) | (93 | ) | ||||||
Profit on ordinary activities before tax | 380 | 238 | 249 | |||||||||
Private Clients and International profit before tax increased 60% (£142m) to £380m (2003: £238m).
The improved performance reflected good momentum in the businesses with strong income growth in both the Private Clients and International businesses. This was supported by improved market conditions together with the benefits from the acquisitions made in 2003 and the return on the prior investments in improving the client experience.
There was a significantly improved performance from the closed life assurance activities.
Private Clients
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 302 | 288 | 281 | |||||||||
Net fees and commissions | 529 | 394 | 485 | |||||||||
Other operating income | 8 | 4 | 3 | |||||||||
Operating income | 839 | 686 | 769 | |||||||||
Goodwill amortisation Other operating expenses | (40 (696 | ) ) | (30 (585 | ) ) | (28 (575 | ) ) | ||||||
Operating expenses | (736 | ) | (615 | ) | (603 | ) | ||||||
Operating profit before provisions | 103 | 71 | 166 | |||||||||
Provisions for bad and doubtful debts | 1 | (3 | ) | (2 | ) | |||||||
Operating profit – ongoing business | 104 | 68 | 164 | |||||||||
Exceptional items | – | 5 | (2 | ) | ||||||||
Profit on ordinary activities before tax – ongoing business | 104 | 73 | 162 | |||||||||
Contribution from closed life assurance activities | (4 | ) | (80 | ) | (93 | ) | ||||||
Profit on ordinary activities before tax | 100 | (7 | ) | 69 | ||||||||
The comparison with the prior period is impacted by the acquisitions of the Gerrard business in mid December 2003 and the retail stockbroking business of Charles Schwab Europe at the end of January 2003.
Private Clients profit before tax for the ongoing business increased 42% (£31m) to £104m (2003: £73m). There was a significantly improved performance from the closed life assurance activities.
Operating income increased 22% (£153m) to £839m (2003: £686m).
Net interest income increased 5% (£14m) to £302m (2003: £288m). Total average loans increased 31% to £3.8bn (2003: £2.9bn). Total average customer deposits increased 4% to £21.4bn (2003: £20.6bn). Good income growth from offshore corporate deposits and loans in International and Private Banking reflected the benefit of investment in relationship managers and internet-based offerings, partially offset by adverse exchange rate movements. Deposit margins improved slightly and were partially offset by lower lending margins.
Net fees and commissions increased 34% (£135m) to £529m (2003: £394m). Excluding the contribution from Gerrard, net fees and commissions increased 8%. Business volumes improved as higher average equity market levels contributed to increased sales of investment products and higher fund management fees. The average level of the FTSE 100 Index was 12% higher at 4,522 (2003: 4,051). Stockbroking fee income increased 6% reflecting the benefits of the integration of Charles Schwab Europe as well as improved market conditions. Although headline average daily deal volumes in UK retail stockbroking decreased to 7,800 (2003: 8,200), a more favourable product mix, including an increase in higher margin deals, more than compensated for the lower volume. Fee income in Private Banking increased 13%, reflecting the impact of additional private bankers and new product launches.
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Barclays PLC Annual Report 2004
Operating expenses increased 20% (£121m) to £736m (2003: £615m). Excluding the Gerrard business, operating expenses remained broadly flat. Cost savings resulting from reduced restructuring costs and cost synergies from Charles Schwab Europe enabled increased investment in product development and customer service in International and Private Banking and in Wealth Solutions.
Total customer funds, comprising customer deposits and assets under management, increased to £77bn (2003: £75bn). Growth in new business and the impact of the rising stock market were partly offset by adverse exchange rate movements. In October 2004, a multi-manager product was launched, which had £1.6bn of assets under management at the year-end.
The contribution from the closed life assurance activities was a loss of £4m (2003: loss of £80m). The impact of stronger stock markets, improved investment performance and better persistency levels largely offset the costs of £97m (2003: £95m) relating to redress for customers in respect of sales of endowment policies. The loss of £4m is reflected in the Group’s results as a gain of £49m (2003: loss of £40m) within other operating income offset by a reduction of £53m (2003: £40m) within net interest income.
Private Clients profit before tax for the ongoing business in 2003 fell 55% to £73m (2002: £162m).
Net interest income in 2003 increased 3% to £288m (2002: £281m).
Net fees and commissions from the ongoing business in 2003 decreased 19% to £394m (2002: £485m). This reflected the impact of lower average equity market levels in 2003 on sales of investment products and on fund management fees. The average level of the FTSE 100 Index was 12% lower than in the prior year at 4,051 (2002: 4,599). Fee income improved significantly in the second half of 2003, reflecting volume growth and the recovery in equity markets towards the year-end. Average daily deal volumes in UK retail stockbroking, including the Charles Schwab Europe business acquired in January 2003, increased to 8,200 (2002: 6,300).
Operating expenses in 2003 increased 2% to £615m (2002: £603m). This was mainly due to the inclusion of costs relating to the Charles Schwab Europe business, including related integration costs, plus additional pensions costs in 2003. Offsetting this was the impact of lower sales volumes and savings resulting from tight management control of costs. Operating expenses included goodwill amortisation of £30m (2002: £28m).
International
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 534 | 461 | 417 | |||||||||
Net fees and commissions | 321 | 289 | 266 | |||||||||
Other operating income | 39 | 32 | 23 | |||||||||
Operating income | 894 | 782 | 706 | |||||||||
Goodwill amortisation Other operating expenses | (24 (608 | ) ) | (12 (511 | ) ) | (1 (479 | ) ) | ||||||
Operating expenses | (632 | ) | (523 | ) | (480 | ) | ||||||
Operating profit before provisions | 262 | 259 | 226 | |||||||||
Provisions for bad and doubtful debts | (31 | ) | (33 | ) | (38 | ) | ||||||
Operating profit | 231 | 226 | 188 | |||||||||
Profit from associated undertakings | 49 | 17 | (8 | ) | ||||||||
Exceptional items | – | 2 | – | |||||||||
Profit on ordinary activities before tax | 280 | 245 | 180 | |||||||||
The comparison with the prior period is impacted by the acquisition of Banco Zaragozano in July 2003.
International profit before tax increased 14% (£35m) to £280m (2003: £245m) reflecting good growth in all businesses.
Operating income increased 14% (£112m) to £894m (2003: £782m). Net revenue (operating income less provisions) increased 15% (£114m) to £863m (2003: £749m).
Net interest income increased 16% (£73m) to £534m (2003: £461m) as a result of the inclusion of Banco Zaragozano and good balance growth in Spain, Africa and Italy.
Total average customer deposits increased 18% to £9.4bn (2003: £8bn), resulting from both the inclusion of Banco Zaragozano and strong organic growth in Spain and Africa.
Total average loans increased 48% to £18.3bn (2003: £12.4bn), reflecting strong growth across the portfolio and the inclusion of Banco Zaragozano for a full year in 2004. Mortgage balance growth in Europe was very strong with balances up 39%. Average lending balances in Africa increased 25%. Overall lending margins reduced mainly due to the impact of mortgage growth on the product mix.
Net fees and commissions increased 11% (£32m) to £321m (2003: £289m), with the majority of the increase reflecting the inclusion of Banco Zaragozano. There was a strong performance in France and Spain from increased fund management related fees. Spain’s total assets under management increased by 27%.
Operating expenses increased 21% (£109m) to £632m (2003: £523m) with the majority of the increase attributable to the inclusion of Banco Zaragozano. Investment in the development of new products and in enhancing the customer experience remained high across the portfolio.
95
Financial review
Analysis of results by business
Provisions decreased 6% (£2m) to £31m (2003: £33m).
Barclays Spain (including Banco Zaragozano) profit before tax declined 2% overall, after accounting for integration costs of€62m (2003:€12m) and goodwill of€32m (2003:€15m), with the increase in goodwill between 2003 and 2004 reflecting the first full year of charge. The retention rate of Banco Zaragozano customers has been high and Barclays products were successfully introduced to the customer base. The integration is well ahead of schedule.
Openplan in Spain continued its successful growth and it has been popular with the customers of Banco Zaragozano: total customer numbers at the end of 2004 were 47,000 (2003: 35,000), mortgage balances were€7.8bn (2003:€4.8bn) and savings balances were€1.5bn (2003:€1bn). Openplan also continued to grow in Portugal, with 8,900 customers at 31st December (2003: 6,200) and total balances up 44% to€1.3bn (2003:€0.9bn). This was supported by ongoing investment in new branches. In October 2004, Openplan was launched in France.
Profit before tax in Africa and the Middle East increased 13% to £126m (2003: £112m) driven by strong growth in corporate balances, particularly in South Africa, together with reduced restructuring costs.
The profit from associated undertakings reflected the contribution from FirstCaribbean. The improved performance reflected the delivery of synergies arising from the merger which created FirstCaribbean, together with good underlying growth in customer activity. The results of FirstCaribbean included a gain of £28m on the sale of shares held in Republic Bank Limited.
International profit before tax in 2003 increased by 36% to £245m (2002: £180m).
On 11th October 2002, the Caribbean businesses of Barclays and Canadian Imperial Bank of Commerce were combined to form FirstCaribbean International Bank Ltd, and the interest in FirstCaribbean has been accounted for as an associated undertaking thereafter.
Net interest income in 2003 increased by 11% to £461m (2002: £417m), mainly reflecting the success of Openplan in Spain, growth in lending and deposit volumes together with the acquisition of BNPI Mauritius in Africa, and the inclusion of income relating to Banco Zaragozano, acquired in July 2003. These factors more than offset the absence of the contribution from the Caribbean business in 2003.
Net fees and commissions in 2003 increased by 9% to £289m (2002: £266m). This was due to balance sheet growth in Spain and Africa in addition to the contributions from BNPI Mauritius and Banco Zaragozano.
Operating expenses in 2003 increased by 9% to £523m (2002: £480m). This reflected the inclusion of costs relating to Banco Zaragozano, and additional costs in Africa relating to increased infrastructure investment, further development of the business and costs of relocating the Head office to Johannesburg. Partially offsetting this was the absence of costs relating to the Caribbean in 2003.
Provisions in 2003 decreased by 13% to £33m (2002: £38m), mainly reflecting the impact of the Caribbean transaction.
Barclaycard
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 1,600 | 1,555 | 1,354 | |||||||||
Net fees and commissions | 764 | 673 | 585 | |||||||||
Other operating income | – | – | 1 | |||||||||
Operating income | 2,364 | 2,228 | 1,940 | |||||||||
Goodwill amortisation Other operating expenses | (41 (806 | ) ) | (38 (761 | ) ) | (26 (636 | ) ) | ||||||
Operating expenses | (847 | ) | (799 | ) | (662 | ) | ||||||
Operating profit before provisions | 1,517 | 1,429 | 1,278 | |||||||||
Provisions for bad and doubtful debts | (761 | ) | (708 | ) | (663 | ) | ||||||
Operating profit | 756 | 721 | 615 | |||||||||
Profit/(loss) from joint ventures | 4 | 2 | (4 | ) | ||||||||
Exceptional items | – | – | 2 | |||||||||
Profit on ordinary activities before tax | 760 | 723 | 613 | |||||||||
Barclaycard profit before tax increased 5% (£37m) to £760m (2003: £723m).
Operating income increased 6% (£136m) to £2,364m (2003: £2,228m). Net revenue (operating income less provisions) increased 5% (£83m) to £1,603m (2003: £1,520m). A high level of recruitment of UK retail card customers continued at 1.33m (2003: 1.55m).
Net interest income increased 3% (£45m) to £1,600m (2003: £1,555m) reflecting growth in UK average extended credit balances, up 11% to £8.2bn (2003: £7.4bn) and higher UK average loan balances, up 11% to £9.4bn (2003: £8.5bn). Margins in the consumer lending business remained broadly stable whereas margins in UK cards decreased, reflecting higher funding costs and the impact of increased balance transfer activity at promotional rates.
Net fees and commissions increased 14% (£91m) to £764m (2003: £673m) as a result of the continued growth in the credit card and consumer lending businesses and good volume growth within the merchant acquiring business.
Operating expenses rose 6% (£48m) to £847m (2003: £799m). The increase reflected investment in Barclaycard International and brand related investment in the UK.
Provisions increased 7% (£53m) to £761m (2003: £708m). This increase was lower than the growth in assets and reflected the continued benefit of improved collections activity. Non-performing loan balances increased but at a significantly lower rate than the growth in assets. Delinquency levels as a percentage of outstandings for both Barclaycard branded credit cards and for Barclayloan were stable.
In the UK, particularly strong performances from the Monument and FirstPlus businesses, together with Barclaycard Business, more than offset the margin pressure and brand investment in the Barclaycard branded card activities.
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Barclays PLC Annual Report 2004
Barclaycard International made good progress with its growth strategy. Profit before tax increased to £8m (2003: £4m). Income increased 30% due to the growth in average extended credit balances, up 28% to £882m (2003: £689m). The number of Barclaycard International cards in issue rose to 2.9m (2003: 1.7m). Barclaycard established a presence in the US credit card market through the acquisition of the Juniper Financial Corporation in December 2004. Juniper is a US credit card issuer with US$1.4bn in receivables and 1 million cards in issue. In 2004, Juniper contributed a loss of £2m, for the month of December, in line with expectations at the time of the acquisition.
Barclaycard profit before tax in 2003 increased 18% to £723m (2002: £613m).
Net interest income in 2003 increased 15% to £1,555m (2002: £1,354m). This was mainly due to good growth in average UK extended credit balances, up 14% to £7.4bn (2002: £6.5bn).
Net fees and commissions in 2003 increased 15% to £673m (2002: £585m), as a result of higher cardholder activity and good volume growth within the merchant acquiring business.
Operating expenses in 2003 increased by 21% to £799m (2002: £662m). The increase reflected higher business volumes and greater marketing spend coupled with increased strategic investment spend as Barclaycard enhanced operational capability. Included in operating expenses was goodwill of £38m (2002: £26m).
Provisions in 2003 increased 7% to £708m (2002: £663m).
Barclays Capital
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 1,006 | 1,024 | 939 | |||||||||
Dealing profits | 1,469 | 1,042 | 828 | |||||||||
Net fees and commissions | 611 | 551 | 481 | |||||||||
Other operating income | 295 | 109 | 78 | |||||||||
Operating income | 3,381 | 2,726 | 2,326 | |||||||||
Goodwill amortisation Other operating expenses | – (2,237 | ) | – (1,638 | ) | (2 (1,345 | ) ) | ||||||
Operating expenses | (2,237 | ) | (1,638 | ) | (1,347 | ) | ||||||
Operating profit before provisions | 1,144 | 1,088 | 979 | |||||||||
Provisions for bad and doubtful debts | (102 | ) | (253 | ) | (334 | ) | ||||||
Operating profit | 1,042 | 835 | 645 | |||||||||
Profit from associated undertakings | – | 1 | 1 | |||||||||
Profit on ordinary activities before tax | 1,042 | 836 | 646 | |||||||||
Barclays Capital profit before tax increased 25% (£206m) to £1,042m (2003: £836m), as a result of very strong operating income growth and the continued improvement in the credit environment. The very strong performance was driven by growth in business volumes and client activity levels. Net revenue (operating income less provisions) increased 33% (£806m) to £3,279m (2003: £2,473m).
Operating income increased 24% (£655m) to a record £3,381m (2003: £2,726m) as a result of strong growth across most of the product areas in Rates and Credit. Income by product continued to diversify with the strongest growth delivered by credit products and equity related products. Regional growth was broadly based with particularly strong results in the US and Asia. Average DVaR increased to £34m (2003: £26m). Period end DvaR was £32m (2003: £37m).
Secondary income, comprising dealing profits and net interest income, is mainly generated from providing client risk management solutions. This increased 20% (£409m) to £2,475m (2003: £2,066m).
Dealing profits increased 41% (£427m) to £1,469m (2003: £1,042m), with very strong performances in both the Rates and Credit businesses. This reflected higher volumes of client led activity across a broad range of products and the continued benefit of recent headcount investments in product depth and geographic reach. Net interest income fell 2% (£18m) to £1,006m (2003: £1,024m) driven by lower contributions from money markets due to the reduced size of the book.
Primary income, comprising net fees and commissions from advisory and origination activities, grew 11% (£60m) to £611m (2003: £551m). Securitisation, structured bonds and leveraged finance grew significantly, more than offsetting lower market activity by corporates. Net fees and commissions included £63m (2003: £89m) of internal fees for structured capital markets activities arranged by Barclays Capital.
Other operating income increased to £295m (2003: £109m) as a result of a number of private equity realisations and structured capital markets transactions.
Operating expenses increased 37% (£599m) to £2,237m (2003: £1,638m) due to the execution of the business expansion plan and an increase in performance related pay. Business as usual costs increased significantly, reflecting higher volumes and the growth in staff numbers. Revenue related costs increased due to the strong profit performance. The recruitment of staff to expand product, client coverage and distribution capabilities resulted in significantly higher strategic investment costs. The ratio of total costs to net revenue and staff costs to net revenue both increased by 2% to 68% and 55% respectively. Approximately half of the total costs comprised performance related pay, discretionary investment spend and short-term contractor resource.
Total headcount increased by 2,000 to 7,800 (2003: 5,800). Almost a third were in the front office, mainly in Europe and the US. Approximately half of the increase was directed at strengthening the back office and control functions. The remainder related to contract staff, mainly in technology, which ensured that the support platform could be developed whilst maintaining flexibility. Barclays Capital accelerated targeted investments in revenue generating capabilities together with a strengthening of the control and support environment. This investment has expanded the scope of the product offering, building new income streams from commercial and residential mortgage backed securities and home equity loans. Existing offerings in commodities trading and equity related products were extended to the US and client channels continued to be extended in Europe, the US and Asia.
97
Financial review
Analysis of results by business
Provisions fell 60% (£151m) to £102m (2003: £253m), reflecting the significant decline in non-performing and potential problem loan balances as a result of a more stable wholesale credit environment.
Profit before tax in 2003 increased 29% to £836m (2002: £646m), due to very strong operating income growth and an improving credit environment. Revenue related costs increased with the strong performance.
Operating income increased 17% to £2,726m (2002: £2,326m) reflecting broadly based growth across most products in Rates and Credit. Secondary income increased 17% to £2,066m (2002: £1,767m) driven by strong growth in dealing profits. Primary income grew 15% to £551m (2002: £481m) with good performances across the Credit businesses.
Operating expenses grew 22% to £1,638m (2002: £1,347m) reflecting increased revenue related costs due to the strong financial performance and growth in BAU costs associated with higher business volumes and front-office hiring.
Provisions fell 24% to £253m (2002: £334m) reflecting ongoing improvements in the quality of the loan book and the recovery in the large corporate credit environment.
Barclays Global Investors
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Net interest income | 5 | 9 | 9 | |||||||||
Net fees and commissions | 882 | 662 | 538 | |||||||||
Other operating income | 6 | 1 | – | |||||||||
Operating income | 893 | 672 | 547 | |||||||||
Goodwill amortisation Other operating expenses | (18 (545 | ) ) | (13 (480 | ) ) | (13 (439 | ) ) | ||||||
Operating expenses | (563 | ) | (493 | ) | (452 | ) | ||||||
Operating profit | 330 | 179 | 95 | |||||||||
Loss from joint ventures | (2 | ) | (1 | ) | (1 | ) | ||||||
Exceptional items | 1 | – | – | |||||||||
Profit on ordinary activities before tax | 329 | 178 | 94 | |||||||||
Barclays Global Investors (BGI) delivered another year of record performance. Profit before tax increased 85% (£151m) to £329m (2003: £178m) reflecting substantial income growth and continued discipline in cost management. Foreign exchange movements impacted growth in income and costs. Approximately 55% of income is generated in the US and 31% in the UK and continental Europe.
Net fees and commissions increased 33% (£220m) to £882m (2003: £662m), with strong income generation across both the active and index businesses and particularly in investment management fees. These resulted from strong net new sales, growth in sales of higher margin products and stronger global equity markets, partially offset by adverse foreign exchange movements. Securities lending income growth was also very strong, benefiting from increased volumes.
Successful income generation continued across a diverse range of products, distribution channels and geographies and active product investment performance remained strong. BGI’s commitment to
innovation continued as a number of iShare (Exchange Traded Funds) products were launched during 2004. There was significant growth in global iShares with assets under management up 88% to US$130bn at the year-end.
Operating expenses increased 14% (£70m) to £563m (2003: £493m) primarily as a result of higher performance based expenses and benefited from foreign exchange movements.
Total assets under management increased 19% (£111bn) to £709bn (2003: £598bn). The growth included the significant generation of net new assets of £65bn. An increase of £97bn attributable to market movements was partially offset by £51bn of adverse exchange rate movements.
Barclays Global Investors profit before tax in 2003 increased 89% (£84m) to £178m (2002: £94m) and reflected very strong top-line income growth and good control of costs.
Net fees and commissions in 2003 increased 23% (£124m) to £662m (2002: £538m), reflecting good income generation across a diverse range of products, distribution channels and geographies. The increase was largely driven by growth of investment management fees. These resulted from strong net new sales, growth in the sales of higher margin products, good investment performance and the recovery of equity markets towards the year end, which more than compensated for the adverse impact of foreign exchange translation movements.
Operating expenses in 2003 increased by 9% (£41m) to £493m (2002: £452m) due to higher revenue related costs, partly offset by the impact of foreign exchange translation movements.
Head office functions and other operations
2004 | 2003 | (a) | 2002 | (a) | ||||||||
£m | £m | £m | ||||||||||
Head office functions and central items | (201 | ) | (192 | ) | (155 | ) | ||||||
Transition businesses | 7 | (25 | ) | (125 | ) | |||||||
Restructuring costs | (12 | ) | (16 | ) | (21 | ) | ||||||
Loss on ordinary activities before tax | (206 | ) | (233 | ) | (301 | ) | ||||||
(a) | Comparative figures have been restated to reflect the aggregation of Head office functions and other operations, which were formerly reported separately. |
Head office functions and central items costs increased 5% (£9m) to a loss of £201m (2003: loss £192m). Central items included internal fees charged by Barclays Capital for structured capital market activities of £63m (2003: £89m).
The improved performance of Transition Businesses, from a loss of £25m to a profit of £7m, primarily reflected provisions released in the current year.
Head office functions and central items costs increased in 2003 by 24% (£37m) to a loss of £192m (2002: loss £155m).
The improved performance of Transition Businesses, from a loss in 2002 of £125m to a loss in 2003 of £25m, primarily reflected a reduced provisions charge in respect of various South American Corporate Banking exposures.
98
Barclays PLC Annual Report 2004
Financial review
Total Assets and Liabilities
Total Assets and Weighted Risk Assets
The Group’s balance sheet increased 18% (£78.8bn) to £522.1bn (2003: £443.3bn). Weighted risk assets increased 16% (£29.6bn) to £218.6bn (2003: £189bn).
UK Banking total assets increased 8% to £122.4bn (2003: £113.7bn). Weighted risk assets increased 9% to £91.9bn (2003: £84.5bn).
UK Retail Banking total assets increased 3% to £71.6bn (2003: £69.7bn) and weighted risk assets increased 4% to £37.1bn (2003: £35.8bn). This was mainly attributable to growth in the UK residential mortgage portfolio, up 3% to £61.7bn (2003: £59.8bn).
UK Business Banking total assets increased 15% to £50.8bn (2003: £44bn) and weighted risk assets increased 13% to £54.8bn (2003: £48.6bn). This reflected strong growth in lending balances.
Private Clients and International total assets (excluding the assets of the closed life assurance activities) increased 14% to £31bn (2003: £27.2bn), and weighted risk assets increased 28% to £23.3bn (2003: £18.2bn). This was mainly attributable to growth in customer loans in Spain, Italy and Africa.
Barclaycard total assets increased 14% to £23.4bn (2003: £20.6bn) reflecting growth in the credit card and consumer lending business and the acquisition of Juniper. Weighted risk assets increased 10% to £20.2bn (2003: £18.3bn).
Barclays Capital total assets increased 24% to £332.6bn (2003: £268.7bn) due to increases in debt securities and fully collateralised reverse repos as the expansion of the business continued. Total weighted risk assets increased 23% to £79.9bn (2003: £65.1bn), reflecting increased business volumes and the expansion of credit trading, credit derivatives and residential and commercial mortgage backed securities to meet client demands.
Capital Resources
The Group manages both its debt and equity capital actively. The Group’s authority to buy-back equity was renewed at the 2004 AGM to provide additional flexibility in the management of the Group’s capital resources.
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Barclays PLC Group | ||||||||||||
Shareholders’ funds | 17,417 | 16,374 | 15,146 | |||||||||
Minority interests: non-equity | 690 | – | – | |||||||||
Minority interests: equity | 211 | 283 | 156 | |||||||||
18,318 | 16,657 | 15,302 | ||||||||||
Undated loan capital | 6,149 | 6,310 | 6,678 | |||||||||
Dated loan capital | 6,128 | 6,029 | 4,859 | |||||||||
Total capital resources | 30,595 | 28,996 | 26,839 | |||||||||
Total capital resources increased in the year by £1,599m.
Shareholders’ funds increased by £1,043m, reflecting profit retentions of £1,730m, net proceeds of share issues of £114m and gains arising from transactions with third parties which are reflected in the statement of recognised gains and losses of £13m; offset by share repurchases of £699m, an increase in treasury and ESOP shares of £53m, exchange rate losses of £58m.
Non-equity minority interests reflected the issue by Barclays Bank PLC of€1bn (£688m) of non-cumulative preference shares on 8th December 2004 and an additional £2m of profits attributable to these non-equity minority interests at the year-end.
Loan capital decreased by £62m reflecting raisings of £774m, more than offset by redemptions of £611m, exchange rate movements of £224m and amortisation of issue expenses of £1m.
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Barclays Bank PLC Group | ||||||||||||
Shareholders’ funds: equity | 17,581 | 16,485 | 15,205 | |||||||||
Shareholders’ funds: non-equity | 690 | – | – | |||||||||
Minority interests: equity | 211 | 283 | 156 | |||||||||
18,482 | 16,768 | 15,361 | ||||||||||
Undated loan capital | 6,149 | 6,310 | 6,678 | |||||||||
Dated loan capital | 6,128 | 6,029 | 4,859 | |||||||||
Total capital resources | 30,759 | 29,107 | 26,898 | |||||||||
Capital resources for Barclays Bank PLC Group differ from Barclays PLC Group by £164m (2003: £111m).
99
Financial review
Total assets and liabilities and capital resources
Capital ratios
Capital adequacy and the use of regulatory capital are monitored by the Group, employing techniques based on the guidelines developed by the Basel Union on Banking Supervision (the Basel Committee) and European Union Directives, as implemented by the Financial Services Authority (FSA) for supervisory purposes.
These techniques include the risk asset ratio calculation, which the FSA regards as a key supervisory tool. The FSA sets ratio requirements for individual banks in the UK at or above the internationally agreed minimum of 8%. The ratio calculation involves the application of designated risk weightings to reflect an estimate of credit, market and other risks associated with broad categories of transactions and counterparties. Regulatory guidelines define three ‘Tiers’ of capital resources. Tier 1 capital, comprising mainly shareholders’ funds and including Reserve Capital Instruments and Tier One Notes, is the highest tier and can be used to meet trading and banking activity requirements. Tier 2 includes perpetual, medium-term and long-term subordinated debt, general provisions for bad and doubtful debts and fixed asset revaluation reserves. Tier 2 capital can also be used to support both trading and banking activities. Tier 3 capital also comprises short-term subordinated debt with a minimum original maturity of two years. The use of tier 3 capital is restricted to trading activities only and it is not eligible to support counterparty or settlement risk. The aggregate of tiers 2 and 3 capital included in the risk asset ratio calculation may not exceed tier 1 capital.
The following tables set out the calculated capital ratios and the weighted risk assets and regulatory capital resources on which they were based as at 31st December:
Capital ratios | ||||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
Barclays | Barclays | Barclays | Barclays | Barclays | Barclays | |||||||||||||||||||
PLC | Bank PLC | PLC | Bank PLC | PLC | Bank PLC | |||||||||||||||||||
Group | Group | Group | Group | Group | Group | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Capital ratios | ||||||||||||||||||||||||
Tier 1 ratio | 7.6 | 7.6 | 7.9 | 7.9 | 8.2 | 8.2 | ||||||||||||||||||
Risk asset ratio | 11.5 | 11.5 | 12.8 | 12.8 | 12.8 | 12.8 | ||||||||||||||||||
2004 | 2003 | 2002 | |||||||||||||||||||||||
£m | £m | £m | |||||||||||||||||||||||
Weighted risk assets | |||||||||||||||||||||||||
Banking book | |||||||||||||||||||||||||
on-balance sheet | 148,621 | 133,816 | 128,691 | ||||||||||||||||||||||
off-balance sheet | 26,741 | 22,987 | 21,999 | ||||||||||||||||||||||
Associated undertakings and joint ventures | 3,020 | 2,830 | 3,065 | ||||||||||||||||||||||
Total banking book | 178,382 | 159,633 | 153,755 | ||||||||||||||||||||||
Trading book | |||||||||||||||||||||||||
Market risks | 22,106 | 13,861 | 7,988 | ||||||||||||||||||||||
Counterparty and settlement risks | 18,113 | 15,503 | 11,005 | ||||||||||||||||||||||
Total trading book | 40,219 | 29,364 | 18,993 | ||||||||||||||||||||||
Total weighted risk assets | 218,601 | 188,997 | 172,748 | ||||||||||||||||||||||
100
Barclays PLC Annual Report 2004
2004 | 2003 | 2002 | ||||||||||||||||||||||
Barclays | Barclays | Barclays | Barclays | Barclays | Barclays | |||||||||||||||||||
PLC | Bank PLC | PLC | Bank PLC | PLC | Bank PLC | |||||||||||||||||||
Group | Group | Group | Group | Group | Group | |||||||||||||||||||
Capital resources (as defined for regulatory purposes) | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Tier 1 | ||||||||||||||||||||||||
Called up share capital | 1,614 | 2,316 | 1,642 | 2,302 | 1,645 | 2,293 | ||||||||||||||||||
Eligible reserves | 15,670 | 15,656 | 14,657 | 13,997 | 13,405 | 12,757 | ||||||||||||||||||
Minority interests | ||||||||||||||||||||||||
– non-equity | 688 | – | – | – | – | – | ||||||||||||||||||
– equity | 575 | 575 | 637 | 637 | 522 | 522 | ||||||||||||||||||
Reserve Capital Instruments(a) | 1,627 | 1,627 | 1,705 | 1,705 | 1,771 | 1,771 | ||||||||||||||||||
Tier One Notes(a) | 920 | 920 | 960 | 960 | 1,019 | 1,019 | ||||||||||||||||||
Less: goodwill | (4,432 | ) | (4,432 | ) | (4,607 | ) | (4,607 | ) | (4,158 | ) | (4,158 | ) | ||||||||||||
Total qualifying tier 1 capital | 16,662 | 16,662 | 14,994 | 14,994 | 14,204 | 14,204 | ||||||||||||||||||
2004 | 2003 | 2002 | |||||||||||||||||||||||
£m | £m | £m | |||||||||||||||||||||||
Tier 2 | |||||||||||||||||||||||||
Revaluation reserves | 25 | 25 | 25 | ||||||||||||||||||||||
General provisions | 564 | 795 | 737 | ||||||||||||||||||||||
Qualifying subordinated liabilities(b) | |||||||||||||||||||||||||
Undated loan capital | 3,573 | 3,636 | 3,854 | ||||||||||||||||||||||
Dated loan capital | 5,647 | 5,652 | 4,573 | ||||||||||||||||||||||
Other(c) | 2 | 2 | 2 | ||||||||||||||||||||||
Total qualifying Tier 2 capital | 9,811 | 10,110 | 9,191 | ||||||||||||||||||||||
Tier 3: short-term subordinated liabilities(b) | 286 | 280 | 203 | ||||||||||||||||||||||
Less: supervisory deductions | |||||||||||||||||||||||||
Investments not consolidated for supervisory purposes(d) | (1,047 | ) | (979 | ) | (1,288 | ) | |||||||||||||||||||
Other deductions | (496 | ) | (182 | ) | (119 | ) | |||||||||||||||||||
Total deductions | (1,543 | ) | (1,161 | ) | (1,407 | ) | |||||||||||||||||||
Total net capital resources | 25,216 | 24,223 | 22,191 | ||||||||||||||||||||||
(a) | Reserve Capital Instruments (RCIs) and Tier One Notes (TONs) are included in undated loan capital in the consolidated balance sheet. | |
(b) | Subordinated liabilities are included in Tiers 2 or 3, subject to limits laid down in the supervisory requirements. Barclays retains significant capacity to raise additional capital within these limits. | |
(c) | Comprises revaluation reserves attributable to minorities £2m (2003: £2m, 2002: £2m). | |
(d) | Includes £610m (2003: £478m, 2002: £867m) of shareholders’ interest in the retail life-fund. |
Net capital resources grew by 4.1% (£1bn). Tier 1 capital rose by £1.7bn with retained profits of £1.7bn and the issue of £0.7bn of preference shares being offset by share repurchases of £0.7bn. Tier 2 capital fell by 3% (£0.3bn) and tier 3 capital remained broadly as reported at 31st December 2003. Supervisory deductions increased by £0.4bn.
The overall growth in weighted risk assets of £29.6bn comprised trading book weighted assets growth of 37% (£10.9bn) and banking book weighted assets of 11.7% (£18.7bn).
The risk asset ratio was 11.5% (2003: 12.8%). The tier 1 ratio was 7.6% (2003: 7.9%).
101
Financial review
Deposits
Average: year ended 31st December | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Deposits by banks | ||||||||||||
Offices in the United Kingdom | 46,835 | 41,034 | 31,966 | |||||||||
Offices outside the United Kingdom: | ||||||||||||
Other European Union | 3,511 | 2,696 | 1,894 | |||||||||
United States | 946 | 597 | 2,213 | |||||||||
Rest of the World | 12,170 | 6,815 | 4,909 | |||||||||
63,462 | 51,142 | 40,982 | ||||||||||
Customer accounts | ||||||||||||
Offices in the United Kingdom | 176,137 | 170,689 | 145,192 | |||||||||
Offices outside the United Kingdom: | ||||||||||||
Other European Union | 8,485 | 6,935 | 5,418 | |||||||||
United States | 6,447 | 3,671 | 3,964 | |||||||||
Rest of the World | 8,568 | 6,827 | 9,188 | |||||||||
199,637 | 188,122 | 163,762 | ||||||||||
Average deposits (excluding trading balances) are analysed by type in the average balance sheet on page 85 and are based on the location of the office in which the deposits are recorded.
‘Demand deposits’ in offices in the UK are mainly current accounts with credit balances, obtained through the UK branch network.
‘Savings deposits’ in offices in the UK are also obtained through, and administered by, the UK branch network. Interest rates are varied from time to time in response to competitive conditions. These deposits are not drawn against by cheque or similar instrument.
‘Other time deposits – retail’ in offices in the UK are interest bearing and also are not drawn against by cheque or similar instrument. They are generally distinguished from savings deposits by having fixed maturity requirements and from wholesale deposits by being collected, in the main, through the UK branch network.
‘Other time deposits – wholesale’ in offices in the UK are obtained through the London money market and are booked mainly within the Group’s money market operations. These deposits are of fixed maturity and bear interest rates which relate to the London inter-bank money market rates.
‘Other time deposits’ includes commercial paper and inter-bank funds.
Although the types of deposit products offered through offices located outside the UK are broadly similar to those described above, they are tailored to meet the specific requirements of local markets.
A further analysis of Deposits by banks and Customer accounts is given in Note 23 and Note 24 to the accounts on page 143.
Short-term Borrowings
Short-term borrowings include Deposits by banks as reported in ‘Deposits’, Commercial paper and negotiable certificates of Deposit.
Deposits by banks (excluding trading business)
Deposits by banks are taken from a wide range of counterparties and generally have maturities of less than one year.
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Year-end balance | 74,211 | 57,641 | 48,751 | |||||||||
Average balance | 63,279 | 51,059 | 40,788 | |||||||||
Maximum balance | 93,809 | 77,195 | 56,414 | |||||||||
Average interest rate during year | 2.4% | 2.3% | 2.9% | |||||||||
Year-end interest rate | 2.9% | 2.5% | 2.6% | |||||||||
Commercial paper
Commercial paper is issued by the Group, mainly in the United States, generally in denominations of not less than $100,000, with maturities of up to 270 days.
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Year-end balance | 8,688 | 4,426 | 5,192 | |||||||||
Average balance | 6,828 | 3,288 | 4,818 | |||||||||
Maximum balance | 9,381 | 6,284 | 5,234 | |||||||||
Average interest rate during year | 1.8% | 1.1% | 2.0% | |||||||||
Year-end interest rate | 2.2% | 1.6% | 1.6% | |||||||||
Negotiable certificates of deposit
Negotiable certificates of deposits are issued mainly in the UK and US, generally in denominations of not less than $100,000.
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Year-end balance | 37,213 | 28,536 | 30,045 | |||||||||
Average balance | 35,409 | 33,013 | 27,111 | |||||||||
Maximum balance | 44,934 | 40,274 | 36,780 | |||||||||
Average interest rate during year | 2.2% | 2.2% | 3.3% | |||||||||
Year-end interest rate | 2.8% | 2.1% | 2.8% | |||||||||
102
Barclays PLC Annual Report 2004
Financial review
Securities
The following table analyses the book value and valuation of securities.
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||||
Book value | Valuation | Book value | Valuation | Book value | Valuation | |||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||
Investment securities | ||||||||||||||||||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||||||||||||||||
United Kingdom government | 19 | 19 | 565 | 621 | 1,465 | 1,496 | ||||||||||||||||||||||||||||||||||
Other government | 11,858 | 12,051 | 16,347 | 16,772 | 18,963 | 19,564 | ||||||||||||||||||||||||||||||||||
Other public bodies | 21 | 21 | 78 | 79 | 17 | 17 | ||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 6,563 | 6,537 | 3,074 | 3,077 | 4,693 | 4,704 | ||||||||||||||||||||||||||||||||||
Corporate issuers | 15,765 | 15,796 | 13,826 | 13,966 | 12,601 | 12,666 | ||||||||||||||||||||||||||||||||||
Other issuers | 5,531 | 5,547 | 3,691 | 3,695 | 2,529 | 2,530 | ||||||||||||||||||||||||||||||||||
Equity shares | 1,293 | 1,513 | 954 | 1,134 | 505 | 509 | ||||||||||||||||||||||||||||||||||
41,050 | 41,484 | 38,535 | 39,344 | 40,773 | 41,486 | |||||||||||||||||||||||||||||||||||
Other securities | ||||||||||||||||||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||||||||||||||||
United Kingdom government | 2,567 | 2,567 | 2,084 | 2,084 | 1,025 | 1,025 | ||||||||||||||||||||||||||||||||||
Other government | 37,438 | 37,438 | 28,011 | 28,011 | 25,385 | 25,385 | ||||||||||||||||||||||||||||||||||
Other public bodies | 8,177 | 8,177 | 4,513 | 4,513 | 2,438 | 2,438 | ||||||||||||||||||||||||||||||||||
Bank and building society certificates of deposit | 7,063 | 7,063 | 5,796 | 5,796 | 12,027 | 12,027 | ||||||||||||||||||||||||||||||||||
Other issuers | 32,426 | 32,426 | 19,408 | 19,408 | 13,086 | 13,086 | ||||||||||||||||||||||||||||||||||
Equity shares | 10,873 | 10,873 | 6,905 | 6,905 | 2,624 | 2,624 | ||||||||||||||||||||||||||||||||||
139,594 | 140,028 | 105,252 | 106,061 | 97,358 | 98,071 | |||||||||||||||||||||||||||||||||||
Investment debt securities include government securities held as part of the Group’s treasury management portfolio for asset and liability, liquidity and regulatory purposes and are for use on a continuing basis in the activities of the Group. In addition, the Group holds as investments listed and unlisted corporate securities. Investment securities are valued at cost, adjusted for the amortisation of premiums or discounts to redemption, less any provision for diminution in value.
Other securities comprise dealing securities which are valued at market value.
Bank and building society certificates of deposit are freely negotiable and have original maturities of up to five years, but are typically held for shorter periods.
A further analysis of the book value and valuation of securities is given in Notes 16 and 17 to the accounts on pages 137 and 138.
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Financial review
Securities
In addition to UK government securities shown above, at 31st December 2004 and 2003 the Group held the following government securities which exceeded 10% of shareholders’ funds.
2004 | 2003 | |||||||||||||||
Book value | Valuation | Book value | Valuation | |||||||||||||
£m | £m | £m | £m | |||||||||||||
United States government securities | 14,334 | 14,349 | 10,155 | 10,203 | ||||||||||||
Japanese government securities | 8,494 | 8,512 | 9,802 | 9,806 | ||||||||||||
Italian government securities | 6,900 | 6,930 | 5,770 | 5,835 | ||||||||||||
German government securities | 6,215 | 6,229 | 4,468 | 4,504 | ||||||||||||
French government securities | 3,035 | 3,035 | 2,674 | 2,697 | ||||||||||||
Spanish government securities | 2,597 | 2,631 | 2,594 | 2,650 | ||||||||||||
Maturities and yield of investment debt securities
Maturing within | Maturing after one but | Maturing after five but | Maturing after | |||||||||||||||||||||||||||||||||||||
one year: | within five years: | within ten years: | ten years: | |||||||||||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | yield | |||||||||||||||||||||||||||||||
£m | % | £m | % | £m | % | £m | % | £m | % | |||||||||||||||||||||||||||||||
Government | 2,271 | 3.1 | 5,660 | 3.5 | 3,609 | 3.9 | 337 | 0.8 | 11,877 | 3.5 | ||||||||||||||||||||||||||||||
Other public bodies | 9 | – | 12 | – | – | – | – | – | 21 | – | ||||||||||||||||||||||||||||||
Other issuers | 9,080 | 3.7 | 13,883 | 2.8 | 670 | 4.4 | 4,226 | 3.7 | 27,859 | 3.3 | ||||||||||||||||||||||||||||||
Total book value | 11,360 | 3.6 | 19,555 | 3.0 | 4,279 | 4.0 | 4,563 | 3.5 | 39,757 | 3.3 | ||||||||||||||||||||||||||||||
Total valuation | 11,379 | 19,660 | 4,346 | 4,586 | 39,971 | |||||||||||||||||||||||||||||||||||
The yield for each range of maturities is calculated by dividing the annualised interest income prevailing at 31st December 2004 by the book value of securities held at that date. Yields on certain US securities, which are exempt from tax, have been calculated using interest income adjusted to reflect a taxable equivalent basis.
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Barclays PLC Annual Report 2004
Financial review
Life Assurance business
Options and Guarantees
Capital position statement
Available capital resources for life business: | £m | |||
Total shareholders’ funds in the life business | 276 | |||
Fund for Future Appropriations (FFA) and other sources of capital | – | |||
Conversion to regulatory basis | 8 | |||
Total available capital resources | 284 | |||
Less: surplus | (154 | ) | ||
Capital resource requirement | 130 | |||
Reconciliation of capital resources: | £m | |||
Shareholder capital available for life business (see above table) | 284 | |||
Shareholders’ funds attributed to other businesses | 17,133 | |||
Total shareholders’ funds (see Note 33 on page 153) | 17,417 | |||
FFA and other capital resources available for life business (see above table) | – | |||
Other capital resources attributable to other businesses | 13,178 | |||
Total other capital resources | 13,178 | |||
Total capital resources | 30,595 | |||
Capital management and constraints on the transfer of capital
During 2003, Barclays restructured its UK retail life assurance businesses. This resulted in the transfer of Barclays Life to Woolwich Life, subsequently renamed Barclays Life, and the establishment of a reinsurance arrangement with Barclays Reinsurance Dublin Limited, a new subsidiary of Barclays Life. Under this arrangement Barclays Reinsurance Dublin Limited raised finance via a contingent loan which was ultimately funded partly by investors external to the Group and partly by the Group.
The capital management objective is to ensure that sufficient capital is in place to meet liabilities as they fall due. This is supported by risk management policies designed to manage key risks to the life business:
• | Credit risk; | |
• | Market risk; | |
• | Liquidity risk; | |
• | Operational risk; and | |
• | Insurance risk. |
In managing risk, management considers the impact of key assumptions. Included in the capital management policies are the requirements to:
• | manage credit risk by adopting prudent parameters as constraints for investment managers and by diversifying reinsurance amongst a selection of well capitalised providers; and | |
• | hold a suitably diversified portfolio of admissible assets of a value sufficient to cover technical provisions and of appropriate currency, term, safety and yield to ensure that cash inflows from those assets will be sufficient to meet expected cash flows from its insurance liabilities as they fall due. |
Although there are a number of factors influencing the capital position of the life business, the key factors include equity risk, inflation risk, mortality shock, and morbidity shock.
Liabilities are sensitive to a downturn in the economy and the investment market, such as increased mortgage protection claims, policy lapses and surrenders at a time when it is difficult to liquidate assets. Barclays has a policy to choose assets to match the nature and the term of the liability and this policy would continue to be applied to any changes in market conditions.
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Financial review
Off Balance Sheet Arrangements
Off Balance Sheet Arrangements
In the ordinary course of business and primarily to facilitate client transactions, the Group enters into off balance sheet arrangements with unconsolidated entities. These arrangements include the provision of guarantees on behalf of the Group’s customers, retained interests in assets which have been transferred to an unconsolidated entity and obligations arising out of variable interests in an unconsolidated entity.
Guarantees
The main types of guarantees provided are financial guarantees given to banks and financial institutions on behalf of customers to secure loans, overdrafts and other banking facilities, including stock borrowing indemnities and standby letters of credit. Other guarantees provided include performance guarantees, advance payment guarantees, tender guarantees, guarantees to Customs and Excise and retention guarantees.
Further details on these guarantees are provided in Note 6152 on page 187.207.
Special purpose entities
These are entities that are set up for a specific purpose and generally would not enter into an operating activity nor have any employees. The most common form of SPE involves the acquisition of financial assets that are funded by the issuance of securities to external investors, which have cash flows different from those of the underlying instruments. The repayment of these securities is determined by the performance of the assets acquired by the SPE. These entities form an integral part of many financial markets, and are important to the development of the European securitisation marketmarkets and functioning of the US commercial paper market.
The consolidation approach to the SPEs is different under UK and US GAAP.
UK GAAP treatment
Accordingly, the substance of any transaction with an SPE forms the basis for the treatment in the Group’s financial statements. When a Group company has transferred assets into an SPE, these assets should only be derecognised when the criteria within Financial Reporting Standard (FRS) 5 (Reporting the substance of transactions) are fully met.
An SPE is consolidated by the Group either if it meets the criteria of FRS 2 (Accounting for subsidiaries), or if the risk and rewards associated with the SPE reside with the Group, such that the substance of the relationship is that of a subsidiary. Financial data relating to entities consolidated on this latter basis is given in Note 5847 on page 157.173.
US GAAP treatment
Voting interest entities are entities in which the total equity investment at risk is sufficient to enable each entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the rights to receive residual returns and the right to make decisions about the entity’s activities. Voting interest entities are consolidated in accordance with ARB 51. ARB 51 states that the usual condition for a controlling financial interest in an entity is ownership of a majority voting interest.
As defined in FIN 46FASB interpretation (FIN) 46-R (Consolidation of Variable Interest Entities), VIEs are entities which lack one or more of the characteristics of a voting interest entity described above.below. FIN 4646-R states that a controlling financial interest in an entity is present where an enterprise has a variable interest, or a combination of variable interests, that will absorb the majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. The enterprise with a controlling financial interest is the primary beneficiary under FIN 46.46-R. Accordingly, the Group consolidates all VIEs in which it is the primary beneficiary, subject to the transitional requirements of FIN 46, as described in Note 61.52.
Voting interest entities are entities in which the total equity investment at risk is sufficient to enable each entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the rights to receive residual returns and the right to make decisions about the entity’s activities. Voting interest entities are evaluated for consolidation in accordance with Accounting Research Bulletin (ARB) 51. ARB 51 states that the usual condition for a controlling financial interest in an entity is ownership of a majority voting interest.
In accordance with SFAS 140 (Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities), the Group does not consolidate QSPEs. QSPEs are passive entities that hold financial assets transferred to them by the Group and are commonly used in mortgage and other securitisation transactions.
Prior to the adoption of FIN 46, the Group consolidated all non-qualifying SPEs if the Group controlled the SPE and held a majority of the SPE’s substantive risks and rewards.
The Group, in the ordinary course of business, and primarily to facilitate client transactions, has helped establish SPEs in various areas which are described below, along with their UK and US GAAP treatment:
Commercial paper conduits
Further details of these transactions are provided in Note 6152 on pages 183202 and 184.
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Credit structuring business
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Barclays PLC Annual Report 2004
often using credit derivative contracts. The assets are funded by issuing securities with varying terms. In accordance with UK GAAP, the Group does not recognise the assets and liabilities of these entities in its balance sheet once the securities that represent substantially all the risks and rewards associated with the SPE have been sold to third parties. Otherwise these are recognised in full. Under UK GAAP, as at 31st December 2003,2004, the Group had recognisedconsolidated gross assets of £2,793m (2002: £3,493m)£2,024m (2003: £2,793m) in respect of these transactions. The Group’s net income for 20032004 included a £38man £8m profit (2002: loss of £3m)(2003: £38m) generated by the relationship with these entities. Under US GAAP, as at 31st December 2003,2004, the Group had recognisedconsolidated gross assets of £2,750m (2002: £3,464m)£2,343m (2003: £2,877m). The summarised results of these entities under UK GAAP are given in Note 5847 on page 157.173.
Asset securitisations
Under UK GAAP, the SPEs are consolidated as quasi-subsidiaries where the Group has the risks and rewards of the transaction. Under UK GAAP, as at 31st December 2003,2004, gross assets of £4,716m (2002: £1,548m)£7,168m (2003: £6,717m) were recognised.consolidated. Where junior notes and certain derivative contracts are provided by the Group, the Group may be the primary beneficiary under FIN 4646-R and would be required to consolidate these.these SPEs. Under US GAAP, as at 31st December 2003,2004, the Group had recognisedconsolidated gross assets of £5,344m (2002: £1,548m)£3,925m (2003: £7,178m) in respect of these transactions.transactions in which the Group is determined to be the primary beneficiary. Certain of the entities used are QSPEs in accordance with SFAS 140 and, where this is the case, the securitised assets are deemed to have been sold.sold and consolidation of the QSPE is not required. This results in the derecognition of assets of £2,350m£7,660m as at 31st December 2003 (2002: £nil)2004 (2003: £2,350m).
Further details are included in Notes 1514 and 5847 on pages 122133 and 157.173.
Asset realisations
Client intermediation
Client intermediation also includes arrangements to fund the purchase or construction of specific assets (most common in the property industry).
Under UK GAAP, whereWhere the Group has the riskrisks and rewards, the SPEs are consolidated either as quasi-subsidiaries under UK GAAP or as VIEs under US GAAP, with assets of £5,740m£216m as at 31st December 2003 (2002: £2,005m)2004 (2003: £5,740m). UnderCertain entities that are consolidated in accordance with FRS 2 under UK GAAP are deconsolidated under US GAAP where the Group is not the primary beneficiary. The impact on the Group’s total assets is a reduction of £5,697m were consolidated as at 31st December 2003 (2002: £1,906m)£2,699m (2003: £43m).
Fund management
In addition, there are various partnerships, funds and open-ended investment companies that are used by a limited number of independent third parties to facilitate their tailored private equity, debt securities or hedge fund investment strategies. These entities have assets under management of £290m (2002: £653m)£284m (2003: £290m). The Group has acquired interests in these entities, which are included within debt securities or equity shares, but the entities are not consolidated under UK or US GAAP because the Group does not own either a significant portion of the equity, or the risks and rewards inherent in the assets. Some £32m (2002: £9m)£4m (2003: £2m) of net income relates to transactions with these entities.
The gross assets of the SPEs described above, which would require consolidation before the impact of intercompany eliminations under UK and US GAAP, are included in the table below.
2004 | 2003 | |||||||||||||||
Assets | Assets | Assets | Assets | |||||||||||||
consolidated | consolidated | consolidated | consolidated | |||||||||||||
under UK GAAP | under US GAAP | under UK GAAP | under US GAAP | |||||||||||||
£m | £m | £m | £m | |||||||||||||
Commercial paper conduits | 68 | 12,404 | 192 | 12,650 | ||||||||||||
Credit structuring | 2,024 | 2,343 | 2,793 | 2,877 | ||||||||||||
Asset securitisations | 7,168 | 3,925 | 6,717 | 7,178 | ||||||||||||
Asset realisations | – | 68 | – | – | ||||||||||||
Client intermediation(a) | 216 | 216 | 5,740 | 5,740 | ||||||||||||
(a) | Certain entities which are consolidated in accordance with FRS 2 under UK GAAP are deconsolidated under US GAAP where the Group is not the primary beneficiary. The impact on the Group’s total assets is a reduction of £2,699m (2003: £43m). |
Further disclosure of the Group’s involvement with entities of this and similar nature under US GAAP are given in Note 6152 on pages 183202 and 184.203.
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Barclays PLC Annual Report 2003 95
Other InformationEconomic and Monetary Union, International Financial Reporting Standardsand Supervision and Regulation
Economic and Monetary Union
Barclays is maintaining a prudent programme to validate and develop further its existing plans relating to the potential membership of European Monetary Union by the UK, and to conduct feasibility studies with selected suppliers and partners.
Barclays continues to take an active role via the British Bankers’ Association and other groups in industry-wide discussions, and maintains a dialogue with the regulatory community on UK Entry issues. It is also contributing to the further development of the Managed Transition Plan being authored by HM Treasury.
Given the considerable uncertainty that continues to surround whether and when the UK may enter, it has not been possible to draw any definitive conclusions as to the final overall cost of preparing the Group’s systems and operations.
Barclays incurred minimal expenditure during 2003 with respect to any decision to introduce the euro in the UK.
International Financial Reporting Standards
By Regulation, the EU has agreed that virtually all listed companies must use International Financial Reporting Standards (IFRS) adopted for use in the EU in the preparation of their 2005 consolidated accounts. Barclays will have to comply with this Regulation. The objective is to improve financial reporting and enhance transparency to assist the free flow of capital throughout the EU and to improve the efficiency of the capital markets. Details of the Barclays implementation programme are discussed on pages 105 to 106.
Supervision and Regulation
UKThe Financial Services Authority (FSA) is the independent body responsible for regulating financial services in the UK. The FSA was established by the Government and it exercises statutory powers under the Financial Services & Markets Act 2000 (FSMA). Since 1st December 2001, the FSA is the single statutory regulator responsible for the regulation of deposit taking, life insurance and investment business.
In December 2001, HM Treasury announced that the powers of the FSA would be extended to include the regulation of mortgages and general insurance. There are two implementation dates, known as N(M&GI). From 31st October 2004 the FSA will regulate mortgage lending, sales and administration. From 14th January 2005, the FSA will regulate the sale and administration of general insurance contracts.
Under the FSMA 2000, the FSA is required to pursue four statutory objectives to:
Whilst carrying out these objectives, the FSA is also required to take into account a number of factors (‘principles of good regulation’) including:
The FSA Handbook contains the rules and regulatory guidance applicable to the UK financial services industry. The Handbook consists of sourcebooks providing the basis of FSA requirements, guidance and processes to be followed. Since its first introduction, the Handbook has undergone revision and updating. New sourcebooks are being added to the Handbook to provide the rules for the regulation of mortgages and general insurance.
In its role as supervisor, the FSA is seeking to ensure the safety and soundness of financial institutions (in fulfilment of the first and third objectives above) with the aim of strengthening, but not guaranteeing, the protection of customers.
Barclays Bank PLC is authorised by the FSA to carry on regulated activities within the UK and is subject to consolidated supervision. The FSA’s continuing supervision of financial institutions authorised by it is conducted through a variety of regulatory tools, including the collection of information from statistical and prudential returns, reports obtained from skilled persons, visits to firms and regular meetings with management to discuss issues such as performance, risk management and strategy.
Under the FSA’s risk-based approach to supervision, the starting point for the FSA’s supervision of all financial institutions is based on a systematic analysis of the risk profile for each authorised firm. The FSA has adopted a homogeneous risk, processes and resourcing model in its approach to its supervisory responsibilities (known as the ARROW model) and the results of the risk assessment will be used by the FSA to develop a risk mitigation programme for a firm. The FSA also promulgates requirements that banks and other financial institutions are required to meet on matters such as capital adequacy (see Capital Resources on page 88), limits on large exposures to individual entities and groups of closely connected entities, and liquidity.
Banks, insurance companies and other financial institutions in the UK are subject to a single financial services compensation scheme (the Financial Services Compensation Scheme) where an authorised firm is unable or is likely to be unable to meet claims made against it due to its financial circumstances. This single scheme replaces a number of pre-FSA schemes, including the Deposit Protection Scheme, the Investors Compensation Scheme and the Policyholders Protection Scheme.
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Other InformationSupervision and Regulation
Eligible claimants under the Financial Services Compensation Scheme may make claims against the Scheme in the event of an authorised firm’s default and may receive compensation if their claim is a protected claim. Different levels of compensation are available to eligible claimants depending upon whether the protected claim is in relation to a deposit, a contract of insurance or protected investment business. The manager of the Scheme is able to make an offer of compensation or, in respect of insurance contracts, offer to continue cover or provide assistance to an insurance undertaking to allow it to continue insurance business in accordance with the rules of the Scheme. Most deposits made with branches of Barclays Bank PLC within the European Economic Area (EEA) which are denominated in sterling or other EEA currencies (including the euro) are covered by the Scheme. Most claims made in respect of designated investment business will also be protected claims if the business was carried on from the UK or from a branch of the bank or investment firm in another EEA member state. The Scheme establishes the maximum amounts of compensation payable in respect of protected claims: for eligible protected deposit claims, this is £31,700 (100% of the first £2,000 and 90% of the next £33,000) and for protected investment business, this is £48,000 (100% of the first £30,000 and 90% of the next £20,000). There is no maximum limit for protected insurance claims. The first £2,000 of a valid claim is paid in full together with 90% of the remaining loss.
The UK has implemented the minimum requirements imposed by the European Community Directives on such matters as the carrying on the business of credit institutions and investment firms, capital adequacy, own funds and large exposures. These form part of the European Single Market programme, an important feature of which is the framework for the regulation of authorised firms. This framework is designed to enable a credit institution or investment firm authorised in one European Union member state to conduct banking or investment business through the establishment of branches or by the provision of services on a cross-border basis in other member states without the need for local authorisation. Many of these Directives are being amended to reflect changes in the market and further European Community Directives are planned including in the areas of distance marketing, market abuse and insurance regulation are to be implemented, which once in effect, will further shape and influence the UK regulatory agenda.
With effect from February 2003, the Group became subject to The Proceeds of Crime Act 2002 which further strengthens the law with regard to anti-money laundering. Additionally, new Money Laundering Regulations came into effect on 1st March 2004. These replace the 1993 Regulations and will be supported by the recently revised Joint Money Laundering Steering Group Guidance Notes.
Formal consultation is a key aspect of the UK Government’s reform programme and the Group has been reviewing and, where relevant, commenting on proposals both directly and through industry associations.
The Basel Committee on Banking Supervision and the European Commission have also issued consultation papers designed to replace the existing framework for the allocation of regulatory capital for credit risk and to introduce a capital adequacy requirement for operational risk. These bodies recognise that a more sophisticated approach is required to address both financial innovation and the increasingly complex risks faced by financial institutions. The revised Basel Capital Accord and the EU Risk Based Capital Directive are not currently expected to be implemented until the end of 2006.
Rest of the WorldIn the United States, Barclays PLC, Barclays Bank PLC and certain US subsidiary undertakings, branches and agencies of the Bank are subject to a comprehensive regulatory structure, involving numerous statutes, rules and regulations, including the International Banking Act of 1978, the Bank Holding Company Act of 1956, as amended, the Foreign Bank Supervision Enhancement Act of 1991 and the USA PATRIOT Act of 2001. Such laws and regulations impose limitations on the types of businesses, and the ways in which they may be conducted, in the United States and on the location and expansion of banking business there. The securities and investment management activities conducted in the United States are also subject to a comprehensive scheme of regulation under the US federal securities laws, as enforced by the Securities and Exchange Commission.
Barclays operates in many other countries and its overseas offices subsidiary and associated undertakings are subject to reserve and reporting requirements and controls imposed by the relevant central banks and regulatory authorities.
Barclays PLC Annual Report 2003 97
Other InformationRisk Factors
Risk Factors
This document contains certain forward-looking statements within the meaning of section 21E of the US Securities Exchange Act of 1934, as amended and section 27A of the US Securities Act of 1933, as amended, with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition and performance.
The Group may also make forward-looking statements in other written materials, including other documents filed with or furnished to the SEC. In addition, the Group’s senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. In particular, among other statements, certain statements in the Financial Review and Business Description with regard to management objectives, trends in results of operations, margins, costs, return on equity, risk management, and competition are forward looking in nature. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as ‘anticipate,’ ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, or other words of similar meaning.
By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. The Group’s actual future results may differ materially from those set out in the Group’s forward-looking statements. There are many factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made. Barclays does not undertake to update forward-looking statements to reflect any changes in the Group’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures Barclays may make in documents it files with the SEC.
The following discussion sets forth certain risk factors that the Group believes could cause its actual future results to differ materially from expected results. The discussion also acknowledges a risk factor specific to the Group’s ability to achieve its primary goal for 2004 to 2007 inclusive. The reader should also note the references to liquidity risk (page 54) and non-financial, compliance, legal and tax risk (page 58). However, other factors could also adversely affect the Group results and the reader should not consider the factors discussed in this report to be a complete set of all potential risks and uncertainties.
Business conditions and general economyThe profitability of Barclays businesses could be adversely affected by a worsening of general economic conditions in the United Kingdom or abroad. Factors such as the liquidity of the global financial markets, the level and volatility of equity prices and interest rates, investor sentiment, inflation, and the availability and cost of credit could significantly affect the activity level of customers. A market downturn would likely lead to a decline in the volume of transactions that Barclays executes for its customers and, therefore, lead to a decline in the income it receives from fees and commissions.
A market downturn or worsening of the economy could cause the Group to incur mark to market losses in its trading portfolios. A market downturn also could potentially result in a decline in the fees Barclays earns for managing assets. For example, a higher level of domestic or foreign interest rates or a downturn in trading markets could affect the flows of assets under management. An economic downturn or significantly higher interest rates could adversely affect the credit quality of Barclays on balance sheet and off balance sheet assets by increasing the risk that a greater number of the Group’s customers would be unable to meet their obligations.
Credit riskThe Group’s provisions for credit losses provide for losses inherent in loans and advances. Estimating potential losses is inherently uncertain and depends on many factors, including general economic conditions, rating migration, structural changes within industries that alter competitive positions, and other external factors such as legal and regulatory requirements.
Market risksThe most significant market risks the Group faces are interest rate, foreign exchange and bond and equity price risks. Changes in interest rate levels, yield curves and spreads may affect the interest rate margin realised between lending and borrowing costs. Changes in currency rates, particularly in the sterling-dollar and sterling-euro exchange rates, affect the value of assets and liabilities denominated in foreign currencies and affect earnings reported by the Group’s non-UK subsidiaries and may affect revenues from foreign exchange dealing. The performance of financial markets may cause changes in the value of the Group’s investment and trading portfolios and in the amount of revenues generated from assets under management. The Group has implemented risk management methods to mitigate and control these and other market risks to which the Group is exposed. However, it is difficult to predict with accuracy changes in economic or market conditions and to anticipate the effects that such changes could have on the Group’s financial performance and business operations. In addition, the value of assets held in the Group’s pension and long-term assurance funds are also affected by the performance.
Non-financial risksThe Group’s businesses are dependent on the ability to process a large number of transactions efficiently and accurately. Non-financial risk and losses can result from fraud, errors by employees, failure to properly document transactions or to obtain proper internal authorisation, failure to comply with regulatory requirements and Conduct of Business rules, equipment failures, natural disasters or the failure of external systems, for example, the Group’s suppliers or counterparties. Although the Group has implemented risk controls and loss mitigation actions, and substantial resources are devoted to developing efficient procedures and to staff training, it is only possible to be reasonably, but not absolutely, certain that such procedures will be effective in controlling each of the non-financial risks faced by the Group.
98
Changes in governmental policy and regulationThe Group’s businesses and earnings can be affected by the fiscal or other policies that are adopted by various regulatory authoritiesUS Audit Report of the UK, other European Union, foreign governments and international agencies. The nature and impact of future changes in such policies are not predictable and are beyond the Group’s control. Areas where changes could have an impact include, inter alia:
Impact of strategic decisions taken by the GroupThe Group devotes substantial management and planning resources to the development of strategic plans for organic growth and identification of possible acquisitions, supported by substantial expenditure to generate growth in customer business. If these strategic plans do not meet with success, the Group’s earnings could grow more slowly or decline.
CompetitionThe UK and global financial services market remains highly competitive and innovative competition comes both from incumbent players and a steady stream of new market entrants. The landscape is expected to remain highly competitive in all the Group’s businesses, which could adversely affect the Group’s profitability.
Impact of external factors on the Group and peer groupThe Group’s primary performance goal is to achieve top quartile TSR performance for 2004 to 2007 inclusive against a group of peer financial institutions. This goal assumes that external factors will impact all peer group entities equally. The Group’s ability to achieve the goal will be significantly impacted if the Group is disproportionately impacted by negative external factors. Even if the Group performs well, if others perform better or the market believes others have performed better, we may not achieve our goal.
Barclays PLC Annual Report 2003 99
Auditors’ Report
US audit report of the independent auditorsIndependent Registered Public Accounting Firm to the Board of Directors and shareholdersShareholders of Barclays PLC and Barclays Bank PLC
We conducted our audits in accordance with auditingthe standards generally accepted inof the United States of America.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barclays PLC and its subsidiary undertakings and Barclays Bank PLC and its subsidiary undertakings at 31st December 20032004 and 2002,2003, and the results of their operations and their cash flows for each of the three years in the period ended 31st December 20032004 in conformityaccordance with accounting principles generally accepted in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relatingThe application of the latter would have affected the determination of consolidated net income for each of the three years in the period ended 31st December 2004 and the determination of consolidated shareholder’s equity at 31st December 2004 and 2003 to the nature and effect of such differences is presentedextent summarised in Note 6152 to the consolidated financial statements.
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109
Consolidated Accountsaccounts Barclays PLCAccounting Policies
Accounting Policiessignificant accounting policiesSignificant Accounting Policies
(a) Accounting convention
The SORP issued by the Association of British Insurers (ABI) addresses the accounting and disclosure of insurance business for insurance undertakings. Barclays is primarily a banking group, not an insurance group, and prepares accounts in accordance with Schedule 9 of the Companies Act.Act 1985. The ABI SORP does not specifically address the accounting for long-term assurance business in this context. In line with other such banking groups, Barclays uses the embedded value method to measure the shareholders’ interest in its long-term assurance business, which is consistent with the alternative measurement method described in guidance issued by the ABI ‘Supplementary Reporting for Long-Term Insurance Business’ and is considered more relevant than the modified statutory solvency basis for describing the financial position and current performance of the business.
Changes to the accounting policies described in the 20022003 Annual Report are set out on page 105.115.
(b) Consolidation and format
The consolidated accounts include the accounts of Barclays PLC and its subsidiary undertakings made up to 31st December. Entities that do not qualify as subsidiaries but which give rise to benefits that are, in substance, no different from those that would arise were the entity a subsidiary, are included in the consolidated accounts. Details of the principal subsidiary undertakings are given in Note 43.50. In order to reflect the different nature of the shareholders’ and policyholders’ interests in the retail long-term assurance business, the value of the long-term assurance business attributable to shareholders is included in Other Assets and the assets and liabilities attributable to policyholders are classified under separate headings in the consolidated balance sheet.
As the consolidated accounts include partnerships where a Group member is a partner, advantage has been taken of the exemption given by Regulation 7 of the Partnerships and Unlimited Companies (Accounts) Regulations 1993 with regard to the preparation and filing of individual partnership accounts.
Equity minority interests in the balance sheet represent the interests of third parties in the equity shares of the Group subsidiary undertakings.
(c) Shares in subsidiary undertakings
(d) Interests in associated undertakings and joint ventures
In the ordinary course of the private equity business the Group makes investments that might be classified as joint ventures. As required by FRS 9 ‘Associates and Joint Ventures’, these investments are accounted for at cost, less any provision for impairment. This is a departure from the requirements of the Companies Act 1985 which requires joint ventures to be accounted for using the equity method of accounting. The Directors believe that this departure is necessary to present a true and fair view of these investments. Accounting for these investments in accordance with the Companies Act would increase ‘Interests in joint ventures – share of gross assets’ by £281m, ‘Interests in joint ventures – share of gross liabilities’ by £149m and ‘Loss from joint ventures’ by £1m.
(e) Goodwill
In accordance with Financial Reporting Standard (FRS) 10, goodwill is capitalised as an intangible asset and amortised through the profit and loss account over its expected useful economic life. For acquisitions prior to 1st January 1998, the Group accounting policy had been to write offwrite-off goodwill directly to reserves. The transitional arrangements of FRS 10 allow this goodwill to remain eliminated. In the event of a subsequent disposal, any goodwill previously charged directly against reserves prior to FRS 10 will be written back and reflected in the profit and loss account.
The useful economic life of the goodwill is determined at the time of the acquisition giving rise to it by considering the nature of the acquired business, the economic environment in which it operates and period of time over which the value of the business is expected to exceed the values of the identifiable net assets. For acquisitions in less mature economic environments, goodwill is generally considered to have a useful economic life of five years. For all other acquisitions, goodwill is generally expected to have a useful economic life of 20 years. In all cases, goodwill is amortised over its useful economic life and is subject to regular review as set out in policy (k).
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For the purpose of calculating goodwill, fair values of acquired assets and liabilities are determined by reference to market values, where available, or by reference to the current price at which similar assets could be acquired or similar obligations entered into, or by discounting expected future cash flows to present value. This discounting is either performed using market rates or by using risk-free rates and risk-adjusted expected future cash flows.
(f) Foreign currencies
(g) Shareholders’ interest in the retail long-term assurance fund
Barclays PLC Annual Report 2003 101
Consolidated Accounts Barclays PLCAccounting Policies
profits inherent in the in-force policies, based on the advice of qualified actuaries, together with the surplus retained within the long-term assurance funds. This value is calculated after tax. Changes in the value placed on the long-term assurance business attributable to shareholders are included in the profit and loss account.
For the purpose of presentation, the change in value is grossed up at the effective rate of corporation tax.
In estimating the net present value of the profits inherent in the in-force policies, the calculations use assumedassumptions for economic parameters (future investment returns, expense inflation and risk discount rate), taxation, mortality, persistency, expenses and the required levels of regulatory and solvency capital. Each of these assumptions is reviewed annually. The returns on fixed interest investments are set to market yields at the period end. The returns on UK and overseas equities and property are set to fixed interest returns plus a margin to reflect the additional return expected on each of these investments. The calculations are based on the market value of assets at the period end. The expense inflation assumption is based on long-term expectations of both earnings and retail price inflation. The risk discount rate is set to market yields on Government securities plus a margin to allow for the risks borne. The mortality, persistency and expense assumptions are chosen to represent best estimates of future experience and are based on current business experience. No credit is taken for favourable changes in experience unless it is reasonably certain to be delivered. The projected tax charges and the required levels of regulatory and solvency capital are based on current legislation.
(h) Revenue recognition
Fee income relating to loans and advances is recognised in the profit and loss account to match the cost of providing a continuing service, together with a reasonable profit margin. Where a fee is charged in lieu of interest, it is recognised in the profit and loss account as interest receivable on a level yield basis over the life of the advance. Fees and commissions receivable in respect of all other services provided are recognised in the profit and loss account when the related services are performed and when considered recoverable.
Income arises from the margins which are achieved through market-making and customer business and from changes in market value caused by movements in interest and exchange rates, equity prices and other market variables. Trading positions are valued on a mark to market basis. The resulting income is included in dealing profits along with interest and dividends arising from long and short positions and funding costs relating to trading activities.
(i) Lending related fees and commissions payable and incentives
The costs of mortgage incentives, which comprise cashbacks and interest discounts, are charged to the profit and loss account as a reduction to interest receivable as incurred.
The amount of a fee payable by a borrower representing an insurance premium, in respect of high loan to value UK residential secured loans is deferred and included in accruals and deferred income in the Group balance sheet. Following regular reviews of the amount of deferred
income required to cover anticipated losses in respect of this lending, deferredDeferred income is released to the profit and loss account on an annual basis.over the average life of the loan.
(j) DepreciationTangible fixed assets
Tangible fixed assets are depreciated on a straight-line basis over their useful economic lives at the following annual rates:
Freehold buildings and long-leasehold property | ||||
(more than 50 years to run) | 2 | % | ||
Leasehold property | over the remaining | |||
(less than 50 years to run) | life of the lease | |||
Costs of adaptation of freehold and leasehold property(a) | 10 | % | ||
Equipment installed in freehold and leasehold property(a) | 10 | % | ||
Computers and similar equipment | 20%-33 | % | ||
Fixtures and fittings and other equipment | 20 | % | ||
(a) | Where a leasehold has a remaining useful life of less than |
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Consolidated accounts Barclays PLC
Accounting policies
The Group selects its depreciation rates carefully and reviews them regularly to take account of any changes in circumstances. When setting useful economic lives, the principal factors the Group takes into account are the expected rate of technological developments, expected market requirements for the equipment and the intensity at which the assets are expected to be used.
No depreciation is provided on freehold land.
(k) Impairment
(l) Loans and advancesAdvances
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Specific provisions are raised when the Group considers that the creditworthiness of a borrower has deteriorated such that the recovery of the whole or part of an outstanding advance is in serious doubt. Typically,For larger accounts, this is done on an individual basis, by taking into account relevant considerations that have a bearing on expected cashflows, although scope exists within the retail businesses, where the portfolio comprises homogeneous assets and where statistical techniques are appropriate, to raise specific provisions on a portfolio basis.
General provisions are raised to cover losses which are judged to be present in loans and advances at the balance sheet date, but which have not been specifically identified as such. These provisions are adjusted at least half yearly by an appropriate charge or release of general provision based on a statistical analysis. The accuracy of this analysis is periodically assessed against actual losses.
The aggregate specific and general provisions which are made during the year, less amounts released and recoveries of bad debts previously written off, are charged against operating profit and are deducted from loans and advances. Impaired lendings are written off against the balance sheet asset and provision in part, or in whole, when the extent of the loss incurred has been confirmed.
If the collection of interest is doubtful, it is credited to a suspense account and excluded from interest income in the profit and loss account. Althoughaccount, although it continues to be charged to the customers’ accounts, theaccounts. The suspense account in the balance sheet is netted against the relevant loan. If the collection of interest is considered to be remote, interest is no longer applied and suspended interest is written off. Loans on which interest is suspended are not reclassified as accruing interest until interest and principal payments are up to date and future payments are reasonably assured.
Assets acquired in exchange for advances in order to achieve an orderly realisation continue to be reported as advances. The asset acquired is recorded at the carrying value of the original advance updated as at the date of the exchange. Any subsequent impairment is accounted for as a specific provision.
(m) Debt securitiesSecurities and equity sharesEquity Shares
Other debt securities and equity shares are stated at market value and profits and losses arising from this revaluation are taken directly to the profit and loss account through dealing profits. Listed securities are valued based on market prices, with long positions at bid and short
positions at offer price. Unlisted securities are valued based on the Directors’ estimate, which takes into consideration discounted cash flows, price earnings ratios and other valuation techniques.
In the case of private equity investments, listed and unlisted investments are stated at cost less any provision for impairment.
Investment and other securities may be lent or sold subject to a commitment to repurchase them. Securities lent or sold are retained on the balance sheet where substantially all the risks and rewards of
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ownership remain with the Group. Similarly, securities purchased subject to a commitment to resell are treated as collateralised lending transactions where the Group does not acquire the risks and rewards of ownership.
(n) Pensions and other post-retirement benefitsOther Post-retirement Benefits
(o) Finance leasesLeases
(p) Deferred taxTax
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Consolidated Accounts Barclays PLCAccounting Policies
Deferred tax is not provided on the unremitted
earnings of subsidiary undertakings, joint ventures and associated undertakings except to the extent that dividends have been accrued or a binding agreement to distribute past earnings in the future has been entered into.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is not discounted.
(q) Non-credit risk provisionsRisk Provisions
When a leasehold property ceases to be used in the business, provision is made where the unavoidable costs of the future obligations relating to the lease are expected to exceed anticipated income. The provision is discounted using market rates to reflect the long-term nature of the cash flows.
When the Group has a detailed formal plan for restructuring a business and has raised valid expectations in those affected by the restructuring by starting to implement the plan or announcing its main features, provision is made for the anticipated cost of the restructuring, including redundancy costs. The provision raised is normally utilised within 12 months.
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised but are disclosed unless they are remote.
(r) Derivatives
Derivatives used for asset and liability management purposes
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Consolidated accounts Barclays PLC
Accounting policies
(i) the transaction must be reasonably expected to match or eliminate a significant proportion of the risk inherent in the assets, liabilities, other positions or cash flows being hedged and which results from potential movements in market rates and credit risk; and
(ii) adequate evidence of the intention to hedge and linkage with the underlying risk inherent in the assets, liabilities, other positions or cash flows being hedged, must be established at the outset of the transaction.
Designated hedges are reviewed for effectiveness by regular tests to determine that the hedge is closely negatively correlated to the designated hedged position in each and every identified time band in the maturity profile.
Profits and losses on interest rate swaps and options entered into for hedging purposes are measured on an accrual accounting basis, included in the related category of income and expense and reported as part of the yield on the hedged transaction. Amounts paid or received over the life of futures contracts are deferred until the contract is closed; accumulated deferred amounts on futures contracts and settlement amounts paid or received on forward contracts are accounted for as elements of the carrying value of the associated instrument, affecting the resulting yield.
A premium paid or received in respect of a credit derivative hedging an asset or liability is amortised over the life of the protection purchased or sold against either interest payable or interest receivable. Where a credit event occurs which triggers a recovery under the credit derivative, then the recovery will be offset against the profit and loss charge on the underlying asset or liability.
Foreign exchange contracts which qualify as hedges of foreign currency exposures, including positions relating to investments the Group makes outside the UK, are retranslated at the closing rate with any forward premium or discount recognised over the life of the contract in net interest income.
Profits and losses related to qualifying hedges, including foreign exchange contracts, of firm commitments and probable anticipated transactions are deferred and recognised in income or as adjustments to carrying amounts when the hedged transactions occur.
Hedging transactions that are superseded or cease to be effective are measured at fair value. Any profit or loss on these transactions, together with any profit or loss arising on hedging transactions that are terminated prior to the end of the life of the asset, are deferred and amortised into interest income or expense over the remaining life of the item previously being hedged.
When the underlying asset, liability position or cash flow is terminated prior to the hedging transaction, or an anticipated transaction is no longer likely to occur, the hedging transaction is measured on the fair value accounting basis, as described in the section on derivatives used for trading purposes below, prior to being transferred to the trading portfolio. The profit or loss arising from the fair value measurement prior to the transfer to the trading portfolio is included in the category of income or expense relating to the previously hedged transaction.
Derivatives used for trading purposes
The fair value of derivatives is determined by calculating the expected cash flows under the terms of each specific contract, discounted back to a present value. The expected cash flows for each contract are
104
determined either directly by reference to actual cash flows implicit in observable market prices or through modelling cash flows using appropriate financial-markets pricing models.
The effect of discounting expected cash flows back to present value is achieved by constructing discount curves derived from the market price of the most appropriate observable interest rate products such as deposits, interest rate futures and swaps. In addition, the Group maintains fair value adjustments reflecting the cost of credit risk (where this is not embedded in the fair value), hedging costs not captured in pricing models, future administration costs associated with ongoing operational support of products as well as adjustments to reflect the cost of exiting illiquid or other significant positions.
(s) Collateral and nettingNetting
Where the amounts owed by both the Group and the counterparty are determinable and in freely convertible currencies, and where the Group has the ability to insist on net settlement which is assured beyond doubt, and is based on a legal right under the netting agreement that would survive the insolvency of the counterparty, transactions with positive fair values are netted against transactions with negative fair values.
The Group obtains collateral in respect of customer liabilities where this is considered appropriate. The collateral normally takes the form of a lien over the customer’s assets and gives the Group a claim on these assets for both existing and future liabilities.
The Group also receives collateral in the form of cash or securities in respect of other credit instruments, such as stock borrowing contracts, and derivative contracts in order to reduce credit risk. Collateral received in the form of securities is not recorded on the balance sheet. Collateral received in the form of cash is recorded on the balance sheet with a corresponding liability or asset. These items are assigned to deposits received from bank or other counterparties in the case of cash collateral received, and to loans and advances to banks or customers in the case of cash collateral paid away. Any interest payable or receivable arising is recorded as interest payable or interest income respectively.
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(t) Credit related instrumentsRelated Instruments
(u) Sale and repurchase agreementsRepurchase Agreements (including stock borrowingStock Borrowing and lending)Lending)
customers, deposits by banks and customer accounts. The Group aims to earn net interest income and dealing profits from these activities, as well as funding its own holdings of securities. The difference between sale and repurchase and purchase and resale prices for such transactions, including dividends received where appropriate, is charged or credited to the profit and loss account over the life of the relevant transactions.
(v) Securitisation transactionsTransactions
(w) Capital instrumentsInstruments
Loan capital in issue is stated at the net issue proceeds adjusted for amortisation of premiums, discounts and expenses related to their issue. Amortisation is calculated in order to achieve a constant yield across the life of the instrument.
(x) Internally developed softwareDeveloped Software
Changes in Accounting Policy
There have been no other significant changes to the accounting policies as described in the 2002 Annual Report.
Future UK accounting developmentsThe Group is currently considering the implications of UITF Abstract 38, ‘Accounting for ESOP trusts’, which was issued in December 2003. UITF Abstract 38 requires shares held in ESOP trusts to be accounted for as a deduction in arriving at shareholders’ funds, rather than as assets. The charge tobalance sheet for December 2003 has been restated accordingly, and other assets and shareholders’ funds have been reduced by £153m at 31st December 2004 (2003: £99m, 2002: £55m). There was no impact on the 2003 or 2004 profit and loss accountaccount.
There have been no other significant changes to the accounting policies as described in respectthe 2003 Annual Report.
Future UK Accounting Developments
Conversion toits convergence programme between UK GAAP and International Financial Reporting Standards (IFRS). These new UK standards, which are not effective until 2005, will not impact the Group, because of the conversion to IFRS in 2005, as discussed below.
In December 2004 the ASB issued FRS 27 ‘Life Assurance’. Following feedback received in response to the exposure draft issued in July 2004, the ASB has deferred implementation of the standard until 2005. However, in line with the Memorandum of Understanding entered into by the ASB, together with the Association of British Insurers and major insurers and bancassurers, Barclays is making additional voluntary disclosure in respect of its life assurance business on page 105.
International Financial Reporting Standards
Although existing UK requirements are similar in many ways to IFRSs, there are key differences. The final text for many of the standards was
Barclays PLC Annual Report 2003 105
Consolidated Accounts Barclays PLCAccounting Policies
finalised late in 2003, with one key standard, ‘Financial Instruments: Recognition and Measurement’ (IAS 39), expected to be substantially completed by the end of March 2004. This standard and ‘Financial Instruments: Disclosure and Presentation’ (IAS 32) are expected to have significant impact on the reported results. Other standards, particularly ‘Employee Benefits’ (IAS 19) and proposals for accounting for share based payments and goodwill are also expected to have significant impact.
The Group commenced a programme of work in 2002, initially identifying the differences between IFRS and existing UK standards based on the requirements then in force. This led to a programme of work led centrally, but involving all the business unitsbusinesses and functions, to change systems and processes and to provide training so as to ensure that the Group can meet the requirements fully in 2005. In addition, the programme is assisting the business unitsbusinesses and functions to consider and address the wider business impact of the change in reporting in the EU. This work is advancing to plan. The main risksnearing completion. Conversion work, including reviewing the accuracy of the opening balances, will continue during 2005.
115
Consolidated accounts Barclays PLC
Accounting policies
Barclays held briefings and issued a presentation in December 2004 that set out the main impacts of the conversion to IFRS and explained the policy choices that the Group had made.
The main impacts of the standards, as described in the briefings, are:
• | Hedge accounting (IAS 39) – as permitted by the EU, the hedge accounting requirements of IAS 39 will be applied in full. Both cash flow hedge accounting and micro fair value hedge accounting will be used resulting in all hedging derivatives being carried at fair value, equity volatility with respect to cash flow hedge accounting and any hedge ineffectiveness being reflected immediately in income. | |
• | Classification of instruments (IAS 39) – UK GAAP requires the separate classification of financial assets between banking book and trading book. Under IFRS, financial assets will be classified as: held to maturity; loans and receivables (carried at amortised cost less impairment); held for trading and fair valued through income; or available for sale and fair valued through equity. Financial liabilities held for trading will be fair valued through income. The fair value option is not currently available for other financial liabilities under EU law. | |
• | Balance sheet gross up (IAS 32/39/27) – the IFRS netting rules coupled with the consolidation requirements will result in significant grossing up of the balance sheet, including certain conduit vehicles and funds under management being included on balance sheet, no linked presentation for securitisations and line by line consolidation of insurance subsidiaries. | |
• | Funding instruments (IAS 32) – Reserve Capital Instruments and other Upper Tier 2 instruments that contain no obligation to pay coupon or interest will be reclassified from debt to equity. | |
• | Goodwill (IFRS 3) – rather than being subject to systematic annual amortisation, goodwill arising on consolidation will be tested for impairment each year. Future acquisitions will give rise to more intangible assets that are subject to amortisation and potentially less goodwill. |
• | Effective interest rate (IAS 39) – rather than interest-related fees and costs being recognised as earned or incurred, all interest and interest-related fees and costs will be recognised at a constant rate over the expected life of the related financial instruments. Such fees and costs will also be included in net interest rather than in fees and commissions. | |
• | Loan impairment (IAS 39) – provisions will be raised where there is objective evidence of impairment and determined based on the expected cash flows discounted at the loan’s original effective interest rate. Opening impairment stock is expected to be broadly in line with UK GAAP provisions stock. | |
• | Share-based payments (IFRS 2) – an annual charge for share options and other share-based payments will be determined based on the fair value of options granted spread over the vesting period. | |
• | Pensions (IAS 19) – the initial pension surpluses or deficits will be recognised in the opening balance sheet resulting in a significant reduction in shareholders’ funds compared with the previous UK GAAP approach which relied on the actuarial funding valuations. | |
• | Dividends (IAS 10) – rather than being accrued as a liability when declared, dividends will be recognised when paid. | |
• | Life fund (IFRS 4/IAS 39) – although IFRS permits embedded value accounting to be used for insurance contracts, all embedded value will be reversed on adoption of IFRS, whether it relates to investment products or insurance products, resulting in a reduction in shareholders’ funds. | |
• | Software capitalisation (IAS 38) – internally generated computer software will be recognised on balance sheet and amortised over its useful economic life. | |
• | Guarantees (IAS 39) – issued guarantees will be recognised initially on balance sheet at fair value resulting in a small reduction in shareholders’ funds. | |
• | Leasing (IAS 17) – the income recognition profile for finance leases is different under IFRS with revenue typically being recognised later. | |
• | De-recognition of liabilities (IAS 39) – liabilities can only be removed from the balance sheet when they are legally extinguished. |
The restated 2004 IFRS results, excluding the impact of IAS 32 and IAS 39 on financial instruments and IFRS 4 on insurance contracts, and the opening 2005 IFRS balance sheet, including these standards, will be issued in the second quarter of 2005. The first results on a full IFRS basis will be provided for the June 2005 half year.
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Consolidated accounts Barclays PLC
Changes in Accounting Presentation
US GAAP
Accounting Presentation
The prior period presentation has, where appropriate, been restated to conform with current year classification.
Nature of businessBarclays is an international financial services group engaged primarily in banking, investment banking and asset management. In terms of assets employed, Barclays is one of the largest financial services groups in the UK. The Group also operates in many other countries around the world and is a leading provider of co-ordinated global services to multinational corporations and financial institutions in the world’s main financial centres.
Analyses by geographical segmentsGeographical Segments and classesClasses of businessBusiness
AcquisitionsIn 2001, the Group increased its shareholding in Banco Barclays SA (formerly Banco Barclays e Galicia SA) from 50% to over 99%. The entity has been consolidated as a subsidiary undertaking since 1st January 2001.
In October 2002, Barclays and Canadian Imperial Bank of Commerce completed the combination of their retail, corporate and offshore banking operations in the Caribbean to create FirstCaribbean International Bank (FirstCaribbean). Barclays interest in the new entity has been accounted for as an Associatedassociated undertaking. The transaction resulted in a gain for Barclays of £206m (recognised in the Statement of total recognised gains and losses) consequent on the disposal of a share of its Caribbean operations. The acquisition of a share of CIBC West Indies Holding Limited has generated goodwill in Barclays of £131m.
On 31st January 2003, Barclays acquired the retail stockbroking business Charles Schwab Europe.
On 19th May 2003, Barclays completed the acquisition of Clydesdale Financial Services Limited and its holding company Carnegie Holdings Limited, a retailer point of sale finance business.
On 16th July 2003, Barclays completed the acquisition of Banco Zaragozano, a Spanish private sector banking group.
On 17th December 2003, Barclays acquired Gerrard Management Services Limited (‘Gerrard’), a private client discretionary and advisory asset management business.
On 11th March 2004, Barclays purchased the remaining 40% minority share in Barclays Cairo Bank.
On 1st December 2004, Barclays completed the acquisition of Juniper Financial Corporation from Canadian Imperial Bank of Commerce.
DisposalsIn 2001, the Group disposed of the Greek Branches of the Bank and Banque Woolwich SA.
In 2003, the Group did not make any significant disposals.
On 7th April 2004, Barclays completed the disposal of its shareholding in Edotech Limited to Astron, the business process outsourcing group.
106
117
Consolidated Accountsaccounts Barclays PLC
Consolidated Profitprofit and Loss Account
loss account
Consolidated profit and loss account 2003 2003 2002 2001 2004 2003 2002 Note £m £m £m Note £m £m £m Interest receivable: Interest receivable and similar income arising from debt securities 2,384 2,030 2,383 2,414 2,384 2,030 Other interest receivable and similar income 10,043 10,014 11,075 11,251 10,043 10,014
12,427 12,044 13,458 13,665 12,427 12,044 Interest payable (5,823 ) (5,839 ) (7,492 ) (6,823 ) (5,823 ) (5,839 )
Net interest income 6,604 6,205 5,966 6,842 6,604 6,205 Fees and commissions receivable 4,896 4,454 4,202 5,672 4,896 4,454 Less: fees and commissions payable (633 ) (529 ) (465 ) (706 ) (633 ) (529 ) Dealing profits 1 1,054 833 1,011 1 1,493 1,054 833 Other operating income 2 490 364 428 2 644 490 364
Operating income 12,411 11,327 11,142 13,945 12,411 11,327
Administrative expenses – staff costs 3 (4,295 ) (3,755 ) (3,714 ) 3 (4,998 ) (4,295 ) (3,755 ) Administrative expenses – other 5 (2,404 ) (2,312 ) (2,303 ) 5 (2,758 ) (2,404 ) (2,312 ) Depreciation 6 (289 ) (303 ) (308 ) 6 (295 ) (289 ) (303 ) Goodwill amortisation 6 (265 ) (254 ) (229 ) 6 (299 ) (265 ) (254 )
Operating expenses (7,253 ) (6,624 ) (6,554 ) (8,350 ) (7,253 ) (6,624 )
5,158 4,703 4,588 5,595 5,158 4,703
Provisions for bad and doubtful debts 16 (1,347 ) (1,484 ) (1,149 ) 15 (1,091 ) (1,347 ) (1,484 ) Provisions for contingent liabilities and commitments 7 1 (1 ) (1 ) (2 ) 1 (1 )
Provisions (1,346 ) (1,485 ) (1,150 ) (1,093 ) (1,346 ) (1,485 )
3,812 3,218 3,438 4,502 3,812 3,218 Profit/(loss) from joint ventures 1 (5 ) (1 ) (Loss)/profit from joint ventures (3 ) 1 (5 ) Profit/(loss) from associated undertakings 28 (5 ) (8 ) 59 28 (5 ) Profit/(loss) on disposal/termination of Group undertakings 8 4 (3 ) (4 ) Exceptional items 7 45 4 (3 )
3,845 3,205 3,425 4,603 3,845 3,205 Tax on profit on ordinary activities 9 (1,076 ) (955 ) (943 ) 8 (1,289 ) (1,076 ) (955 )
2,769 2,250 2,482 3,314 2,769 2,250 Minority interests – equity 10 (25 ) (20 ) (31 ) Minority interests – non-equity 10 – – (5 ) Minority interests (including non-equity interests) 9 (46 ) (25 ) (20 )
2,744 2,230 2,446 3,268 2,744 2,230 Dividends 11 (1,340 ) (1,206 ) (1,110 ) 10 (1,538 ) (1,340 ) (1,206 )
1,404 1,024 1,336 1,730 1,404 1,024
Basic earnings per 25p ordinary share 12 42.3p 33.7p 36.8p 11 51.2p 42.3p 33.7p Diluted earnings per 25p ordinary share 12 42.1p 33.4p 36.4p 11 51.0p 42.1p 33.4p
All results arise from continuing operations. For each of the years reported above, there was no material difference between profit before tax and profit retained and profit on an historical cost basis.
The Board of Directors approved the accounts set out on pages 101110 to 190210 on 11th February 2004.10th March 2005.
Barclays PLC Annual Report 2003 107The accompanying notes form an integral part of the Consolidated Accounts.
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Consolidated Accountsaccounts Barclays PLC
Statement of Total Recognised Gainstotal recognised gains and Losses
losses
Statement of total recognised gains and losses 2003 2003 2002 2001 2004 2003 2002 £m £m £m £m £m £m Profit for the financial year attributable to the members of Barclays PLC 2,744 2,230 2,446 3,268 2,744 2,230 Exchange rate translation differences (4 ) (61 ) 3 (33 ) (4 ) (61 ) (Loss)/gain arising from transaction with third parties (4 ) 206 – Gain/(loss) arising from transaction with third parties 13 (4 ) 206 Joint ventures and associated undertakings (30 ) (22 ) 2 Other items (3 ) 8 (24 ) 5 (3 ) 8 Joint ventures and associated undertakings (22 ) 2 (15 )
Total recognised gains relating to the period 2,711 2,385 2,410 Total recognised gain relating to the period 3,223 2,711 2,385
108 The accompanying notes form an integral part of the Consolidated Accounts.
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Consolidated Accountsaccounts Barclays PLC
Consolidated Balance Sheetbalance sheet
Consolidated balance sheet
2004 | 2003 | |||||||||||||||||||
Note | £m | £m | £m | £m | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances at central banks | 1,753 | 1,726 | ||||||||||||||||||
Items in course of collection from other banks | 1,772 | 2,006 | ||||||||||||||||||
Treasury bills and other eligible bills | 12 | 6,658 | 7,177 | |||||||||||||||||
Loans and advances to banks – banking | 24,986 | 17,254 | ||||||||||||||||||
– trading | 50,145 | 44,670 | ||||||||||||||||||
13 | 75,131 | 61,924 | ||||||||||||||||||
Loans and advances to customers – banking | 189,847 | 167,858 | �� | |||||||||||||||||
– trading | 65,099 | 58,961 | ||||||||||||||||||
14 | 254,946 | 226,819 | ||||||||||||||||||
Debt securities | 16 | 127,428 | 97,393 | |||||||||||||||||
Equity shares | 17 | 12,166 | 7,859 | |||||||||||||||||
Interests in joint ventures – share of gross assets | 147 | 266 | ||||||||||||||||||
– share of gross liabilities | (119 | ) | (208 | ) | ||||||||||||||||
18 | 28 | 58 | ||||||||||||||||||
Interests in associated undertakings | 18 | 381 | 370 | |||||||||||||||||
Intangible fixed assets | 19 | 4,295 | 4,406 | |||||||||||||||||
Tangible fixed assets | 20 | 1,921 | 1,790 | |||||||||||||||||
Other assets | 21 | 22,154 | 19,736 | |||||||||||||||||
Prepayments and accrued income | 21 | 5,078 | 3,921 | |||||||||||||||||
513,711 | 435,185 | |||||||||||||||||||
Retail life-fund assets attributable to policyholders | 22 | 8,378 | 8,077 | |||||||||||||||||
Total assets | 522,089 | 443,262 | ||||||||||||||||||
The accompanying notes form an integral part of the Consolidated Accounts.
Matthew W Barrett Chairman
John Varley Group Chief Executive
Naguib Kheraj Group Finance Director
120
Barclays PLC Annual Report 2004
Consolidated balance sheet
As at 31st December 2003
2003 | 2002 | |||||||||||||||||||
| restated | |||||||||||||||||||
Note | £m | £m | £m | £m | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances at central banks | 1,726 | 2,032 | ||||||||||||||||||
Items in course of collection from other banks | 2,006 | 2,335 | ||||||||||||||||||
Treasury bills and other eligible bills | 13 | 7,177 | 7,645 | |||||||||||||||||
Loans and advances to banks – banking | 17,254 | 15,369 | ||||||||||||||||||
– trading | 44,670 | 42,805 | ||||||||||||||||||
14 | 61,924 | 58,174 | ||||||||||||||||||
Loans and advances to customers – banking | 167,858 | 157,222 | ||||||||||||||||||
– trading | 58,961 | 45,176 | ||||||||||||||||||
15 | 226,819 | 202,398 | ||||||||||||||||||
Debt securities | 17 | 97,393 | 94,229 | |||||||||||||||||
Equity shares | 18 | 7,859 | 3,129 | |||||||||||||||||
Interests in joint ventures – share of gross assets | 266 | 242 | ||||||||||||||||||
– share of gross liabilities | (208 | ) | (184 | ) | ||||||||||||||||
19 | 58 | 58 | ||||||||||||||||||
Interests in associated undertakings | 19 | 370 | 397 | |||||||||||||||||
Intangible fixed assets | 20 | 4,406 | 3,934 | |||||||||||||||||
Tangible fixed assets | 21 | 1,790 | 1,626 | |||||||||||||||||
Other assets | 23 | 19,835 | 16,839 | |||||||||||||||||
Prepayments and accrued income | 25 | 3,921 | 2,982 | |||||||||||||||||
435,284 | 395,778 | |||||||||||||||||||
Retail life-fund assets attributable to policyholders | 24 | 8,077 | 7,284 | |||||||||||||||||
Total assets | 443,361 | 403,062 | ||||||||||||||||||
2004 | 2003 | |||||||||||||||||||
Note | £m | £m | £m | £m | ||||||||||||||||
Deposits by banks – banking | 74,211 | 57,641 | ||||||||||||||||||
– trading | 36,813 | 36,451 | ||||||||||||||||||
23 | 111,024 | 94,092 | ||||||||||||||||||
Customer accounts – banking | 171,963 | 155,814 | ||||||||||||||||||
– trading | 45,755 | 29,054 | ||||||||||||||||||
24 | 217,718 | 184,868 | ||||||||||||||||||
Debt securities in issue | 25 | 67,806 | 49,569 | |||||||||||||||||
Items in course of collection due to other banks | 1,205 | 1,286 | ||||||||||||||||||
Other liabilities | 26 | 76,565 | 69,497 | |||||||||||||||||
Accruals and deferred income | 26 | 6,582 | 4,983 | |||||||||||||||||
Provisions for liabilities and charges – deferred tax | 27 | 738 | 646 | |||||||||||||||||
Provisions for liabilities and charges – other | 28 | 467 | 369 | |||||||||||||||||
Dividend | 1,011 | 879 | ||||||||||||||||||
Subordinated liabilities: | ||||||||||||||||||||
Undated loan capital – non-convertible | 29 | 6,149 | 6,310 | |||||||||||||||||
Dated loan capital – convertible to preference shares | 15 | 17 | ||||||||||||||||||
– non-convertible | 6,113 | 6,012 | ||||||||||||||||||
30 | 6,128 | 6,029 | ||||||||||||||||||
495,393 | 418,528 | |||||||||||||||||||
Minority interests (including non-equity interests) | 901 | 283 | ||||||||||||||||||
Called up share capital | 31 | 1,614 | 1,642 | |||||||||||||||||
Share premium account | 5,524 | 5,417 | ||||||||||||||||||
Capital redemption reserve | 309 | 274 | ||||||||||||||||||
Other capital reserve | 617 | 617 | ||||||||||||||||||
Revaluation reserve | 24 | 24 | ||||||||||||||||||
Profit and loss account | 9,329 | 8,400 | ||||||||||||||||||
Shareholders’ funds – equity | 33 | 17,417 | 16,374 | |||||||||||||||||
18,318 | 16,657 | |||||||||||||||||||
513,711 | 435,185 | |||||||||||||||||||
Retail life-fund liabilities to policyholders | 22 | 8,378 | 8,077 | |||||||||||||||||
Total liabilities and shareholders’ funds | 522,089 | 443,262 | ||||||||||||||||||
2004 | 2003 | |||||||||||||||||||
Note | £m | £m | ||||||||||||||||||
Memorandum items | 36 | |||||||||||||||||||
Contingent liabilities: | ||||||||||||||||||||
Acceptances and endorsements | 303 | 671 | ||||||||||||||||||
Guarantees and assets pledged as collateral security | 30,011 | 24,596 | ||||||||||||||||||
Other contingent liabilities | 8,245 | 8,427 | ||||||||||||||||||
38,559 | 33,694 | |||||||||||||||||||
Commitments – standby facilities, credit lines and other | 134,051 | 114,847 | ||||||||||||||||||
Sir Peter Middleton GCBChairmanThe accompanying notes form an integral part of the Consolidated Accounts.
Matthew BarrettGroup Chief Executive
Naguib KherajGroup Finance Director
Barclays PLC Annual Report 2003 109
Consolidated Accountsaccounts Barclays PLC
Consolidated Balance Sheetstatement of changes in reserves
Consolidated balance sheetAs at 31st December 2003
2003 | 2002 | |||||||||||||||||||
| restated | |||||||||||||||||||
Note | £m | £m | £m | £m | ||||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits by banks – banking | 57,641 | 48,751 | ||||||||||||||||||
– trading | 36,451 | 38,683 | ||||||||||||||||||
26 | 94,092 | 87,434 | ||||||||||||||||||
Customer accounts – banking | 155,814 | 144,078 | ||||||||||||||||||
– trading | 29,054 | 27,420 | ||||||||||||||||||
27 | 184,868 | 171,498 | ||||||||||||||||||
Debt securities in issue | 28 | 49,569 | 45,885 | |||||||||||||||||
Items in course of collection due to other banks | 1,286 | 1,416 | ||||||||||||||||||
Other liabilities | 29 | 69,497 | 56,564 | |||||||||||||||||
Accruals and deferred income | 30 | 4,983 | 4,352 | |||||||||||||||||
Provisions for liabilities and charges – deferred tax | 31 | 646 | 461 | |||||||||||||||||
Provisions for liabilities and charges – other | 32 | 369 | 486 | |||||||||||||||||
Dividend | 879 | 788 | ||||||||||||||||||
Subordinated liabilities: | ||||||||||||||||||||
Undated loan capital – convertible to preference shares | – | 310 | ||||||||||||||||||
– non-convertible | 6,310 | 6,368 | ||||||||||||||||||
33 | 6,310 | 6,678 | ||||||||||||||||||
Dated loan capital – convertible to preference shares | 17 | 11 | ||||||||||||||||||
– non-convertible | 6,012 | 4,848 | ||||||||||||||||||
34 | 6,029 | 4,859 | ||||||||||||||||||
418,528 | 380,421 | |||||||||||||||||||
Minority and other interests and shareholders’ funds Minority interests – equity | 283 | 156 | ||||||||||||||||||
Called up share capital | 35 | 1,642 | 1,645 | |||||||||||||||||
Share premium account | 5,417 | 5,277 | ||||||||||||||||||
Capital redemption reserve | 274 | 262 | ||||||||||||||||||
Other capital reserve | 617 | 617 | ||||||||||||||||||
Revaluation reserve | 24 | 24 | ||||||||||||||||||
Profit and loss account | 8,499 | 7,376 | ||||||||||||||||||
Shareholders’ funds – equity | 37 | 16,473 | 15,201 | |||||||||||||||||
16,756 | 15,357 | |||||||||||||||||||
435,284 | 395,778 | |||||||||||||||||||
Retail life-fund liabilities to policyholders | 24 | 8,077 | 7,284 | |||||||||||||||||
Total liabilities and shareholders’ funds | 443,361 | 403,062 | ||||||||||||||||||
2003 | 2002 | |||||||||||||||||||
Note | £m | £m | ||||||||||||||||||
Memorandum items | 44 | |||||||||||||||||||
Contingent liabilities: | ||||||||||||||||||||
Acceptances and endorsements | 671 | 2,589 | ||||||||||||||||||
Guarantees and assets pledged as collateral security | 24,596 | 16,043 | ||||||||||||||||||
Other contingent liabilities | 8,427 | 7,914 | ||||||||||||||||||
33,694 | 26,546 | |||||||||||||||||||
Commitments – standby facilities, credit lines and other | 114,847 | 101,378 | ||||||||||||||||||
110
Consolidated Accounts Barclays PLCConsolidated Statement of Changes in Reserves
Consolidated statement of changes in reserves
For the year ended 31st December 2003
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||
restated | restated | £m | £m | £m | ||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Share premium account | ||||||||||||||||||||||||
At beginning of year | 5,277 | 5,149 | 4,950 | 5,417 | 5,277 | 5,149 | ||||||||||||||||||
Premium arising on shares issued | 140 | 128 | 199 | 107 | 140 | 128 | ||||||||||||||||||
At end of year | 5,417 | 5,277 | 5,149 | 5,524 | 5,417 | 5,277 | ||||||||||||||||||
Capital redemption reserve | ||||||||||||||||||||||||
At beginning of year | 262 | 232 | 227 | 274 | 262 | 232 | ||||||||||||||||||
Repurchase of ordinary shares | 12 | 30 | 5 | 35 | 12 | 30 | ||||||||||||||||||
At end of year | 274 | 262 | 232 | 309 | 274 | 262 | ||||||||||||||||||
Other capital reserve | ||||||||||||||||||||||||
At beginning of year | 617 | 617 | 469 | 617 | 617 | 617 | ||||||||||||||||||
Repurchase of preference shares | – | – | 148 | |||||||||||||||||||||
At end of year | 617 | 617 | 617 | 617 | 617 | 617 | ||||||||||||||||||
Revaluation reserve | ||||||||||||||||||||||||
At beginning of year | 24 | 30 | 35 | 24 | 24 | 30 | ||||||||||||||||||
Exchange rate translation differences | 2 | – | (1 | ) | – | 2 | – | |||||||||||||||||
Released on transaction with third parties | (2 | ) | (6 | ) | – | – | (2 | ) | (6 | ) | ||||||||||||||
Other items | – | – | (4 | ) | ||||||||||||||||||||
At end of year | 24 | 24 | 30 | 24 | 24 | 24 | ||||||||||||||||||
Profit and loss account | ||||||||||||||||||||||||
At beginning of year | 7,380 | 6,789 | 5,840 | 8,400 | 7,321 | 6,783 | ||||||||||||||||||
Prior year adjustment | (4 | ) | – | – | ||||||||||||||||||||
At beginning of year as restated | 7,376 | 6,789 | 5,840 | |||||||||||||||||||||
Profit retained | 1,404 | 1,024 | 1,336 | |||||||||||||||||||||
Exchange rate translation differences | (31 | ) | (61 | ) | 4 | (58 | ) | (31 | ) | (61 | ) | |||||||||||||
Repurchase of ordinary shares | (192 | ) | (516 | ) | (96 | ) | (664 | ) | (192 | ) | (516 | ) | ||||||||||||
Transfer to capital redemption reserve | (12 | ) | (30 | ) | (5 | ) | (35 | ) | (12 | ) | (30 | ) | ||||||||||||
Goodwill written back on disposals | – | 10 | – | – | – | 10 | ||||||||||||||||||
Shares issued to employee trusts (see below) | (36 | ) | (48 | ) | (107 | ) | ||||||||||||||||||
Transfer to other capital reserve | – | – | (148 | ) | ||||||||||||||||||||
(Loss)/gain arising from transaction with third parties | (4 | ) | 212 | – | ||||||||||||||||||||
Increase in Treasury shares | (8 | ) | (4 | ) | – | |||||||||||||||||||
Shares issued to the 2003 QUEST in relation to share option schemes for staff | (1 | ) | (36 | ) | (48 | ) | ||||||||||||||||||
Gain/(loss) arising from transaction with third parties | 13 | (4 | ) | 212 | ||||||||||||||||||||
Other items | 2 | – | (35 | ) | (3 | ) | 2 | – | ||||||||||||||||
Increase in Treasury shares and ESOP shares | (53 | ) | (52 | ) | (53 | ) | ||||||||||||||||||
Profit retained | 1,730 | 1,404 | 1,024 | |||||||||||||||||||||
At end of year | 8,499 | 7,376 | 6,789 | 9,329 | 8,400 | 7,321 | ||||||||||||||||||
Total reserves | 14,831 | 13,556 | 12,817 | 15,803 | 14,732 | 13,501 | ||||||||||||||||||
The Group operates in a number of countries subject to regulations under which a local subsidiary undertaking has to maintain a minimum level of capital. The current policy of the Group is that local capital requirements are met, as far as possible, by the retention of profit. Certain countries operate exchange control regulations which limit the amount of dividends that can be remitted to non-resident shareholders. It is not possible to determine the amount of profit retained and other reserves that is restricted by these regulations, but the net profit retained of overseas subsidiaries, associated undertakings and joint ventures at 31st December 20032004 totalled £1,417m (2003: £925m, (2002: £1,038m, 2001: £1,190m)2002: £1,038m). If such overseas reserves were to be remitted, other tax liabilities, which have not been provided for in the accounts, might arise.
Goodwill amounting to £205m (2002:(2003: £205m, 2001: £215m)2002: £205m) has been charged directly against reserves in prior years in respect of acquisitions. This amount is net of any goodwill attributable to subsidiary undertakings disposed of prior to the balance sheet date.
In 1998, the Group established a Qualifying Employee Share Ownership Trust (QUEST) for the purposes of delivering shares on the exercise of options under the SAYE. As a result of the scheme closing in 2003, there is no 2004 impact. During 2003 the Group received from the trustees of the QUEST £88m (2002: £122m, 2001: £195m)£122m) on the issue of shares in respect of the exercise of options awarded under SAYE. Of the amount received in 2003 from the trustees, employees paid £53m (2002: £76m, 2001: £90m)£76m) and the balance of £35m (2002: £46m, 2001: £105m)£46m) comprised utilisation of contribution to the QUEST from Group Companies together with net interest earned thereon. During 2003 the Barclays Group (PSP & ESOS) Employee Share Ownership Trust (ESOT) ceased to be used to facilitate the provision of Barclays PLC shares to participants exercising rollover options under the Woolwich plc 1998 Executive Share Option Plan (WESOP). During 2003, the Group received from the trustees of this trust £nil (2002: £8m and 2001: £6m) on the issue of shares in respect of the exercise of options awarded under WESOP. Of the amount received from the trustees, employees paid £nil (2002: £6m and 2001: £4m) and the balance of £nil (2002: £2m and 2001: £2m) comprised contribution to the trust from Group Companies. WESOP exercises during 2003 were satisfied by issuing shares directly to participants.
Accumulated exchange rate translation differences included in reserves are £626m debit (2003: £568m, debit (2002:2002: £539m 2001: £478m both debit).
Barclays PLC Annual Report 2003 111The accompanying notes form an integral part of the Consolidated Accounts.
122
Consolidated Accountsaccounts Barclays PLC
Consolidated Cash Flow Statementcash flow statement
Consolidated cash flow statement
For the year ended 31st December 2003
2003 | 2002 | 2001 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | £m | £m | £m | £m | £m | £m | 2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net cash (outflow)/inflow from operating activities | 48 | (2,290 | ) | 6,747 | 3,192 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash inflow/(outflow) from operating activities | 39 | 6,089 | (2,290 | ) | 6,747 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends received from joint ventures and associated undertakings | 7 | 1 | 3 | 15 | 7 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Returns on investments and servicing of finance: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest paid on loan capital and other subordinated liabilities | (606 | ) | (607 | ) | (598 | ) | (652 | ) | (606 | ) | (607 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Preference dividends paid by subsidiary undertaking | – | – | (5 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid to minority shareholders | (14 | ) | (23 | ) | (17 | ) | (19 | ) | (14 | ) | (23 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Net cash outflow from returns on investment and servicing of finance | (620 | ) | (630 | ) | (620 | ) | (671 | ) | (620 | ) | (630 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Tax paid | (910 | ) | (828 | ) | (1,004 | ) | (690 | ) | (910 | ) | (828 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Capital expenditure and financial investment: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital expenditure | (310 | ) | (301 | ) | (351 | ) | (532 | ) | (310 | ) | (301 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Sale of property and equipment | 97 | 289 | 152 | 125 | 97 | 289 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of investment securities | (36,886 | ) | (28,128 | ) | (20,173 | ) | (47,520 | ) | (36,886 | ) | (28,128 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Redemption of investment securities | 17,137 | 10,247 | 5,704 | 18,441 | 17,137 | 10,247 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Sale of investment securities | 21,394 | 11,137 | 13,338 | 22,722 | 21,394 | 11,137 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash inflow/(outflow) from capital expenditure and financial investment | 1,432 | (6,756 | ) | (1,330 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions and disposals Net cash outflow from formation of FirstCaribbean International Bank Ltd | 49 | – | (160 | ) | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of Group undertakings | 52 | (985 | ) | (451 | ) | (36 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash (outflow)/inflow from capital expenditure and financial investment | (6,764 | ) | 1,432 | (6,756 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions and disposals | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash outflow from formation of FirstCaribbean International Bank Ltd | 42 | – | – | (160 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of subsidiary undertakings | 41 | (211 | ) | (985 | ) | (451 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of associated undertakings and joint ventures | (21 | ) | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Sale of other Group undertakings | 49 | 39 | (1 | ) | 42 | 42 | – | 39 | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Sale of associated undertakings | 16 | – | – | 47 | 16 | – | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash (outflow)/inflow from acquisitions and disposals | (930 | ) | (612 | ) | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash outflow from acquisitions and disposals | (185 | ) | (930 | ) | (612 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Equity dividend paid | (1,249 | ) | (1,146 | ) | (1,014 | ) | (1,406 | ) | (1,249 | ) | (1,146 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Net cash outflow before financing | (4,560 | ) | (3,224 | ) | (767 | ) | (3,612 | ) | (4,560 | ) | (3,224 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Financing: | 50 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of loan capital and other subordinated liabilities (net of expenses) | 1,926 | 2,173 | 3,019 | 666 | 1,926 | 2,173 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption/repurchase of loan capital and other subordinated liabilities | (974 | ) | (376 | ) | (715 | ) | (611 | ) | (974 | ) | (376 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Non-recourse financing | 3,262 | 644 | 607 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash inflow from non-recourse financing | 4,264 | 3,262 | 644 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of ordinary shares | (204 | ) | (546 | ) | (101 | ) | (699 | ) | (204 | ) | (546 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares (net of contribution to the QUEST) | 113 | 87 | 103 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of preference shares | – | – | (148 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of shares to minority interest | 65 | 35 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares (net of contribution to the QUEST and ESOP) | 60 | 113 | 87 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of preference shares to minority interests | 688 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of shares to minority interests | 52 | 65 | 35 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash inflow from financing | 4,188 | 2,017 | 2,765 | 4,420 | 4,188 | 2,017 | |||||||||||||||||||||||||||||||||||||||||||||||||||
(Decrease)/increase in cash | 51 | (372 | ) | (1,207 | ) | 1,998 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Increase/(decrease) in cash | 44 | 808 | (372 | ) | (1,207 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
112 The accompanying notes form an integral part of the Consolidated Accounts.
123
Consolidated Accountsaccounts Barclays PLC
Parent Company Accountscompany accounts
Parent company accounts
2003 | 2002 | 2001 | ||||||||||||||||||||||
restated | restated | 2004 | 2003 | 2002 | ||||||||||||||||||||
Profit and loss account and changes in reserves for the year ended 31st December | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Interest income | 4 | 6 | 5 | 3 | 4 | 6 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Management charge from subsidiary undertaking | (4 | ) | (6 | ) | (5 | ) | (3 | ) | (4 | ) | (6 | ) | ||||||||||||
Operating profit | – | – | – | – | – | – | ||||||||||||||||||
Dividends from subsidiary undertaking | 1,580 | 1,798 | 1,317 | 2,247 | 1,580 | 1,798 | ||||||||||||||||||
Profit on ordinary activities before tax | 1,580 | 1,798 | 1,317 | 2,247 | 1,580 | 1,798 | ||||||||||||||||||
Tax on profit on ordinary activities | – | – | – | – | – | – | ||||||||||||||||||
Profit on ordinary activities after tax | 1,580 | 1,798 | 1,317 | 2,247 | 1,580 | 1,798 | ||||||||||||||||||
Dividends | (1,340 | ) | (1,206 | ) | (1,110 | ) | (1,547 | ) | (1,340 | ) | (1,206 | ) | ||||||||||||
Profit retained by Barclays PLC | 240 | 592 | 207 | 700 | 240 | 592 | ||||||||||||||||||
Profit retained by subsidiary undertakings | 1,148 | 443 | 1,143 | 999 | 1,148 | 443 | ||||||||||||||||||
Profit/(loss) retained by associated undertakings and joint ventures | 16 | (11 | ) | (14 | ) | 31 | 16 | (11 | ) | |||||||||||||||
Profit retained for the financial year | 1,404 | 1,024 | 1,336 | 1,730 | 1,404 | 1,024 | ||||||||||||||||||
Premium arising on shares issued | 140 | 128 | 199 | 107 | 140 | 128 | ||||||||||||||||||
Reduction in reserves arising from repurchase of shares | (192 | ) | (516 | ) | (96 | ) | (664 | ) | (192 | ) | (516 | ) | ||||||||||||
Shares issued to the QUEST in relation to share option schemes for staff | (36 | ) | (46 | ) | (105 | ) | ||||||||||||||||||
Shares issued to the 2003 QUEST in relation to share option schemes for staff | (1 | ) | (36 | ) | (46 | ) | ||||||||||||||||||
Other movements in investment in Barclays Bank PLC | (41 | ) | 149 | (38 | ) | (101 | ) | (85 | ) | 100 | ||||||||||||||
Profit and loss account and other reserves brought forward | 13,556 | 12,817 | 11,521 | 14,732 | 13,501 | 12,811 | ||||||||||||||||||
Profit and loss account and other reserves carried forward | 14,831 | 13,556 | 12,817 | 15,803 | 14,732 | 13,501 | ||||||||||||||||||
2003 | 2002 | |||||||||||||||||||||||||||||||
restated | 2004 | 2003 | ||||||||||||||||||||||||||||||
Balance sheet as at 31st December | Note | £m | £m | Note | £m | £m | ||||||||||||||||||||||||||
Fixed assets | ||||||||||||||||||||||||||||||||
Investment in Barclays Bank PLC | 38 | 16,473 | 15,201 | 34 | 17,417 | 16,374 | ||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||||||
Amounts falling due within one year: | ||||||||||||||||||||||||||||||||
Due from subsidiary undertaking | 879 | 788 | 1,020 | 879 | ||||||||||||||||||||||||||||
879 | 788 | 1,020 | 879 | |||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||
Amounts falling due within one year – dividend | (879 | ) | (788 | ) | ||||||||||||||||||||||||||||
Amounts falling due within one year | (1,020 | ) | (879 | ) | ||||||||||||||||||||||||||||
Net current assets | – | – | – | – | ||||||||||||||||||||||||||||
Assets less current liabilities | 16,473 | 15,201 | 17,417 | 16,374 | ||||||||||||||||||||||||||||
Capital and reserves Called up share capital | 35 | 1,642 | 1,645 | |||||||||||||||||||||||||||||
Capital and reserves | ||||||||||||||||||||||||||||||||
Called up share capital | 31 | 1,614 | 1,642 | |||||||||||||||||||||||||||||
Share premium account | 5,417 | 5,277 | 5,524 | 5,417 | ||||||||||||||||||||||||||||
Capital redemption reserve | 274 | 262 | 309 | 274 | ||||||||||||||||||||||||||||
Revaluation reserve | 8,259 | 7,136 | 9,089 | 8,160 | ||||||||||||||||||||||||||||
Profit and loss account | 881 | 881 | 881 | 881 | ||||||||||||||||||||||||||||
Shareholders’ funds – equity | 37 | 16,473 | 15,201 | 33 | 17,417 | 16,374 | ||||||||||||||||||||||||||
All results arise from continuing operations. For each of the years reported above, there was no material difference between profit before tax and profit retained and profit on an historical cost basis.
Sir Peter Middleton GCBChairmanThe accompanying notes form an integral part of the Consolidated Accounts.
Matthew W Barrett Chairman
John VarleyGroup Chief Executive
Naguib KherajGroup Finance Director
Barclays PLC Annual Report 2003 113
Barclays PLC Annual Report 2004
Notes to the Accountsaccounts
For the Year Endedyear ended 31st December 20032004
1 Dealing profits
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Rates related business | 909 | 876 | 823 | 1,141 | 909 | 876 | ||||||||||||||||||
Credit related business | 145 | (43 | ) | 188 | 352 | 145 | (43 | ) | ||||||||||||||||
1,054 | 833 | 1,011 | 1,493 | 1,054 | 833 | |||||||||||||||||||
Dealing profits include the profits and losses arising both on the purchase and sale of trading instruments and from their revaluation to market value, together with the interest income earned from these instruments and the related funding cost.
Of the total dealing profit, £498m£556m was earned on securities (2002: £325m, 2001: £345m)(2003: £498m, 2002: £325m).
Rates related businesses include fixed income, foreign exchange, commodities, emerging markets, money markets trading and equity related activities. Credit related businesses include trading relating to loans, corporate bonds, credit derivatives and structured capital markets.
2 Other operating income
2003 | 2002 | 2001 | ||||||||||||||||||||||
£m | £m | £m | 2004 | 2003 | 2002 | |||||||||||||||||||
Premium income on insurance underwriting | 264 | 178 | 158 | |||||||||||||||||||||
Profits on disposal of investment securities | 73 | 58 | 37 | |||||||||||||||||||||
(Loss)/income from the long-term assurance business | (33 | ) | (51 | ) | 127 | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Net premium income on insurance underwriting | 211 | 264 | 178 | |||||||||||||||||||||
Gain on disposal of investment securities | 181 | 73 | 58 | |||||||||||||||||||||
Income/(loss) from the long-term assurance business | 58 | (33 | ) | (51 | ) | |||||||||||||||||||
Property rentals | 15 | 20 | 30 | 9 | 15 | 20 | ||||||||||||||||||
Dividend income from equity shares | 6 | 7 | 8 | 17 | 6 | 7 | ||||||||||||||||||
Other income | 165 | 152 | 68 | 168 | 165 | 152 | ||||||||||||||||||
490 | 364 | 428 | 644 | 490 | 364 | |||||||||||||||||||
3 Administrative expenses – staff costs
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Salaries and accrued incentive payments | 3,441 | 3,159 | 3,149 | 4,043 | 3,441 | 3,159 | ||||||||||||||||||
Social security costs | 278 | 240 | 243 | 339 | 278 | 240 | ||||||||||||||||||
Pension costs | 180 | (27 | ) | (17 | ) | |||||||||||||||||||
Pension costs (see Note 4) | 160 | 180 | (27 | ) | ||||||||||||||||||||
Post-retirement health care | 19 | 15 | – | 22 | 19 | 15 | ||||||||||||||||||
Other staff costs | 377 | 368 | 339 | 434 | 377 | 368 | ||||||||||||||||||
4,295 | 3,755 | 3,714 | 4,998 | 4,295 | 3,755 | |||||||||||||||||||
The following amounts, relating to the administration staff (including temporary staff) whose remuneration is reflected in the valuation of the long-term assurance fund, are not included in staff costs reported above:
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Salaries and accrued incentive payments | 5 | 12 | 47 | 2 | 5 | 12 | ||||||||||||||||||
Social security costs | 1 | 1 | 5 | – | 1 | 1 | ||||||||||||||||||
Other staff costs | – | – | 18 | |||||||||||||||||||||
6 | 13 | 70 | 2 | 6 | 13 | |||||||||||||||||||
Average number of employees
114 Post-retirement benefits
Other staff costs
125
Notes to the accounts
For the year ended 31st December 2004
4 Pensions, post-retirement benefits and other staffPension costs
Pensions
The 1964 Pension Scheme
The Retirement Investment Scheme (RIS)
The Pension Investment Plan (PIP)
afterwork
Career Average Section (Career Average)
In addition, the costs of ill-health retirements and death in service benefits are generally borne by the UKRF for each of the fourfive sections.
Integration of the Woolwich Pension Fund (WPF)
Actuarial valuation of the UKRF
The principal financial assumptions underlying the 2003 interim2004 actuarial review were:
Price inflation | 2.5 | % | Earnings growth | 4.0 | % | 2.75 | % | Return on future investments: | ||||||||||||
Dividend growth | 4.0 | % | Return on future investments – 1964 Scheme | 6.5 | % | |||||||||||||||
Pension increases | 2.5 | % | –afterwork | 5.5 | % | 2.75 | % | 1964 Scheme | 6.5 | % | ||||||||||
afterwork | 6.14 | % | ||||||||||||||||||
Earnings growth | 4.25 | % | Discount rate for assessing accrued liabilities: | |||||||||||||||||
afterwork Credit Account revaluation rate | 3.55 | % | 1964 Scheme afterwork | 6.31 6.14 | % % |
The projected unit method was used for assessing the 2003 interim actuarial review.level of future contributions. In calculating the surplusshortfall of assets overcompared to accrued liabilities, assets were taken at their market value and athe discount rate of 6.4% p.a. at 30th September 2003 wasrates used to valuefor assessing the 1964 Pension Scheme accrued liabilities. This rate of 6.4% wasliabilities were derived by taking a weighted average of the market yields on the day, weighting by reference to the UKRF’s strategic asset allocation; for the equity component, allowance was made for future dividend growth.
126
Barclays PLC Annual Report 2004
4 Pension costs (continued)
Pension charge for 2004
Without the benefit of the surplus, the 1964 Pension Scheme charge, based on the 2002 interim valuation, would be 21.1% of the pensionable salaries (on the projected unit method) assessed using the assumption regarding return on new investments, while contributions to the RIS and PIP would equal the contributions described above plus the costs of ill-health and death in service benefits.
Barclays PLC Annual Report 2003 115
Notes to the AccountsFor the Year Ended 31st December 2003
4 Pensions, post-retirement benefits and other staff costs (continued)
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Pension costs vary from regular costs as follows (UKRF): | ||||||||||||
Regular costs | 221 | 197 | 181 | |||||||||
Variation from regular costs (including interest) | (90 | ) | (266 | ) | (250 | ) | ||||||
131 | (69 | ) | (69 | ) | ||||||||
Of the total regular cost in 2003 of £221m, £165m relates to the 1964 Pension Scheme, £37m to the RIS and £19m to the PIP. The regular cost in respect ofafterwork, which during 2003 only included new employees from 1st October 2003, was less than £1m.
The approach taken to calculating the pension charge in the accounts for the 1964 Pension Scheme isUKRF was to take assets and liabilities at market values with effect from 1st January 2003.2004. The principal financial assumptions used to derive the 1964 Pension Scheme pensions charge differ from those shown above in that returns on new investments are assumed to be 6.5% p.a., dividend growth is assumed to be 4.3% p.a and future price inflation is assumed to be 2.3% p.a. A discount rate at 1st January 2003for 2004 for the material sections of 6.8% was used to value the accrued liabilities, derivedUKRF were as explained above, but based on market conditions at 31st December 2002. follows:
Price inflation | 2.75 | % | Return on future investments: | |||||||
Pension increases | 2.75 | % | 1964 Scheme | 7.0 | % | |||||
afterwork | 6.75 | % | ||||||||
Earnings growth | 4.25 | % | Discounted rate for assessing accrued liabilities: | |||||||
afterwork Credit Account revaluation rate | 3.75 | % | 1964 Scheme | 6.6 | % | |||||
afterwork | 6.75 | % |
This resulted in an accounting surplus of assets over the accrued liabilities and pension prepaymentsrepayments of £544m or 6%,£419m, allowing for expected future salary increases. Spreading the accounting surplus using the straight-line method over the future remaining service lives of the active members would be sufficient to produceproduced a variation from regular cost of £90m£107m including interest.
Without the benefit of the surplus, based on the 2003 interim valuation, the 1964 Pension Scheme charge would be 20.7% of the pensionable salaries (on the projected unit method), theafterwork section charge would be 9.7% of pensionable salaries and the Career Average section charge would be 8.9% of pensionable salaries assessed using the assumption regarding return on new investments. Contributions to the PIP would equal the contributions described above plus the costs of ill-health and death in service benefits.
The pensions charge in the accounts was reduced over the remaining service lives of the members to take account of the surplus, arising from the interim actuarial valuation.
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Pension costs vary from regular costs as follows (UKRF): Regular costs | 219 | 221 | 197 | |||||||||
Variation from regular costs (including interest) | (107 | ) | (90 | ) | (266 | ) | ||||||
112 | 131 | (69 | ) | |||||||||
Of the total regular cost in 2004 of £219m, £149m relates to the 1964 Pension Scheme, £46m toafterwork and £24m to the PIP. The regular cost of Career Average in the UKRF was less than £1m.
Total pension costs of the Group are summarised as follows:
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
The UK Retirement Fund | 131 | (69 | ) | (69 | ) | 112 | 131 | (69 | ) | |||||||||||||||
Other UK pension schemes | 17 | 20 | 24 | 6 | 17 | 20 | ||||||||||||||||||
Overseas pension schemes | 32 | 22 | 28 | 42 | 32 | 22 | ||||||||||||||||||
180 | (27 | ) | (17 | ) | 160 | 180 | (27 | ) | ||||||||||||||||
The increase in the pension cost is primarily due to a decrease in the accounting surplus which has resulted in a corresponding decrease in the variation from regular cost. The Bank also operates a defined benefit scheme for overseas employees of the Bank similar in design to the 1964 Pension Scheme, the Barclays Bank (1951) Pension Fund, which had a formal valuation as at 30th September 2002 and an interim valuation as at 30th September 2003.31st January 2004. The pension charge has been assessed using consistent assumptions to those used for the 1964 Pension Scheme and a credit of £9m (2003: £3m, (2002: £3m, 2001:2002: £3m) is included in Other UK pension schemes.
A net prepayment of £637m£881m was reflected in the balance sheet (2002: £137m)(2003: £637m), which results from the difference between the amounts recognised as costs in the profit and loss account and the amounts funded.
Note 6049 contains the disclosures required by FRS 17,17. Note 6152 provides additional disclosures required by US Statement of Financial Accounting Standards (SFAS) No. 132 (revised).
Post-retirement benefits
Other staff costs
116
127
Notes to the accounts
For the year ended 31st December 2004
5 Administrative expenses – other
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||
Property and equipment expenses | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Hire of equipment | 8 | 12 | 16 | 9 | 8 | 12 | ||||||||||||||||||
Property rentals | 184 | 180 | 183 | 197 | 184 | 180 | ||||||||||||||||||
Other property and equipment expenses | 901 | 793 | 775 | 835 | 793 | 725 | ||||||||||||||||||
Other administrative expenses | 1,311 | 1,327 | 1,329 | 1,717 | 1,419 | 1,395 | ||||||||||||||||||
2,404 | 2,312 | 2,303 | 2,758 | 2,404 | 2,312 | |||||||||||||||||||
Fees paid to the Group’s main auditors, PricewaterhouseCoopers LLP and its worldwide associates, were as follows:
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Audit related | ||||||||||||||||||||||||
Group statutory | 6 | 5 | 5 | 7 | 6 | 5 | ||||||||||||||||||
Regulatory | 3 | 5 | 7 | 5 | 3 | 5 | ||||||||||||||||||
9 | 10 | 12 | 12 | 9 | 10 | |||||||||||||||||||
Further assurance services | 3 | 3 | 5 | 3 | 3 | 3 | ||||||||||||||||||
Taxation services | ||||||||||||||||||||||||
Compliance | 4 | 3 | 4 | 3 | 4 | 3 | ||||||||||||||||||
Advisory | 2 | 2 | 1 | 2 | 2 | 2 | ||||||||||||||||||
6 | 5 | 5 | 5 | 6 | 5 | |||||||||||||||||||
Other services | ||||||||||||||||||||||||
Transaction support | 2 | 3 | 3 | 2 | 2 | 3 | ||||||||||||||||||
Other services | 1 | 1 | 1 | – | 1 | 1 | ||||||||||||||||||
3 | 4 | 4 | 2 | 3 | 4 | |||||||||||||||||||
Total fees | 21 | 22 | 26 | 22 | 21 | 22 | ||||||||||||||||||
The figures shown in the above table include amounts paid in the United Kingdom to PricewaterhouseCoopers LLP and also PricewaterhouseCoopers in previous years. Fees for audit services above include all amounts paid to the Group’s auditors in their capacity as such.
In addition to the fees included in the above table, amounts paid in prior periods to PwC Consulting, the management consultancy arm of PricewaterhouseCoopers up to its sale to the IBM Corporation on 1st October 2002, amounted to £nil in the year (2002: £6m, 2001: £12m)(2003: £nil, 2002: £6m).
Further assurance services include internal control reviews, attest services not required by statute or regulation and consultation concerning financial accounting and reporting standards.
Taxation services include compliance services such as tax return preparation and advisory services such as consultation on tax matters, tax advice relating to transactions and other tax planning and advice.
Transaction support servicesservice includes due diligence related to transactions and accounting consultations and audits in connection with transactions.
Other services primarily include general process reviews and training programmes.
For US reporting purposes, Audit Fees would comprise all items described as ‘audit related’ in the above table. Similarly, ‘Further assurance services’ as shown above would be reported as ‘audit related’.
128
6 Depreciation and amortisation
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Depreciation | ||||||||||||||||||||||||
Property depreciation | 93 | 93 | 105 | 86 | 93 | 93 | ||||||||||||||||||
Equipment depreciation | 196 | 198 | 194 | 209 | 196 | 210 | ||||||||||||||||||
Loss on sale of equipment | – | 12 | 9 | |||||||||||||||||||||
289 | 303 | 308 | 295 | 289 | 303 | |||||||||||||||||||
Amortisation | ||||||||||||||||||||||||
Goodwill amortisation | 265 | 254 | 229 | 299 | 265 | 254 | ||||||||||||||||||
Barclays PLC Annual Report 2003 117
Notes to the AccountsFor the Year Ended 31st December 2003
7 Provisions for contingent liabilities and commitmentsExceptional items
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
(1 | ) | 1 | 1 | |||||||||
8 Profit/(loss) on disposal/termination of Group undertakings
2003 | 2002 | 2001 | ||||||||||||||||||||||
£m | £m | £m | 2004 | 2003 | 2002 | |||||||||||||||||||
Net profit/(loss) on disposal of Group undertakings | 4 | 8 | (4 | ) | ||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Net profit on disposal of Group and associated undertakings | 45 | 4 | 8 | |||||||||||||||||||||
Loss on termination of Group activities | – | (11 | ) | – | – | – | (11 | ) | ||||||||||||||||
4 | (3 | ) | (4 | ) | 45 | 4 | (3 | ) | ||||||||||||||||
The net profit on disposal of Group undertakings comprises profits on disposal of £45m (2003: £7m, (2002: £14m, 2001: £15m)2002: £14m) and losses on disposal of £nil (2003: £3m, (2002: £6m, 2001: £19m)2002: £6m).
Goodwill previously written off to reserves on disposals amounted to £nil (2002: £10m, 2001: £nil). No tax credit is attributable to the losses on disposal in 2003, 2002 and 2001 and no tax was payable on the 2003, 2002 and 2001 gains.
Up to the date of sale, the businesses sold in 20032004 contributed £29m profit£nil to Group profit before tax (2002: £3m profit, 2001: £8m loss)(2003: £29m, 2002: £3m).
98 Tax
The charge for tax is based upon the effective UK corporation tax rate of 30% (2002:(2003: 30%, 2001:2002: 30%) and comprises:
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Current tax: | ||||||||||||||||||||||||
United Kingdom | 726 | 806 | 792 | 938 | 726 | 806 | ||||||||||||||||||
Overseas | 154 | 184 | 149 | 258 | 154 | 184 | ||||||||||||||||||
Total current tax | 880 | 990 | 941 | 1,196 | 880 | 990 | ||||||||||||||||||
Deferred tax (credit)/charge: | ||||||||||||||||||||||||
United Kingdom | 215 | (32 | ) | 13 | 90 | 215 | (32 | ) | ||||||||||||||||
Overseas | (21 | ) | (2 | ) | (9 | ) | (3 | ) | (21 | ) | (2 | ) | ||||||||||||
Total deferred tax | 194 | (34 | ) | 4 | 87 | 194 | (34 | ) | ||||||||||||||||
Associated undertakings and joint ventures, including overseas tax of (£2m) (2002: (£1m), 2001: (£2m)) | 2 | (1 | ) | (2 | ) | |||||||||||||||||||
Associated undertakings and joint ventures, including overseas tax of £9m (2003: (£2m), 2002: (£1m)) | 6 | 2 | (1 | ) | ||||||||||||||||||||
Total charge | 1,076 | 955 | 943 | 1,289 | 1,076 | 955 | ||||||||||||||||||
Analysis of deferred tax (credit)/charge: | ||||||||||||||||||||||||
Leasing transactions | 6 | 57 | 24 | 25 | 6 | 57 | ||||||||||||||||||
Short-term and other timing differences | 188 | (91 | ) | (20 | ) | 62 | 188 | (91 | ) | |||||||||||||||
194 | (34 | ) | 4 | 87 | 194 | (34 | ) | |||||||||||||||||
Current tax includes a credit of £20m (2003: £53m, (2002: £38m credit, 2001: £11m charge)2002: £38m) on the shareholders’ interest in the long-term assurance fund. Included within current tax are prior year adjustments to UK tax of (£24m) (2003: (£3m) (2002:, 2002: (£12m), 2001: 26m)) and overseas tax of (£1m) (2003: £10m, (2002: £3m, 2001: £2m)2002: £3m).
Available overseas tax credits of £360m (2003: £197m, (2002: £221m, 2001: £232m)2002: £221m) have been applied to reduce UK tax in accordance with UK legislation.
118
129
9Notes to the accounts
For the year ended 31st December 2004
8 Tax (continued)
The tax charge for the year in 2004, 2003 and 2002 is lower (2002 and 2001: lower) than the standard rate of corporation tax in the UK (30%) (2002(2003 and 2001:2002: 30%). The differences are set out below:
2003 | 2002 | 2001 | ||||||||||||||||||||||
£m | £m | £m | 2004 | 2003 | 2002 | |||||||||||||||||||
Tax charge at average United Kingdom corporation tax rate of 30% (2002: 30%, 2001: 30%) | 1,153 | 961 | 1,027 | |||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Tax charge at average United Kingdom corporation tax rate of 30% (2003: 30%, 2002: 30%) | 1,381 | 1,153 | 961 | |||||||||||||||||||||
Prior year adjustments | 7 | (9 | ) | 28 | (26 | ) | 7 | (9 | ) | |||||||||||||||
Effect of change in non-allowable general provisions | 2 | (2 | ) | (11 | ) | 2 | 2 | (2 | ) | |||||||||||||||
Effect of non-allowable property write-downs and depreciation | 13 | 12 | 17 | 20 | 13 | 12 | ||||||||||||||||||
Effect of Enterprise Zone Allowance | (205 | ) | – | – | – | (205 | ) | – | ||||||||||||||||
Net effect of differing tax rates overseas | (95 | ) | (70 | ) | (65 | ) | (110 | ) | (95 | ) | (70 | ) | ||||||||||||
Net effect of overseas losses not available for relief in the United Kingdom | (12 | ) | (40 | ) | (17 | ) | 24 | (12 | ) | (40 | ) | |||||||||||||
Other non-allowable expenses | (28 | ) | 8 | (21 | ) | (5 | ) | (28 | ) | 8 | ||||||||||||||
Gains covered by capital losses brought forward | (44 | ) | (3 | ) | (49 | ) | (51 | ) | (44 | ) | (3 | ) | ||||||||||||
Goodwill | 74 | 69 | 67 | 71 | 74 | 69 | ||||||||||||||||||
Other items | 17 | 63 | (37 | ) | (104 | ) | 17 | 63 | ||||||||||||||||
Current tax charge | 882 | 989 | 939 | 1,202 | 882 | 989 | ||||||||||||||||||
Deferred tax charge | 194 | (34 | ) | 4 | 87 | 194 | (34 | ) | ||||||||||||||||
Overall tax charge | 1,076 | 955 | 943 | 1,289 | 1,076 | 955 | ||||||||||||||||||
Effective tax rate % | 28.0 | 29.8 | 27.5 | 28.0 | 28.0 | 29.8 | ||||||||||||||||||
The charge for the year is based upon a UK corporation tax rate of 30% for the calendar year 2003 (2002: 30%, 2001: 30%). The effective rate of tax was 28.0% (2002: 29.8%, 2001: 27.5%). The decrease in the tax rate was primarily due to the beneficial effects of lower tax on overseas income, recognition of agreed capital gains tax losses and certain non-taxable gains, partially offset by the absence of tax relief on goodwill. The beneficial effect of the Enterprise Zone Allowance in the current tax charge is offset by a corresponding increase in the deferred tax charge.
109 Minority and other interests – Barclays PLC
Equity minority interests in the balance sheet amounting to £211m (2003: £283m) represent the interests of third parties in the equity shares of the Group subsidiary undertakings.
11Non-equity minority interests in the balance sheet comprise non-cumulative, callable euro-denominated preference shares issued by Barclays Bank PLC of £688m (2003: £nil) and an additional £2m of profits attributable to these non-equity minority interests at the year end. Further details of the rights of holders of preference shares are given in note (c) to the accounts of Barclays Bank PLC on page 220.
Total minority equity and non-equity interests as at 31st December 2004 were £901m (2003: £283m).
Minority interests in the profit and loss account include £44m (2003: £25m) in relation to equity minority interests and £2m (2003: £nil) in relation to non-equity minority interests.
10 Dividends – Barclays PLC
2003 | 2002 | 2001 | ||||||||||||||||||||||
Dividends per ordinary share | £m | £m | £m | |||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
Dividends on ordinary shares | £m | £m | £m | |||||||||||||||||||||
Interim | 457 | 419 | 383 | 528 | 457 | 419 | ||||||||||||||||||
Final | 883 | 787 | 727 | 1,010 | 883 | 787 | ||||||||||||||||||
1,340 | 1,206 | 1,110 | 1,538 | 1,340 | 1,206 | |||||||||||||||||||
(pence per share) | (pence per share) | |||||||||||||||||||||||
Interim | 7.05 | 6.35 | 5.750 | 8.25 | 7.05 | 6.35 | ||||||||||||||||||
Final | 13.45 | 12.00 | 10.875 | 15.75 | 13.45 | 12.00 | ||||||||||||||||||
20.50 | 18.35 | 16.625 | 24.00 | 20.50 | 18.35 | |||||||||||||||||||
Dividends amounting to £0.2m (2002:(2003: £0.2m, 2001:2002: £0.2m) are payable on the staff shares, which carry a fixed dividend of 20% per annum unless no dividend is paid for the year on the ordinary shares.
12The total dividend of £1,538m stated in the Barclays PLC Group profit and loss account excludes £9m payable on shares held by employee benefit trusts. The shares to which this adjustment relates are those where the full cost of the shares has not been expensed to the profit and loss account at the end of the period to which the dividend relates. The total dividend of £1,547m is reflected in the Barclays PLC parent company profit and loss account on page 124.
130
Barclays PLC Annual Report 2004
11 Earnings per 25p ordinary share – Barclays PLC
2004 | 2003 | 2002 | |||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | ||||||||||||||||||||
£m | £m | £m | |||||||||||||||||||||||
Basic and diluted earnings | 2,744 | 2,230 | 2,446 | 3,268 | 2,744 | 2,230 | |||||||||||||||||||
Number of shares (millions) | Number of shares (millions) | ||||||||||||||||||||||||
Basic weighted average number of shares | 6,483 | 6,626 | 6,651 | 6,381 | 6,483 | 6,626 | |||||||||||||||||||
Potential ordinary shares | 31 | 47 | 67 | 33 | 31 | 47 | |||||||||||||||||||
Diluted weighted average number of shares | 6,514 | 6,673 | 6,718 | 6,414 | 6,514 | 6,673 | |||||||||||||||||||
Basic and diluted earnings are based upon the results after deducting tax, profit attributable to minority interests and dividends on staff shares.
Certain shares held by incentive plans have been excluded from the calculation of earnings per share in line with UITF 13, on the grounds that the trustee has waived all dividend and voting rights.13.
Barclays PLC Annual Report 2003 119
Notes to the AccountsFor the Year Ended 31st December 2003
1312 Treasury bills and other eligible bills
2004 | 2003 | |||||||||||||||
2003 | 2002 | £m | £m | |||||||||||||
£m | £m | |||||||||||||||
Treasury bills | 6,600 | 5,389 | 6,438 | 6,600 | ||||||||||||
Other eligible bills | 577 | 2,256 | 220 | 577 | ||||||||||||
6,658 | 7,177 | |||||||||||||||
7,177 | 7,645 | |||||||||||||||
Treasury bills and other eligible bills comprise: | ||||||||||||||||
Banking business | 3,113 | 4,759 | 1,380 | 3,113 | ||||||||||||
Trading business | 4,064 | 2,886 | 5,278 | 4,064 | ||||||||||||
7,177 | 7,645 | 6,658 | 7,177 | |||||||||||||
Treasury bills and other eligible bills are mainly short term in maturity with a book value not materially different from market value.
The total amount of treasury bills and other eligible bills included above, which are subject to sale and repurchase agreements, was £nil£3,438m at 31st December 2003 (2002: £10m)2004 (2003: £1,665m).
1413 Loans and advances to banks
2004 | 2003 | |||||||||||||||
2003 | 2002 | £m | £m | |||||||||||||
£m | £m | |||||||||||||||
Repayable | ||||||||||||||||
on demand | 1,893 | 1,973 | 2,710 | 1,893 | ||||||||||||
not more than three months | 46,146 | 44,124 | 51,883 | 46,146 | ||||||||||||
over three months but not more than one year | 4,996 | 4,286 | 6,109 | 4,996 | ||||||||||||
over one year but not more than five years | 5,207 | 7,566 | 10,924 | 5,207 | ||||||||||||
over five years | 3,698 | 307 | 3,511 | 3,698 | ||||||||||||
61,940 | 58,256 | 75,137 | 61,940 | |||||||||||||
Less: Provisions | (16 | ) | (82 | ) | (6 | ) | (16 | ) | ||||||||
61,924 | 58,174 | 75,131 | 61,924 | |||||||||||||
131
2003 | 2002 | |||||||
£m | £m | |||||||
By geographical area | ||||||||
Banking business: | ||||||||
United Kingdom | 14,315 | 11,510 | ||||||
Other European Union | 1,702 | 2,154 | ||||||
United States | 110 | 256 | ||||||
Rest of the World | 1,143 | 1,531 | ||||||
17,270 | 15,451 | |||||||
Less: Provisions | (16 | ) | (82 | ) | ||||
Total banking business | 17,254 | 15,369 | ||||||
Total trading business | 44,670 | 42,805 | ||||||
61,924 | 58,174 | |||||||
Notes to the Accounts
For the year ended 31st December 2004
13 Loans and advances to banks (continued)
2004 | 2003 | |||||||
£m | £m | |||||||
By geographical area | ||||||||
Banking business: | ||||||||
United Kingdom | 21,351 | 14,315 | ||||||
Other European Union | 1,189 | 1,702 | ||||||
United States | 753 | 110 | ||||||
Rest of the World | 1,699 | 1,143 | ||||||
24,992 | 17,270 | |||||||
Less: Provisions | (6 | ) | (16 | ) | ||||
Total banking business | 24,986 | 17,254 | ||||||
Total trading business | 50,145 | 44,670 | ||||||
75,131 | 61,924 | |||||||
At 31st December 2003,2004, there were loans and advances to banks of £27m (2002: £9m)£54m (2003: £27m) due from associated undertakings and joint ventures.
The Group is required to maintain balances with central banks and other regulatory authorities and these amounted to £346m£621m at 31st December 2003 (2002: £565m)2004 (2003: £346m).
Additional analyses are provided within the loans and advances, provisions for bad and doubtful debts and potential credit risk lendings sections on pages 31 to 47.
The geographic analysis of the banking business is based on the location of the office from which the lendings are made. The trading business, which is largely carried out in the UK, the US and Japan, is more international in nature and has not been analysed geographically. It primarily constitutes settlement and reverse repo balances.
Provisions include specific provisions of £12m (2002: £77m)£2m (2003: £12m) and general provisions of £4m (2002: £5m)(2003: £4m).
120
132
15Barclays PLC Annual Report 2004
14 Loans and advances to customers
2003 | 2002 | 2004 | 2003 | |||||||||||||||||||||||||||||
£m | £m | £m | £m | |||||||||||||||||||||||||||||
£m | £m | £m | £m | |||||||||||||||||||||||||||||
Repayable | ||||||||||||||||||||||||||||||||
on demand | 12,179 | 14,460 | 18,845 | 12,179 | ||||||||||||||||||||||||||||
not more than three months | 76,158 | 60,590 | 80,748 | 76,158 | ||||||||||||||||||||||||||||
over three months but not more than one year | 15,909 | 17,915 | 25,368 | 15,909 | ||||||||||||||||||||||||||||
over one year but not more than five years | 34,834 | 31,262 | 35,477 | 34,834 | ||||||||||||||||||||||||||||
over five years | 90,800 | 81,165 | 97,308 | 90,800 | ||||||||||||||||||||||||||||
229,880 | 205,392 | 257,746 | 229,880 | |||||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||
Provisions | (3,012 | ) | (2,916 | ) | (2,760 | ) | (3,012 | ) | ||||||||||||||||||||||||
Interest in suspense | (49 | ) | (78 | ) | (40 | ) | (49 | ) | ||||||||||||||||||||||||
(3,061 | ) | (2,994 | ) | (2,800 | ) | (3,061 | ) | |||||||||||||||||||||||||
226,819 | 202,398 | 254,946 | 226,819 | |||||||||||||||||||||||||||||
By geographical area | ||||||||||||||||||||||||||||||||
Banking business: | ||||||||||||||||||||||||||||||||
United Kingdom | 143,809 | 135,900 | 159,094 | 143,809 | ||||||||||||||||||||||||||||
Other European Union | 19,027 | 12,579 | 20,393 | 19,027 | ||||||||||||||||||||||||||||
United States | 3,573 | 6,138 | 7,984 | 3,573 | ||||||||||||||||||||||||||||
Rest of the World | 4,510 | 5,599 | 5,176 | 4,510 | ||||||||||||||||||||||||||||
170,919 | 160,216 | 192,647 | 170,919 | |||||||||||||||||||||||||||||
Less: Provisions | (3,012 | ) | (2,916 | ) | (2,760 | ) | (3,012 | ) | ||||||||||||||||||||||||
Interest in suspense | (49 | ) | (78 | ) | (40 | ) | (49 | ) | ||||||||||||||||||||||||
Total banking business | 167,858 | 157,222 | 189,847 | 167,858 | ||||||||||||||||||||||||||||
Total trading business | 58,961 | 45,176 | 65,099 | 58,961 | ||||||||||||||||||||||||||||
226,819 | 202,398 | 254,946 | 226,819 | |||||||||||||||||||||||||||||
Loans and advances to customers booked in offices in the UK — banking business
2004 | 2003 | |||||||
At 31st December | £m | £m | ||||||
Financial institutions | 11,947 | 7,721 | ||||||
Agriculture, forestry and fishing | 1,947 | 1,766 | ||||||
Manufacturing | 6,282 | 5,967 | ||||||
Construction | 2,476 | 1,883 | ||||||
Property | 7,933 | 6,341 | ||||||
Energy and water | 936 | 1,286 | ||||||
Wholesale and retail distribution and leisure | 9,751 | 8,886 | ||||||
Transport | 2,275 | 2,579 | ||||||
Communications | 454 | 476 | ||||||
Business and other services | 14,281 | 12,030 | ||||||
Home loans | 64,481 | 61,905 | ||||||
Other personal | 23,313 | 21,905 | ||||||
Overseas customers | 7,612 | 5,477 | ||||||
153,688 | 138,222 | |||||||
Finance lease receivables | 5,406 | 5,587 | ||||||
Total | 159,094 | 143,809 | ||||||
133
Notes to the accounts
For the year ended 31 st December 2004
14 Loans and advances to customers (continued)
Loans and advances to customers booked in offices outside the UK – banking business
2004 | 2003 | |||||||
At 31st December | £m | £m | ||||||
Financial institutions | 3,055 | 3,398 | ||||||
Agriculture, forestry and fishing | 296 | 352 | ||||||
Manufacturing | 2,140 | 2,082 | ||||||
Construction | 913 | 651 | ||||||
Property | 644 | 453 | ||||||
Energy and water | 1,598 | 1,998 | ||||||
Wholesale and retail distribution and leisure | 1,177 | 763 | ||||||
Transport | 1,186 | 1,453 | ||||||
Communications | 224 | 247 | ||||||
Business and other services | 4,723 | 2,132 | ||||||
Home loans | 13,192 | 10,450 | ||||||
Other personal | 2,639 | 2,034 | ||||||
Overseas customers | 1,361 | 807 | ||||||
33,148 | 26,820 | |||||||
Finance lease receivables | 405 | 290 | ||||||
33,553 | 27,110 | |||||||
At 31st December 2003,2004, there were loans and advances to customers of £277m (2002: £249m)£236m (2003: £277m) due from associated undertakings and joint ventures.
Mortgage incentive costs of £67m (2003: £81m, (2002: £86m, 2001: £115m)2002: £86m) have been charged to net interestoperating income.
Additional analyses are provided within the loans and advances, provisions for bad and doubtful debts and potential credit risk lendings sections on pages 31 to 47.
The geographical analysis of the banking business is based on the location of the office from which the lendings are made. The trading business, which is largely carried out in the UK, the US and Japan, is more international in nature and has not been analysed geographically. It primarily constitutes settlement and reverse repo balances.
Provisions include specific provisions of £2,221m (2002: £2,184m)£2,200m (2003: £2,221m) and general provisions of £791m (2002: £732m)£560m (2003: £791m).
Banking business loans and advances to customers include finance lease receivables of £5,877m (2002: £4,389m)£5,811m (2003: £5,877m) which are stated in the balance sheet after deducting £1,737m (2002: £2,993m)£1,254m (2003: £1,737m) of unearned charges and interest. Assets acquired in the year for letting under finance leases amounted to £645m (2002: £401m)£318m (2003: £645m).
The following unguaranteed residual values are included in finance lease receivables:
2003 | 2002 | 2004 | 2003 | |||||||||||||
Residual risk under finance leases | £m | £m | £m | £m | ||||||||||||
Recoverable: | ||||||||||||||||
not more than one year | 7 | 17 | 4 | 7 | ||||||||||||
over one year but not more than two years | 2 | 4 | 1 | 2 | ||||||||||||
over two years but not more than five years | 3 | 6 | 6 | 3 | ||||||||||||
over five years | 11 | 11 | 7 | 11 | ||||||||||||
23 | 38 | 18 | 23 | |||||||||||||
Aggregate amounts received and receivable during the year under finance leases were £482m (2003: £419m, 2002: £433m), including interest income of £272m (2003: £234m, 2002: £225m).
134
Barclays PLC Annual Report 2003 1212004
Notes to the AccountsFor the Year Ended 31st December 2003
1514 Loans and advances to customers (continued)
Securitised transactions
Linked presentation
The securitisation company involved is Millshaw SAMS (No. 1) Limited. All the shares in Millshaw SAMS (No. 1) Limited are held beneficially by Millshaw SAMS Holdings Limited. All the shares in Millshaw SAMS Holdings Limited are held by Royal Exchange Trust Company Limited. The Group does not own, directly or indirectly, any of the share capital of Millshaw SAMS (No. 1) Limited or its parent companies. The Bank has made an interest bearing subordinated loan to Millshaw SAMS (No. 1) Limited repayable on final redemption of the floating rate notes.
The Bank received payments from the securitisation companies in respect of fees for loan administration services, and also under the terms of the subordinated loan agreement. The Bank has no right to repurchase the benefit of any of the securitised loans and no obligation to do so, other than in certain circumstances where the Bank is in breach of warranty. The personal mortgage loans subject to non-recourse finance are as follows:
Outstanding at 31st December 2003 | Outstanding at 31st December 2002 | ||||||||||||||||||||||||
Non- | Funding | Non- | Funding | ||||||||||||||||||||||
Customer | returnable | provided by | Customer | returnable | provided by | ||||||||||||||||||||
loans | finance | the Bank | (a) | loans | finance | the Bank | (a) | ||||||||||||||||||
£m | £m | £m | £m | £m | £m | ||||||||||||||||||||
81 | 80 | 1 | 84 | 83 | 1 | ||||||||||||||||||||
Linked presentation has been applied for these loans and the net of the loansloan and finance is included within loansLoans and advances to customers on the balance sheet.sheet, as follows:
2004 | 2003 | |||||||
£m | £m | |||||||
Gross loan receivable | 4,540 | 81 | ||||||
Non-recourse finance | (4,446 | ) | (80 | ) | ||||
Net amount reported in Loans and advances to customers | 94 | 1 | ||||||
Barclays Bank S.A., Spain
Barclays securitised two static pools of residential mortgage loans originated by Barclays Bank S.A., domiciled in Spain. Both securitisations were effected through the sale of mortgage shares to, respectively, AyT Génova Hipotecario II, Fondo de Titulización Hipotecario (‘Genova II’) and AyT Génova Hipotecario III, Fondo de Titulización Hipotecario (‘Genova III’) (each an ‘Issuer’). Each Issuer is a fund which is managed by Ahorro Y Titulización S.G.F.T. S.A. (the ‘Managing Company’).
To fund the acquisition of these mortgage shares, each Issuer issued floating rate notes (‘FRNs’). All FRNs were publicly subscribed. The offering circulars for both issues of FRNs stated that they are the obligations of the respective Issuer only and are not guaranteed by, or the responsibility of, any other party. Non-returnable proceeds of these two securitisation issues totalled€1.6bn at issue. Each Issuer has entered into a swap agreement with Barclays Bank PLC, Spain branch under which each pays the floating rate of interest on the respective mortgage loans and receives interest linked to 3 month Euribor. The proceeds generated from the loans are used in each case in priority to meet the claims of the FRN holders, after the payment of Managing Company and administration expenses and amounts involvedpayable in respect of the interest rate swap arrangements. As at 31st December 2004, the outstanding balance on non-returnable proceeds of these two securitisation issues totalled€1,408m (£996m).
There is no option to transfer additional assets to either of the Issuers. The Managing Company has the right to liquidate the fund if the principal balance of the mortgage shares has fallen below 10% of their initial amount provided all obligations under the bonds can be satisfied in full. In circumstances considered to be remote, the Managing Company also has the right to offer to the market to sell the pool of assets remaining at the time. The price achieved must be the best of five bids given by five major players in the linked presentation havemarket. Only in these circumstances and on this pricing basis, Barclays Bank S.A. has an option, but not been shown onan obligation, to re-purchase the faceassets then remaining. Barclays Bank PLC Spain branch has provided two subordinated loans to each Issuer in respect of a reserve fund and initial expenses. Barclays Bank S.A. is also remunerated for its roles as Financial Agent and Manager of the balance sheet becausemortgage loans on behalf of the Managing Company.
The directors of each of the Issuers have confirmed that Barclays Bank S.A., is not obliged and does not intend to support any losses beyond the recourse to the mortgage loan assets underlying each issue.
Barclays is not obliged, beyond any obligations mentioned above, to support any losses that may be suffered by the FRN holders and does not intend to provide such support.
In 2004 Barclays recognised net income of £0.6m arising from these securitisations, which comprised £0.1m as financial agent and mortgage originator and £0.5m as the amount remaining in Genova II and Genova III after making all other payments in priority.
Barclays Capital, New York
In 2004, Barclays securitised ten static pools of residential mortgage loans in the US, which were originated by unaffiliated mortgage companies. All of the securitisations were effected through the sale of mortgage loans to trusts that are bankruptcy remote from Barclays.
To fund the acquisition of these mortgage loans, the trust issued FRNs. The FRNs were underwritten by Barclays and sold to third party investors. Barclays often retained a residual interest in the securitisation for which financial consideration was given. The offering circulars for the issues of FRNs stated that they are the obligations of the respective trust only and are not deemedguaranteed by, or the responsibility of, any other party. Non-returnable proceeds of these securitisations totalled $7,780m at issue. At 31st December 2004, the outstanding balance on non-returnable proceeds of these securitisation issues totalled $6,629m (£3,450m).
There is no option to transfer additional assets to any of the trusts. A call right exists with the right to liquidate the trust if the principal balance of the mortgage shares has fallen below 10% of their initial amount, provided all obligations under the bonds can be significant.satisfied in full.
135
Notes to the accounts
For the year ended 31 st December 2004
14 Loans and advances to customers (continued)
Barclays is not obliged and does not intend to support any losses beyond the recourse to the mortgage loan assets underlying each issue.
Barclays is not obliged to support any losses that may be suffered by the FRN holders and does not intend to provide such support.
In 2004 Barclays recognised net income of £40m (2003: £nil) from the whole loan securitisations business.
Gross assets presentation
During 2003, a portionLoans and advances also include £80m of securitised assets within the residential mortgage portfolio of Barclays Bank S.A. in Spain was also securitised. The sterling equivalentbanking business as at 31st December 2004 which are reported under gross asset presentation. As at 31st December 2003, of the mortgagesgross balances outstanding on these totalled £81m.
In addition to securitised was £1,085m. The total portfolio is included within gross loans and advances, andthe Group has securitised a portfolio of investment debt securities which are also disclosed on a gross asset presentation basis, as discussed in Note 58,16, and the funding giving rise to the noteholders interest is included within Debt securitiesa securitised portion of life fund disclosed net in issue.Note 22.
122
16 Provisions15 Provision balances for bad and doubtful debts
2003 | 2002 | 2001 | |||||||||||||||||||||||||||||||||||
Movements in provisions for | Specific | General | Total | Specific | General | Total | Specific | General | Total | ||||||||||||||||||||||||||||
bad and doubtful debts | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||
Provisions at beginning of year | 2,261 | 737 | 2,998 | 1,971 | 745 | 2,716 | 1,593 | 760 | 2,353 | ||||||||||||||||||||||||||||
Acquisitions and disposals | 27 | 35 | 62 | (25 | ) | 14 | (11 | ) | 50 | (4 | ) | 46 | |||||||||||||||||||||||||
Exchange and other adjustments | (14 | ) | (4 | ) | (18 | ) | (57 | ) | (20 | ) | (77 | ) | (6 | ) | 5 | (1 | ) | ||||||||||||||||||||
2,274 | 768 | 3,042 | 1,889 | 739 | 2,628 | 1,637 | 761 | 2,398 | |||||||||||||||||||||||||||||
Provision for the year | 1,320 | 27 | 1,347 | 1,486 | (2 | ) | 1,484 | 1,165 | (16 | ) | 1,149 | ||||||||||||||||||||||||||
Amounts written off, net of recoveries of £113m (2002: £106m, 2001: £142m) | (1,361 | ) | – | (1,361 | ) | (1,114 | ) | – | (1,114 | ) | (831 | ) | – | (831 | ) | ||||||||||||||||||||||
Provisions at end of year | 2,233 | 795 | 3,028 | 2,261 | 737 | 2,998 | 1,971 | 745 | 2,716 | ||||||||||||||||||||||||||||
2003 | 2002 | ||||||||||||||||||||||||||||||||||||
Provisions at 31st December | £m | £m | |||||||||||||||||||||||||||||||||||
Specific provisions | |||||||||||||||||||||||||||||||||||||
United Kingdom | 1,856 | 1,790 | |||||||||||||||||||||||||||||||||||
Other European Union | 97 | 84 | |||||||||||||||||||||||||||||||||||
United States | 121 | 257 | |||||||||||||||||||||||||||||||||||
Rest of the World | 159 | 130 | |||||||||||||||||||||||||||||||||||
2,233 | 2,261 | ||||||||||||||||||||||||||||||||||||
General provisions | 795 | 737 | |||||||||||||||||||||||||||||||||||
3,028 | 2,998 | ||||||||||||||||||||||||||||||||||||
2003 | 2002 | ||||||||||||||||||||||||||||||||||||
Non-performing advances | £m | £m | |||||||||||||||||||||||||||||||||||
Loans and advances on which interest is in suspense or is not being applied | 2,907 | 3,153 | |||||||||||||||||||||||||||||||||||
Specific provisions | (1,527 | ) | (1,634 | ) | |||||||||||||||||||||||||||||||||
1,380 | 1,519 | ||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||
Movements in provision | ||||||||||||||||||||||||||||||||||||
balances for bad and | Specific | General | Total | Specific | General | Total | Specific | General | Total | |||||||||||||||||||||||||||
doubtful debts | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||
Balance at beginning of year | 2,233 | 795 | 3,028 | 2,261 | 737 | 2,998 | 1,971 | 745 | 2,716 | |||||||||||||||||||||||||||
Acquisitions and disposals | 38 | (17 | ) | 21 | 27 | 35 | 62 | (25 | ) | 14 | (11 | ) | ||||||||||||||||||||||||
Exchange and other adjustments | (30 | ) | (4 | ) | (34 | ) | (14 | ) | (4 | ) | (18 | ) | (57 | ) | (20 | ) | (77 | ) | ||||||||||||||||||
2,241 | 774 | 3,015 | 2,274 | 768 | 3,042 | 1,889 | 739 | 2,628 | ||||||||||||||||||||||||||||
Charge for the year | 1,301 | (210 | ) | 1,091 | 1,320 | 27 | 1,347 | 1,486 | (2 | ) | 1,484 | |||||||||||||||||||||||||
Amounts written off, net of recoveries of £255m (2003: £113m, 2002: £106m) | (1,340 | ) | – | (1,340 | ) | (1,361 | ) | – | (1,361 | ) | (1,114 | ) | – | (1,114 | ) | |||||||||||||||||||||
Balance at end of year | 2,202 | 564 | 2,766 | 2,233 | 795 | 3,028 | 2,261 | 737 | 2,998 | |||||||||||||||||||||||||||
2004 | 2003 | |||||||
Provision balances at 31st December | £m | £m | ||||||
Specific provision balances | ||||||||
United Kingdom | 1,860 | 1,856 | ||||||
Other European Union | 104 | 97 | ||||||
United States | 128 | 121 | ||||||
Rest of the World | 110 | 159 | ||||||
2,202 | 2,233 | |||||||
General provision balances | 564 | 795 | ||||||
2,766 | 3,028 | |||||||
2004 | 2003 | |||||||
Non-performing advances | £m | £m | ||||||
Loans and advances on which interest is in suspense or is not being applied | 2,607 | 2,890 | ||||||
Specific provision balance | (1,563 | ) | (1,527 | ) | ||||
1,044 | 1,363 | |||||||
136
Barclays PLC Annual Report 2003 1232004
2004 | 2003 | |||||||
£m | £m | |||||||
Non-accrual loans | 2,115 | 2,261 | ||||||
Accruing loans where interest is being suspended with or without provisions | 492 | 629 | ||||||
Other accruing loans against which provisions have been made | 842 | 821 | ||||||
Sub total | 3,449 | 3,711 | ||||||
Accruing loans 90 days or more overdue, against which no provisions have been made | 521 | 590 | ||||||
Reduced rate loans | 15 | 4 | ||||||
Total non-performing loans | 3,985 | 4,305 | ||||||
Notes to the AccountsFor the Year Ended 31st December 2003
1716 Debt securities
2003 | 2002 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance | unrealised | unrealised | Balance | unrealised | unrealised | Balance | unrealised | unrealised | Balance | unrealised | unrealised | |||||||||||||||||||||||||||||||||||||||||||||||||||||
sheet | gains | losses | Valuation | sheet | gains | losses | Valuation | sheet | gains | losses | Valuation | sheet | gains | losses | Valuation | |||||||||||||||||||||||||||||||||||||||||||||||||
Investment securities: | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom government | 565 | 63 | (7 | ) | 621 | 1,465 | 31 | – | 1,496 | 19 | – | – | 19 | 565 | 63 | (7 | ) | 621 | ||||||||||||||||||||||||||||||||||||||||||||||
other government | 16,347 | 475 | (50 | ) | 16,772 | 18,963 | 601 | – | 19,564 | 11,858 | 200 | (7 | ) | 12,051 | 16,347 | 475 | (50 | ) | 16,772 | |||||||||||||||||||||||||||||||||||||||||||||
other public bodies | 78 | 1 | – | 79 | 17 | – | – | 17 | 21 | – | – | 21 | 78 | 1 | – | 79 | ||||||||||||||||||||||||||||||||||||||||||||||||
mortgage-backed securities | 3,074 | 7 | (4 | ) | 3,077 | 4,693 | 11 | – | 4,704 | 6,563 | 3 | (29 | ) | 6,537 | 3,074 | 7 | (4 | ) | 3,077 | |||||||||||||||||||||||||||||||||||||||||||||
corporate issuers | 13,826 | 158 | (18 | ) | 13,966 | 12,601 | 81 | (16 | ) | 12,666 | 15,765 | 36 | (5 | ) | 15,796 | 13,826 | 158 | (18 | ) | 13,966 | ||||||||||||||||||||||||||||||||||||||||||||
other issuers | 3,691 | 6 | (2 | ) | 3,695 | 2,529 | 1 | – | 2,530 | 5,531 | 20 | (4 | ) | 5,547 | 3,691 | 6 | (2 | ) | 3,695 | |||||||||||||||||||||||||||||||||||||||||||||
37,581 | 710 | (81 | ) | 38,210 | 40,268 | 725 | (16 | ) | 40,977 | 39,757 | 259 | (45 | ) | 39,971 | 37,581 | 710 | (81 | ) | 38,210 | |||||||||||||||||||||||||||||||||||||||||||||
Other debt securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom government | 2,084 | – | �� | – | 2,084 | 1,025 | – | – | 1,025 | 2,567 | – | – | 2,567 | 2,084 | – | – | 2,084 | |||||||||||||||||||||||||||||||||||||||||||||||
other government | 28,011 | – | – | 28,011 | 25,385 | – | – | 25,385 | 37,438 | – | – | 37,438 | 28,011 | – | – | 28,011 | ||||||||||||||||||||||||||||||||||||||||||||||||
other public bodies | 4,513 | – | – | 4,513 | 2,438 | – | – | 2,438 | 8,177 | – | – | 8,177 | 4,513 | – | – | 4,513 | ||||||||||||||||||||||||||||||||||||||||||||||||
bank and building society certificates of deposit | 5,796 | – | – | 5,796 | 12,027 | – | – | 12,027 | 7,063 | – | – | 7,063 | 5,796 | – | – | 5,796 | ||||||||||||||||||||||||||||||||||||||||||||||||
other issuers | 19,408 | – | – | 19,408 | 13,086 | – | – | 13,086 | 32,426 | – | – | 32,426 | 19,408 | – | – | 19,408 | ||||||||||||||||||||||||||||||||||||||||||||||||
97,393 | 710 | (81 | ) | 98,022 | 94,229 | 725 | (16 | ) | 94,938 | 127,428 | 259 | (45 | ) | 127,642 | 97,393 | 710 | (81 | ) | 98,022 | |||||||||||||||||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost | Provisions | sheet | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Movements in investment securities | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At beginning of year | 40,323 | (55 | ) | 40,268 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange and other adjustments | (21 | ) | – | (21 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions and transfers | 35,797 | – | 35,797 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of Investment securities | (17,137 | ) | – | (17,137 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sale of Investment securities | (21,206 | ) | 5 | (21,201 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provisions raised | – | (15 | ) | (15 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortisation of discounts and premiums | (110 | ) | – | (110 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At end of year | 37,646 | (65 | ) | 37,581 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2004 | ||||||||||||
Balance | ||||||||||||
Cost | Provisions | sheet | ||||||||||
Movements in investment securities | £m | £m | £m | |||||||||
At beginning of year | 37,646 | (65 | ) | 37,581 | ||||||||
Exchange and other adjustments | (904 | ) | – | (904 | ) | |||||||
Acquisitions and transfers | 44,114 | – | 44,114 | |||||||||
Redemption of investment securities | (18,441 | ) | – | (18,441 | ) | |||||||
Sale of investment securities | (22,486 | ) | 18 | (22,468 | ) | |||||||
Provisions raised | – | (12 | ) | (12 | ) | |||||||
Amortisation of discounts and premiums | (113 | ) | – | (113 | ) | |||||||
At end of year | 39,816 | (59 | ) | 39,757 | ||||||||
In the above table the valuation of debt securities is based on market value.
The total value of debt securities at 31st December 20032004 includes securities which are subject to sale and repurchase agreements of £10,259m (2002: £5,839m)£58,557m (2003: £42,592m) unamortised net premium on investment securities of £153m (2002: £590m)£319m (2003: net premium £153m) and holdings by the Group of debt securities of £4m (2002: £1m)£nil (2003: £4m) issued by associated undertakings or joint ventures. The value of securities due within one year at 31st December 20032004 was £20,458m (2002: £22,281m)£12,818m (2003: £20,458m).
During 1999, the Group securitised a portfolio of investment debt securities. Linked presentation under FRS 5 is not available and therefore the portfolio with a sterling equivalent book value of £192m£68m at 31st December 2003 (2002: £318m)2004 (2003: £192m) is included within the total above. The funding from this transaction is reported in Other liabilities (Note 2926 on page 131)145).
137
Notes to the accounts
For the year ended 31st December 2004
16 Debt securities (continued)
The Group has a portfolio of investment debt securities, a large portion of which are subject to limited recourse financing. Linked presentation under FRS 5 is not available and therefore the portfolio with a sterling equivalent book value of £3,750m (2002: £457m)£4,782m (2003: £3,750m) is included in the total above, with the financing reported in Deposits by banks and Debt securities in issue. At 31st December 2003,2004, the Group’s net exposure to these investment debt securities, after taking into account the limited recourse financing, was £1,203m (2002: £97m)£1,149m (2003: £1,203m).
Barclays PLC holds, as an investment, British government stock with a book value of £0.1m (2002:(2003: £0.1m).
Gross gains of £34m (2003: £4m, (2002: £5m, 2001: £37m)2002: £5m) and gross losses of £13m (2003: £6m, (2002: £37m, 2001: £13m)2002: £37m) were realised on the sale of investment securities using an average weighted cost approach.
Other debt securities are held at valuation. The cost of Other debt securities is not available and would be unreasonably expensive to obtain.
Of the total debt securities disclosed above, £63,629m (2002: £56,290m)£81,146m (2003: £63,629m) were listed on a recognised exchange. These listed debt securities had a market value of £64,230m (2002: £56,991m)£81,342m (2003: £64,230m).
Maturing | Maturing | |||||||||||||||||||
Maturing | after one | after five | Maturing | |||||||||||||||||
within | but within | but within | after | |||||||||||||||||
one year | five years | ten years | ten years | |||||||||||||||||
Maturities of investment debt securities | £m | £m | £m | £m | £m | |||||||||||||||
Government | 2,271 | 5,660 | 3,609 | 337 | 11,877 | |||||||||||||||
Other public bodies | 9 | 12 | – | – | 21 | |||||||||||||||
Other issuers | 9,080 | 13,883 | 670 | 4,226 | 27,859 | |||||||||||||||
Total book value | 11,360 | 19,555 | 4,279 | 4,563 | 39,757 | |||||||||||||||
Total valuation | 11,379 | 19,660 | 4,346 | 4,586 | 39,971 | |||||||||||||||
See page 91 of17 Equity shares
2004 | 2003 | |||||||||||||||
Balance | Balance | |||||||||||||||
sheet | Valuation | sheet | Valuation | |||||||||||||
£m | £m | £m | £m | |||||||||||||
Investment securities | 1,293 | 1,513 | 954 | 1,134 | ||||||||||||
Other securities | 10,873 | 10,873 | 6,905 | 6,905 | ||||||||||||
12,166 | 12,386 | 7,859 | 8,039 | |||||||||||||
2004 | ||||||||||||
Balance | ||||||||||||
Cost | Provisions | sheet | ||||||||||
Movements in Investment securities | £m | £m | £m | |||||||||
At beginning of year | 973 | (19 | ) | 954 | ||||||||
Acquisitions and transfers | 423 | (2 | ) | 421 | ||||||||
Sale of Investment securities | (73 | ) | – | (73 | ) | |||||||
Exchange/other | (9 | ) | – | (9 | ) | |||||||
At end of year | 1,314 | (21 | ) | 1,293 | ||||||||
In the Financial Review forabove table the valuation and maturity analysis of investment securities.
124
18 Equity shares
2003 | 2002 | |||||||||||||||
restated | ||||||||||||||||
Balance | Balance | |||||||||||||||
sheet | Valuation | sheet | Valuation | |||||||||||||
£m | £m | £m | £m | |||||||||||||
Investment securities | 954 | 1,134 | 505 | 509 | ||||||||||||
Other securities | 6,905 | 6,905 | 2,624 | 2,624 | ||||||||||||
7,859 | 8,039 | 3,129 | 3,133 | |||||||||||||
2003 | ||||||||||||||||
Balance | ||||||||||||||||
Cost | Provisions | sheet | ||||||||||||||
Movements in Investment securities | £m | £m | £m | |||||||||||||
At beginning of year | 516 | (11 | ) | 505 | ||||||||||||
Acquisitions and transfers | 572 | (10 | ) | 562 | ||||||||||||
Sale of Investment securities | (115 | ) | 2 | (113 | ) | |||||||||||
At end of year | 973 | (19 | ) | 954 | ||||||||||||
Gross unrealised gains on equity shares amounted to £180m (2002: £14m)£220m (2003: £180m). Gross unrealised losses amounted to £nil (2002: £10m)(2003: £nil).
Gross gains of £200m (2003: £82m, (2002: £91m, 2001: £68m)2002: £91m) and gross losses of £nil (2002: £12m, 2001: £8m)(2003: £nil, 2002: £12m) were realised on the sale of Investment securities.
Other securities are stated at valuation. The cost of Other securities is not available and would be unreasonably expensive to obtain.
The 2002 comparatives have been restated to reflect the impact of UITF Abstract 37 – see summary of changes in accounting policy on page 105.
Of the total equity shares disclosed above, £6,471m (2002: £2,273m)£9,675m (2003: £6,471m) were listed on a recognised exchange. These listed equity securities had a market value of £6,486m (2002: £2,277m)£9,753m (2003: £6,486m).
19138
Barclays PLC Annual Report 2004
18 Interests in associated undertakings and joint ventures
Associates | Joint ventures | Associates | Joint ventures | ||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||
Share of net assets | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||
At beginning of year | 397 | 32 | 58 | 56 | 370 | 397 | 58 | 58 | |||||||||||||||||||||||||||||||||||||
Exchange and other adjustments | (25 | ) | (2 | ) | – | – | (25 | ) | (25 | ) | – | – | |||||||||||||||||||||||||||||||||
New investments/acquisitions | 2 | 373 | – | 7 | 8 | 2 | 23 | – | |||||||||||||||||||||||||||||||||||||
Disposals | (19 | ) | – | (1 | ) | – | (6 | ) | (19 | ) | (50 | ) | (1 | ) | |||||||||||||||||||||||||||||||
Profit/(loss) retained | 15 | (6 | ) | 1 | (5 | ) | 34 | 15 | (3 | ) | 1 | ||||||||||||||||||||||||||||||||||
At end of year | 370 | 397 | 58 | 58 | 381 | 370 | 28 | 58 | |||||||||||||||||||||||||||||||||||||
Interest in FirstCaribbean International Bank | |||||||||||||||||||||||||||||||||||||||||||||
– share of gross assets | 2,294 | 2,671 | 2,160 | 2,294 | |||||||||||||||||||||||||||||||||||||||||
– share of gross liabilities | (2,082 | ) | (2,444 | ) | (1,932 | ) | (2,082 | ) | |||||||||||||||||||||||||||||||||||||
– goodwill | 120 | 130 | 114 | 120 | |||||||||||||||||||||||||||||||||||||||||
Other associates – share of net assets | 38 | 40 | |||||||||||||||||||||||||||||||||||||||||||
Other associates | |||||||||||||||||||||||||||||||||||||||||||||
– share of net assets | 38 | 38 | |||||||||||||||||||||||||||||||||||||||||||
– goodwill | 1 | – | |||||||||||||||||||||||||||||||||||||||||||
Total | 370 | 397 | 381 | 370 | |||||||||||||||||||||||||||||||||||||||||
Associated undertakings and joint ventures include £332m£342m in respect of banks (2002: £357m)(2003: £332m). Dividend income from associated undertakings and joint ventures amount to £7m (2002: £1m)£15m (2003: £7m). On an historical cost basis, the Group’s interests in associated undertakings and joint ventures at 31st December 20032004 amount to £428m (2002: £455m)£409m (2003: £428m).
The principal associate of Barclays is:
Percentage of | ||||||||||||||||||||
Percentage of | non-cumulative | Date of | ||||||||||||||||||
Country of | Nature | equity share | perpetual preference | last audited | ||||||||||||||||
Incorporation | of business | capital held | share capital held | accounts | ||||||||||||||||
FirstCaribbean International Bank | Barbados | Banking | 43.7% | 100% | 31/10/2004 | |||||||||||||||
The interest in FirstCaribbean International Bank is owned by Barclays Bank PLC.
Of the above interests in associated undertakings and joint ventures, FirstCaribbean International Bank and Gabetti Holding SpA are listed on recognised exchanges. FirstCaribbean International Bank is listed on the Barbados, Trinidad and Tobago and Jamaican Stock Exchanges and Gabetti Holding SpA is listed on the Milan stock exchange.
The Group’s share of the total operating income of joint ventures is £32m (2003: £21m, (2002: £17m, 2001: £44m)2002: £17m). The Group’s share of the total operating income of FirstCaribbean International Bank is £93m (2002: £31m)£133m (2003: £93m).
Included within Barclays PLC Annual Report 2003 125share of associates net assets is goodwill as follows:
2004 | 2003 | |||||||
Goodwill | £m | £m | ||||||
Cost | ||||||||
At beginning of year | 128 | 131 | ||||||
Additions/(disposals) | 2 | (3 | ) | |||||
At end of year | 130 | 128 | ||||||
Accumulated amortisation | ||||||||
At beginning of year | 8 | 1 | ||||||
Amortisation charge for year | 7 | 7 | ||||||
At end of year | 15 | 8 | ||||||
Net book value | 115 | 120 | ||||||
139
Notes to the Accountsaccounts
For the Year Endedyear ended 31st December 2003
2004
1918 Interests in associated undertakings and joint ventures (continued)
Included within Barclays share of associates assets is goodwill as follows:
2003 | 2002 | |||||||
Goodwill | £m | £m | ||||||
Cost | ||||||||
At beginning of year | 131 | – | ||||||
Additions/disposals | (3 | ) | 131 | |||||
At end of year | 128 | 131 | ||||||
Accumulated amortisation | ||||||||
At beginning of year | 1 | – | ||||||
Amortisation charge for year | 7 | 1 | ||||||
At end of year | 8 | 1 | ||||||
Net book value | 120 | 130 | ||||||
The table below provides summarised financial information of associated undertakings and joint ventures in which the Group has an interest (the entities’ entire financial position and results of operations are presented, not Barclays share).
2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||||
2003 | FirstCaribbean | FirstCaribbean | ||||||||||||||||||||||||||||||||||||||||||||||
FirstCaribbean | International | Other | Joint | International | Other | Joint | ||||||||||||||||||||||||||||||||||||||||||
International | Other | Joint | Bank | associates | ventures | Total | Bank | associates | ventures | Total | ||||||||||||||||||||||||||||||||||||||
Bank | associates | ventures | Total | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||
Fixed assets | 80 | 405 | 382 | 867 | 82 | 427 | 102 | 611 | 80 | 405 | 382 | 867 | ||||||||||||||||||||||||||||||||||||
Debt and equity securities | 462 | 78 | – | 540 | 513 | 114 | – | 627 | 462 | 78 | – | 540 | ||||||||||||||||||||||||||||||||||||
Loans to banks and customers | 3,804 | 144 | 198 | 4,146 | 3,687 | 61 | 217 | 3,965 | 3,804 | 144 | 198 | 4,146 | ||||||||||||||||||||||||||||||||||||
Other assets | 267 | 182 | 60 | 509 | 72 | 153 | 53 | 278 | 267 | 182 | 60 | 509 | ||||||||||||||||||||||||||||||||||||
Total assets | 4,613 | 809 | 640 | 6,062 | 4,354 | 755 | 372 | 5,481 | 4,613 | 809 | 640 | 6,062 | ||||||||||||||||||||||||||||||||||||
Deposits from banks and customers | 4,093 | 247 | 287 | 4,627 | 3,840 | 250 | 2 | 4,092 | 4,093 | 247 | 287 | 4,627 | ||||||||||||||||||||||||||||||||||||
Other liabilities | 97 | 272 | 227 | 596 | 54 | 226 | 313 | 593 | 97 | 272 | 227 | 596 | ||||||||||||||||||||||||||||||||||||
Shareholders’ funds | 423 | 290 | 126 | 839 | 460 | 279 | 57 | 796 | 423 | 290 | 126 | 839 | ||||||||||||||||||||||||||||||||||||
Total liabilities | 4,613 | 809 | 640 | 6,062 | 4,354 | 755 | 372 | 5,481 | 4,613 | 809 | 640 | 6,062 | ||||||||||||||||||||||||||||||||||||
(Loss)/profit before tax | 50 | 38 | (8 | ) | 80 | |||||||||||||||||||||||||||||||||||||||||||
Profit/(loss) before tax | 124 | 34 | (18 | ) | 140 | 50 | 38 | (8 | ) | 80 | ||||||||||||||||||||||||||||||||||||||
Taxation | (5 | ) | (11 | ) | 7 | (9 | ) | (10 | ) | (12 | ) | 7 | (15 | ) | (5 | ) | (11 | ) | 7 | (9 | ) | |||||||||||||||||||||||||||
(Loss)/profit after tax | 45 | 27 | (1 | ) | 71 | |||||||||||||||||||||||||||||||||||||||||||
Profit/(loss) after tax | 114 | 22 | (11 | ) | 125 | 45 | 27 | (1 | ) | 71 | ||||||||||||||||||||||||||||||||||||||
The amounts included above are based on accounts made up to 31st December 20032004 with the exception of FirstCaribbean International Bank and certain undertakings included within the other associates category for which the amounts are based on accounts made up to dates not earlier than three months before the balance sheet date.
2019 Intangible fixed assets
2003 | 2002 | |||||||||||||||
Goodwill | £m | £m | ||||||||||||||
2004 | 2003 | |||||||||||||||
Goodwill cost | £m | £m | ||||||||||||||
At beginning of year | 4,502 | 4,416 | 5,232 | 4,502 | ||||||||||||
Additions | 750 | 113 | 196 | 750 | ||||||||||||
Disposals | (1 | ) | – | – | (1 | ) | ||||||||||
Exchange and other adjustments | (19 | ) | (27 | ) | (13 | ) | (19 | ) | ||||||||
At end of year | 5,232 | 4,502 | 5,415 | 5,232 | ||||||||||||
Accumulated amortisation | ||||||||||||||||
At beginning of year | 568 | 325 | 826 | 568 | ||||||||||||
Disposals | – | – | ||||||||||||||
Amortisation charge for year | 265 | 254 | 299 | 265 | ||||||||||||
Exchange and other adjustments | (7 | ) | (11 | ) | (5 | ) | (7 | ) | ||||||||
At end of year | 826 | 568 | 1,120 | 826 | ||||||||||||
Net book value | 4,406 | 3,934 | 4,295 | 4,406 | ||||||||||||
Goodwill is amortised to the profit and loss account over its useful economic life, generally estimated to be between 5five and 20 years.
126
140
21Barclays PLC Annual Report 2004
20 Tangible fixed assets
2003 | 2002 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||
Total | Property | Equipment | Total | Property | Equipment | Total | Property | Equipment | Total | Property | Equipment | |||||||||||||||||||||||||||||||||||||
Cost or valuation | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||
At beginning of year | 3,672 | 1,968 | 1,704 | 4,038 | 2,257 | 1,781 | 4,011 | 2,184 | 1,827 | 3,672 | 1,968 | 1,704 | ||||||||||||||||||||||||||||||||||||
Acquisitions and disposals of Group undertakings | 234 | 160 | 74 | (66 | ) | (38 | ) | (28 | ) | 6 | 5 | 1 | 234 | 160 | 74 | |||||||||||||||||||||||||||||||||
Exchange and other adjustments | (2 | ) | (5 | ) | 3 | (24 | ) | (24 | ) | – | (30 | ) | (16 | ) | (14 | ) | (2 | ) | (5 | ) | 3 | |||||||||||||||||||||||||||
Additions at cost | 320 | 86 | 234 | 284 | 119 | 165 | 531 | 219 | 312 | 320 | 86 | 234 | ||||||||||||||||||||||||||||||||||||
Sale of assets | (207 | ) | (22 | ) | (185 | ) | (533 | ) | (331 | ) | (202 | ) | (186 | ) | (87 | ) | (99 | ) | (207 | ) | (22 | ) | (185 | ) | ||||||||||||||||||||||||
Fully depreciated assets written off | (6 | ) | (3 | ) | (3 | ) | (27 | ) | (15 | ) | (12 | ) | (4 | ) | (2 | ) | (2 | ) | (6 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||
At end of year | 4,011 | 2,184 | 1,827 | 3,672 | 1,968 | 1,704 | 4,328 | 2,303 | 2,025 | 4,011 | 2,184 | 1,827 | ||||||||||||||||||||||||||||||||||||
Accumulated depreciation and impairment | ||||||||||||||||||||||||||||||||||||||||||||||||
At beginning of year | 2,046 | 797 | 1,249 | 2,080 | 850 | 1,230 | 2,221 | 884 | 1,337 | 2,046 | 797 | 1,249 | ||||||||||||||||||||||||||||||||||||
Acquisitions and disposals of Group undertakings | 1 | – | 1 | (36 | ) | (13 | ) | (23 | ) | – | – | – | 1 | – | 1 | |||||||||||||||||||||||||||||||||
Exchange and other adjustments | 12 | 4 | 8 | (18 | ) | (27 | ) | 9 | (14 | ) | 14 | (28 | ) | 12 | 4 | 8 | ||||||||||||||||||||||||||||||||
Charge for year | 289 | 93 | 196 | 291 | 93 | 198 | 295 | 86 | 209 | 289 | 93 | 196 | ||||||||||||||||||||||||||||||||||||
Sale of assets | (121 | ) | (7 | ) | (114 | ) | (244 | ) | (91 | ) | (153 | ) | (91 | ) | (4 | ) | (87 | ) | (121 | ) | (7 | ) | (114 | ) | ||||||||||||||||||||||||
Fully depreciated assets written off | (6 | ) | (3 | ) | (3 | ) | (27 | ) | (15 | ) | (12 | ) | (4 | ) | (2 | ) | (2 | ) | (6 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||
At end of year | 2,221 | 884 | 1,337 | 2,046 | 797 | 1,249 | 2,407 | 978 | 1,429 | 2,221 | 884 | 1,337 | ||||||||||||||||||||||||||||||||||||
At valuation | ||||||||||||||||||||||||||||||||||||||||||||||||
1979 to 1993 | 618 | 618 | – | 628 | 628 | – | 610 | 610 | – | 618 | 618 | – | ||||||||||||||||||||||||||||||||||||
At cost | 3,393 | 1,566 | 1,827 | 3,044 | 1,340 | 1,704 | 3,718 | 1,693 | 2,025 | 3,393 | 1,566 | 1,827 | ||||||||||||||||||||||||||||||||||||
4,011 | 2,184 | 1,827 | 3,672 | 1,968 | 1,704 | 4,328 | 2,303 | 2,025 | 4,011 | 2,184 | 1,827 | |||||||||||||||||||||||||||||||||||||
Accumulated depreciation | (2,221 | ) | (884 | ) | (1,337 | ) | (2,046 | ) | (797 | ) | (1,249 | ) | (2,407 | ) | (978 | ) | (1,429 | ) | (2,221 | ) | (884 | ) | (1,337 | ) | ||||||||||||||||||||||||
Net book value | 1,790 | 1,300 | 490 | 1,626 | 1,171 | 455 | 1,921 | 1,325 | 596 | 1,790 | 1,300 | 490 | ||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2004 | 2003 | |||||||||||||
Balance sheet value of property | £m | £m | £m | £m | ||||||||||||
Freehold | 978 | 846 | 850 | 978 | ||||||||||||
Leasehold over 50 years unexpired | 84 | 93 | 45 | 84 | ||||||||||||
Leasehold up to 50 years unexpired | 236 | 231 | 286 | 236 | ||||||||||||
Assets in the course of construction | 2 | 1 | 144 | 2 | ||||||||||||
1,300 | 1,171 | 1,325 | 1,300 | |||||||||||||
Historical cost of property | ||||||||||||||||
At cost | 1,956 | 1,727 | 2,081 | 1,956 | ||||||||||||
Accumulated depreciation and impairment | (880 | ) | (797 | ) | (968 | ) | (880 | ) | ||||||||
Net book value | 1,076 | 930 | 1,113 | 1,076 | ||||||||||||
The net book value of property occupied by the Group for its own use was £1,250m£1,265m at 31st December 2003 (2002: £1,116m)2004 (2003: £1,250m).
The net book value of property at 31st December 20032004 included £191m (2002: £194m)£196m (2003: £191m) in respect of land.
As at 31st December 2003,2004, Barclays Group owns leases or holds under licence properties throughout the world arising from operational activities.
The majority of UK properties are retail branches and are widely distributed throughout England, Scotland, Wales and Northern Ireland. The most significant properties are 54 Lombard Street, St Swithins House, Murray House and North and South Colonnade, Canary Wharf, all located in London, together with administrative buildings in Northampton, Knutsford, Coventry and Poole.
On 3rd July 2002,Outside the UK Barclays Group disposed of its freehold Headlargest branch network lies in Spain. The most significant office at 54 Lombard Street.premises are in New York, San Francisco and Madrid.
During 2005 Barclays continues towill occupy a substantial part of these premises under a lease with the facility to terminate the lease when the Head office moves to new premises currently under construction inglobal headquarters at 1 Churchill Place, Canary Wharf, London.
22 Commitments for capital expenditure not provided in these accounts
At 31st December 2003,2004, commitments for capital expenditure under contract amounted to £nil (2002: £1m)£2m (2003: £nil).
Barclays PLC Annual Report 2003 127
141
Notes to the Accountsaccounts
For the Year Endedyear ended 31st December 2003
2004
2321 Other assets, prepayments and accrued income
2003 | 2002 | |||||||||||||||
£m | £m | 2004 | 2003 | |||||||||||||
Own shares | 99 | 55 | ||||||||||||||
Other assets | £m | £m | ||||||||||||||
Balances arising from off-balance sheet financial instruments | 15,812 | 13,454 | 18,174 | 15,812 | ||||||||||||
Shareholders’ interest in the long-term assurance fund | 478 | 867 | 610 | 478 | ||||||||||||
London Metal Exchange warrants and other metals trading positions | 1,290 | 829 | 952 | 1,290 | ||||||||||||
Sundry debtors | 2,156 | 1,634 | 2,418 | 2,156 | ||||||||||||
19,835 | 16,839 | 22,154 | 19,736 | |||||||||||||
2004 | 2003 | |||||||
Prepayments and accrued income | £m | £m | ||||||
Accrued interest and commission | 3,538 | 2,763 | ||||||
Prepayments | 1,540 | 1,158 | ||||||
5,078 | 3,921 | |||||||
Own shares represent the cost of shares held by employee benefit trusts, to the extent that the cost has not yet been expensed to the profit and loss account.
The total number of shares held in employee benefit trusts at 31st December 2003, including those represented by the balance sheet value, was 82.8m (2002: 72.5m). Dividend rights had been waived on 1.6m (2002: 3.7m) of these shares. The market value of the shares based on the year-end share price of £4.98 (2002: £3.85) was £412m (2002: £279m). As at 31st December 2003, 7.3m (2002: 4.3m) of the total shares held in the trusts were exercisable under options granted.
2422 Retail long-term assurance funds
The increase/(decrease)increase in the shareholders’ interest in the retail long-term assurance funds in the UK is calculated as follows:
2003 | 2002 | |||||||
£m | £m | |||||||
Value of shareholders’ interest at beginning of year, before non-recourse borrowing | 867 | 884 | ||||||
Non-recourse borrowing in the year | (400 | ) | – | |||||
Value of shareholders’ interest at beginning of year, after non-recourse borrowing | 467 | 884 | ||||||
Value of the shareholders’ interest at end of year | 478 | 867 | ||||||
Increase/(decrease) in the value for the year after tax | 11 | (17 | ) | |||||
Decrease in the value for the year before tax | (42 | ) | (55 | ) | ||||
2004 | 2003 | |||||||
£m | £m | |||||||
Value of shareholders’ interest at beginning of year | 878 | 867 | ||||||
Increase in the value for the year after tax | 19 | 11 | ||||||
Value of shareholders’ interest at end of year | 897 | 878 | ||||||
Non-recourse borrowing | (287 | ) | (400 | ) | ||||
Value of shareholders’ interest after non-recourse borrowings | 610 | 478 | ||||||
DuringBefore tax, the decrease in the value for the year non-recourse floating ratewas £1m (2003: £42m).
In 2003, loan notes of £400m were issued. The first £400m of emerging surplus from the retail long-term assurance funds is used to repay these notes with the remaining surplus being available to shareholders. In 2004 £113m of the loan notes were redeemed.
In addition to the increase (2002 a decrease) in the shareholders’ interest in the retail long-term assurance funds detailed above, £9m (2002: £4m)(2003: £9m) of other income from the long-term assurance business has been recognised in the year.
The principal economic assumptions used in calculating the value of the shareholders’ interest were as follows:
2004 | 2003 | |||||||||||||||
2003 | 2002 | % | % | |||||||||||||
% | % | |||||||||||||||
Risk discount rate (net of tax) | 7.3 | 7.0 | 7.1 | 7.3 | ||||||||||||
Gross United Kingdom equities returns for unit linked business (net of irrecoverable tax credit) | 7.2 | 6.8 | 7.0 | 7.2 | ||||||||||||
Gross United Kingdom equities dividend yield for unit linked business (net of irrecoverable tax credit) | 2.5 | 2.8 | 2.5 | 2.5 | ||||||||||||
Gross property and overseas equities returns for unit linked business | 7.8 | 7.5 | 7.6 | 7.8 | ||||||||||||
Gross fixed interest returns for unit linked business | 4.8 | 4.5 | 4.6 | 4.8 | ||||||||||||
Renewal expense inflation (including effect of fixed costs) | 4.8 | 4.4 | 5.0 | 4.8 | ||||||||||||
The retail life-fund assets attributable to policyholders comprise:
2004 | 2003 | |||||||||||||||
2003 | 2002 | £m | £m | |||||||||||||
£m | £m | |||||||||||||||
Assets: | ||||||||||||||||
Investments | 7,329 | 7,199 | 8,253 | 7,329 | ||||||||||||
Group undertakings | – | 5 | ||||||||||||||
Other debtors | 984 | 205 | 209 | 984 | ||||||||||||
8,313 | 7,409 | 8,462 | 8,313 | |||||||||||||
Current liabilities | (236 | ) | (125 | ) | (84 | ) | (236 | ) | ||||||||
8,077 | 7,284 | 8,378 | 8,077 | |||||||||||||
128
142
25 Prepayments and accrued income
2003 | 2002 | |||||||
£m | £m | |||||||
Accrued interest and commission | 2,763 | 2,586 | ||||||
Prepayments | 1,158 | 396 | ||||||
3,921 | 2,982 | |||||||
2623 Deposits by banks
2004 | 2003 | |||||||||||||||
2003 | 2002 | £m | £m | |||||||||||||
£m | £m | |||||||||||||||
Repayable | ||||||||||||||||
on demand | 8,086 | 7,148 | 9,858 | 8,086 | ||||||||||||
not more than three months | 67,866 | 68,470 | 81,214 | 67,866 | ||||||||||||
over three months but not more than six months | 2,286 | 3,438 | 5,762 | 2,286 | ||||||||||||
over six months but not more than one year | 2,135 | 1,397 | 993 | 2,135 | ||||||||||||
over one year but not more than two years | 407 | 371 | 1,942 | 407 | ||||||||||||
over two years but not more than five years | 2,944 | 2,196 | 1,738 | 2,944 | ||||||||||||
over five years | 10,368 | 4,414 | 9,517 | 10,368 | ||||||||||||
94,092 | 87,434 | 111,024 | 94,092 | |||||||||||||
By geographical area | ||||||||||||||||
Banking business: | ||||||||||||||||
United Kingdom | 39,068 | 34,230 | ||||||||||||||
Banking business: United Kingdom | 52,708 | 39,068 | ||||||||||||||
Other European Union | 2,418 | 2,220 | 2,733 | 2,418 | ||||||||||||
United States | 6,173 | 6,606 | 4,956 | 6,173 | ||||||||||||
Rest of the World | 9,982 | 5,695 | 13,814 | 9,982 | ||||||||||||
Total banking business | 57,641 | 48,751 | 74,211 | 57,641 | ||||||||||||
Total trading business | 36,451 | 38,683 | 36,813 | 36,451 | ||||||||||||
94,092 | 87,434 | 111,024 | 94,092 | |||||||||||||
At 31st December 2003,2004, there were deposits by banks of £1,438m (2002: £717m)£1,634m (2003: £1,438m) due to associated undertakings and joint ventures.
Deposits by banks are mostly over £50,000.
A further analysis ofThe average interest rate during 2004 for deposits by banks is given within the Deposits section on page 90 of the Financial Review.(excluding trading business) was 2.4% (2003: 2.3%, 2002: 2.9%).
2724 Customer accounts
2004 | 2003 | |||||||||||||||
2003 | 2002 | £m | £m | |||||||||||||
£m | £m | |||||||||||||||
Repayable | ||||||||||||||||
on demand | 95,253 | 83,731 | 106,675 | 95,253 | ||||||||||||
not more than three months | 79,259 | 76,761 | 99,656 | 79,259 | ||||||||||||
over three months but not more than six months | 2,898 | 3,333 | 2,860 | 2,898 | ||||||||||||
over six months but not more than one year | 2,765 | 2,669 | 2,391 | 2,765 | ||||||||||||
over one year but not more than two years | 964 | 2,342 | 918 | 964 | ||||||||||||
over two years but not more than five years | 2,141 | 1,427 | 1,615 | 2,141 | ||||||||||||
over five years | 1,588 | 1,235 | 3,603 | 1,588 | ||||||||||||
184,868 | 171,498 | 217,718 | 184,868 | |||||||||||||
By geographical area | ||||||||||||||||
Banking business: | ||||||||||||||||
United Kingdom | 140,363 | 132,502 | 155,946 | 140,363 | ||||||||||||
Other European Union | 8,510 | 5,233 | 8,395 | 8,510 | ||||||||||||
United States | 1,236 | 1,166 | 1,776 | 1,236 | ||||||||||||
Rest of the World | 5,705 | 5,177 | 5,846 | 5,705 | ||||||||||||
Total banking business | 155,814 | 144,078 | 171,963 | 155,814 | ||||||||||||
Total trading business | 29,054 | 27,420 | 45,755 | 29,054 | ||||||||||||
184,868 | 171,498 | 217,718 | 184,868 | |||||||||||||
Barclays PLC Annual Report 2003 129
143
Notes to the Accountsaccounts
For the Year Endedyear ended 31st December 20032004
2724 Customer accounts (continued)
2004 | 2003 | |||||||||||||||
2003 | 2002 | £m | £m | |||||||||||||
£m | £m | |||||||||||||||
By type | ||||||||||||||||
In offices in the United Kingdom : | ||||||||||||||||
In offices in the United Kingdom: | ||||||||||||||||
current and demand accounts – interest free | 13,374 | 11,159 | 12,509 | 13,374 | ||||||||||||
current and demand accounts – interest bearing | 20,102 | 17,558 | 23,599 | 20,102 | ||||||||||||
savings accounts | 49,124 | 45,586 | 51,061 | 49,124 | ||||||||||||
other time deposits – retail | 31,801 | 33,687 | 31,618 | 31,801 | ||||||||||||
other time deposits – wholesale | 40,187 | 35,029 | 55,195 | 40,187 | ||||||||||||
In offices outside the United Kingdom : | ||||||||||||||||
In offices outside the United Kingdom: | ||||||||||||||||
current and demand accounts – interest free | 1,359 | 1,132 | 1,513 | 1,359 | ||||||||||||
current and demand accounts – interest bearing | 3,534 | 1,774 | 3,361 | 3,534 | ||||||||||||
savings accounts | 1,561 | 459 | 864 | 1,561 | ||||||||||||
other time deposits | 23,826 | 25,114 | 37,998 | 23,826 | ||||||||||||
184,868 | 171,498 | 217,718 | 184,868 | |||||||||||||
At 31st December 2003,2004, there were customer accounts of £34m (2002: £189m)£53m (2003: £34m) due to associated undertakings and joint ventures.
Deposits in offices in the UK received from non-residents amounted to £34,183m (2003: £27,593m (2002:and 2002: £19,490m).
Other time deposits in the UK and the US are mostly over £50,000.
A further analysis of customer accounts is provided within the Deposits section on page 90 of the Financial Review.
2825 Debt securities in issue
2003 | 2002 | |||||||||||||||
£m | £m | 2004 | 2003 | |||||||||||||
Bonds and medium-term notes repayable: | ||||||||||||||||
within one year | 2,157 | 809 | ||||||||||||||
£m | £m | |||||||||||||||
Bonds and medium-term notes repayable: within one year | 1,438 | 2,157 | ||||||||||||||
over one year but not more than two years | 933 | 1,815 | 4,797 | 933 | ||||||||||||
over two years but not more than five years | 5,106 | 3,056 | 3,723 | 5,106 | ||||||||||||
over five years | 2,587 | 1,237 | 1,313 | 2,587 | ||||||||||||
10,783 | 6,917 | 11,271 | 10,783 | |||||||||||||
Other debt securities in issue repayable: | ||||||||||||||||
not more than three months | 17,872 | 28,166 | ||||||||||||||
Other debt securities in issue repayable: not more than three months | 36,949 | 17,872 | ||||||||||||||
over three months but not more than one year | 13,780 | 8,515 | 7,418 | 13,780 | ||||||||||||
over one year but not more than two years | 1,520 | 674 | 2,692 | 1,520 | ||||||||||||
over two years but not more than five years | 3,032 | 1,203 | 6,799 | 3,032 | ||||||||||||
over five years | 2,582 | 410 | 2,677 | 2,582 | ||||||||||||
49,569 | 45,885 | 67,806 | 49,569 | |||||||||||||
Debt securities in issue at 31st December 20032004 included certificates of deposit of £28,536m (2002: £30,045m)£37,213m (2003: £28,536m) and commercial paper of £4,426m (2002: £5,192m)£8,688m (2003: £4,426m). The average interest rates during 2004 for commercial paper was 1.8% (2003: 1.0%, 2002: 2.0%) and for negotiable certificates of deposits was 2.2% (2003: 2.2%, 2002: 3.3%). At 31st December 2003,2004, there were £448m£530m of debt securities in issue due to associated undertakings and joint ventures (2002: £nil)(2003: £448m).
Debt securities in issue at 31st December 20032004 include £2,508m (2002: £644m)£3,278m (2003: £2,508m) raised from the securitisation of credit and charge card receivables (see Note 15)14).
130
144
29Barclays PLC Annual Report 2004
26 Other liabilities, accruals and deferred income
2003 | 2002 | |||||||||||||||
£m | £m | 2004 | 2003 | |||||||||||||
Obligations under finance leases payable: | ||||||||||||||||
not more than one year | 22 | 27 | ||||||||||||||
Other liabilities | £m | £m | ||||||||||||||
Obligations under finance leases payable: not more than one year | 117 | 22 | ||||||||||||||
over one year but not more than two years | 24 | 30 | 100 | 24 | ||||||||||||
over two years but not more than five years | 61 | 70 | 159 | 61 | ||||||||||||
over five years | 53 | 81 | 30 | 53 | ||||||||||||
160 | 208 | 406 | 160 | |||||||||||||
Less: future finance charges | (50 | ) | (68 | ) | (53 | ) | (50 | ) | ||||||||
110 | 140 | 353 | 110 | |||||||||||||
Balances arising from off-balance sheet financial instruments | 14,797 | 11,538 | 18,009 | 14,797 | ||||||||||||
Short positions in securities | 49,934 | 39,940 | 53,714 | 49,934 | ||||||||||||
Current tax | 497 | 641 | 584 | 497 | ||||||||||||
Sundry creditors | 4,159 | 4,305 | 3,905 | 4,159 | ||||||||||||
69,497 | 56,564 | 76,565 | 69,497 | |||||||||||||
Short positions in securities comprise: | ||||||||||||||||
Treasury bills and other eligible bills | 2,547 | 2,547 | ||||||||||||||
Short positions in securities comprise: Treasury bills and other eligible bills | 1,782 | 2,547 | ||||||||||||||
Debt securities – government | 37,526 | 30,614 | 38,358 | 37,526 | ||||||||||||
Debt securities – other public sector | 1,035 | 517 | 3,186 | 1,035 | ||||||||||||
Debt securities – other | 4,256 | 4,678 | 5,392 | 4,256 | ||||||||||||
Equity shares | 4,570 | 1,584 | 4,996 | 4,570 | ||||||||||||
49,934 | 39,940 | 53,714 | 49,934 | |||||||||||||
Of the total short positions disclosed above, £37,028m (2002: £24,339m)£34,993m (2003: £37,028m) were listed on a recognised exchange.
Other liabilities as at 31st December 20032004 include £192m (2002: £318m)£68m (2003: £192m) raised from the securitisation of investment debt securities (see Note 17)16).
30 Accruals and deferred income
2003 | 2002 | |||||||||||||||
2004 | 2003 | |||||||||||||||
Accruals and deferred income | £m | £m | ||||||||||||||
£m | £m | |||||||||||||||
Accrued interest and commission | 2,193 | 2,207 | 2,860 | 2,193 | ||||||||||||
Other accruals and deferred income | 2,790 | 2,145 | 3,722 | 2,790 | ||||||||||||
4,983 | 4,352 | 6,582 | 4,983 | |||||||||||||
3127 Deferred tax
The movements on deferred tax during the year were:
2004 | 2003 | |||||||||||||||
2003 | 2002 | £m | £m | |||||||||||||
£m | £m | |||||||||||||||
At beginning of year | 461 | 616 | 646 | 461 | ||||||||||||
Exchange and other adjustments | (9 | ) | (121 | ) | 5 | (9 | ) | |||||||||
Charge to profit and loss account | 194 | (34 | ) | 87 | 194 | |||||||||||
At end of year | 646 | 461 | 738 | 646 | ||||||||||||
Deferred tax at 31st December: | ||||||||||||||||
Leasing transactions | 739 | 766 | 759 | 739 | ||||||||||||
Other timing differences | (93 | ) | (305 | ) | (21 | ) | (93 | ) | ||||||||
646 | 461 | 738 | 646 | |||||||||||||
No tax (2002:(2003: £nil) has been calculated on capital gains that might arise on the disposal of Barclays Bank PLC at the amounts at which it is stated. The Directors are of the opinion that the likelihood of any such tax liability arising in the foreseeable future is remote. Tax would become payable only if the investment (and consequently virtually all of the Group’s activities) were disposed of. The amount of tax payable would be dependent upon the level of capital losses available within the Barclays Group to reduce any capital gains that may arise.
145
Notes to the accounts
For the year ended 31st December 2004
27 Deferred tax (continued)
No tax has been calculated on capital gains (2002:(2003: £nil) that might arise on the disposal of properties at their balance sheet amounts. The aggregate disposal of the property portfolio would not be expected to give rise to a significant gain or loss. Tax would become payable only if property were sold without it being possible to claim rollover relief. At present, it is not envisaged that any tax will become payable in the foreseeable future.
Barclays PLC Annual Report 2003 131
Notes to the AccountsFor the Year Ended 31st December 2003
31 Deferred tax (continued)
The fair values of certain derivatives and financial instruments are disclosed in Note 46.37. For trading balances, where fair values are recognised in the financial statements and mark to market movements included in the profit and loss account, the gains and losses are subject to current tax and no deferred tax arises. In the case of derivatives used for asset and liability management purposes, tax arises when the gain or loss is recognised in the profit and loss account at the same time as the hedged item. Where fair values are disclosed but not recognised, tax would arise if the assets were sold at their fair value. Tax of £900m (2002: £1,106m)£759m (2003: £900m) would become payable on the sale of the non-trading financial assets for which a valuation has been given.
Deferred tax assets have not been recognised on tax losses to the extent that they are not regarded as recoverable in the foreseeable future. The unrecognised asset of £4m (2002: £24m)£5m (2003: £4m) would be regarded as recoverable to the extent that, on the basis of all available evidence, it was more likely than not that there would be suitable taxable profits from which the tax losses could be deducted.
No deferred tax is recognised on the unremitted earnings of overseas subsidiary undertakings, associated undertakings and joint ventures. Such earnings form part of the balance sheet value and are therefore included in the deferred tax of subsidiaries.
3228 Other provisions for liabilities and charges
Employee | ||||||||||||||||||||||||||||||||||||||||||||||||
pension and | Redundancy | Employee | ||||||||||||||||||||||||||||||||||||||||||||||
pension and | Redundancy | |||||||||||||||||||||||||||||||||||||||||||||||
post-retirement | Customer | and | ||||||||||||||||||||||||||||||||||||||||||||||
benefit | Onerous | loyalty | restruct- | Sundry | ||||||||||||||||||||||||||||||||||||||||||||
contributions | contracts | provisions | uring | provisions | Total | |||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||
At 1st January 2004 | 65 | 23 | 32 | 71 | 178 | 369 | ||||||||||||||||||||||||||||||||||||||||||
Acquisitions and disposals of Group undertakings | (3 | ) | – | – | – | – | (3 | ) | ||||||||||||||||||||||||||||||||||||||||
Exchange | (5 | ) | 4 | – | (3 | ) | (6 | ) | (10 | ) | ||||||||||||||||||||||||||||||||||||||
Additions | 135 | 25 | 12 | 202 | 187 | 561 | ||||||||||||||||||||||||||||||||||||||||||
Amounts used | (28 | ) | (11 | ) | (32 | ) | (161 | ) | (98 | ) | (330 | ) | ||||||||||||||||||||||||||||||||||||
Unused amounts reversed | (60 | ) | (3 | ) | – | (12 | ) | (46 | ) | (121 | ) | |||||||||||||||||||||||||||||||||||||
Amortisation of discount | – | 1 | – | – | – | 1 | ||||||||||||||||||||||||||||||||||||||||||
post-retirement | Customer | and | ||||||||||||||||||||||||||||||||||||||||||||||
benefit | Onerous | loyalty | restruct- | Sundry | 104 | 39 | 12 | 97 | 215 | 467 | ||||||||||||||||||||||||||||||||||||||
contributions | contracts | provisions | uring | provisions | Total | |||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||
At 1st January 2003 | 180 | 26 | 55 | 113 | 112 | 486 | 180 | 26 | 55 | 113 | 112 | 486 | ||||||||||||||||||||||||||||||||||||
Acquisitions and disposals of Group undertakings | 8 | – | – | – | 1 | 9 | 8 | – | – | – | 1 | 9 | ||||||||||||||||||||||||||||||||||||
Exchange | (1 | ) | 4 | – | 4 | – | 7 | (1 | ) | 4 | – | 4 | – | 7 | ||||||||||||||||||||||||||||||||||
Additions | 30 | 7 | 11 | 235 | 121 | 404 | 30 | 7 | 11 | 235 | 121 | 404 | ||||||||||||||||||||||||||||||||||||
Amounts used | (50 | ) | (10 | ) | (34 | ) | (245 | ) | (35 | ) | (374 | ) | (50 | ) | (10 | ) | (34 | ) | (245 | ) | (35 | ) | (374 | ) | ||||||||||||||||||||||||
Unused amounts reversed | (102 | ) | (5 | ) | – | (36 | ) | (21 | ) | (164 | ) | (102 | ) | (5 | ) | – | (36 | ) | (21 | ) | (164 | ) | ||||||||||||||||||||||||||
Amortisation of discount | – | 1 | – | – | – | 1 | – | 1 | – | – | – | 1 | ||||||||||||||||||||||||||||||||||||
65 | 23 | 32 | 71 | 178 | 369 | 65 | 23 | 32 | 71 | 178 | 369 | |||||||||||||||||||||||||||||||||||||
At 1st January 2002 | 180 | 39 | 68 | 131 | 144 | 562 | ||||||||||||||||||||||||||||||||||||||||||
Exchange | (3 | ) | – | – | 2 | (5 | ) | (6 | ) | |||||||||||||||||||||||||||||||||||||||
Additions | 61 | 1 | 16 | 220 | 78 | 376 | ||||||||||||||||||||||||||||||||||||||||||
Amounts used | (34 | ) | (13 | ) | (29 | ) | (169 | ) | (31 | ) | (276 | ) | ||||||||||||||||||||||||||||||||||||
Unused amounts reversed | (24 | ) | (2 | ) | – | (72 | ) | (74 | ) | (172 | ) | |||||||||||||||||||||||||||||||||||||
Amortisation of discount | – | 1 | – | 1 | – | 2 | ||||||||||||||||||||||||||||||||||||||||||
180 | 26 | 55 | 113 | 112 | 486 | |||||||||||||||||||||||||||||||||||||||||||
Customer loyalty provisions are made with respect to anticipated future claims on redemption under the Group’s customer loyalty bonus scheme.schemes. Sundry provisions are made with respect to commission clawbacks, warranties, cost of customer redress and litigation claims.
The Group has a restructuring programme, largely focused on activities within the UK, which involveinvolves the reshaping of the Group’s operations through the centralisation of core processes, application of new technologies, and reduction of workforce. It is anticipated that the majority of remaining liabilities and charges will be utilised in 2004.2005.
132
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33Barclays PLC Annual Report 2004
29 Undated loan capital
Undated loan capital, issued by the Bank for the development and expansion of the Group’s business and to strengthen its capital base comprised:
2003 | 2002 | |||||||||||||||||||||||
Notes | £m | £m | 2004 | 2003 | ||||||||||||||||||||
Non-convertible | ||||||||||||||||||||||||
Notes | £m | £m | ||||||||||||||||||||||
The Bank | ||||||||||||||||||||||||
6% Callable Perpetual Core Tier One Notes | (a, n | ) | 400 | 400 | (a, n | ) | 400 | 400 | ||||||||||||||||
6.86% Callable Perpetual Core Tier One Notes ($1,000m) | (a, n | ) | 560 | 619 | (a, n | ) | 520 | 560 | ||||||||||||||||
8.55% Step-up Callable Perpetual Reserve Capital Instruments ($1,250m) | (b, o | ) | 694 | 767 | (b, o | ) | 646 | 694 | ||||||||||||||||
7.375% Step-up Callable Perpetual Reserve Capital Instruments ($750m) | (b, p | ) | 415 | 459 | (b, p | ) | 386 | 415 | ||||||||||||||||
7.50% Step-up Callable Perpetual Reserve Capital Instruments (€850m) | (c, q | ) | 596 | 545 | ||||||||||||||||||||
7.50% Step-up Callable Perpetual Reserve Capital Instruments (€850m) | (c, q | ) | 595 | 596 | ||||||||||||||||||||
Junior Undated Floating Rate Notes ($121m) | (d, r | ) | 68 | 75 | (d, r | ) | 63 | 68 | ||||||||||||||||
Undated Floating Rate Primary Capital Notes Series 1 ($358m) | (d, s | ) | 201 | 222 | (d, s | ) | 186 | 201 | ||||||||||||||||
Undated Floating Rate Primary Capital Notes Series 2 ($442m) | (d, s | ) | 248 | 274 | (d, s | ) | 230 | 248 | ||||||||||||||||
Undated Floating Rate Primary Capital Notes Series 3 | (d, s | ) | 145 | 145 | (d, s | ) | 145 | 145 | ||||||||||||||||
9.875% Undated Subordinated Notes | (e, t | ) | 300 | 300 | (e, t | ) | 300 | 300 | ||||||||||||||||
9.25% Perpetual Subordinated Bonds (ex-Woolwich plc) | (f, u | ) | 181 | 183 | (f, u | ) | 180 | 181 | ||||||||||||||||
9% Permanent Interest Bearing Capital Bonds | (g, v | ) | 100 | 100 | (g, v | ) | 100 | 100 | ||||||||||||||||
7.875% Undated Subordinated Notes | – | 100 | ||||||||||||||||||||||
7.125% Undated Subordinated Notes | (h, w | ) | 525 | 525 | (h, w | ) | 525 | 525 | ||||||||||||||||
6.875% Undated Subordinated Notes | (i, x | ) | 650 | 650 | (i, x | ) | 650 | 650 | ||||||||||||||||
6.375% Undated Subordinated Notes | (j, y | ) | 465 | 400 | (j, y | ) | 465 | 465 | ||||||||||||||||
6.125% Undated Subordinated Notes | (k, z | ) | 550 | 400 | (k, z | ) | 550 | 550 | ||||||||||||||||
6.5% Undated Subordinated Notes (FFr1,000m) | (l, aa | ) | 107 | 99 | (l, aa | ) | 108 | 107 | ||||||||||||||||
5.03% Reverse Dual Currency Undated Subordinated Loan (Yen 8,000m) | (m, ab | ) | 42 | 42 | (m, ab | ) | 40 | 42 | ||||||||||||||||
5% Reverse Dual Currency Undated Subordinated Loan (Yen 12,000m) | (m, ab | ) | 63 | 63 | (m, ab | ) | 60 | 63 | ||||||||||||||||
6,310 | 6,368 | |||||||||||||||||||||||
Convertible | ||||||||||||||||||||||||
The Bank | ||||||||||||||||||||||||
8% Convertible Capital Notes Series E (2002: $500m) | – | 310 | ||||||||||||||||||||||
Total undated loan capital | 6,310 | 6,678 | 6,149 | 6,310 | ||||||||||||||||||||
Security and subordination
The Junior Undated Floating Rate Notes (the ‘Junior Notes’) rank behind the claims against the Bank of depositors and other unsecured unsubordinated creditors and holders of dated loan capital.
All other issues of the Bank’s undated loan capital rank pari passu with each other and behind the claims of the holders of Junior Notes, except for the 6% and 6.86% Callable Perpetual Core Tier One Notes (the ‘TONs’) and the 8.55%, 7.375% and 7.5% Step-up Callable Perpetual Reserve Capital Instruments (the ‘RCIs’) (such issues, excluding the TONs and the RCIs, being the ‘Undated Notes and Loans’).
The TONs and the RCIs rank pari passu with each other and behind the claims of the holders of the Undated Notes and Loans.
In accordance with the Barclays Group Reorganisation Act 2002, the 9.25% Perpetual Subordinated Bonds of Woolwich plc were transferred to the Bank by operation of law on 1st December 2003 and accordingly the Bank has become the obligor for this issue from that date.
Interest
Notes
(a) | These TONs bear a fixed rate of interest until 2032. After that date, in the event that the TONs are not redeemed, the TONs will bear interest at rates fixed periodically in advance, based on London interbank rates. | |
(b) | These RCIs bear a fixed rate of interest until 2011. After that date, in the event that the RCIs are not redeemed, the RCIs will bear interest at rates fixed periodically in advance, based on London interbank rates. | |
(c) | These RCIs bear a fixed rate of interest until 2010. After that date, in the event that the RCIs are not redeemed, the RCIs will bear interest at rates fixed periodically in advance, based on European interbank rates. | |
(d) | These Notes bear interest at rates fixed periodically in advance, based on London interbank rates. | |
(e) | These Notes bear a fixed rate of interest until 2008. After that date, in the event that the Notes are not redeemed, the coupon will be reset to a fixed margin over a reference gilt rate for a further period of five years. | |
(f) | These Notes bear a fixed rate of interest until 2021. After that date, in the event that the Notes are not redeemed, the coupon will be reset to a fixed margin over a reference gilt rate for a further period of five years. | |
(g) | The interest rate on these Notes is fixed for the life of this issue. |
Barclays PLC Annual Report 2003 133
Notes to the AccountsFor the Year Ended 31st December 2003
33 Undated loan capital (continued)
(h) | These Notes bear a fixed rate of interest until 2020. After that date, in the event that the Notes are not redeemed, the coupon will be reset to a fixed margin over a reference gilt rate for a further period of five years. | |
147
Notes to the accounts
For the year ended 31st December 2004
29 Undated loan capital (continued)
(i) | These Notes bear a fixed rate of interest until 2015. After that date, in the event that the Notes are not redeemed, the coupon will be reset to a fixed margin over a reference gilt rate for a further period of five years. | |
(j) | These Notes bear a fixed rate of interest until 2017. After that date, in the event that the Notes are not redeemed, the coupon will be reset to a fixed margin over a reference gilt rate for a further period of five years. | |
(k) | These Notes bear a fixed rate of interest until 2027. After that date, in the event that the Notes are not redeemed, the coupon will be reset to a fixed margin over a reference gilt rate for a further period of five years. | |
(l) | These Notes bear a fixed rate of interest until 2009. After that date, in the event that the Notes are not redeemed, the Notes will bear interest at rates fixed periodically in advance based on European interbank rates. | |
(m) | These Loans bear a fixed rate of interest until 2028 based on a US Dollar principal amount, but the interest payments have been swapped, resulting in a Yen interest rate payable which is fixed periodically in advance based on London interbank rates. After that date, in the event that the Loans are not redeemed, the Loans will bear Yen interest at rates fixed periodically in advance, based on London interbank rates. |
The Bank is not obliged to make a payment of interest on its Undated Notes and Loans excluding the 9.25% Perpetual Subordinated Bonds if, in the preceding six months, a dividend has not been declared or paid on any class of shares of Barclays PLC or, in certain cases, any class of preference shares of the Bank. The Bank is not obliged to make a payment of interest on its 9.25% Perpetual Subordinated Bonds if, in the immediately preceding twelve12 months interest period, a dividend has not been paid on any class of its share capital. Interest not so paid becomes payable in each case if such a dividend is subsequently paid or in certain other circumstances.
No payment of principal or any interest on any such undated loan capital may be made unless the Bank satisfies a specified solvency test.
The Bank may elect to defer any payment of interest on the RCIs for any period of time. Whilst such deferral is continuing, neither the Bank nor Barclays PLC may declare or pay a dividend, subject to certain exceptions, on any of its ordinary shares or preference shares.
The Bank may elect to defer any payment of interest on the TONs if it determines that it is, or such payment would result in it being, in non-compliance with capital adequacy requirements and policies of the Financial Services Authority. Any such deferred payment of interest will only be payable on a redemption of the TONs. Until such time as the Bank next makes a payment of interest on the TONs, neither the Bank nor Barclays PLC may (a) declare or pay a dividend, subject to certain exceptions, on any of their respective ordinary shares or preference shares, or make payments of interest in respect of the RCIs and (b) certain restrictions on the redemption, purchase or reduction of their respective share capital and certain other securities also apply.
Interest payable on undated loan capital amounted to £419m (2003: £451m, (2002: £407m, 2001: £345m)2002: £407m).
Repayment and conversion
Notes
(n) | These TONs are repayable, at the option of the Bank, in whole on any coupon payment date falling in or after June 2032. | |
(o) | These RCIs are repayable, at the option of the Bank, in whole on any coupon payment date falling in or after June 2011. | |
(p) | These RCIs are repayable, at the option of the Bank, in whole on any coupon payment date falling in or after December 2011. | |
(q) | These RCIs are repayable, at the option of the Bank, in whole on any coupon payment date falling in or after December 2010. | |
(r) | These Notes are repayable, at the option of the Bank, in whole or in part on any interest payment date. | |
(s) | These Notes are repayable in each case, at the option of the Bank, in whole on any interest payment date. | |
(t) | These Notes are repayable, at the option of the Bank, in whole in 2008, or on any fifth anniversary thereafter. | |
(u) | These Bonds are repayable, at the option of the Bank, in whole in 2021, or on any fifth anniversary thereafter. | |
(v) | These Bonds are repayable, at the option of the Bank, in whole at any time. | |
(w) | These Notes are repayable, at the option of the Bank, in whole in 2020, or on any fifth anniversary thereafter. | |
(x) | These Notes are repayable, at the option of the Bank, in whole in 2015, or on any fifth anniversary thereafter. | |
(y) | These Notes are repayable, at the option of the Bank, in whole in 2017, or on any fifth anniversary thereafter. | |
(z) | These Notes are repayable, at the option of the Bank, in whole in 2027, or on any fifth anniversary thereafter. | |
(aa) | These Notes are repayable, at the option of the Bank, in whole in 2009, or on any fifth anniversary thereafter. | |
(ab) | These Loans are repayable, at the option of the Bank, in whole in 2028, or on any fifth anniversary thereafter. |
In addition, each issue of undated loan capital is repayable, at the option of the Bank in whole for certain tax reasons, either at any time, or on an interest payment date. There are no events of default except non-payment of principal or mandatory interest. Any repayments require the prior approval of the Financial Services Authority.
All issues of undated loan capital have been made in the eurocurrency market and/or under Rule 144A, and no issues have been registered under the US Securities Act of 1933.
134
148
34Barclays PLC Annual Report 2004
30 Dated loan capital
Dated loan capital, issued by the Bank for the development and expansion of the Group’s business and to strengthen its capital base, and by Barclays Spain, Barclays Bank of Botswana Ltd (‘BBB’) and Barclays Bank Zambia PLC (‘Barclays Zambia’) to enhance their respective capital bases, comprise:
2004 | 2003 | |||||||||||||||||||||||
2003 | 2002 | Notes | £m | £m | ||||||||||||||||||||
Notes | £m | £m | ||||||||||||||||||||||
Non-convertible | ||||||||||||||||||||||||
The Bank | ||||||||||||||||||||||||
Floating Rate Subordinated Notes 2003 (2002: €55m) | – | 36 | ||||||||||||||||||||||
Subordinated Floating Notes 2003 (2002: €200m) | – | 125 | ||||||||||||||||||||||
Subordinated Floating Notes 2003 (2002: Yen 8,000m) | – | 42 | ||||||||||||||||||||||
Floating Rate Subordinated Notes 2005 (€115m) | (b, l | ) | 81 | – | ||||||||||||||||||||
Floating Rate Subordinated Notes 2005 (€300m) | (b, l | ) | 212 | – | ||||||||||||||||||||
Floating Rate Subordinated Notes 2005 (€115m) | (b, l | ) | 81 | 81 | ||||||||||||||||||||
Floating Rate Subordinated Notes 2005 (€300m) | (b, l | ) | 212 | 212 | ||||||||||||||||||||
Floating Rate Unsecured Capital Loan Stock 2006 | (b, m, n | ) | 3 | 3 | (b, m, n | ) | 3 | 3 | ||||||||||||||||
4.875% Step-up Callable Subordinated Notes 2008 (2002: FFr1,000m) | – | 99 | ||||||||||||||||||||||
Floating Rate Subordinated Notes 2008 (2002: ITL250,000m) | – | 84 | ||||||||||||||||||||||
Subordinated Floating Rate Notes 2008 (2002: $250m) | – | 171 | ||||||||||||||||||||||
Subordinated Floating Rate Notes 2009 ($60m) | (b, i, m | ) | 41 | 41 | ||||||||||||||||||||
Floating Rate Subordinated Step-up Callable Notes 2009 ($550m) | (b, i, m | ) | 360 | 355 | ||||||||||||||||||||
Floating Rate Subordinated Step-up Callable Notes 2009 ($115m) | (b, i, m | ) | 79 | 79 | ||||||||||||||||||||
Subordinated Floating Rate Notes 2009 (2003: $60m) | – | 41 | ||||||||||||||||||||||
Floating Rate Subordinated Step-up Callable Notes 2009 (2003: $550m) | – | 360 | ||||||||||||||||||||||
Floating Rate Subordinated Step-up Callable Notes 2009 (2003: $115m) | – | 79 | ||||||||||||||||||||||
7.4% Subordinated Notes 2009 ($400m) | (a | ) | 225 | 248 | (a | ) | 208 | 225 | ||||||||||||||||
Subordinated Fixed to CMS – Linked Notes 2009 (€31m) | (b | ) | 22 | 20 | ||||||||||||||||||||
Floating Rate Subordinated Step-up Callable Notes 2009 (€150m) | (b, m | ) | 106 | 98 | ||||||||||||||||||||
Variable Floating Rate Subordinated Notes 2009 (Yen 5,000m) | (b, m | ) | 26 | 26 | ||||||||||||||||||||
Subordinated Fixed to CMS – Linked Notes 2009 (€31m) | (b | ) | 22 | 22 | ||||||||||||||||||||
Floating Rate Subordinated Step-up Callable Notes 2009 (2003:€150m) | – | 106 | ||||||||||||||||||||||
Variable Floating Rate Subordinated Notes 2009 (2003: Yen 5,000m) | – | 26 | ||||||||||||||||||||||
12% Unsecured Capital Loan Stock 2010 | (a | ) | 25 | 25 | (a | ) | 25 | 25 | ||||||||||||||||
Floating Rate Subordinated Step-up Callable Notes 2011 ($100m) | (b, m | ) | 56 | 62 | (b, m | ) | 52 | 56 | ||||||||||||||||
Floating Rate Subordinated Step-up Callable Notes 2011 ($125m) | (b, m | ) | 70 | 78 | (b, m | ) | 65 | 70 | ||||||||||||||||
Floating Rate Subordinated Notes 2011 ($400m) | (b, m | ) | 225 | 248 | (b, m | ) | 208 | 225 | ||||||||||||||||
5.75% Fixed Rate Subordinated Notes 2011 (€1,000m) | (a | ) | 707 | 651 | ||||||||||||||||||||
5.25% Subordinated Notes 2011 (€250m) (ex-Woolwich plc) | (a | ) | 167 | 152 | ||||||||||||||||||||
5.75% Subordinated Notes 2011 (€1,000m) | (a | ) | 708 | 707 | ||||||||||||||||||||
5.25% Subordinated Notes 2011 (€250m) (ex-Woolwich plc) | (a | ) | 169 | 167 | ||||||||||||||||||||
Fixed/Floating Rate Subordinated Notes 2011 (Yen 5,000m) | (d, m | ) | 26 | 26 | (d, m | ) | 25 | 26 | ||||||||||||||||
Floating Rate Subordinated Notes 2012 | (b, m | ) | 299 | 299 | (b, m | ) | 300 | 299 | ||||||||||||||||
Callable Subordinated Floating Rate Notes 2012 | (b, m | ) | 44 | 44 | (b, m | ) | 44 | 44 | ||||||||||||||||
Step-up Callable Floating Rate Subordinated Bonds 2012 (ex-Woolwich plc) | (b, m | ) | 148 | 147 | (b, m | ) | 148 | 148 | ||||||||||||||||
Callable Subordinated Floating Rate Notes 2012 ($150m) | (b, m | ) | 84 | 93 | (b, m | ) | 78 | 84 | ||||||||||||||||
Floating Rate Subordinated Notes 2012 ($100m) | (b, m | ) | 56 | 62 | (b, m | ) | 52 | 56 | ||||||||||||||||
Capped Floating Rate Subordinated Notes 2012 ($100m) | (b, m | ) | 56 | 62 | (b, m | ) | 52 | 56 | ||||||||||||||||
Floating Rate Subordinated Notes 2013 ($1,000m) | (b, k, m | ) | 582 | – | (b, k, m | ) | 551 | 582 | ||||||||||||||||
5.015% Subordinated Notes 2013 ($150m) | (a | ) | 84 | – | (a | ) | 78 | 84 | ||||||||||||||||
4.875% Subordinated Notes 2013 (€750m) | (a | ) | 531 | – | ||||||||||||||||||||
4.875% Subordinated Notes 2013 (€750m) | (a | ) | 531 | 531 | ||||||||||||||||||||
5.5% Subordinated Notes 2013 (DM500m) | (e, m | ) | 181 | 166 | (e, m | ) | 181 | 181 | ||||||||||||||||
Floating Rate Subordinated Step-up Callable Notes 2013 (Yen 5,500m) | (b, j, m | ) | 30 | – | (b, j, m | ) | 30 | 30 | ||||||||||||||||
Floating Rate Subordinated Notes 2013 (AU$150m) | (c, m | ) | 63 | – | (c, m | ) | 61 | 63 | ||||||||||||||||
5.93% Subordinated Notes 2013 (AU$100m) | (f, m | ) | 42 | – | (f, m | ) | 40 | 42 | ||||||||||||||||
10.125% Subordinated Notes 2017 (ex-Woolwich plc) | (g, m | ) | 119 | 121 | (g, m | ) | 117 | 119 | ||||||||||||||||
Floating Rate Subordinated Notes 2018 (€40m) | (b | ) | 28 | – | ||||||||||||||||||||
Floating Rate Subordinated Notes 2019 (€50m) | (b | ) | 35 | 33 | ||||||||||||||||||||
Floating Rate Subordinated Notes 2018 (€40m) | (b | ) | 28 | 28 | ||||||||||||||||||||
Floating Rate Subordinated Notes 2019 (€50m) | (b | ) | 36 | 35 | ||||||||||||||||||||
Callable Fixed/Floating Rate Subordinated Notes 2019 (€1,000m) | (h | ) | 708 | – | ||||||||||||||||||||
9.5% Subordinated Bonds 2021 (ex-Woolwich plc) | (a | ) | 258 | 261 | (a | ) | 254 | 258 | ||||||||||||||||
Subordinated Floating Rate Notes 2021 (€100m) | (b | ) | 71 | 65 | ||||||||||||||||||||
Subordinated Floating Rate Notes 2022 (€50m) | (b | ) | 35 | 33 | ||||||||||||||||||||
Subordinated Floating Rate Notes 2023 (€50m) | (b | ) | 35 | – | ||||||||||||||||||||
Subordinated Floating Rate Notes 2021 (€100m) | (b | ) | 71 | 71 | ||||||||||||||||||||
Subordinated Floating Rate Notes 2022 (€50m) | (b | ) | 36 | 35 | ||||||||||||||||||||
Subordinated Floating Rate Notes 2023 (€50m) | (b | ) | 36 | 35 | ||||||||||||||||||||
5.75% Fixed Rate Subordinated Notes 2026 | (a | ) | 600 | 600 | (a | ) | 600 | 600 | ||||||||||||||||
5.4% Reverse Dual Currency Subordinated Loan 2027 (Yen 15,000m) | (h | ) | 79 | 78 | (i | ) | 75 | 79 | ||||||||||||||||
6.33% Subordinated Notes 2032 | (a | ) | 50 | 50 | (a | ) | 50 | 50 | ||||||||||||||||
Subordinated Floating Rate Notes 2040 (€100m) | (b | ) | 71 | 65 | ||||||||||||||||||||
Subordinated Floating Rate Notes 2040 (€100m) | (b | ) | 71 | 71 | ||||||||||||||||||||
Barclays Bank SA, Spain (Barclays Spain) | ||||||||||||||||||||||||
Subordinated Floating Rate Capital Notes 2007 (€60m) | (b | ) | 42 | – | ||||||||||||||||||||
Subordinated Floating Rate Capital Notes 2009 (€42m) | (b | ) | 30 | – | ||||||||||||||||||||
Subordinated Floating Rate Capital Notes 2011 (€50m) | (b | ) | 35 | – | ||||||||||||||||||||
6,012 | 4,848 | 6,113 | 6,012 | |||||||||||||||||||||
Convertible | ||||||||||||||||||||||||
Barclays Bank of Botswana Ltd (BBB) | ||||||||||||||||||||||||
Subordinated Unsecured Floating Rate Capital Notes 2014 (BWP100m) | (m, o | ) | 13 | 11 | (m, o | ) | 12 | 13 | ||||||||||||||||
Barclays Bank Zambia PLC | ||||||||||||||||||||||||
Subordinated Unsecured Floating Rate Capital Notes 2015 (ZMK30bn) | (m, p | ) | 4 | – | (m, p | ) | 3 | 4 | ||||||||||||||||
Total dated loan capital | 6,029 | 4,859 | 6,128 | 6,029 | ||||||||||||||||||||
Repayable not more than one year | 3 | 206 | ||||||||||||||||||||||
Repayable | ||||||||||||||||||||||||
not more than one year | 296 | 3 | ||||||||||||||||||||||
over one year but not more than two years | 293 | – | – | 293 | ||||||||||||||||||||
over two year but not more than five years | – | – | ||||||||||||||||||||||
over two years but not more than five years | 302 | – | ||||||||||||||||||||||
over five years | 5,733 | 4,653 | 5,530 | 5,733 | ||||||||||||||||||||
6,029 | 4,859 | 6,128 | 6,029 | |||||||||||||||||||||
Barclays PLC Annual Report 2003 135
149
Notes to the Accounts
For the Year Endedyear ended 31st December 20032004
3430 Dated loan capital (continued)
None of the Group’s dated loan capital is secured. The debt obligations of the Bank, Barclays Spain, BBB and Barclays Zambia rank ahead of the interests of holders of their equity. Dated loan capital of the Bank, Barclays Spain, BBB and Barclays Zambia has been issued on the basis that the claims thereunder are subordinated to the respective claims of their depositors and other unsecured unsubordinated creditors.
In accordance with the Barclays Group Reorganisation Act 2002, the 5.25% Subordinated Notes 2011, the Step-up Callable Floating Rate Subordinated Bonds 2012, the 10.125% Subordinated Notes 2017 and the 9.5% Subordinated Bonds 2021 of Woolwich plc were transferred to the Bank by operation of law on 1st December 2003 and accordingly the Bank has become the obligor for these issues from that date.
The loan capital of Barclays Spain was reclassified from Other liabilities to Dated loan capital during 2004.
Interest
Notes
(a) | The interest rates on these Notes are fixed for the life of those issues. | |
(b) | These Notes bear interest at rates fixed periodically in advance based on London or European interbank rates. | |
(c) | These Notes bear interest at rates fixed periodically in advance based on Sydney bill of exchange rates. | |
(d) | These Notes bear a fixed rate of interest until 2006. After that date, in the event that the Notes are not redeemed, the Notes will bear interest at rates fixed periodically in advance based on London interbank rates. | |
(e) | These Notes bear a fixed rate of interest until 2008. After that date, in the event that the Notes are not redeemed, the Notes will bear interest at rates fixed periodically in advance based on London interbank rates. | |
(f) | These Notes bear a fixed rate of interest until 2008. After that date, in the event that the Notes are not redeemed, the Notes will bear interest at rates fixed periodically in advance based on Sydney Bill of exchange rates. | |
(g) | These Notes bear a fixed rate of interest until 2012. After that date, in the event that the Notes are not redeemed, the coupon will be reset to a fixed margin over a reference gilt rate for a further period of five years. | |
(h) | These Notes bear a fixed rate of interest until 2014. After that date, in the event that the Notes are not redeemed, the Notes will bear interest at rates fixed periodically in advance based on European interbank rates. | |
This Loan bears a fixed rate of interest based on a US Dollar principal amount, but the interest payments have been swapped, resulting in a Yen interest rate payable which is fixed periodically in advance based on London interbank rates. | ||
(j) | The Bank has swapped the proceeds of these Notes for euro under a swap, the duration of which matches the term of the Notes. The payment obligations of the Bank under this swap are subordinated so that the claims against the Bank in respect of this swap rank pari passu with claims against the Bank in respect of its dated loan capital. The sterling value of these Notes in the figures set out above takes into account this subordinated swap. | |
(k) | The Bank has swapped US$ | |
(l) | The Bank may defer the payment of interest and principal on these Notes in the event that the Financial Services Authority has required or requested the Bank to make such a deferral. | |
(m) | Repayable at the option of the issuer, prior to maturity, on conditions governing the respective debt obligations, some in whole or in part, and some only in whole. | |
(n) | Holders of these Notes have certain rights to call for the redemption of their holdings. | |
(o) | These Notes bear interest at rates fixed periodically in advance based on the Bank of Botswana Certificate Rate. All of these Notes will be compulsorily converted to Preference Shares of BBB, having a total par value equal in sum to the principal amount of Notes outstanding at the time of conversion, should BBB experience pre-tax losses in excess of its retained earnings and other capital surplus accounts. | |
(p) | These Notes bear interest at rates fixed periodically in advance based on the Bank of Zambia Treasury Bill rate. All of these Notes will be compulsorily converted to Preference Shares of Barclays Zambia, having a total par value equal in sum to the principal amount of Notes outstanding at the time of conversion, should Barclays Zambia experience pre-tax losses in excess of its retained earnings and other capital surplus accounts. |
Interest payable on loan capital with a final maturity within five years amounted to £23.8m (2003: £10.7m, (2002: £28m, 2001: £14m)2002: £28m).
The 7.4% Subordinated Notes 2009 (the ‘7.4% Notes’) issued by the Bank have been registered under the US Securities Act of 1933. All other issues of dated loan capital by the Bank, Barclays Spain, BBB and Barclays Zambia, which were made in non-US markets, have not been so registered. With respect to the 7.4% Notes, the Bank is not obliged to make (i) a payment of interest on any interest payment date unless a dividend is paid on any class of share capital and (ii) a payment of principal until six months after the respective maturity date with respect to such Notes.
136
150
34Barclays PLC Annual Report 2004
30 Dated loan capital (continued)
Repayment terms
Unless otherwise indicated, the Group’s dated loan capital outstanding at 31st December 20032004 is redeemable only on maturity, subject in particular cases, to provisions allowing an early redemption in the event of certain changes in tax law or, in the case of BBB and Barclays Zambia, to certain changes in legislation or regulations.
Any repayments prior to maturity require in the case of the Bank, the prior approval of the Financial Services Authority, in the case of BBB, the prior approval of the Bank of Botswana and in the case of Barclays Zambia, the prior approval of the Bank of Zambia.
There are no committed facilities in existence at the balance sheet date which permit the refinancing of debt beyond the date of maturity.
3531 Called up share capital
The authorised share capital of Barclays PLC is £2,500m (2002:(2003: £2,500m), comprising 9,996m (2002: 9,996m)9,996 million (2003: 9,996 million) ordinary shares of 25p each and 1m (2002: 1m)1 million (2003: 1 million) staff shares of £1 each.
2003 | 2002 | |||||||
£m | £m | |||||||
Called up share capital, allotted and fully paid | ||||||||
Ordinary shares: | ||||||||
At beginning of year | 1,644 | 1,667 | ||||||
Issued to staff under the SAYE Share Option Scheme | 7 | 7 | ||||||
Issued under Incentive Share Option Plan | 1 | – | ||||||
Issued under Woolwich Executive Share Option Plan | 1 | – | ||||||
Repurchase of shares | (12 | ) | (30 | ) | ||||
At end of year | 1,641 | 1,644 | ||||||
Staff shares | 1 | 1 | ||||||
1,642 | 1,645 | |||||||
In 2003, the Company repurchased Called up share capital comprises 6,454 million (2003: 6,563 million) ordinary shares with a nominal value of £12m at a total cost25p each and 1 million (2003: 1 million) staff shares of £204m. In 2002,£1 each.
2004 | 2003 | |||||||
£m | £m | |||||||
Called up share capital, allotted and fully paid | ||||||||
Ordinary shares: | ||||||||
At beginning of year | 1,641 | 1,644 | ||||||
Issued to staff under the SAYE Share Option Scheme | 6 | 7 | ||||||
Issued under Incentive Share Option Plan | 1 | 1 | ||||||
Issued under Woolwich Executive Share Option Plan | – | 1 | ||||||
Repurchase of shares | (35 | ) | (12 | ) | ||||
At end of year | 1,613 | 1,641 | ||||||
Staff shares | 1 | 1 | ||||||
1,614 | 1,642 | |||||||
Share repurchase
The following table shows by month, the number of shares purchased and the average price paid per share. No share repurchases were made in any month not listed below.
Total number of | Maximum number | |||||||||||||||
shares purchased | (or approximate value) | |||||||||||||||
as part of publicly | of shares that may yet | |||||||||||||||
Total number of | Average price | announced plans | be purchased under | |||||||||||||
Period | shares purchased | paid per share | or programmes | the plans or programmes | ||||||||||||
1st February 2004 to 29th February 2004 | 8,381,800 | 4.96 | – | n/a | ||||||||||||
1st March 2004 to 31st March 2004 | 42,341,364 | 4.85 | – | n/a | ||||||||||||
1st April 2004 to 30th April 2004 | 39,085,413 | 4.96 | – | n/a | ||||||||||||
1st May 2004 to 31st May 2004 | 31,884,909 | 5.02 | – | n/a | ||||||||||||
1st August 2004 to 31st August 2004 | 14,170,000 | 5.04 | – | n/a | ||||||||||||
1st September 2004 to 30th September 2004 | 4,260,000 | 5.33 | – | n/a | ||||||||||||
Total | 140,123,486 | 4.96 | – | |||||||||||||
At the 2003 AGM on 24th April, Barclays PLC was authorised to repurchase 985,524,000 of its ordinary shares with a nominal value of £30m25p. The authorisation was effective until the AGM in 2004. 35,220,413 of the 39,085,413 shares repurchased in April 2004 were repurchased under the 2003 AGM authorisation. At the 2004 AGM on 29th April, Barclays PLC was authorised to repurchase 984,600,000 of its ordinary shares of 25p. The authorisation is effective until the AGM in 2005. 3,865,000 of the 39,085,413 shares repurchased in April 2004 were repurchased under the 2004 AGM authorisation.
As at a total cost of £546m.28th February 2005, there were 930,420,091 shares that may yet be purchased under the 2004 AGM authorisation.
36All shares purchased during the period were open market transactions.
151
Notes to the Accounts
For the year ended 31st December 2004
32 Shares under option
The Group has three current schemes that give employees rights to subscribe for shares in Group companies. A summary of the key terms of the Incentive Share Option Plan (ISOP) and Sharesave (SAYE) are describedis provided on pages 1214 and 13.15.
The other current scheme is the BGI Equity Ownership Plan (EOP) which provides for options to be granted to certain management personnel for shares in BGIBarclays Global Investors UK Holdings Ltd,Limited, a subsidiary of Barclays Bank PLC. Under the terms of the Plan, options are normally exercisable upon vesting. One-third of the options will generally vest at each anniversary of the grant date over three years. If unexercised, the options will lapse 10ten years after the grant.
At 31st December 2003, 13.5m (2002: 17.8m)2004, 7.6 million (2003: 13.5 million) options were outstanding under the terms of the BGI EOP (which would represent a 13.81%7.8% interest if exercised), enabling certain management personnel to subscribe for shares in BGIBarclays Global Investors UK Holdings Limited between 20042005 and 20132014 at prices between £6.11 and £10.92.£20.11. One year following the exercise of the option, the shareholder has the right to offer to sell the shares.shares to Barclays Bank PLC. Barclays Bank PLC has first refusal tomay accept the offer and purchase the shares at the most recent agreed valuation. As at 31st December 2003, theThe most recently agreed valuation at 30th June 2004 was £15.16 (2002: £11.09)£32.10 (2003: £15.16).
If all the current options were exercised, £128.7m (2002: £158.7m)£96.5m (2003: £128.7m) would be subscribed. At the most recently agreed valuation these shares would be valued at £205.0m,£243.1m, resulting in a gain of £76.3m£146.7m to the option holders if these shares were sold at this price. Since the scheme was introduced, options over 4.9m (2002: 0.8m)12.7 million (2003: 4.9 million) shares have been exercised, of which 4.4m have not been purchased10 million are still held by Barclays Bank PLCemployees and represent a minority interest in Barclays Global Investors Holdings Limited and the Group.
At 31st December 2003, 106m (2002: 127m)2004, 97.3 million (2003: 106 million) options were outstanding under the terms of the SAYE Share Option Scheme, 0.6m (2002: 3.8m)0.2 million (2003: 0.6 million) options were outstanding under the terms of the Woolwich SAYE Scheme, 5.9m (2002: 8.2m)4.5 million (2003: 5.9 million) options were outstanding under the terms of the Executive Share Option Scheme, 4.4m (2002: 8.8m)2.3 million (2003: 4.4 million) options were outstanding under the terms of the Woolwich ESOP and 98.9m (2002: 77.6m)137.9 million (2003: 98.9 million) options were outstanding under the terms of the Incentive Share Option Plan, enabling certain Directors and members of staff to subscribe for ordinary shares between 20042005 and 20132014 at prices ranging from 137p176p to 562p.
In addition to the above, the independent trustee of the Barclays Group (ESAS) Employees’ Benefit Trust (ESAS Trust), established by Barclays Bank PLC in 1996, operates the Executive Share Award Scheme (ESAS). ESAS is a deferred share bonus plan for employees of the Group. The key terms of ESAS are described on page 14. The independent trustees of the ESAS Trust make awards of Barclays shares and grant options over Barclays shares to beneficiaries of the ESAS Trust. Beneficiaries of the ESAS Trust include employees and former employees of the Barclays Group.
The independent trustee of the Barclays Group (PSP & ESOS) Employees’ Benefit Trust (PSP Trust), established by Barclays Bank PLC in 1996, operates the Performance Share Plan (PSP) and may satisfy awards under the Executive Share Option Scheme (ESOS). No awards have been made under this trust since 1999. All awards are in the form of options over Barclays shares.
The total number of Barclays shares held in Group employee benefit trusts at 31st December 2004 was 115 million (2003: 82.8 million). Dividend rights have been waived on 1.6 million (2003:1.6 million) of these shares. The total number of shares includes those represented by the reduction to shareholders’ funds of £153m (2003: £99m) where the cost has not yet been fully expensed to the profit and loss account. The total market value of the shares held in trust based on the year-end share price of £5.86 (2003: £4.98) was £674m (2003: £412m). As at 31st December 2004, options over 10.1 million (2003: 7.3m) of the total shares held in the trusts were exercisable.
152
Barclays PLC Annual Report 2003 1372004
Notes to the AccountsFor the Year Ended 31st December 2003
3733 Shareholders’ funds
2003 | 2002 | ||||||||||||||||||||||||||||||||||||||||||||||||
restated | 2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||||
Associated | Associated | Associated | Associated | ||||||||||||||||||||||||||||||||||||||||||||||
undertakings | undertakings | undertakings | undertakings | ||||||||||||||||||||||||||||||||||||||||||||||
and joint | and joint | and joint | and joint | ||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | Barclays PLC | ventures | Consolidated | Barclays PLC | ventures | Consolidated | Barclays PLC | ventures | Consolidated | Barclays PLC | ventures | ||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||
At beginning of year restated | 15,201 | 15,201 | (8 | ) | 14,485 | 14,485 | 1 | ||||||||||||||||||||||||||||||||||||||||||
At beginning of year | 16,374 | 16,374 | (14 | ) | 15,146 | 15,146 | (8 | ) | |||||||||||||||||||||||||||||||||||||||||
Proceeds of shares issued (net of expenses) | 149 | 149 | – | 135 | 135 | – | 114 | 114 | – | 149 | 149 | – | |||||||||||||||||||||||||||||||||||||
Exchange rate translation differences | (29 | ) | – | (25 | ) | (61 | ) | – | – | (58 | ) | – | (25 | ) | (29 | ) | – | (25 | ) | ||||||||||||||||||||||||||||||
Repurchase of ordinary shares | (204 | ) | (204 | ) | – | (546 | ) | (546 | ) | – | (699 | ) | (699 | ) | – | (204 | ) | (204 | ) | – | |||||||||||||||||||||||||||||
Revaluation of investment in subsidiary undertaking | – | 1,123 | – | – | 581 | – | – | 929 | – | – | 1,079 | – | |||||||||||||||||||||||||||||||||||||
Shares issued to employee trusts in relation to share option schemes | (36 | ) | (36 | ) | – | (48 | ) | (46 | ) | – | |||||||||||||||||||||||||||||||||||||||
(Loss)/gain arising from transactions with third parties | (4 | ) | – | – | 206 | – | – | ||||||||||||||||||||||||||||||||||||||||||
Goodwill written back on disposals | – | – | – | 10 | – | – | |||||||||||||||||||||||||||||||||||||||||||
Shares issued to the 2003 QUEST in relation to share option schemes for staff | (1 | ) | (1 | ) | – | (36 | ) | (36 | ) | – | |||||||||||||||||||||||||||||||||||||||
Gain/(loss) arising from transactions with third parties | 13 | – | – | (4 | ) | – | – | ||||||||||||||||||||||||||||||||||||||||||
ESOP Trust Shares allocated to staff | (3 | ) | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
Other items | – | – | 3 | – | – | 2 | – | – | (5 | ) | – | – | 3 | ||||||||||||||||||||||||||||||||||||
Profit/(loss) retained | 1,404 | 240 | 16 | 1,024 | 592 | (11 | ) | ||||||||||||||||||||||||||||||||||||||||||
Increase in Treasury shares | (8 | ) | – | – | (4 | ) | – | – | |||||||||||||||||||||||||||||||||||||||||
Profit retained | 1,730 | 700 | 31 | 1,404 | 240 | 16 | |||||||||||||||||||||||||||||||||||||||||||
Increase in ESOP shares | (54 | ) | – | – | (44 | ) | – | – | |||||||||||||||||||||||||||||||||||||||||
Decrease/(increase) in Treasury shares | 1 | – | – | (8 | ) | – | – | ||||||||||||||||||||||||||||||||||||||||||
At end of year | 16,473 | 16,473 | (14 | ) | 15,201 | 15,201 | (8 | ) | 17,417 | 17,417 | (13 | ) | 16,374 | 16,374 | (14 | ) | |||||||||||||||||||||||||||||||||
Opening shareholders’ funds have been restated due to the adoption of UITF Abstract 37, ‘Purchases and sales of own shares’38, ‘Accounting for ESOP trusts’. Further information can be found in the changes in accounting policy on page 105.115.
The revaluation reserve of Barclays PLC arises from the revaluation of the investment in Barclays Bank PLC.
The decrease in consolidated shareholders’ funds of £29m (2002:£58m (2003: decrease £61m)£29m) arising from exchange rate translation differences is net of a related tax credit of £2m (2002:(2003: credit £3m)£2m).
38Treasury shares are carried at £11m (2003: £12m). The number of treasury shares in issue as at 31st December 2004 is 2 million (2003: 2 million).
34 Investment in Barclays Bank PLC
The investment in Barclays Bank PLC is stated in the balance sheet at Barclays PLC’s share of the book value of the net assets of Barclays Bank PLC including unamortised goodwill. The net increase of £1,272m£1,043m during the year comprised the cost of additional shares of £149m£114m and an increase of £1,123m£929m in other net assets of Barclays Bank PLC. The cost of the investment was £7,765m (2002: £7,616m)£7,879m (2003: £7,765m).
Details of principal subsidiary undertakings, held through Barclays Bank PLC, are shown in Note 43.50.
39 Leasing activities153
Aggregate amounts received and receivable during
Notes to the accounts
For the year under finance leases were £419m (2002: £433m, 2001: £486m), including interest incomeended 31st December 2004
35 Analysis of £234m (2002: £225m, 2001: £263m).assets and liabilities
40 Assets and liabilities denominated in sterling and foreign currencies
2004 | 2003 | |||||||||||||||
2003 | 2002 | £m | £m | |||||||||||||
restated | ||||||||||||||||
£m | £m | |||||||||||||||
Denominated in sterling | 191,047 | 190,299 | 220,902 | 190,948 | ||||||||||||
Denominated in currencies other than sterling | 252,314 | 212,763 | 301,187 | 252,314 | ||||||||||||
Total assets | 443,361 | 403,062 | 522,089 | 443,262 | ||||||||||||
Denominated in sterling | 193,660 | 186,934 | 205,845 | 193,561 | ||||||||||||
Denominated in currencies other than sterling | 249,701 | 216,128 | 316,244 | 249,701 | ||||||||||||
Total liabilities | 443,361 | 403,062 | 522,089 | 443,262 | ||||||||||||
41 Assets pledged to secure liabilities
Barclays has pledged assets as security for liabilities and potential liabilities included under the following headings:
2004 | 2003 | |||||||
£m | £m | |||||||
Amount of liability secured | ||||||||
Deposits by banks | 32,392 | 25,895 | ||||||
Customer accounts | 40,633 | 28,732 | ||||||
Debt securities in issue | 3,016 | 3,221 | ||||||
Other liabilities | 1,414 | 1,243 | ||||||
Total | 77,455 | 59,091 | ||||||
At 31st December 2003, theThe amount of assets pledged to secure these liabilities was £10,666m (2002: £16,109m). The securedand potential liabilities outstanding amounted to £11,777m (2002: £12,151m). A significant proportion ofis included under the assets pledged were debt securities.
138
2004 | 2003 | |||||||
£m | £m | |||||||
Amount of assets pledged | ||||||||
Treasury bills and other eligible securities | 5,807 | 3,394 | ||||||
Loans and advances to customers | 4,334 | 3,594 | ||||||
Debt securities | 70,975 | 54,336 | ||||||
Other | 857 | 826 | ||||||
Total | 81,973 | 62,150 | ||||||
42 Future rental commitments under operating leases
At 31st December 2003, the Group held various leases on land2004 guarantees and buildings, many for extended periods, and other leases for equipment.
2003 | 2002 | |||||||||||||||
Property | Equipment | Property | Equipment | |||||||||||||
£m | £m | £m | £m | |||||||||||||
Annual commitments under non-cancellable operating leases expiring: | ||||||||||||||||
not more than one year | 9 | 1 | 19 | 1 | ||||||||||||
over one year but not more than five years | 45 | 1 | 46 | – | ||||||||||||
over five years | 142 | – | 110 | – | ||||||||||||
196 | 2 | 175 | 1 | |||||||||||||
The aggregate rental payments outstanding at 31st December 2003 fall dueassets pledged as follows:
Year ended 31st December | ||||||||||||||||||||||||
Total | ||||||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | thereafter | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Aggregate rental payments | 198 | 204 | 186 | 178 | 169 | 1,851 | ||||||||||||||||||
The aggregate rental payments above include amounts relating to a commitment to lease a new headquarters at Canary Wharf. The rentals for leasehold land, buildings and equipment, included in operating expenses for the year ended 31st December 2003,collateral security against contingent liabilities amounted to £192m (2002: £192m, 2001: £200m)£30,011m (2003: £24,596m).
43 Principal subsidiary undertakings
In accordance with Section 231(5) of the Companies Act 1985, the above information is provided solely in relation to principal subsidiary undertakings. Full information on all subsidiaries will be included with the Annual Return.
With the exception of Barclays Capital Japan Limited which operates in Japan, the country of registration or incorporation is also the principal area of operation for each of the above undertakings. Investments in these undertakings are held directly by Barclays Bank PLC except where marked *.
Barclays PLC Annual Report 2003 1392004
Notes to the AccountsFor the Year Ended 31st December 2003
4436 Contingent liabilities and commitments
In common with other banks, the Group conducts business involving acceptances, guarantees, performance bonds and indemnities. The majority of these facilities are offset by corresponding obligations of third parties. In addition, there are other off balance sheet financial instruments, including swaps, futures, forwards and option contracts or combinations thereof (all commonly known as derivatives), the nominal amounts of which are not reflected in the consolidated balance sheet.
Following internationally accepted banking supervisory practice for the calculation of the credit risk associated with such non-derivative off balance sheet items, for the purpose of this Note the contract or underlying principal amounts are either recognised at face value or converted to credit risk equivalents by applying specified conversion factors.
Nature of instruments
For a description of the nature of derivative financial instruments, see page 53.57.
An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Group expects most acceptances to be presented, but reimbursement by the customer is normally immediate. Endorsements are residual liabilities of the Group in respect of bills of exchange which have been paid and subsequently rediscounted.
Guarantees and assets pledged as collateral security are generally written by a bank to support the performance of a customer to third parties. As the Group will only be required to meet these obligations in the event of the customer’s default, the cash requirements of these instruments are expected to be considerably below their nominal amounts.
Other contingent liabilities include transaction related customs and performance bonds and are, generally, short-term commitments to third parties which are not directly dependent on the customer’s creditworthiness.
Commitments to lend are agreements to lend to a customer in the future, subject to certain conditions. Such commitments are either made for a fixed period, or have no specific maturity but are cancellable by the lender subject to notice requirements.
Documentary credits commit the Group to make payments to third parties on production of documents, which are usually reimbursed immediately by customers.
The following table summarises the nominal principal amount of contingent liabilities and commitments with off balance sheet risk as at 31st December 2003.2004:
2004 | 2003 | |||||||||||||||
Contract or | Contract or | |||||||||||||||
2003 | 2002 | underlying | underlying | |||||||||||||
Contract or | Contract or | principal | principal | |||||||||||||
underlying | underlying | amount | amount | |||||||||||||
principal | principal | £m | £m | |||||||||||||
amount | amount | |||||||||||||||
£m | £m | |||||||||||||||
Contingent liabilities | ||||||||||||||||
Acceptances and endorsements | 671 | 2,589 | 303 | 671 | ||||||||||||
Guarantees and assets pledged as collateral security | 24,596 | 16,043 | 30,011 | 24,596 | ||||||||||||
Other contingent liabilities | 8,427 | 7,914 | 8,245 | 8,427 | ||||||||||||
Off-balance sheet credit risk | 33,694 | 26,546 | ||||||||||||||
Off balance sheet credit risk | 38,559 | 33,694 | ||||||||||||||
Commitments | ||||||||||||||||
Other commitments: | ||||||||||||||||
Arising out of sale and option to resell transactions | 1 | – | ||||||||||||||
Documentary credits and other short-term trade related transactions | 359 | 340 | 522 | 359 | ||||||||||||
Forward asset purchases and forward forward deposits placed | 88 | 20 | 55 | 88 | ||||||||||||
Undrawn formal standby facilities, credit lines and other commitments to lend: | ||||||||||||||||
Over one year | 27,160 | 22,809 | ||||||||||||||
Undrawn formal standby facilities, credit lines and other commitments to lend: Over one year | 36,083 | 27,160 | ||||||||||||||
In one year or less | 87,240 | 78,209 | 97,390 | 87,240 | ||||||||||||
Off-balance sheet credit risk | 114,847 | 101,378 | ||||||||||||||
Off balance sheet credit risk | 134,051 | 114,847 | ||||||||||||||
Current year credit card commitments to lend have been calculated on a contractual basis rather than a modelled basis. Had this method been applied in 2003, reported commitments would have been increased by £5,899m to £120,746m.
As an active participant in international banking markets, the Group has a significant concentration of off balance sheet items with financial institutions, as shown in Note 64.55.
For a further description of the nature and management of credit risks and market risks, see pages 2930 to 5071 of the Risk Management section.
155
Notes to the accounts
For the year ended 31st December 2004
36 Contingent liabilities and commitments (continued)
UK Obligationsobligations to purchase goods and services
The table below gives details of the Group’s obligations to purchase goods and services at 31st December 2003:2004:
2004 | 2003 | |||||||||||||||
£m | £m | |||||||||||||||
2003 | 2002 | |||||||||||||||
£m | £m | |||||||||||||||
Obligations payable | ||||||||||||||||
less than one year | 273 | 176 | 296 | 273 | ||||||||||||
over one year but not more than three years | 377 | 312 | 493 | 377 | ||||||||||||
over three years but not more than five years | 123 | 76 | 193 | 123 | ||||||||||||
over five years | 73 | 61 | 103 | 73 | ||||||||||||
846 | 625 | 1,085 | 846 | |||||||||||||
The obligations mainly relate to contracts for the provision of services such as office supplies, telecommunications, maintenance and sponsorship agreements.
140 Future rental commitments under operating leases
At 31st December 2004, the Group held various leases on land and buildings, many for extended periods, and other leases for equipment.
2004 | 2003 | |||||||||||||||
Property | Equipment | Property | Equipment | |||||||||||||
£m | £m | £m | £m | |||||||||||||
Annual commitments under non-cancellable operating leases expiring: | ||||||||||||||||
not more than one year | 22 | 2 | 9 | 1 | ||||||||||||
over one year but not more than five years | 33 | 4 | 45 | 1 | ||||||||||||
over five years | 182 | – | 142 | – | ||||||||||||
237 | 6 | 196 | 2 | |||||||||||||
The aggregate rental payments outstanding at 31st December 2004 fall due as follows:
Year ended 31st December | ||||||||||||||||||||||||
Total | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | thereafter | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Aggregate rental payments | 243 | 216 | 200 | 190 | 176 | 1,657 | ||||||||||||||||||
The aggregate rental payments above include the lease commitment for the new headquarters at 1 Churchill Place. The rentals for leasehold land, buildings and equipment, included in operating expenses for the year ended 31st December 2004, amounted to £206m (2003: £192m, 2002: £192m).
156
45Barclays PLC Annual Report 2004
37 Derivatives and other financial instruments
The Group’s objectives and policies in managing the risks that arise in connection with the use of financial instruments are set out on pages 2530 to 5734 under the headings ‘Risk Management and Control – Overview’; ‘Market Risk Management’ and ‘Treasury Asset and Liability Management’. Short-term debtors and creditors are included in the following interest rate repricing and non-trading currency risk tables. All other disclosures in Note 4537 exclude these short-term balances.
Interest rate sensitivity gap analysis
The table below summarises the repricing profiles of the Group’s non-trading book as at 31st December 2003.2004. Items are allocated to time bands by reference to the earlier of the next contractual interest rate repricing date and the maturity date.
Interest rate repricing – as at 31st December 20032004
Over three | Over | Over | Over | Over | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
months but | six months | one year | three years | five years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over three | Over | Over | Over | Over | Not more | not more | but not | but not | but not | but not | Over | Non- | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
months but | six months | one year | three years | five years | than three | than six | more than | more than | more than | more than | ten | interest | Trading | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Not more | not more | but not | but not | but not | but not | Over | Non- | months | months | one year | three years | five years | ten years | years | bearing | balances | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
than three | than six | more than | more than | more than | more than | ten | interest | Trading | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
months | months | one year | three years | five years | ten years | years | bearing | balances | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate sensitivity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury bills and other eligible bills | 592 | 28 | 33 | 35 | – | – | – | – | 6,489 | 7,177 | 500 | 144 | 26 | 41 | – | – | – | – | 5,947 | 6,658 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and advances to banks | 2,632 | 2 | 53 | 48 | 9 | – | – | 212 | 58,968 | 61,924 | 1,855 | 143 | 7 | 403 | 12 | 3 | – | 258 | 72,450 | 75,131 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and advances to customers | 104,397 | 4,679 | 7,155 | 11,739 | 6,007 | 2,388 | 1,102 | 882 | 88,470 | 226,819 | 110,267 | 5,526 | 8,019 | 12,739 | 5,653 | 3,134 | 4,956 | 78 | 104,574 | 254,946 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities and equity shares | 721 | 66 | 420 | 898 | 580 | 259 | 250 | 272 | 101,786 | 105,252 | 420 | 100 | 64 | 635 | 291 | 87 | 10 | 717 | 137,270 | 139,594 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets | 338 | – | – | – | – | – | – | 12,949 | 20,825 | 34,112 | 899 | – | – | – | – | – | – | 12,705 | 23,778 | 37,382 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | 108,680 | 4,775 | 7,661 | 12,720 | 6,596 | 2,647 | 1,352 | 14,315 | 276,538 | 435,284 | 113,941 | 5,913 | 8,116 | 13,818 | 5,956 | 3,224 | 4,966 | 13,758 | 344,019 | 513,711 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits by banks | 4,247 | 275 | 105 | 202 | 29 | 235 | – | 357 | 88,642 | 94,092 | 5,217 | 353 | 2 | 364 | 459 | – | – | 1 | 104,628 | 111,024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Customer accounts | 118,981 | 1,369 | 1,749 | 1,407 | 103 | 13 | 240 | 14,056 | 46,950 | 184,868 | 125,575 | 1,580 | 1,516 | 998 | 78 | 33 | 208 | 15,590 | 72,140 | 217,718 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities in issue | 7,101 | 55 | – | 1,345 | 206 | – | 122 | – | 40,740 | 49,569 | 7,038 | 222 | 225 | 1,178 | 25 | – | 207 | – | 58,911 | 67,806 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other liabilities | – | – | – | – | – | – | – | 9,576 | 68,084 | 77,660 | – | – | – | – | – | – | – | 10,445 | 76,123 | 86,568 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan capital and other subordinated liabilities | 3,060 | 499 | 22 | 22 | 536 | 3,649 | 4,551 | – | – | 12,339 | 2,523 | 432 | 108 | 25 | 849 | 3,853 | 4,487 | – | – | 12,277 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Minority and other interests and shareholders’ funds | – | – | – | – | – | – | – | 16,756 | – | 16,756 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Minority interests and shareholders’ funds | – | – | – | – | – | – | – | 18,318 | – | 18,318 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Internal funding of trading business | (22,649 | ) | (2,590 | ) | (530 | ) | 1,080 | 666 | – | 269 | (8,368 | ) | 32,122 | – | (21,620 | ) | (1,073 | ) | (523 | ) | 249 | 221 | 245 | 426 | (10,142 | ) | 32,217 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 110,740 | (392 | ) | 1,346 | 4,056 | 1,540 | 3,897 | 5,182 | 32,377 | 276,538 | 435,284 | 118,733 | 1,514 | 1,328 | 2,814 | 1,632 | 4,131 | 5,328 | 34,212 | 344,019 | 513,711 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Off-balance sheet items | (16,637 | ) | (10,301 | ) | (464 | ) | 11,341 | 8,448 | 4,114 | 3,499 | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Off balance sheet items | (10,564 | ) | (18,855 | ) | 3,257 | 9,488 | 10,654 | 4,762 | 1,258 | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate repricing gap | (18,697 | ) | (5,134 | ) | 5,851 | 20,005 | 13,504 | 2,864 | (331 | ) | (18,062 | ) | – | – | (15,356 | ) | (14,456 | ) | 10,045 | 20,492 | 14,978 | 3,855 | 896 | (20,454 | ) | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative gap | (18,697 | ) | (23,831 | ) | (17,980 | ) | 2,025 | 15,529 | 18,393 | 18,062 | – | – | – | (15,356 | ) | (29,812 | ) | (19,767 | ) | 725 | 15,703 | 19,558 | 20,454 | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets and liabilities exclude retail life-fund assets and liabilities. These are not relevant in considering the interest rate risk of the Group.
Trading balances for the purposes of this table are those, within Barclays Capital, where the risk is managed by DVaR (see pages 48 to 50)page 159).
Barclays PLC Annual Report 2003 141
157
Notes to the Accountsaccounts
2004
4537 Derivatives and other financial instruments (continued)
Interest rate repricing – as at 31st December 20022003
Over three | Over | Over | Over | Over | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over three | Over | Over | Over | Over | months but | six months | one year | three years | five years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
months but | six months | one year | three years | five years | Not more | not more | but not | but not | but not | but not | Over | Non- | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Not more | not more | but not | but not | but not | but not | Over | Non- | than three | than six | more than | more than | more than | more than | ten | interest | Trading | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
than three | than six | more than | more than | more than | more than | ten | interest | Trading | months | months | one year | three years | five years | ten years | years | bearing | balances | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
months | months | one year | three years | five years | ten years | years | bearing | balances | Total | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
restated | restated | restated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury bills and other eligible bills | 261 | 87 | 42 | 21 | – | – | – | – | 7,234 | 7,645 | 592 | 28 | 33 | 35 | – | – | – | – | 6,489 | 7,177 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and advances to banks | 2,844 | 35 | 56 | 44 | 1 | 84 | – | 281 | 54,829 | 58,174 | 2,632 | 2 | 53 | 48 | 9 | – | – | 212 | 58,968 | 61,924 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and advances to customers | 94,934 | 4,302 | 6,239 | 9,106 | 5,692 | 3,886 | 1,251 | 861 | 76,127 | 202,398 | 104,397 | 4,679 | 7,155 | 11,739 | 6,007 | 2,388 | 1,102 | 882 | 88,470 | 226,819 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities and equity shares | 3,794 | 174 | 87 | 1,173 | 434 | 313 | 254 | 956 | 90,173 | 97,358 | 721 | 66 | 420 | 898 | 580 | 259 | 250 | 272 | 101,786 | 105,252 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets | 758 | – | – | – | – | – | – | 11,322 | 18,123 | 30,203 | 338 | – | – | – | – | – | – | 12,850 | 20,825 | 34,013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | 102,591 | 4,598 | 6,424 | 10,344 | 6,127 | 4,283 | 1,505 | 13,420 | 246,486 | 395,778 | 108,680 | 4,775 | 7,661 | 12,720 | 6,596 | 2,647 | 1,352 | 14,216 | 276,538 | 435,185 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits by banks | 3,348 | 298 | 40 | 352 | 291 | 263 | – | 53 | 82,789 | 87,434 | 4,247 | 275 | 105 | 202 | 29 | 235 | – | 357 | 88,642 | 94,092 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Customer accounts | 109,670 | 1,978 | 1,957 | 2,142 | 97 | 13 | 355 | 13,454 | 41,832 | 171,498 | 118,981 | 1,369 | 1,749 | 1,407 | 103 | 13 | 240 | 14,056 | 46,950 | 184,868 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities in issue | 3,180 | 248 | 15 | 803 | 1,089 | 31 | 80 | – | 40,439 | 45,885 | 7,101 | 55 | – | 1,345 | 206 | – | 122 | – | 40,740 | 49,569 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other liabilities | – | – | – | – | – | – | – | 8,493 | 55,574 | 64,067 | – | – | – | – | – | – | – | 9,576 | 68,084 | 77,660 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan capital and other subordinated liabilities | 2,565 | 621 | 100 | – | 37 | 3,511 | 4,703 | – | – | 11,537 | 3,060 | 499 | 22 | 22 | 536 | 3,649 | 4,551 | – | – | 12,339 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Minority and other interests and shareholders’ funds | – | – | – | – | – | – | – | 15,357 | – | 15,357 | – | – | – | – | – | – | – | 16,657 | – | 16,657 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Internal funding of trading business | (14,966 | ) | (3,570 | ) | 124 | (977 | ) | 21 | (48 | ) | 391 | (6,827 | ) | 25,852 | – | (22,649 | ) | (2,590 | ) | (530 | ) | 1,080 | 666 | – | 269 | (8,368 | ) | 32,122 | – | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 103,797 | (425 | ) | 2,236 | 2,320 | 1,535 | 3,770 | 5,529 | 30,530 | 246,486 | 395,778 | 110,740 | (392 | ) | 1,346 | 4,056 | 1,540 | 3,897 | 5,182 | 32,278 | 276,538 | 435,185 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Off-balance sheet items | (13,222 | ) | (1,205 | ) | (3,316 | ) | 4,544 | 5,956 | 3,601 | 3,642 | – | – | – | (16,637 | ) | (10,301 | ) | (464 | ) | 11,341 | 8,448 | 4,114 | 3,499 | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate repricing gap | (14,428 | ) | 3,818 | 872 | 12,568 | 10,548 | 4,114 | (382 | ) | (17,110 | ) | – | – | (18,697 | ) | (5,134 | ) | 5,851 | 20,005 | 13,504 | 2,864 | (331 | ) | (18,062 | ) | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative gap | (14,428 | ) | (10,610 | ) | (9,738 | ) | 2,830 | 13,378 | 17,492 | 17,110 | – | – | – | (18,697 | ) | (23,831 | ) | (17,980 | ) | 2,025 | 15,529 | 18,393 | 18,062 | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-trading currency risk
Non-trading currency risk exposure arises principally from the Group’s investments in overseas branches and subsidiary and associated undertakings, principally in the United States, Japan and Europe.
The Group’s structural currency exposures at 31st December 20032004 were as follows:
Net investments in | Borrowings which hedge | Remaining structural | Net investments in | Borrowings which hedge | Remaining structural | ||||||||||||||||||||||||||||||||||||||||||||
overseas operations | the net investments | currency exposures | overseas operations | the net investments | currency exposures | ||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||
Functional currency of the operation involved | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||
United States Dollar | 1,448 | 1,078 | 1,166 | 959 | 282 | 119 | 2,050 | 1,448 | 2,038 | 1,166 | 12 | 282 | |||||||||||||||||||||||||||||||||||||
Yen | 3,063 | 2,125 | 2,984 | 2,094 | 79 | 31 | 2,594 | 3,063 | 2,589 | 2,984 | 5 | 79 | |||||||||||||||||||||||||||||||||||||
Euro | 4,333 | 2,930 | 3,520 | 2,633 | 813 | 297 | 3,148 | 4,333 | 3,102 | 3,520 | 46 | 813 | |||||||||||||||||||||||||||||||||||||
Other non-Sterling | 700 | 512 | 255 | 164 | 445 | 348 | 753 | 700 | 332 | 255 | 421 | 445 | |||||||||||||||||||||||||||||||||||||
Total | 9,544 | 6,645 | 7,925 | 5,850 | 1,619 | 795 | 8,545 | 9,544 | 8,061 | 7,925 | 484 | 1,619 | |||||||||||||||||||||||||||||||||||||
In accordance with Group policy, as at 31st December 20032004 and 31st December 2002,2003, there were no material net currency exposures in the non-trading book relating to transactional (or non-structural) positions that would give rise to net currency gains and losses recognised in the profit and loss account. Instruments used in hedging non-trading exposures are described on pages 54 topage 57.
142
158
45Barclays PLC Annual Report 2004
37 Derivatives and other financial instruments (continued)
Daily Value at Risk
Year to 31st December 2004 | Year to 31st December 2003 | |||||||||||||||||||||||||||||||||||||||||||||||
Year to 31st December 2003 | Year to 31st December 2002 | Average | High(a) | Low(a) | Average | High(a) | Low(a) | |||||||||||||||||||||||||||||||||||||||||
Average | High(a) | Low(a) | Average | High(a) | Low(a) | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||
Interest rate risk | 21.0 | 34.1 | 13.6 | 21.7 | 34.5 | 10.0 | 25.0 | 53.6 | 15.1 | 21.0 | 34.1 | 13.6 | ||||||||||||||||||||||||||||||||||||
Credit spread risk | 16.2 | 29.2 | 8.9 | 9.4 | 12.5 | 6.0 | 22.6 | 32.9 | 16.0 | 16.2 | 29.2 | 8.9 | ||||||||||||||||||||||||||||||||||||
Foreign exchange risk | 2.3 | 5.0 | 1.0 | 2.9 | 4.4 | 1.9 | 2.4 | 7.4 | 0.9 | 2.3 | 5.0 | 1.0 | ||||||||||||||||||||||||||||||||||||
Equities risk | 2.6 | 4.9 | 1.5 | 3.6 | 5.4 | 2.1 | 4.2 | 7.9 | 2.2 | 2.6 | 4.9 | 1.5 | ||||||||||||||||||||||||||||||||||||
Commodities risk | 4.4 | 7.0 | 2.2 | 1.8 | 3.3 | 0.8 | 6.0 | 14.4 | 2.2 | 4.4 | 7.0 | 2.2 | ||||||||||||||||||||||||||||||||||||
Diversification effect | (20.6 | ) | n/a | n/a | (16.2 | ) | n/a | n/a | (25.9 | ) | n/a | n/a | (20.6 | ) | n/a | n/a | ||||||||||||||||||||||||||||||||
Total DVaR | 25.9 | 38.6 | 17.6 | 23.2 | 35.7 | 13.4 | ||||||||||||||||||||||||||||||||||||||||||
Total DVaR(b) | 34.3 | 46.8 | 24.0 | 25.9 | 38.6 | 17.6 | ||||||||||||||||||||||||||||||||||||||||||
(a) | The high (and low) DVaR figures reported for each category did not necessarily occur on the same day as the high (and low) DVaR reported as a whole. | |
(b) | The year-end Total DVaR |
The hedging tables below summarise, firstly, the unrecognised gains and losses on hedges at 31st December 20032004 and 31st December 20022003 and the movements therein during the year, and, secondly, the deferred gains and losses on hedges carried forward in the balance sheet at 31st December 20032004 and 31st December 2002,2003, pending their recognition in the profit and loss account.
Gains | Losses | Total net gains/(losses) | ||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Unrecognised gains and losses on hedges | ||||||||||||||||||||||||
At 1st January | 3,290 | 2,441 | (2,353 | ) | (1,738 | ) | 937 | 703 | ||||||||||||||||
(Gains)/losses arising in previous years that were recognised in 2003/2002 | (1,527 | ) | (1,369 | ) | 999 | 890 | (528 | ) | (479 | ) | ||||||||||||||
Brought forward gains/(losses) not recognised in 2003/2002 | 1,763 | 1,072 | (1,354 | ) | (848 | ) | 409 | 224 | ||||||||||||||||
Gains/(losses) arising in 2003/2002 that were not recognised in 2003/2002 | 989 | 2,218 | (1,361 | ) | (1,505 | ) | (372 | ) | 713 | |||||||||||||||
At 31st December | 2,752 | 3,290 | (2,715 | ) | (2,353 | ) | 37 | 937 | ||||||||||||||||
Of which: | ||||||||||||||||||||||||
Gains/(losses) expected to be recognised in 2004/2003 | 870 | 1,101 | (613 | ) | (664 | ) | 257 | 437 | ||||||||||||||||
Gains/(losses) expected to be recognised in 2005/2004 or later | 1,882 | 2,189 | (2,102 | ) | (1,689 | ) | (220 | ) | 500 | |||||||||||||||
Deferred gains and losses on hedges carried forward in the balance sheet | ||||||||||||||||||||||||
At 1st January | 91 | 49 | (107 | ) | (77 | ) | (16 | ) | (28 | ) | ||||||||||||||
Deferred (gains)/losses brought forward that were recognised in income in 2003/2002 | (81 | ) | (31 | ) | 64 | 56 | (17 | ) | 25 | |||||||||||||||
Brought forward deferred gains/(losses) not recognised in 2003/2002 | 10 | 18 | (43 | ) | (21 | ) | (33 | ) | (3 | ) | ||||||||||||||
Gains/(losses) that became deferred in 2003/2002 | 31 | 73 | (49 | ) | (86 | ) | (18 | ) | (13 | ) | ||||||||||||||
At 31st December | 41 | 91 | (92 | ) | (107 | ) | (51 | ) | (16 | ) | ||||||||||||||
Of which: | ||||||||||||||||||||||||
Gains/(losses) expected to be recognised in income in 2004/2003 | 19 | 72 | (39 | ) | (61 | ) | (20 | ) | 11 | |||||||||||||||
Gains/(losses) expected to be recognised in income in 2005/2004 or later | 22 | 19 | (53 | ) | (46 | ) | (31 | ) | (27 | ) | ||||||||||||||
Gains | Losses | Total net gains/(losses) | ||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | |||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||
Unrecognised gains and losses on hedges | ||||||||||||||||||||||||
At 1st January | 2,752 | 3,290 | (2,715 | ) | (2,353 | ) | 37 | 937 | ||||||||||||||||
(Gains)/losses arising in previous years that were recognised in 2004/2003 | (1,240 | ) | (1,527 | ) | 1,122 | 999 | (118 | ) | (528 | ) | ||||||||||||||
Brought forward gains/(losses) not recognised in 2004/2003 | 1,512 | 1,763 | (1,593 | ) | (1,354 | ) | (81 | ) | 409 | |||||||||||||||
Gains/(losses) arising in 2004/2003 that were not recognised in 2004/2003 | 849 | 989 | (824 | ) | (1,361 | ) | 25 | (372 | ) | |||||||||||||||
At 31st December | 2,361 | 2,752 | (2,417 | ) | (2,715 | ) | (56 | ) | 37 | |||||||||||||||
Of which: | ||||||||||||||||||||||||
Gains/(losses) expected to be recognised in 2005/2004 | 570 | 870 | (324 | ) | (613 | ) | 246 | 257 | ||||||||||||||||
Gains/(losses) expected to be recognised in 2006/2005 or later | 1,791 | 1,882 | (2,093 | ) | (2,102 | ) | (302 | ) | (220 | ) | ||||||||||||||
Deferred gains and losses on hedges carried forward in the balance sheet | ||||||||||||||||||||||||
At 1st January | 41 | 91 | (92 | ) | (107 | ) | (51 | ) | (16 | ) | ||||||||||||||
Deferred (gains)/losses brought forward that were recognised in income in 2004/2003 | (32 | ) | (81 | ) | 55 | 64 | 23 | (17 | ) | |||||||||||||||
Brought forward deferred gains/(losses) not recognised in 2004/2003 | 9 | 10 | (37 | ) | (43 | ) | (28 | ) | (33 | ) | ||||||||||||||
Gains/(losses) that became deferred in 2004/2003 | 174 | 31 | (172 | ) | (49 | ) | 2 | (18 | ) | |||||||||||||||
At 31st December | 183 | 41 | (209 | ) | (92 | ) | (26 | ) | (51 | ) | ||||||||||||||
Of which: | ||||||||||||||||||||||||
Gains/(losses) expected to be recognised in income in 2005/2004 | 61 | 19 | (66 | ) | (39 | ) | (5 | ) | (20 | ) | ||||||||||||||
Gains/(losses) expected to be recognised in income in 2006/2005 or later | 122 | 22 | (143 | ) | (53 | ) | (21 | ) | (31 | ) | ||||||||||||||
Where a non-trading derivative no longer represents a hedge because the underlying non-trading asset, liability or position has been de-recognised or transferred into a trading portfolio, it is restated at fair value and any resultant gains or losses taken directly to the profit and loss account. Gains of £87m (2002: £66m)£354m (2003: £87m) and losses of £54m (2002: £39m)£427m (2003: £54m) were recognised in the year to 31st December 2003. 2004.
The disclosure of the fair value of financial instruments as required by FRS 13 is provided in Note 4638 on pages 150166 to 151.167.
Barclays PLC Annual Report 2003 143
159
Notes to the Accountsaccounts
For the Year Endedyear ended 31st December 2003
2004
4537 Derivatives and other financial instruments (continued)
Derivatives held or issued for trading purposes
2004 | ||||||||||||||||||||||||||||||||||||||||
Contract or | Year-end | Year-end | Average | Average | ||||||||||||||||||||||||||||||||||||
2003 | underlying | positive | negative | positive | negative | |||||||||||||||||||||||||||||||||||
Contract or | Year-end | Year-end | Average | Average | principal | fair | fair | fair | fair | |||||||||||||||||||||||||||||||
underlying | positive | negative | positive | negative | amount | value | value | value | value | |||||||||||||||||||||||||||||||
principal | fair | fair | fair | fair | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||
amount | value | value | value | value | ||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||
Foreign exchange derivatives | ||||||||||||||||||||||||||||||||||||||||
Forward foreign exchange | 308,671 | 5,501 | 7,109 | 4,288 | 4,956 | 379,375 | 6,797 | 7,793 | 5,694 | 4,792 | ||||||||||||||||||||||||||||||
Currency swaps | 196,450 | 9,049 | 9,086 | 6,572 | 6,583 | 263,727 | 11,287 | 11,750 | 7,476 | 7,677 | ||||||||||||||||||||||||||||||
OTC options bought and sold | 167,513 | 2,579 | 2,198 | 1,315 | 1,120 | 169,150 | 1,982 | 1,933 | 2,346 | 1,807 | ||||||||||||||||||||||||||||||
OTC derivatives | 672,634 | 17,129 | 18,393 | 12,175 | 12,659 | 812,252 | 20,066 | 21,476 | 15,516 | 14,276 | ||||||||||||||||||||||||||||||
Exchange traded futures – bought and sold | 87 | – | – | – | – | 321 | – | – | – | 14 | ||||||||||||||||||||||||||||||
Exchange traded options – bought and sold | 3 | – | – | – | – | |||||||||||||||||||||||||||||||||||
Exchange traded swaps | ||||||||||||||||||||||||||||||||||||||||
Total | 672,724 | 17,129 | 18,393 | 12,175 | 12,659 | 812,573 | 20,066 | 21,476 | 15,516 | 14,290 | ||||||||||||||||||||||||||||||
Interest rate derivatives | ||||||||||||||||||||||||||||||||||||||||
Swaps | 2,650,289 | 43,891 | 41,874 | 54,517 | 52,241 | 5,236,145 | 53,782 | 51,511 | 46,611 | 44,669 | ||||||||||||||||||||||||||||||
Forward rate agreements | 352,769 | 114 | 104 | 128 | 112 | 871,939 | 265 | 208 | 218 | 189 | ||||||||||||||||||||||||||||||
OTC options bought and sold | 827,569 | 7,771 | 7,757 | 8,459 | 8,338 | 1,720,881 | 9,132 | 8,912 | 7,857 | 7,626 | ||||||||||||||||||||||||||||||
OTC derivatives | 3,830,627 | 51,776 | 49,735 | 63,104 | 60,691 | 7,828,965 | 63,179 | 60,631 | 54,686 | 52,484 | ||||||||||||||||||||||||||||||
Exchange traded futures – bought and sold | 761,048 | – | – | – | – | 1,029,595 | – | – | – | – | ||||||||||||||||||||||||||||||
Exchange traded options – bought and sold | 317,857 | – | – | – | – | 476,446 | – | – | – | – | ||||||||||||||||||||||||||||||
Exchange traded – swaps | 972,173 | – | – | – | – | 1,761,192 | – | – | – | – | ||||||||||||||||||||||||||||||
Total | 5,881,705 | 51,776 | 49,735 | 63,104 | 60,691 | 11,096,198 | 63,179 | 60,631 | 54,686 | 52,484 | ||||||||||||||||||||||||||||||
Credit derivatives | ||||||||||||||||||||||||||||||||||||||||
Swaps | 43,256 | 798 | 584 | 810 | 591 | 186,275 | 1,444 | 1,186 | 513 | 509 | ||||||||||||||||||||||||||||||
Equity and stock index derivatives | ||||||||||||||||||||||||||||||||||||||||
OTC options bought and sold | 54,488 | 2,482 | 3,433 | 2,173 | 2,572 | 107,328 | 4,161 | 5,068 | 3,051 | 3,873 | ||||||||||||||||||||||||||||||
Equity swaps and forwards | 3,855 | 257 | 212 | 101 | 72 | 12,367 | 269 | 182 | 164 | 182 | ||||||||||||||||||||||||||||||
OTC derivatives | 58,343 | 2,739 | 3,645 | 2,274 | 2,644 | 119,695 | 4,430 | 5,250 | 3,215 | 4,055 | ||||||||||||||||||||||||||||||
Exchange traded futures – bought and sold | 20,686 | – | – | – | – | 33,366 | – | – | – | – | ||||||||||||||||||||||||||||||
Exchange traded options – bought and sold | 11,870 | – | – | – | – | 26,029 | – | – | – | – | ||||||||||||||||||||||||||||||
Total | 90,899 | 2,739 | 3,645 | 2,274 | 2,644 | 179,090 | 4,430 | 5,250 | 3,215 | 4,055 | ||||||||||||||||||||||||||||||
Commodity derivatives | ||||||||||||||||||||||||||||||||||||||||
OTC options bought and sold | 11,782 | 266 | 230 | 227 | 225 | 43,057 | 1,398 | 1,184 | 887 | 769 | ||||||||||||||||||||||||||||||
Commodity swaps and forwards | 45,308 | 1,716 | 1,812 | 1,415 | 1,400 | 82,725 | 3,557 | 3,596 | 3,216 | 3,315 | ||||||||||||||||||||||||||||||
OTC derivatives | 57,090 | 1,982 | 2,042 | 1,642 | 1,625 | 125,782 | 4,955 | 4,780 | 4,103 | 4,084 | ||||||||||||||||||||||||||||||
Exchange traded futures – bought and sold | 21,327 | – | 46 | – | 1 | 11,764 | – | – | – | – | ||||||||||||||||||||||||||||||
Exchange traded options – bought and sold | 961 | – | – | – | – | 2,863 | – | – | – | – | ||||||||||||||||||||||||||||||
Total | 79,378 | 1,982 | 2,088 | �� | 1,642 | 1,626 | 140,409 | 4,955 | 4,780 | 4,103 | 4,084 | |||||||||||||||||||||||||||||
Total trading derivatives | 74,424 | 74,445 | 94,074 | 93,323 | ||||||||||||||||||||||||||||||||||||
Effect of netting | (55,030 | ) | (55,030 | ) | (69,919 | ) | (69,919 | ) | ||||||||||||||||||||||||||||||||
Allowable offset – cash collateral | (3,582 | ) | (4,618 | ) | (5,981 | ) | (5,395 | ) | ||||||||||||||||||||||||||||||||
Balances arising from off-balance sheet financial instruments | ||||||||||||||||||||||||||||||||||||||||
(see Other assets/Other liabilities, Notes 23 and 29) | 15,812 | 14,797 | ||||||||||||||||||||||||||||||||||||||
Balances arising from off-balance sheet financial instruments (see Other assets/Other liabilities, Notes 21 and 26) | 18,174 | 18,009 | ||||||||||||||||||||||||||||||||||||||
CollateralNon-cash collateral held that reduced credit risk in respect of derivative instruments at 31st December 2004, but did not meet the offset criteria amounted to £1,568m (2003: £672m).
160
Barclays PLC Annual Report 2004
37 Derivatives and other financial instruments (continued)
2003 | ||||||||||||||||||||
Contract or | Year-end | Year-end | Average | Average | ||||||||||||||||
underlying | positive | negative | positive | negative | ||||||||||||||||
principal | fair | fair | fair | fair | ||||||||||||||||
amount | value | value | value | value | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Foreign exchange derivatives | ||||||||||||||||||||
Forward foreign exchange | 308,671 | 5,501 | 7,109 | 4,288 | 4,956 | |||||||||||||||
Currency swaps | 196,450 | 9,049 | 9,086 | 6,572 | 6,583 | |||||||||||||||
OTC options bought and sold | 167,513 | 2,579 | 2,198 | 1,315 | 1,120 | |||||||||||||||
OTC derivatives | 672,634 | 17,129 | 18,393 | 12,175 | 12,659 | |||||||||||||||
Exchange traded futures – bought and sold | 87 | – | – | – | – | |||||||||||||||
Exchange traded options – bought and sold | 3 | – | – | – | – | |||||||||||||||
Exchange traded swaps | ||||||||||||||||||||
Total | 672,724 | 17,129 | 18,393 | 12,175 | 12,659 | |||||||||||||||
Interest rate derivatives | ||||||||||||||||||||
Swaps | 2,650,289 | 43,891 | 41,874 | 54,517 | 52,241 | |||||||||||||||
Forward rate agreements | 352,769 | 114 | 104 | 128 | 112 | |||||||||||||||
OTC options bought and sold | 827,569 | 7,771 | 7,757 | 8,459 | 8,338 | |||||||||||||||
OTC derivatives | 3,830,627 | 51,776 | 49,735 | 63,104 | 60,691 | |||||||||||||||
Exchange traded futures – bought and sold | 761,048 | – | – | – | – | |||||||||||||||
Exchange traded options – bought and sold | 317,857 | – | – | – | – | |||||||||||||||
Exchange traded – swaps | 972,173 | – | – | – | – | |||||||||||||||
Total | 5,881,705 | 51,776 | 49,735 | 63,104 | 60,691 | |||||||||||||||
Credit derivatives | ||||||||||||||||||||
Swaps | 43,256 | 798 | 584 | 810 | 591 | |||||||||||||||
Equity and stock index derivatives | ||||||||||||||||||||
OTC options bought and sold | 54,488 | 2,482 | 3,433 | 2,173 | 2,572 | |||||||||||||||
Equity swaps and forwards | 3,855 | 257 | 212 | 101 | 72 | |||||||||||||||
OTC derivatives | 58,343 | 2,739 | 3,645 | 2,274 | 2,644 | |||||||||||||||
Exchange traded futures – bought and sold | 20,686 | – | – | – | – | |||||||||||||||
Exchange traded options – bought and sold | 11,870 | – | – | – | – | |||||||||||||||
Total | 90,899 | 2,739 | 3,645 | 2,274 | 2,644 | |||||||||||||||
Commodity derivatives | ||||||||||||||||||||
OTC options bought and sold | 11,782 | 266 | 230 | 227 | 225 | |||||||||||||||
Commodity swaps and forwards | 45,308 | 1,716 | 1,812 | 1,415 | 1,400 | |||||||||||||||
OTC derivatives | 57,090 | 1,982 | 2,042 | 1,642 | 1,625 | |||||||||||||||
Exchange traded futures – bought and sold | 21,327 | – | 46 | – | 1 | |||||||||||||||
Exchange traded options – bought and sold | 961 | – | – | – | – | |||||||||||||||
Total | 79,378 | 1,982 | 2,088 | 1,642 | 1,626 | |||||||||||||||
Total trading derivatives | 74,424 | 74,445 | ||||||||||||||||||
Effect of netting | (55,030 | ) | (55,030 | ) | ||||||||||||||||
Allowable offset – cash collateral | (3,582 | ) | (4,618 | ) | ||||||||||||||||
Balances arising from off-balance sheet financial instruments (see Other assets/Other liabilities, Notes 21 and 26) | 15,812 | 14,797 | ||||||||||||||||||
Non-cash collateral held that reduced credit risk in respect of derivative instruments at 31st December 2003, but did not meet the offset criteria amounted to £672m (2002: £591m).
144
161
45 Derivatives and other financial instruments (continued)
2002 | ||||||||||||||||||||
Contract or | Year-end | Year-end | Average | Average | ||||||||||||||||
underlying | positive | negative | positive | negative | ||||||||||||||||
principal | fair | fair | fair | fair | ||||||||||||||||
amount | value | value | value | value | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Foreign exchange derivatives | ||||||||||||||||||||
Forward foreign exchange | 269,832 | 4,521 | 5,335 | 3,412 | 3,676 | |||||||||||||||
Currency swaps | 148,481 | 5,022 | 5,160 | 4,200 | 4,273 | |||||||||||||||
OTC options bought and sold | 64,252 | 1,096 | 786 | 799 | 680 | |||||||||||||||
OTC derivatives | 482,565 | 10,639 | 11,281 | 8,411 | 8,629 | |||||||||||||||
Exchange traded futures – bought and sold | 100 | – | – | – | – | |||||||||||||||
Exchange traded options – bought and sold | 31 | – | – | – | – | |||||||||||||||
Exchange traded swaps | 16 | – | – | – | – | |||||||||||||||
Total | 482,712 | 10,639 | 11,281 | 8,411 | 8,629 | |||||||||||||||
Interest rate derivatives | ||||||||||||||||||||
Swaps | 1,938,902 | 54,757 | 53,334 | 43,221 | 42,004 | |||||||||||||||
Forward rate agreements | 168,392 | 111 | 107 | 108 | 100 | |||||||||||||||
OTC options bought and sold | 581,272 | 8,074 | 7,891 | 6,839 | 6,703 | |||||||||||||||
OTC derivatives | 2,688,566 | 62,942 | 61,332 | 50,168 | 48,807 | |||||||||||||||
Exchange traded futures – bought and sold | 338,581 | – | – | – | – | |||||||||||||||
Exchange traded options – bought and sold | 67,757 | – | – | – | – | |||||||||||||||
Exchange traded swaps | 382,540 | – | – | – | – | |||||||||||||||
Total | 3,477,444 | 62,942 | 61,332 | 50,168 | 48,807 | |||||||||||||||
Credit derivatives | ||||||||||||||||||||
Swaps | 10,665 | 660 | 106 | 675 | 198 | |||||||||||||||
Equity and stock index derivatives | ||||||||||||||||||||
OTC options bought and sold | 37,476 | 1,992 | 2,060 | 1,921 | 2,128 | |||||||||||||||
Equity swaps and forwards | 3,267 | 57 | 57 | 101 | 39 | |||||||||||||||
OTC derivatives | 40,743 | 2,049 | 2,117 | 2,022 | 2,167 | |||||||||||||||
Exchange traded futures – bought and sold | 15,585 | – | – | – | – | |||||||||||||||
Exchange traded options – bought and sold | 9,103 | – | – | – | – | |||||||||||||||
Total | 65,431 | 2,049 | 2,117 | 2,022 | 2,167 | |||||||||||||||
Commodity derivatives | ||||||||||||||||||||
OTC options bought and sold | 7,880 | 171 | 153 | 122 | 87 | |||||||||||||||
Commodity swaps and forwards | 18,217 | 520 | 502 | 410 | 535 | |||||||||||||||
OTC derivatives | 26,097 | 691 | 655 | 532 | 622 | |||||||||||||||
Exchange traded futures – bought and sold | 17,545 | 10 | – | 24 | 22 | |||||||||||||||
Exchange traded options – bought and sold | 760 | – | 6 | – | 10 | |||||||||||||||
Total | 44,402 | 701 | 661 | 556 | 654 | |||||||||||||||
Total trading derivatives | 76,991 | 75,497 | ||||||||||||||||||
Effect of netting | (60,327 | ) | (60,327 | ) | ||||||||||||||||
Allowable offset – cash collateral | (3,210 | ) | (3,632 | ) | ||||||||||||||||
Balances arising from off-balance sheet financial instruments (see Other assets/Other liabilities, Notes 23 and 29) | 13,454 | 11,538 | ||||||||||||||||||
Collateral held that reduced credit risk in respect of derivative instruments at 31st December 2002, but did not meet the offset criteria amounted to £591m (2001: £238m).
Barclays PLC Annual Report 2003 145
Notes to the Accountsaccounts
For the Year Endedyear ended 31st December 20032004
4537 Derivatives and other financial instruments (continued)
Derivative financial instruments held for the purpose of managing non-trading exposures
The following table, which includes only the derivative components of the Group’s hedging programme, summarises the nominal values, fair values and book values of derivatives held for the purpose of managing non-trading exposures. Included in the amounts below were £10,685m (2002: £10,984m)£10,295m (2003: £10,685m) contract amount of foreign exchange derivatives and £200,126m (2002: £192,463m)£151,957m (2003: £200,126m) of interest rate derivatives which were made for asset and liability management purposes with independently managed dealing units of the Group.
2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | Contract or | Year-end | Year-end | Year-end | Year-end | Contract or | Year-end | Year-end | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract or | Year-end | Year-end | Year-end | Year-end | Contract or | Year-end | Year-end | underlying | positive | negative | positive | negative | underlying | positive | negative | |||||||||||||||||||||||||||||||||||||||||||||||||
underlying | positive | negative | positive | negative | underlying | positive | negative | principal | fair | fair | book | book | principal | fair | fair | |||||||||||||||||||||||||||||||||||||||||||||||||
principal | fair | fair | book | book | principal | fair | fair | amount | value | value | value | value | amount | value | value | |||||||||||||||||||||||||||||||||||||||||||||||||
amount | value | value | value | value | amount | value | value | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward foreign exchange | 1,648 | 18 | 23 | 6 | 10 | 1,814 | 21 | 11 | 1,480 | 25 | 14 | 17 | 2 | 1,648 | 18 | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||
Currency swaps | 10,914 | 64 | 786 | 29 | 450 | 10,651 | 176 | 273 | 10,841 | 211 | 842 | 181 | 355 | 10,914 | 64 | 786 | ||||||||||||||||||||||||||||||||||||||||||||||||
OTC derivatives | 12,562 | 82 | 809 | 35 | 460 | 12,465 | 197 | 284 | 12,321 | 236 | 856 | 198 | 357 | 12,562 | 82 | 809 | ||||||||||||||||||||||||||||||||||||||||||||||||
Exchange traded futures – bought and sold | 40 | – | – | – | – | – | – | – | – | – | – | – | – | 40 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | 12,602 | 82 | 809 | 35 | 460 | 12,465 | 197 | 284 | 12,321 | 236 | 856 | 198 | 357 | 12,602 | 82 | 809 | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Swaps | 294,021 | 3,656 | 3,165 | 1,809 | 1,716 | 225,410 | 4,272 | 3,263 | 174,382 | 2,806 | 2,039 | 1,015 | 663 | 294,021 | 3,656 | 3,165 | ||||||||||||||||||||||||||||||||||||||||||||||||
Forward rate agreements | 28,742 | 27 | 5 | 4 | 4 | 11,651 | 17 | 22 | 22,039 | 5 | 5 | – | 5 | 28,742 | 27 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||
OTC options bought and sold | 15,062 | 5 | 66 | 3 | 4 | 10,865 | 62 | 38 | 4,080 | 41 | 78 | 3 | 2 | 15,062 | 5 | 66 | ||||||||||||||||||||||||||||||||||||||||||||||||
OTC derivatives | 337,825 | 3,688 | 3,236 | 1,816 | 1,724 | 247,926 | 4,351 | 3,323 | 200,501 | 2,852 | 2,122 | 1,018 | 670 | 337,825 | 3,688 | 3,236 | ||||||||||||||||||||||||||||||||||||||||||||||||
Exchange traded futures – bought and sold | 83 | – | – | – | – | – | – | – | – | – | – | – | – | 83 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | 337,908 | 3,688 | 3,236 | 1,816 | 1,724 | 247,926 | 4,351 | 3,323 | 200,501 | 2,852 | 2,122 | 1,018 | 670 | 337,908 | 3,688 | 3,236 | ||||||||||||||||||||||||||||||||||||||||||||||||
Credit derivatives | 4,194 | 3 | 77 | 2 | 1 | 7,736 | 30 | 23 | 5,133 | 8 | 31 | 4 | 2 | 4,194 | 3 | 77 | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity, stock index, commodity and precious metals derivatives | 1,662 | 78 | 34 | 3 | 13 | 372 | – | 1 | 1,536 | 70 | 23 | 3 | 4 | 1,662 | 78 | 34 | ||||||||||||||||||||||||||||||||||||||||||||||||
At 31st December 2002,2003, the total positive book value of derivatives held for the purposes of managing non-trading exposures was £1,834m.£1,856m. The total negative book value of such contracts at 31st December 20022003 was £1,824m.£2,198m.
The nominal amounts of OTC foreign exchange derivatives held to manage the non-trading exposure of the Group analysed by currency and final maturity are as follows:
2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | Over one | Over one | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over one | Over one | year but | year but | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
year but | year but | not more | not more | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
not more | not more | One year | than five | Over five | One year | than five | Over five | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
One year | than five | Over five | One year | than five | Over five | or less | years | years | Total | or less | years | years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
or less | years | years | Total | or less | years | years | Total | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£/euro | 406 | 1,890 | – | 2,296 | 337 | 2,587 | 6 | 2,930 | 352 | 698 | – | 1,050 | 406 | 1,890 | – | 2,296 | ||||||||||||||||||||||||||||||||||||||||||||||||
£/Yen | 1,147 | 4,097 | – | 5,244 | 710 | 5,186 | 29 | 5,925 | 905 | 3,657 | – | 4,562 | 1,147 | 4,097 | – | 5,244 | ||||||||||||||||||||||||||||||||||||||||||||||||
£/United States Dollar | 625 | 2,797 | 561 | 3,983 | 242 | 696 | 391 | 1,329 | 194 | 5,205 | 520 | 5,919 | 625 | 2,797 | 561 | 3,983 | ||||||||||||||||||||||||||||||||||||||||||||||||
United States Dollar/euro | 127 | 196 | – | 323 | 131 | – | 21 | 152 | 105 | 130 | – | 235 | 127 | 196 | – | 323 | ||||||||||||||||||||||||||||||||||||||||||||||||
United States Dollar/Yen | 13 | 21 | 159 | 193 | 127 | 121 | 176 | 424 | 22 | – | 148 | 170 | 13 | 21 | 159 | 193 | ||||||||||||||||||||||||||||||||||||||||||||||||
United States Dollar/South African Rand | 233 | – | – | 233 | 526 | – | – | 526 | 176 | – | – | 176 | 233 | – | – | 233 | ||||||||||||||||||||||||||||||||||||||||||||||||
Yen/euro | 22 | 29 | – | 51 | – | 875 | – | 875 | 28 | 28 | – | 56 | 22 | 29 | – | 51 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other | 181 | 58 | – | 239 | 224 | 57 | 23 | 304 | 104 | 49 | – | 153 | 181 | 58 | – | 239 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | 2,754 | 9,088 | 720 | 12,562 | 2,297 | 9,522 | 646 | 12,465 | 1,886 | 9,767 | 668 | 12,321 | 2,754 | 9,088 | 720 | 12,562 | ||||||||||||||||||||||||||||||||||||||||||||||||
146
162
45Barclays PLC Annual Report 2004
37 Derivatives and other financial instruments (continued)
Maturity of notional principal amounts as at 31st December 2004
At 31st December 2004, the notional principal amounts, by residual maturity, of the Group’s trading and non-trading derivatives were as follows: Over one year but not more Over One year than five five or less years years Total £m £m £m £m Forward foreign exchange 360,272 18,971 1,612 380,855 Currency swaps 42,220 144,184 88,164 274,568 OTC options bought and sold 144,162 22,014 2,974 169,150 OTC derivatives 546,654 185,169 92,750 824,573 Exchange traded futures – bought and sold 321 – – 321 Total 546,975 185,169 92,750 824,894 Swaps 2,509,842 1,798,816 1,101,869 5,410,527 Forward rate agreements 813,813 80,101 64 893,978 OTC options bought and sold 1,049,865 512,811 162,285 1,724,961 OTC derivatives 4,373,520 2,391,728 1,264,218 8,029,466 Exchange traded futures – bought and sold 606,849 418,939 3,807 1,029,595 Exchange traded options – bought and sold 430,147 46,299 – 476,446 Exchange traded swaps 221,538 861,585 678,069 1,761,192 Total 5,632,054 3,718,551 1,946,094 11,296,699 Swaps 5,307 136,049 50,052 191,408 OTC options bought and sold 35,182 70,665 9,675 115,522 Equity swaps and forwards 3,122 2,302 285 5,709 OTC derivatives 38,304 72,967 9,960 121,231 Exchange traded futures – bought and sold 33,362 4 – 33,366 Exchange traded options – bought and sold 15,495 9,904 630 26,029 Total 87,161 82,875 10,590 180,626 OTC options bought and sold 14,060 25,539 3,458 43,057 Commodity swaps and forwards 44,806 35,551 2,368 82,725 OTC derivatives 58,866 61,090 5,826 125,782 Exchange traded futures – bought and sold 9,237 2,407 120 11,764 Exchange traded options – bought and sold 1,303 1,560 – 2,863 Total 69,406 65,057 5,946 140,409
163
Notes to the accounts
37 Derivatives and other financial instruments (continued)
Maturity of notional principal amounts as at 31st December 2003
At 31st December 2003, the notional principal amounts, by residual maturity, of the Group’s trading and non-trading derivatives were as follows:
Over one | ||||||||||||||||||||||||||||||||
year but | ||||||||||||||||||||||||||||||||
Over one | not more | Over | ||||||||||||||||||||||||||||||
year but | One year | than five | five | |||||||||||||||||||||||||||||
not more | Over | or less | years | years | Total | |||||||||||||||||||||||||||
One year | than five | five | £m | £m | £m | £m | ||||||||||||||||||||||||||
or less | years | years | Total | |||||||||||||||||||||||||||||
£m | £m | £m | £m | |||||||||||||||||||||||||||||
Foreign exchange derivatives | ||||||||||||||||||||||||||||||||
Forward foreign exchange | 290,842 | 18,269 | 1,208 | 310,319 | 290,842 | 18,269 | 1,208 | 310,319 | ||||||||||||||||||||||||
Currency swaps | 40,357 | 107,488 | 59,519 | 207,364 | 40,357 | 107,488 | 59,519 | 207,364 | ||||||||||||||||||||||||
OTC options bought and sold | 150,700 | 15,304 | 1,509 | 167,513 | 150,700 | 15,304 | 1,509 | 167,513 | ||||||||||||||||||||||||
OTC derivatives | 481,899 | 141,061 | 62,236 | 685,196 | 481,899 | 141,061 | 62,236 | 685,196 | ||||||||||||||||||||||||
Exchange traded futures – bought and sold | 121 | 6 | – | 127 | 121 | 6 | – | 127 | ||||||||||||||||||||||||
Exchange traded options – bought and sold | 3 | – | – | 3 | 3 | – | – | 3 | ||||||||||||||||||||||||
Exchange traded swaps | – | – | – | – | ||||||||||||||||||||||||||||
Total | 482,023 | 141,067 | 62,236 | 685,326 | 482,023 | 141,067 | 62,236 | 685,326 | ||||||||||||||||||||||||
Interest rate derivatives | ||||||||||||||||||||||||||||||||
Swaps | 848,412 | 1,228,034 | 867,864 | 2,944,310 | 848,412 | 1,228,034 | 867,864 | 2,944,310 | ||||||||||||||||||||||||
Forward rate agreements | 338,887 | 42,555 | 69 | 381,511 | 338,887 | 42,555 | 69 | 381,511 | ||||||||||||||||||||||||
OTC options bought and sold | 341,390 | 387,271 | 113,970 | 842,631 | 341,390 | 387,271 | 113,970 | 842,631 | ||||||||||||||||||||||||
OTC derivatives | 1,528,689 | 1,657,860 | 981,903 | 4,168,452 | 1,528,689 | 1,657,860 | 981,903 | 4,168,452 | ||||||||||||||||||||||||
Exchange traded futures – bought and sold | 518,048 | 230,563 | 12,520 | 761,131 | 518,048 | 230,563 | 12,520 | 761,131 | ||||||||||||||||||||||||
Exchange traded options – bought and sold | 246,613 | 71,244 | – | 317,857 | 246,613 | 71,244 | – | 317,857 | ||||||||||||||||||||||||
Exchange traded swaps | 119,331 | 432,237 | 420,605 | 972,173 | 119,331 | 432,237 | 420,605 | 972,173 | ||||||||||||||||||||||||
Total | 2,412,681 | 2,391,904 | 1,415,028 | 6,219,613 | 2,412,681 | 2,391,904 | 1,415,028 | 6,219,613 | ||||||||||||||||||||||||
Credit derivatives | ||||||||||||||||||||||||||||||||
Swaps | 4,471 | 37,790 | 5,189 | 47,450 | ||||||||||||||||||||||||||||
Credit derivatives Swaps | 4,471 | 37,790 | 5,189 | 47,450 | ||||||||||||||||||||||||||||
Equity and stock index derivatives | ||||||||||||||||||||||||||||||||
OTC options bought and sold | 14,563 | 37,226 | 3,509 | 55,298 | 14,563 | 37,226 | 3,509 | 55,298 | ||||||||||||||||||||||||
Equity swaps and forwards | 3,477 | 1,046 | 148 | 4,671 | 3,477 | 1,046 | 148 | 4,671 | ||||||||||||||||||||||||
OTC derivatives | 18,040 | 38,272 | 3,657 | 59,969 | 18,040 | 38,272 | 3,657 | 59,969 | ||||||||||||||||||||||||
Exchange traded futures – bought and sold | 20,686 | – | – | 20,686 | 20,686 | – | – | 20,686 | ||||||||||||||||||||||||
Exchange traded options – bought and sold | 7,932 | 3,841 | 97 | 11,870 | 7,932 | 3,841 | 97 | 11,870 | ||||||||||||||||||||||||
Total | 46,658 | 42,113 | 3,754 | 92,525 | 46,658 | 42,113 | 3,754 | 92,525 | ||||||||||||||||||||||||
Commodity derivatives | ||||||||||||||||||||||||||||||||
OTC options bought and sold | 6,617 | 4,401 | 764 | 11,782 | 6,617 | 4,401 | 764 | 11,782 | ||||||||||||||||||||||||
Commodity swaps and forwards | 26,636 | 16,936 | 1,772 | 45,344 | 26,636 | 16,936 | 1,772 | 45,344 | ||||||||||||||||||||||||
OTC derivatives | 33,253 | 21,337 | 2,536 | 57,126 | 33,253 | 21,337 | 2,536 | 57,126 | ||||||||||||||||||||||||
Exchange traded futures – bought and sold | 18,599 | 2,686 | 42 | 21,327 | 18,599 | 2,686 | 42 | 21,327 | ||||||||||||||||||||||||
Exchange traded options – bought and sold | 671 | 290 | – | 961 | 671 | 290 | – | 961 | ||||||||||||||||||||||||
Total | 52,523 | 24,313 | 2,578 | 79,414 | 52,523 | 24,313 | 2,578 | 79,414 | ||||||||||||||||||||||||
164
Barclays PLC Annual Report 2003 1472004
Notes to the AccountsFor the Year Ended 31st December 2003
4537 Derivatives and other financial instruments (continued)
Maturity of notional principal amounts as at 31st December 2002At 31st December 2002, the notional principal amounts, by residual maturity, of the Group’s trading and non-trading derivatives were as follows:
Over one | ||||||||||||||||
year but | ||||||||||||||||
not more | Over | |||||||||||||||
One year | than five | five | ||||||||||||||
or less | years | years | Total | |||||||||||||
£m | £m | £m | £m | |||||||||||||
Foreign exchange derivatives | ||||||||||||||||
Forward foreign exchange | 253,424 | 17,166 | 1,056 | 271,646 | ||||||||||||
Currency swaps | 27,547 | 90,322 | 41,263 | 159,132 | ||||||||||||
OTC options bought and sold | 55,900 | 6,652 | 1,700 | 64,252 | ||||||||||||
OTC derivatives | 336,871 | 114,140 | 44,019 | 495,030 | ||||||||||||
Exchange traded futures – bought and sold | 100 | – | – | 100 | ||||||||||||
Exchange traded options – bought and sold | 31 | – | – | 31 | ||||||||||||
Exchange traded swaps | 16 | – | – | 16 | ||||||||||||
Total | 337,018 | 114,140 | 44,019 | 495,177 | ||||||||||||
Interest rate derivatives | ||||||||||||||||
Swaps | 640,098 | 849,818 | 674,396 | 2,164,312 | ||||||||||||
Forward rate agreements | 167,638 | 12,405 | – | 180,043 | ||||||||||||
OTC options bought and sold | 240,441 | 258,378 | 93,318 | 592,137 | ||||||||||||
OTC derivatives | 1,048,177 | 1,120,601 | 767,714 | 2,936,492 | ||||||||||||
Exchange traded futures – bought and sold | 229,256 | 105,269 | 4,056 | 338,581 | ||||||||||||
Exchange traded options – bought and sold | 62,814 | 4,943 | – | 67,757 | ||||||||||||
Exchange traded swaps | 47,672 | 176,722 | 158,146 | 382,540 | ||||||||||||
Total | 1,387,919 | 1,407,535 | 929,916 | 3,725,370 | ||||||||||||
Credit derivatives | ||||||||||||||||
Swaps | 1,882 | 14,376 | 2,143 | 18,401 | ||||||||||||
Equity and stock index derivatives | ||||||||||||||||
OTC options bought and sold | 11,166 | 25,154 | 1,528 | 37,848 | ||||||||||||
Equity swaps and forwards | 3,045 | 222 | – | 3,267 | ||||||||||||
OTC derivatives | 14,211 | 25,376 | 1,528 | 41,115 | ||||||||||||
Exchange traded futures – bought and sold | 15,585 | – | – | 15,585 | ||||||||||||
Exchange traded options – bought and sold | 7,002 | 2,101 | – | 9,103 | ||||||||||||
Total | 36,798 | 27,477 | 1,528 | 65,803 | ||||||||||||
Commodity derivatives | ||||||||||||||||
OTC options bought and sold | 5,016 | 2,342 | 522 | 7,880 | ||||||||||||
Commodity swaps and forwards | 9,283 | 7,279 | 1,655 | 18,217 | ||||||||||||
OTC derivatives | 14,299 | 9,621 | 2,177 | 26,097 | ||||||||||||
Exchange traded futures – bought and sold | 14,424 | 3,086 | 35 | 17,545 | ||||||||||||
Exchange traded options – bought and sold | 753 | 7 | – | 760 | ||||||||||||
Total | 29,476 | 12,714 | 2,212 | 44,402 | ||||||||||||
148
45 Derivatives and other financial instruments (continued)
Maturity analyses of replacement cost and counterparty analyses of net replacement cost
The fair value of a derivative contract represents the amount at which that contract could be exchanged in an arm’s-length transaction, calculated at market rates current at the balance sheet date. The totals of positive and negative fair values arising on trading derivatives at the balance sheet date have been netted where the Group has a legal right of offset with the relevant counterparty. The total positive fair value after permitted netting equates to net replacement cost.
The residual replacement cost by maturity and net replacement cost by counterparty analyses of OTC and non-margined exchange traded derivatives held for trading and non-trading purposes at 31st December 20032004 and 31st December 20022003 are as follows:
2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over one | Over one | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | year but | year but | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Over one | Over one | One | not more | Over | One | not more | Over | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
�� | year but | year but | year or | than five | five | year or | than five | five | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
One | not more | Over | One | not more | Over | less | years | years | Total | less | years | years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
year or | than five | five | year or | than five | five | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||
less | years | years | Total | less | years | years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Replacement cost by residual maturity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange derivatives | 8,357 | 5,862 | 2,929 | 17,148 | 5,627 | 3,398 | 1,654 | 10,679 | 9,285 | 6,886 | 4,320 | 20,491 | 8,357 | 5,862 | 2,929 | 17,148 | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate derivatives | 5,661 | 21,332 | 25,603 | 52,596 | 6,387 | 24,335 | 32,872 | 63,594 | 6,121 | 23,130 | 34,701 | 63,952 | 5,661 | 21,332 | 25,603 | 52,596 | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity and stock index derivatives | 550 | 1,952 | 267 | 2,769 | 668 | 1,335 | 46 | 2,049 | 1,750 | 2,312 | 394 | 4,456 | 550 | 1,952 | 267 | 2,769 | ||||||||||||||||||||||||||||||||||||||||||||||||
Commodity derivatives | 1,008 | 851 | 123 | 1,982 | 372 | 244 | 85 | 701 | 1,791 | 2,899 | 265 | 4,955 | 1,008 | 851 | 123 | 1,982 | ||||||||||||||||||||||||||||||||||||||||||||||||
Credit derivatives | 11 | 381 | 408 | 800 | 6 | 236 | 448 | 690 | 22 | 1,098 | 332 | 1,452 | 11 | 381 | 408 | 800 | ||||||||||||||||||||||||||||||||||||||||||||||||
15,587 | 30,378 | 29,330 | 75,295 | 13,060 | 29,548 | 35,105 | 77,713 | 18,969 | 36,325 | 40,012 | 95,306 | 15,587 | 30,378 | 29,330 | 75,295 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Total | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
£m | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net replacement cost by counterparty | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Central Banks | 1,046 | 48 | 2,563 | 1,046 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banks and other financial institutions | 8,364 | 9,469 | 7,043 | 8,364 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other corporate and public bodies | 7,010 | 4,398 | 9,552 | 7,010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
16,420 | 13,915 | 19,158 | 16,420 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Potential credit risk exposure
The potential credit risk exposure for each product equals net replacement cost as reduced by the fair value of collateral provided by the counterparty.
At 31st December 20032004 and 31st December 2002,2003, the potential credit risk exposures in respect of the Group’s trading and non-trading OTC derivatives were not significantly different to net replacement cost.
Barclays PLC Annual Report 2003 149
165
Notes to the Accounts
For the Year Endedyear ended 31st December 2003
2004
4638 Fair values of financial instruments
Financial instruments include both financial assets and financial liabilities and also derivatives. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Wherever possible, the Group has estimated fair value using market prices or data available for instruments with characteristics either identical or similar to those of the instruments held by the Group. In certain cases, however, including loans and advances to customers, no ready markets currently exist in the UK wherein exchanges between willing parties occur. Accordingly, various techniques have been developed to estimate what the fair value of such instruments might be.
These estimation techniques are necessarily subjective in nature and involve several assumptions. There have been no significant changes in the estimation techniques or the methodology used compared with those used at 31st December 2002.2003.
Because a variety of estimation techniques are employed and significant estimates made, comparisons of fair values between financial institutions may not be meaningful. Readers of these accounts are thus advised to use caution when using this data to evaluate the Group’s financial position.
Fair value information is not provided for items that do not meet the definitions of a financial instrument. These items include short-term debtors and creditors, intangible assets such as the value of the Group’s branch network, the long-term relationships with depositors (core deposit intangibles), premises and equipment and shareholders’ equity. These items are material and accordingly the fair value information presented does not purport to represent, nor should it be construed to represent, the underlying value of the Group as a going concern at 31st December 2003.2004.
The following table shows the carrying amount and the fair value of the Group’s financial instruments analysed between trading and non-trading assets and liabilities.
2004 | 2003 | |||||||||||||||||||||||||||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||||||||||||||||||||||||||
2003 | 2002 | amount | value | amount | value | |||||||||||||||||||||||||||||||||||
Carrying | Fair | Carrying | Fair | Note | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||
amount | value | amount | value | |||||||||||||||||||||||||||||||||||||
Note | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||
Trading | ||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Treasury bills and other eligible bills | (a | ) | 4,064 | 4,064 | 2,886 | 2,886 | (a | ) | 5,278 | 5,278 | 4,064 | 4,064 | ||||||||||||||||||||||||||||
Loans and advances to banks (including reverse repurchase agreements) | (a | ) | 44,670 | 44,670 | 42,805 | 42,805 | (a | ) | 50,145 | 50,145 | 44,670 | 44,670 | ||||||||||||||||||||||||||||
Loans and advances to customers (including reverse repurchase agreements) | (a | ) | 58,961 | 58,961 | 45,176 | 45,176 | (a | ) | 65,099 | 65,099 | 58,961 | 58,961 | ||||||||||||||||||||||||||||
Debt securities | (a | ) | 59,812 | 59,812 | 53,961 | 53,961 | (a | ) | 87,671 | 87,671 | 59,812 | 59,812 | ||||||||||||||||||||||||||||
Equity shares | (a | ) | 6,905 | 6,905 | 2,628 | 2,628 | (a | ) | 10,873 | 10,873 | 6,905 | 6,905 | ||||||||||||||||||||||||||||
Derivatives (see analysis in Note 45) | (b | ) | 15,812 | 15,812 | 13,454 | 13,454 | ||||||||||||||||||||||||||||||||||
London Metal Exchange warrants and other metals trading positions (see Note 23) | (a | ) | 1,290 | 1,290 | 829 | 829 | ||||||||||||||||||||||||||||||||||
Derivatives (see analysis in Note 37) | (b | ) | 18,174 | 18,174 | 15,812 | 15,812 | ||||||||||||||||||||||||||||||||||
London Metal Exchange warrants and other metals trading positions (see Note 21) | (a | ) | 952 | 952 | 1,290 | 1,290 | ||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Deposits by Banks and customers accounts (including repurchase agreements) | (a | ) | 65,505 | 65,505 | 66,103 | 66,103 | (a | ) | 82,568 | 82,568 | 65,505 | 65,505 | ||||||||||||||||||||||||||||
Short positions in securities (see Note 29) | (a | ) | 42,228 | 42,228 | 31,796 | 31,796 | ||||||||||||||||||||||||||||||||||
Derivatives (see analysis in Note 45) | (b | ) | 14,797 | 14,797 | 11,538 | 11,538 | ||||||||||||||||||||||||||||||||||
Short positions in securities (see Note 26) | (a | ) | 53,364 | 53,364 | 42,228 | 42,228 | ||||||||||||||||||||||||||||||||||
Derivatives (see analysis in Note 37) | (b | ) | 18,009 | 18,009 | 14,797 | 14,797 | ||||||||||||||||||||||||||||||||||
150
166
46Barclays PLC Annual Report 2004
38 Fair values of financial instruments (continued)
2004 | 2003 | |||||||||||||||||||||||||||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||||||||||||||||||||||||||
2003 | 2002 restated | amount | value | amount | value | |||||||||||||||||||||||||||||||||||
Carrying | Fair | Carrying | Fair | Note | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||
amount | value | amount | value | |||||||||||||||||||||||||||||||||||||
Note | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||
Non-trading | ||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | (a | ) | 1,726 | 1,726 | 2,032 | 2,032 | (a | ) | 1,753 | 1,753 | 1,726 | 1,726 | ||||||||||||||||||||||||||||
Items in course of collection from other banks | (a | ) | 2,006 | 2,006 | 2,335 | 2,335 | (a | ) | 1,772 | 1,772 | 2,006 | 2,006 | ||||||||||||||||||||||||||||
Treasury bills and other eligible bills | (a | ) | 3,113 | 3,113 | 4,759 | 4,759 | (a | ) | 1,380 | 1,380 | 3,113 | 3,113 | ||||||||||||||||||||||||||||
Loans and advances to banks | (c | ) | 17,254 | 17,261 | 15,369 | 15,370 | (c | ) | 24,986 | 24,982 | 17,254 | 17,261 | ||||||||||||||||||||||||||||
Loans and advances to customers | (d | ) | 167,858 | 168,047 | 157,222 | 157,450 | (d | ) | 189,847 | 190,005 | 167,858 | 168,047 | ||||||||||||||||||||||||||||
Debt securities | (e | ) | 37,581 | 38,210 | 40,268 | 40,977 | (e | ) | 39,757 | 39,971 | 37,581 | 38,210 | ||||||||||||||||||||||||||||
Equity shares | (e | ) | 954 | 1,134 | 501 | 505 | (e | ) | 1,293 | 1,513 | 954 | 1,134 | ||||||||||||||||||||||||||||
Derivatives (see analysis in Note 45) | (b | ) | 1,856 | 3,851 | 1,834 | 4,578 | ||||||||||||||||||||||||||||||||||
Derivatives (see analysis in Note 37) | (b | ) | 1,223 | 3,166 | 1,856 | 3,851 | ||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Deposits by Banks and customers accounts | (f | ) | 213,455 | 213,470 | 192,829 | 193,000 | (f | ) | 246,174 | 246,180 | 213,455 | 213,470 | ||||||||||||||||||||||||||||
Debt securities in issue | (g | ) | 49,569 | 50,888 | 45,885 | 46,004 | (g | ) | 67,806 | 67,900 | 49,569 | 50,888 | ||||||||||||||||||||||||||||
Items in course of collection due to other banks | (a | ) | 1,286 | 1,286 | 1,416 | 1,416 | (a | ) | 1,205 | 1,205 | 1,286 | 1,286 | ||||||||||||||||||||||||||||
Undated loan capital | (h | ) | 6,310 | 7,048 | 6,678 | 7,308 | (h | ) | 6,149 | 6,946 | 6,310 | 7,048 | ||||||||||||||||||||||||||||
Dated loan capital | (h | ) | 6,029 | 6,263 | 4,859 | 5,106 | (h | ) | 6,128 | 6,483 | 6,029 | 6,263 | ||||||||||||||||||||||||||||
Short positions in securities (see Note 29) | (e | ) | 7,706 | 7,664 | 8,144 | 7,931 | ||||||||||||||||||||||||||||||||||
Derivatives (see analysis in Note 45) | (b | ) | 2,198 | 4,060 | 1,824 | 3,631 | ||||||||||||||||||||||||||||||||||
Short positions in securities (see Note 26) | (e | ) | 350 | 351 | 7,706 | 7,664 | ||||||||||||||||||||||||||||||||||
Derivatives (see analysis in Note 37) | (b | ) | 1,033 | 3,032 | 2,198 | 4,156 | ||||||||||||||||||||||||||||||||||
(a) | Financial assets and financial liabilities where fair value approximates carrying value because they are either (i) carried at market value or (ii) have minimal credit losses and are either short-term in nature or repriced frequently. | |
(b) | Derivatives held for trading purposes are carried at fair value. Derivatives held for non-trading purposes are accounted for in accordance with the accounting treatment of the underlying transaction or transactions being hedged. The fair value of these instruments is estimated using market prices or pricing models consistent with the methods used for valuing similar instruments used for trading purposes. | |
(c) | Within this calculation, the fair value for loans and advances to banks was estimated using discounted cash flows, applying either market rates, where practicable, or rates currently offered by other financial institutions for placings with similar characteristics. | |
(d) | The Group provides lending facilities of varying rates and maturities to corporate and personal customers. In estimating the fair value of such instruments, the fair value of personal and corporate loans subject to variable interest rates is considered to approximate the carrying value. The fair value of such instruments subject to fixed interest rates was estimated by discounting cash flows using market rates or rates normally offered by the Group. | |
(e) | The valuation of listed securities and investments is at quoted market prices and that of unlisted securities and investments is based on the Directors’ estimate, which takes into consideration discounted cash flows, price earnings ratios and other suitable valuation techniques. | |
(f) | Fair values of deposit liabilities payable on demand (interest free, interest bearing and savings deposits) approximate to their carrying value. The fair value of all other deposits and other borrowings was estimated using discounted cash flows, applying either market rates, where practicable, or rates currently offered by the Group for deposits of similar remaining maturities. | |
(g) | Fair values of short-term debt securities in issue are approximately equal to their carrying amount. Fair values of other debt securities in issue are based on quoted prices where available, or where these are unavailable, are estimated using other valuation techniques. | |
(h) | The estimated fair values for dated and undated convertible and non-convertible loan capital were based upon quoted market rates for the issue concerned or equivalent issues with similar terms and conditions. | |
(i) | The Group considers that, given the lack of an established market, the diversity of fee structures and the difficulty of separating the value of the instruments from the value of the overall transaction, it is not meaningful to provide an estimate of the fair value of financial commitments and contingent liabilities. |
Barclays PLC Annual Report 2003 151
167
Notes to the Accounts
For the Year Endedyear ended 31st December 2003
2004
47 Legal proceedings
Proceedings have been brought in the US against a number of defendants including Barclays following the collapse of Enron. In each case the claims are against groups of defendants and it is not possible to estimate Barclays possible loss, if any, in relation to them. Barclays considers that the claims against it are without merit and is defending them vigorously. A court ordered mediation commenced in September 2003 but no material progress has been made towards a resolution of the litigation.
Barclays is engaged in various other litigation proceedings both in the UK and a number of overseas jurisdictions, including the US, involving claims by and against it, which arise in the ordinary course of business.
Barclays does not expect the ultimate resolution of any of the proceedings to which Barclays is party to have a significant adverse effect on the financial position or profitability of the Group.
4839 Reconciliation of operating profit to net cash flow from operating activities
2004 | 2003 | 2002 | ||||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Operating profit | 3,812 | 3,218 | 3,438 | 4,502 | 3,812 | 3,218 | ||||||||||||||||||
Provisions for bad and doubtful debts | 1,347 | 1,484 | 1,149 | 1,091 | 1,347 | 1,484 | ||||||||||||||||||
Depreciation and amortisation | 554 | 545 | 528 | 594 | 554 | 545 | ||||||||||||||||||
Net (decrease)/increase in accrued expenditure and prepayments | (216 | ) | (90 | ) | 114 | 489 | (216 | ) | (90 | ) | ||||||||||||||
Provisions for contingent liabilities and commitments | (1 | ) | 1 | 1 | 2 | (1 | ) | 1 | ||||||||||||||||
Other provisions for liabilities and charges | 241 | 203 | 194 | 440 | 241 | 203 | ||||||||||||||||||
Interest on dated and undated loan capital | 684 | 645 | 602 | 691 | 684 | 645 | ||||||||||||||||||
Decrease/(increase) in shareholders’ interest in the long-term assurance fund | 42 | 55 | (164 | ) | (112 | ) | 42 | 55 | ||||||||||||||||
Net (increase)/decrease in accrued interest and deferred income | (170 | ) | (402 | ) | 76 | (86 | ) | (170 | ) | (402 | ) | |||||||||||||
Net profit on disposal of investments and fixed assets | (84 | ) | (47 | ) | (83 | ) | (211 | ) | (84 | ) | (47 | ) | ||||||||||||
Other non-cash movements | 110 | 85 | 23 | 130 | 110 | 85 | ||||||||||||||||||
6,319 | 5,697 | 5,878 | 7,530 | 6,319 | 5,697 | |||||||||||||||||||
Net change in items in course of collection | 199 | (25 | ) | 439 | 153 | 199 | (25 | ) | ||||||||||||||||
Net increase in other credit balances | 12,139 | 13,105 | 4,717 | 5,986 | 12,139 | 13,105 | ||||||||||||||||||
Net increase in loans and advances to banks and customers | (26,294 | ) | (35,997 | ) | (30,695 | ) | (40,745 | ) | (26,294 | ) | (35,997 | ) | ||||||||||||
Net increase in deposits and debt securities in issue | 16,429 | 33,485 | 33,173 | 63,465 | 16,429 | 33,485 | ||||||||||||||||||
Net increase in other assets | (2,886 | ) | (387 | ) | (2,523 | ) | (2,172 | ) | (2,886 | ) | (387 | ) | ||||||||||||
Net increase in debt securities and equity shares | (8,831 | ) | (8,812 | ) | (5,949 | ) | (28,838 | ) | (8,831 | ) | (8,812 | ) | ||||||||||||
Net (increase)/decrease in treasury and other eligible bills | 579 | (260 | ) | (1,901 | ) | 530 | 579 | (260 | ) | |||||||||||||||
Other non-cash movements | 56 | (59 | ) | 53 | 180 | 56 | (59 | ) | ||||||||||||||||
Net cash (outflow)/inflow from operating activities | (2,290 | ) | 6,747 | 3,192 | ||||||||||||||||||||
Net cash inflow/(outflow) from operating activities | 6,089 | (2,290 | ) | 6,747 | ||||||||||||||||||||
152 40 Acquisitions
The Group made the following significant acquisitions of Group undertakings in 2004 which are accounted for on an acquisition basis:
% Acquired | Date | ||||||||
Barclays Bank Egypt (acquired remaining 40%) | 40 | % | 11/03/04 | ||||||
Juniper Financial Corporation | 100 | % | 1/12/04 | ||||||
Book value | ||||
and | ||||
Fair value | ||||
£m | ||||
Net assets acquired | ||||
Cash and balances at central banks | 16 | |||
Loans and advances to banks | 79 | |||
Loans and advances to customers | 753 | |||
Other assets | 111 | |||
Deposits by banks | (4 | ) | ||
Customer accounts | (128 | ) | ||
Other liabilities | (809 | ) | ||
Net assets | 18 | |||
Goodwill | 165 | |||
Satisfied by cash | 183 | |||
The above table reflects all acquisitions made in the year. The fair values of the assets and liabilities acquired given in the above table are provisional, and will be finalised in 2005.
Acquiring Juniper underlines Barclays strategy to grow its global product business. The Group acquired a 100% holding in Juniper for a total consideration of £153m and provisionally generated goodwill in Barclays of £149m. The amount of goodwill acquired will be finalised in 2005.
168
49Barclays PLC Annual Report 2004
41 Analysis of the net outflow of cash in respect of the acquisitions
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Cash consideration, including acquisition expenses | 227 | 1,103 | 454 | |||||||||
Cash at bank and in hand acquired | (16 | ) | (118 | ) | (3 | ) | ||||||
Net outflow of cash in respect of the purchase of Group undertakings | 211 | 985 | 451 | |||||||||
42 Sale of Group undertakings during the year
2003 | 2002 | 2004 | 2003 | 2002 | ||||||||||||||||
Net cash outflow from formation of FirstCaribbean International Bank Ltd | £m | £m | £m | £m | £m | |||||||||||||||
Advances and other accounts | – | 3,277 | – | – | 3,277 | |||||||||||||||
Deposits and other borrowings | – | (3,189 | ) | – | – | (3,189 | ) | |||||||||||||
Net assets disposed of | – | 88 | – | – | 88 | |||||||||||||||
Balance transferred to associated undertaking | – | (366 | ) | – | – | (366 | ) | |||||||||||||
Profit on disposal reflected in statement of total recognised gains and losses | – | 206 | – | – | 206 | |||||||||||||||
Amounts not yet settled (including deferred consideration) | – | 28 | – | – | 28 | |||||||||||||||
Cash at Bank and in hand disposed of | – | (116 | ) | |||||||||||||||||
Cash at bank and in hand disposed of | – | – | (116 | ) | ||||||||||||||||
Net cash outflow from formation of FirstCaribbean International Bank Ltd | – | (160 | ) | – | – | (160 | ) | |||||||||||||
In 2002 the balance transferred to associated undertakings comprised the Group’s share of the net assets disposed of and the Group’s share of the net assets acquired from the Canadian Imperial Bank of Commerce and goodwill thereon. Fair value adjustments of (£1m) were applied to the assets acquired primarily relating to loans and advances to customers and customer accounts.
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||
Sale of Group undertakings | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Goodwill written off | – | 10 | 7 | – | – | 10 | ||||||||||||||||||
Advances and other accounts | 65 | 2 | 2,148 | – | 65 | 2 | ||||||||||||||||||
Deposits and other borrowings | (30 | ) | (1 | ) | (2,109 | ) | – | (30 | ) | (1 | ) | |||||||||||||
Net assets disposed of | 35 | 11 | 46 | – | 35 | 11 | ||||||||||||||||||
Net profit/(loss) on disposal | 4 | (3 | ) | (4 | ) | – | 4 | (3 | ) | |||||||||||||||
Amounts not yet settled (including deferred consideration) | – | (8 | ) | – | – | – | (8 | ) | ||||||||||||||||
Cash at bank and in hand disposed of | – | (1 | ) | – | – | – | (1 | ) | ||||||||||||||||
Net cash inflow/(outflow) from sale of Group undertakings | 39 | (1 | ) | 42 | – | 39 | (1 | ) | ||||||||||||||||
5043 Changes in financing during the year
The following table does not include the premium of £192m paid in respect ofand legal costs on the repurchase of ordinary shares orof £664m and takes account of the Group’s contributionscontribution to the Qualifying Employee Share Ownership Trust (QUEST)Option Plan (ESOP) of £36m.£54m.
Non- | Undated | Dated | ||||||||||||||||||||||||||||||||||||||||||||||
Non- | Undated | Dated | recourse | loan | loan | Ordinary | Share | Minority | ||||||||||||||||||||||||||||||||||||||||
recourse | loan | loan | Ordinary | Share | Minority | financing | capital | capital | shares | premium | interests | |||||||||||||||||||||||||||||||||||||
financing | capital | capital | shares | premium | interests | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||
Barclays PLC | ||||||||||||||||||||||||||||||||||||||||||||||||
At beginning of year (restated) | 1,251 | 6,678 | 4,859 | 1,645 | 5,277 | 156 | ||||||||||||||||||||||||||||||||||||||||||
At beginning of year | 4,513 | 6,310 | 6,029 | 1,642 | 5,417 | 283 | ||||||||||||||||||||||||||||||||||||||||||
Exchange rate and other movements | – | (177 | ) | 27 | – | – | 62 | – | (161 | ) | 44 | – | – | (122 | ) | |||||||||||||||||||||||||||||||||
Net cash inflow/(outflow) from financing | 3,262 | (191 | ) | 1,143 | (3 | ) | 140 | 65 | 4,264 | – | 55 | (28 | ) | 107 | 740 | |||||||||||||||||||||||||||||||||
At end of year | 4,513 | 6,310 | 6,029 | 1,642 | 5,417 | 283 | 8,777 | 6,149 | 6,128 | 1,614 | 5,524 | 901 | ||||||||||||||||||||||||||||||||||||
Barclays PLC Annual Report 2003 153
169
Notes to the Accounts
For the Year Endedyear ended 31st December 2003
2004
5144 Analysis of cash balances
31st Dec | 31st Dec | 31st Dec | 31st Dec | |||||||||||||||||||||||||||||||||||||||||||||||||||||
31st Dec | 31st Dec | 31st Dec | 31st Dec | 2004 | Change | 2003 | Change | 2002 | Change | 2001 | ||||||||||||||||||||||||||||||||||||||||||||||
2003 | Change | 2002 | Change | 2001 | Change | 2000 | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central bank | 1,726 | (306 | ) | 2,032 | 751 | 1,281 | 38 | 1,243 | 1,753 | 27 | 1,726 | (306 | ) | 2,032 | 751 | 1,281 | ||||||||||||||||||||||||||||||||||||||||
Loans and advances to other banks repayable on demand | 1,893 | (80 | ) | 1,973 | (2,144 | ) | 4,117 | 2,023 | 2,094 | 2,710 | 817 | 1,893 | (80 | ) | 1,973 | (2,144 | ) | 4,117 | ||||||||||||||||||||||||||||||||||||||
3,619 | (386 | ) | 4,005 | (1,393 | ) | 5,398 | 2,061 | 3,337 | 4,463 | 844 | 3,619 | (386 | ) | 4,005 | (1,393 | ) | 5,398 | |||||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of year | 4,005 | 5,398 | 3,337 | 3,619 | 4,005 | 5,398 | ||||||||||||||||||||||||||||||||||||||||||||||
Net (decrease)/increase in cash before the effect of exchange rate movements | (372 | ) | (1,207 | ) | 1,998 | |||||||||||||||||||||||||||||||||||||||||||||||
Net increase/(decrease) in cash before the effect of exchange rate movements | 808 | (372 | ) | (1,207 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Effect of exchange rate movements | (14 | ) | (186 | ) | 63 | 36 | (14 | ) | (186 | ) | ||||||||||||||||||||||||||||||||||||||||||
(386 | ) | (1,393 | ) | 2,061 | 844 | (386 | ) | (1,393 | ) | |||||||||||||||||||||||||||||||||||||||||||
Balance at end of year | 3,619 | 4,005 | 5,398 | 4,463 | 3,619 | 4,005 | ||||||||||||||||||||||||||||||||||||||||||||||
52 Analysis of the net outflow of cash in respect of the acquisition of subsidiary undertakings
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Cash consideration, including acquisition expenses | 1,103 | 454 | 84 | |||||||||
Cash at bank and in hand acquired | (118 | ) | (3 | ) | (48 | ) | ||||||
Net outflow of cash in respect of the purchase of Group undertakings | 985 | 451 | 36 | |||||||||
53 Acquisitions
The Group made the following significant acquisitions of Group undertakings in 2003 which are accounted for on an acquisition basis:
Fair value | ||||||||||||
Book value | adjustments | Fair value | ||||||||||
£m | £m | £m | ||||||||||
Net assets acquired | ||||||||||||
Cash and balances at central banks | 118 | – | 118 | |||||||||
Loans and advances to banks | 694 | – | 694 | |||||||||
Loans and advances to customers | 2,592 | – | 2,592 | |||||||||
Other assets | 1,738 | 101 | 1,839 | |||||||||
Deposits by banks | (647 | ) | – | (647 | ) | |||||||
Customer accounts | (3,073 | ) | (6 | ) | (3,079 | ) | ||||||
Other liabilities | (1,140 | ) | (26 | ) | (1,166 | ) | ||||||
Net assets | 282 | 69 | 351 | |||||||||
Goodwill | 752 | |||||||||||
Satisfied by cash | 1,103 | |||||||||||
The book value in the above table reflects all acquisitions made in the year.
154
5445 Related party transactions
a) Subsidiary undertakings
b) Associated undertakings and joint ventures
Astron Document Solutions Limited (previously Edotech Limited,Limited), an associated undertaking, providesassociate until its disposal on 7th April 2004, provided printing services to the Group. The cost of these services provided in the year was £35.3m (2003: £31.1m, (2002: £24.1m, 2001: £22.9m)2002: £24.1m). At the end of the year, end, a balance outstanding of £3.0m£2.9m was included in sundry creditors (2002:(2003: £3m, 2002: £2.3m).
Intelligent Processing Systems Limited (IPSL) is a joint venture between the Group, Lloyds TSB Bank PLC, HSBC Bank plc and Unisys Limited. The Bank has outsourced its cheque processing services to IPSL. The cost of these core services to the Barclays Group in the UK provided in the year was £36.6m (2003: £26.7m, (2002: £30.2m, 2001: £30.5m)2002: £30.2m). At the year end, a balance outstanding of £1.7m£1.4m was included in sundry creditors (2002:(2003: £1.7m, 2002: £2.2m). In addition, a further £16.6m£15.1m was included in prepayments and accrued income (2002:(2003: £16.6m, 2002: £6.3m).
Gresham Insurance Company Limited (Gresham) became an associated undertaking following the acquisition of Woolwich plc. The arrangement enables Gresham to underwrite major household insurances provided to customers of the Group. Underwriting payments made to Gresham during the year were £81.9m (2003: £44.8m, (2002: £54.9m, 2001: £53.2m)2002: £54.9m) and balances outstanding of £63.2m (2003: £53.2m, (2002:2002: £6.9m) are included in trade creditors.
Global Home Loans Limited (GHL) is an associated undertaking of the Group. Mortgage origination and processing activities are outsourced to GHL and its subsidiaries. The fees payable to GHL during the year were £110.7m (2003: £100.7m, (2002: £57.9m, 2001: £45.6m)2002: £57.9m). At the year end, £11.2m£13.7m was payable to GHL (2002:(2003: £11.2m, 2002: £8.9m).
Gabetti HoldingHoldings SpA, an associated undertaking, acts as an introducer of mortgage business to Banca Woolwich SpA and received commission of £5.5m in 2004 (2003: £5.1m, in 2003 (2002: £7.0m, 2001: £7.3m)2002: £7m). At the year end, there were no amounts outstanding (2002: £1.0m(2003: £nil, 2002: £1m sundry creditors). The value of the Group’s investment in Gabetti Holdings SpA, based on its listed share price at 31st December 2004, was £9.9m (2003: £8.3m, 2002: £7.4m).
170
Barclays PLC Annual Report 2004
45 Related party transactions (continued)
Solution Personal Finance Limited (formerly Littlewoods Personal Finance Limited, changed 21st September 2004) is a joint venture between the Group and Littlewoods PLC.Ltd. The Group provides a retail financial service to LittlewoodsSolution Personal Finance Limited retail customers and charged £4.4m£7m during 20032004 for account servicing, maintenance and development costs (2002: £1.7m, 2001: £0.8m)(2003: £4.4m, 2002: £1.7m). During 2003, Littlewoods2004, Solution Personal Finance Limited provided marketing servicescustomers’ accounts were hosted on Barclays systems. Solution Personal Finance Limited is entitled to recover the Group for which a fee of £5.1m was paid (2002: £5.3m, 2001: £2.9m)income generated from their customers amounting to £14.9m in 2004 (2003: £11.5m, 2002: £2.8m). At 31st December 2003, £0.8m2004, £3m was owed to LittlewoodsSolution Personal Finance Limited (2002:(2003: £0.8m, 2002: £2.2m). There was no amount£4.1m outstanding from LittlewoodsSolution Personal Finance Limited at that date (2002:(2003: £nil, 2002: £nil).
Xansa Barclaycard Partnership Limited (formerly Barshelfco (No 73) Limited) became a joint venture between the Group and Xansa PLCPlc on 1st February 2002. The company delivers IT services to Barclaycard. The IT service contract has an estimated minimum value of £125m over five years. The cost of providing these services to the Group during the year was £52m (2003: £37.2m, (2002: £38.5m, 2001: £nil)2002: £38.5m). At 31st December 20032004, £3.3m (2003: £1.4m, (2002:2002: £0.6m) was owed to Xansa Barclaycard Partnership Limited.
FirstCaribbean International Bank Limited became an associate of the Group in October 2002 following the combination of the Caribbean retail, corporate and offshore banking operations of Barclays and Canadian Imperial Bank of Commerce. As part of this transaction, the bank has agreed to ensure that the pension scheme assets are sufficient to cover the pension fund liabilities of the affected employees.employees and a £20m provision was created, in 2002, to cover a potential shortfall in pension scheme assets. During 2004 it was established that there were sufficient assets in the scheme and consequently the provision was released. At 31st December 2003,2004, a provision of £nil (2003: £20m, (2002:2002: £20m) iswas held to cover this liability. Barclaycard received management fees of £nil (2003: £1.2m, (2002:2002: £0.2m) in respect of credit card services supplied to FirstCaribbean Investment Bank in 2003.2004. The value of the Group’s investment in FirstCaribbean International Bank Limited, based on its listed share price as quoted on the Barbados Stock Exchange as at 31st December 2004, was £741m (2003: £498m, 2002: £706m).
E-Crossnet Limited is a joint venture between the Group and Merrill Lynch Mercury Asset Management. The company was established as an electronic crossing network for UK and Continental Equities. During the year, the Group invested a further £1m in this joint venture.
c) Pension funds, unit trusts and investment funds
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Liabilities of Group – banking facilities | 228 | 87 | 112 | 207 | 228 | 87 | ||||||||||||||||||
Interest payable – banking facilities | 1 | 2 | 3 | – | 1 | 2 | ||||||||||||||||||
Commissions receivable | – | – | 6 | |||||||||||||||||||||
Fees receivable – investment management and custody | 14 | 12 | 12 | 19 | 14 | 12 | ||||||||||||||||||
Value of schemes’ investments in pooled funds managed by BGI | 13,140 | 11,866 | 13,578 | 11,589 | 13,140 | 11,866 | ||||||||||||||||||
Income from pooled funds managed by BGI | 10 | 11 | – | 13 | 10 | 11 | ||||||||||||||||||
Investments in OTC derivatives with other Group companies | 200 | 331 | 186 | |||||||||||||||||||||
Investments with other Group companies – OTC derivatives | 161 | 195 | 330 | |||||||||||||||||||||
– Private Equity | 11 | 5 | 1 | |||||||||||||||||||||
Margin loans from other Group companies | 152 | 176 | 183 | 64 | 152 | 176 | ||||||||||||||||||
Barclays PLC Annual Report 2003 155
Notes to the AccountsFor the Year Ended 31st December 2003
54 Related party transactions (continued)
d) Directors
In the ordinary course of business, the Bank makes loans to companies where a Director or officer is also a Director of Barclays. With the exception of an interest free loan of £0.5m to the Charity Bank Limited (part of the Charities Aid Foundation group of which Sir Brian Jenkins is President of Trustees,Trustees), these loans are made on substantially the same criteria and terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavourable features. The interest free loan to the Charities Aid Foundation groupCharity Bank Limited was repaid in full in 2003.on 21st September 2004 and the Bank subscribed on the same date for preference shares of the same value.
Xansa PLC,Plc, of which the late Dame Hilary Cropper CBE iswas Honorary President, provides software support and development resource capability to the Group. The total value of these transactions for the year ending 31st December 20032004 was £13.1m (2003: £10.6m, (2002: £14.3m, 2001: £21.5m)2002: £14.3m). This is in addition to the transactions with Xansa Barclaycard Partnership Limited discussed in Note (b) above.
Cable and Wireless PLC, of which Graham Wallace was Chief Executive until April 2003 has a telecommunications services contract with the Group. This was awarded as part of a competitive tender activity. The cost171
Notes to the Group during 2003 foraccounts
55 46 Directors’ and officers’ emoluments and interests
Directors’ and officers’ emoluments and other benefits
The aggregate emoluments and other benefits of the Directors of Barclays PLC set out below are disclosed in accordance with Part I of Schedule 6 to the Companies Act 1985.
2004 | 2003 | |||||||||||||||
2003 | 2002 | £000 | £000 | |||||||||||||
£000 | £000 | |||||||||||||||
Aggregate emoluments | 7,617 | 6,141 | 16,229 | 7,617 | ||||||||||||
Gains made on the exercise of share options | 24 | 499 | 928 | 24 | ||||||||||||
Amounts paid under long-term incentive schemes | – | 1,235 | ||||||||||||||
Actual pension contributions to money purchase scheme (2004: one Director and 2003: none) | 115 | – | ||||||||||||||
Notional pension contributions to money purchase schemes (2004: one Director and 2003: one Director) | 990 | 990 | ||||||||||||||
Notional pension contributions to money purchase schemes (2003: one Director and 2002: one Director) | 990 | 990 |
As at 31st December 2003, two2004, four Directors were accruing retirement benefits under a defined benefit scheme (2002: three(2003: two Directors).
For US disclosure purposes, the aggregate emoluments of all Directors and officers of Barclays PLC who held office during the year (2003: 27(2004: 30 persons, 2002:2003: 27 persons) for the year ended 31st December 20032004 amounted to £51,215,000 (2002: £44,290,000)£48,125,000 (2003: £51,215,000). In addition, the aggregate amount set aside for the year ended 31st December 2003,2004, to provide pension benefits for the Directors and officers amounted to £1,741,000 (2002: £1,446,000)£1,939,000 (2003: £1,741,000). The aggregate emoluments of all Directors and officers of Barclays Bank PLC who held office during the year (2003:(2004: 31 persons, 2003: 28 persons, 2002: 29 persons) for the year ended 31st December 20032004 amounted to £51,328,000 (2002: £44,356,000)£48,263,000 (2003: £51,328,000). In addition, the aggregate amount set aside by the Bank and its subsidiary undertakings, for the year ended 31st December 2003,2004, to provide pension benefits for the Directors and officers amounted to £1,741,000 (2002: £1,447,000)£1,939,000 (2003: £1,741,000).
Having reviewed the definition of officers for US disclosure purposes, the Group now includes all direct reports of the Group CEO and heads of major business units in the definition. The 2002 figures detailed above have been adjusted accordingly.
56 Directors’ and officers’ shareholding and options
The beneficial ownership of the ordinary share capital of Barclays PLC by all Directors and officers of Barclays PLC (involving 2321 persons) and Barclays Bank PLC (involving 2422 persons) at 31st December 20032004 amounted to 1,371,5841,681,679 ordinary shares of 25p each (0.02%(0.03% of ordinary share capital outstanding).
Executive Directors and officers of Barclays PLC as a group (involving 1412 persons) held, at 31st December 2003,2004, options to purchase 25,358,33117,096,750 Barclays PLC ordinary shares of 25p each at prices ranging from 308p to 411p under the SAYE Share Option Scheme, and ranging from 347p397p to 397p445p under the Executive Share Option Scheme and ranging from 326p to 534p under the Incentive Share Option Plan, respectively.
156
57 Contracts with Directors and connected persons and with managers
The aggregate amounts outstanding at 31st December 20032004 under transactions, arrangements and agreements made by authorised institutions within the Group for persons who are, or were during the year, Directors of Barclays PLC and persons connected with them and for managers, within the meaning of the Financial Services and Markets Act 2000, of Barclays Bank PLC were:
Number of | Number of | |||||||||||||||||||||||
Number of | Number of | Directorsor | connected | Amount | ||||||||||||||||||||
Directors or | connected | Amount | managers | persons | £000 | |||||||||||||||||||
managers | persons | £000 | ||||||||||||||||||||||
Directors | ||||||||||||||||||||||||
Loans | 3 | – | 2,031 | |||||||||||||||||||||
Quasi-loans and credit card accounts | 8 | 6 | 43 | 4 | 1 | 25 | ||||||||||||||||||
Managers | ||||||||||||||||||||||||
Loans | 2 | n/a | 73 | 5 | n/a | 193 | ||||||||||||||||||
Quasi-loans and credit card accounts | 6 | n/a | 17 | 11 | n/a | 43 | ||||||||||||||||||
Each of the transactions, arrangements and agreements disclosed above were made in accordance with the requirements of the Companies Act 1985 and the US Sarbanes-Oxley Act of 2002.
There are no transactions, arrangements or agreements with Barclays PLC or its subsidiary undertakings in which Directors, or persons connected with them, or managers of Barclays Bank PLC had a material interest and which are disclosable under the relevant provisions of the Companies Act 1985, other than options to subscribe for Barclays PLC ordinary shares as described in Note 56.above.
58172
Barclays PLC Annual Report 2004
47 Other entities
At 31st December 2003 the Group had investments in four subsidiaries that amounted to £0.25m (2002:nil). Under UK GAAP, these subsidiaries were excluded from consolidation into the Group’s financial statements, either on the grounds that the Group could not direct the financial and operating policies or on the grounds that another group has a superior economic interest. In each of these cases the subsidiaries were consolidated within the financial statements under UK GAAP of another group.
Although the Group’s interest in the equity voting rights in certain investments is 20% or more, the Directors do not consider them to be participating interests (within the meaning of Section 260, Companies Act 1985) and consequently they are not treated as associated undertakings since the Group does not exercise significant influence over the activities of these investments. The carrying value of these investments as at 31st December 2003 was £12.8m (2002: £23.3m).
There are a number of entities that do not qualify as subsidiary undertakings but which give rise to benefits that are in substance no different from those that would arise were the entity a subsidiary. In accordance with the disclosure required by FRS 5, the summarised combined results of these entities, which are included in the Group consolidated results, by type of entity for each main financial statement heading where there are material items, are set out below. They are categorised according to the activities in which they are engaged, further discussion of which is included in Note 61(r).engaged.
Credit structuring | Asset securitisation | Client | ||||||||||||||||||||||||||||||||||||||||||||||
business | vehicles | intermediation | ||||||||||||||||||||||||||||||||||||||||||||||
Credit structuring | Asset securitisation | Client | 2004 | 2003 | 2004 | 2003 | 2004 | 2003(a) | ||||||||||||||||||||||||||||||||||||||||
business | vehicles | intermediation | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002(a) | |||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||
Profit and loss account | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest receivable | 121 | 164 | 147 | 36 | 26 | 3 | 94 | 121 | 222 | 147 | 5 | 26 | ||||||||||||||||||||||||||||||||||||
Interest payable | (121 | ) | (164 | ) | (147 | ) | (36 | ) | (3 | ) | (3 | ) | (94 | ) | (121 | ) | (222 | ) | (147 | ) | (5 | ) | (3 | ) | ||||||||||||||||||||||||
Operating profit | – | – | – | – | 23 | – | – | – | – | – | – | 23 | ||||||||||||||||||||||||||||||||||||
Balance sheet | ||||||||||||||||||||||||||||||||||||||||||||||||
Fixed assets | – | – | – | – | 2 | – | – | – | – | – | – | 2 | ||||||||||||||||||||||||||||||||||||
Investment in Group subsidiary undertakings | 1 | 1 | – | – | – | – | 1 | 1 | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Other investments | – | – | – | – | 1,530 | 159 | – | – | – | – | – | 1,530 | ||||||||||||||||||||||||||||||||||||
Debt securities | 1,306 | 1,966 | 55 | – | – | – | 759 | 1,306 | 55 | 55 | – | – | ||||||||||||||||||||||||||||||||||||
Loans and advances | – | – | 5,777 | 1,542 | – | – | – | – | 6,794 | 5,777 | 215 | – | ||||||||||||||||||||||||||||||||||||
Amounts due from Group undertakings | 1,410 | 1,482 | 852 | – | 4,120 | 1,846 | 1,228 | 1,410 | 287 | 852 | – | 4,120 | ||||||||||||||||||||||||||||||||||||
Other debtors | – | – | 29 | 6 | 21 | – | – | – | 32 | 29 | – | 21 | ||||||||||||||||||||||||||||||||||||
Cash | 76 | 44 | 4 | – | 67 | – | 36 | 76 | – | 4 | 1 | 67 | ||||||||||||||||||||||||||||||||||||
Debt securities in issue | (2,768 | ) | (3,463 | ) | (4,490 | ) | (1,548 | ) | – | – | (2,003 | ) | (2,768 | ) | (134 | ) | (4,490 | ) | – | – | ||||||||||||||||||||||||||||
Amounts owed to Group undertakings | (22 | ) | (27 | ) | (2,227 | ) | – | (5,391 | ) | (2,005 | ) | (18 | ) | (22 | ) | (7,026 | ) | (2,227 | ) | (216 | ) | (5,391 | ) | |||||||||||||||||||||||||
Creditors due greater than one year | – | – | – | – | (349 | ) | – | – | – | (8 | ) | – | – | (349 | ) | |||||||||||||||||||||||||||||||||
Shareholders’ funds – retained profit | (3 | ) | (3 | ) | – | – | – | – | (3 | ) | (3 | ) | – | – | – | – | ||||||||||||||||||||||||||||||||
Cash flow | ||||||||||||||||||||||||||||||||||||||||||||||||
Net cash inflow from operating activities | 37 | 10 | 78 | – | – | (3 | ) | |||||||||||||||||||||||||||||||||||||||||
Cash flow Net cash inflow from operating activities | (2 | ) | 37 | – | 78 | (49 | ) | – | ||||||||||||||||||||||||||||||||||||||||
(a) | Includes entities previously disclosed as financing transactions. |
Barclays PLC Annual Report 2003 157Subsidiary undertakings excluded from consolidation
Percentage | ||||||||||||||||||||||||
of ordinary | Equity | Retained | ||||||||||||||||||||||
share | shareholders’ | profit/(loss) | ||||||||||||||||||||||
capital held | funds | for the year | ||||||||||||||||||||||
Country of registration or incorporation | Name | % | £m | £m | ||||||||||||||||||||
UK | Oak Dedicated Limited | 100 | 1 | 5 | ||||||||||||||||||||
UK | Oak Dedicated Two Limited | 100 | (1 | ) | �� | 2 | ||||||||||||||||||
UK | Oak Dedicated Three Limited | 100 | 3 | 1 | ||||||||||||||||||||
Cayman Islands | Gallaher (C.I) Limited | 100 | – | 1 | ||||||||||||||||||||
Cayman Islands | Core Investments (Cayman) Limited | 100 | – | – | ||||||||||||||||||||
In accordance with Section 231(5) of the Companies Act 1985 the above information is provided for subsidiary undertakings excluded from consolidation. The subsidiaries are excluded because the Group could not direct the financial and operating policies or on the grounds that another group has a superior economic interest and consolidates the undertaking in their financial statements under UK GAAP. Gallaher (C.I) Limited and Core Investments (Cayman) Limited have non-equity share capital owned by third parties comprising fixed rate redeemable preference shares of £1,502m and £2,000m respectively.
173
Notes to the AccountsFor the Year Ended 31st December 2003
59 Segmental analysis
The Group reports the results of its operations through eight business segments: Personal Financial Services, Barclays Private Clients, Barclaycard, Business Banking, Barclays Africa, Barclays Capital, Barclays Global Investors and Head office functions and other operations.
Personal Financial Services provides retail products and services including current accounts, mortgages, consumer loans and general insurance throughout the UK. Barclays Private Clients provides banking and asset management services to affluent and high net worth clients. Barclaycard provides credit card services across Europe and Africa. Business Banking provides relationship banking to small, medium-sized and large business customers in the UK. Barclays Africa provides banking services to personal and corporate customers in North Africa, Sub-Saharan Africa and islands in the Indian Ocean. Barclays Capital conducts the Group’s investment banking business providing corporate, institutional and government clients with financing and risk management products. Barclays Global Investors provides investment management products and services to international institutional clients. Head office functions and other operations comprise all the Group’s central function costs and other central items together with the results of Transition Businesses.
Comparative figures have been restated as a result of the changes in accounting policy and accounting presentation as set out on pages 105 and 106.
2003 | 2002 | 2001 | ||||||||||||||||||||||
By class of business(a) | £m | % | £m | % | £m | % | ||||||||||||||||||
Net interest income | ||||||||||||||||||||||||
Personal Financial Services | 1,949 | 29 | 1,834 | 30 | 1,911 | 32 | ||||||||||||||||||
Barclays Private Clients | 767 | 12 | 766 | 12 | 829 | 14 | ||||||||||||||||||
Barclaycard | 1,037 | 16 | 886 | 14 | 815 | 14 | ||||||||||||||||||
Business Banking | 1,665 | 25 | 1,626 | 26 | 1,553 | 26 | ||||||||||||||||||
Barclays Africa | 187 | 3 | 160 | 3 | 176 | 3 | ||||||||||||||||||
Barclays Capital | 964 | 15 | 889 | 14 | 639 | 11 | ||||||||||||||||||
Barclays Global Investors | 9 | – | 12 | – | 5 | – | ||||||||||||||||||
Head office functions and other operations | 26 | – | 32 | 1 | 38 | – | ||||||||||||||||||
6,604 | 100 | 6,205 | 100 | 5,966 | 100 | |||||||||||||||||||
Non interest income(b) | ||||||||||||||||||||||||
Personal Financial Services | 1,160 | 20 | 1,085 | 21 | 998 | 19 | ||||||||||||||||||
Barclays Private Clients | 506 | 9 | 548 | 11 | 720 | 14 | ||||||||||||||||||
Barclaycard | 793 | 14 | 696 | 14 | 578 | 11 | ||||||||||||||||||
Business Banking | 963 | 17 | 888 | 17 | 829 | 16 | ||||||||||||||||||
Barclays Africa | 138 | 2 | 115 | 2 | 136 | 3 | ||||||||||||||||||
Barclays Capital | 1,688 | 29 | 1,349 | 26 | 1,448 | 28 | ||||||||||||||||||
Barclays Global Investors | 663 | 11 | 538 | 11 | 518 | 10 | ||||||||||||||||||
Head office functions and other operations | (104 | ) | (2 | ) | (97 | ) | (2 | ) | (51 | ) | (1 | ) | ||||||||||||
5,807 | 100 | 5,122 | 100 | 5,176 | 100 | |||||||||||||||||||
Total income(c) | ||||||||||||||||||||||||
Personal Financial Services | 3,109 | 25 | 2,919 | 26 | 2,909 | 26 | ||||||||||||||||||
Barclays Private Clients | 1,273 | 10 | 1,314 | 12 | 1,549 | 14 | ||||||||||||||||||
Barclaycard | 1,830 | 15 | 1,582 | 14 | 1,393 | 12 | ||||||||||||||||||
Business Banking | 2,628 | 21 | 2,514 | 22 | 2,382 | 21 | ||||||||||||||||||
Barclays Africa | 325 | 3 | 275 | 2 | 312 | 3 | ||||||||||||||||||
Barclays Capital | 2,652 | 21 | 2,238 | 20 | 2,087 | 19 | ||||||||||||||||||
Barclays Global Investors | 672 | 5 | 550 | 5 | 523 | 5 | ||||||||||||||||||
Head office functions and other operations | (78 | ) | – | (65 | ) | (1 | ) | (13 | ) | – | ||||||||||||||
12,411 | 100 | 11,327 | 100 | 11,142 | 100 | |||||||||||||||||||
Profit/(loss) on ordinary activities before tax(d)(e) | ||||||||||||||||||||||||
Personal Financial Service | 821 | 21 | 712 | 22 | 644 | 19 | ||||||||||||||||||
Barclays Private Clients | 216 | 6 | 226 | 7 | 512 | 15 | ||||||||||||||||||
Barclaycard | 691 | 18 | 591 | 18 | 488 | 14 | ||||||||||||||||||
Business Banking | 1,301 | 34 | 1,210 | 38 | 1,039 | 30 | ||||||||||||||||||
Barclays Africa | 112 | 3 | 88 | 3 | 122 | 4 | ||||||||||||||||||
Barclays Capital | 783 | 20 | 579 | 18 | 654 | 19 | ||||||||||||||||||
Barclays Global Investors | 179 | 5 | 97 | 3 | 71 | 2 | ||||||||||||||||||
Head office functions and other operations | (258 | ) | (7 | ) | (298 | ) | (9 | ) | (105 | ) | (3 | ) | ||||||||||||
3,845 | 100 | 3,205 | 100 | 3,425 | 100 | |||||||||||||||||||
158
59 Segmental analysis (continued)
2003 | 2002 | 2001 | ||||||||||||||||||||||
| restated | restated | ||||||||||||||||||||||
By class of business(a)(c) | £m | % | £m | % | £m | % | ||||||||||||||||||
Total assets | ||||||||||||||||||||||||
Personal Financial Services | 77,329 | 17 | 74,568 | 19 | 67,162 | 19 | ||||||||||||||||||
Barclays Private Clients | 22,486 | 5 | 14,823 | 3 | 14,738 | 4 | ||||||||||||||||||
Barclaycard | 12,485 | 3 | 10,869 | 3 | 9,517 | 3 | ||||||||||||||||||
Business Banking | 52,161 | 12 | 47,369 | 12 | 44,206 | 12 | ||||||||||||||||||
Barclays Africa | 3,062 | 1 | 2,641 | 1 | 2,763 | 1 | ||||||||||||||||||
Barclays Capital | 263,169 | 59 | 236,468 | 58 | 201,303 | 57 | ||||||||||||||||||
Barclays Global Investors | 695 | – | 656 | – | 497 | – | ||||||||||||||||||
Head office functions and other operations | 3,897 | 1 | 8,384 | 2 | 8,256 | 2 | ||||||||||||||||||
Retail life-fund attributable to policyholders | 8,077 | 2 | 7,284 | 2 | 8,170 | 2 | ||||||||||||||||||
443,361 | 100 | 403,062 | 100 | 356,612 | 100 | |||||||||||||||||||
Net assets | ||||||||||||||||||||||||
Personal Financial Services | 5,285 | 32 | 5,049 | 33 | 5,366 | 37 | ||||||||||||||||||
Barclays Private Clients | 2,444 | 14 | 1,759 | 11 | 1,768 | 12 | ||||||||||||||||||
Barclaycard | 2,267 | 14 | 1,880 | 12 | 1,257 | 8 | ||||||||||||||||||
Business Banking | 3,251 | 19 | 3,134 | 20 | 2,935 | 20 | ||||||||||||||||||
Barclays Africa | 257 | 2 | 233 | 2 | 236 | 2 | ||||||||||||||||||
Barclays Capital | 2,392 | 14 | 2,296 | 15 | 2,062 | 14 | ||||||||||||||||||
Barclays Global Investors | 332 | 2 | 386 | 3 | 303 | 2 | ||||||||||||||||||
Head office functions and other operations | 528 | 3 | 620 | 4 | 692 | 5 | ||||||||||||||||||
16,756 | 100 | 15,357 | 100 | 14,619 | 100 | |||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
By geographical segments(a) | £m | % | £m | % | £m | % | ||||||||||||||||||
Interest receivable | ||||||||||||||||||||||||
United Kingdom | 10,887 | 88 | 10,429 | 87 | 11,328 | 84 | ||||||||||||||||||
Other European Union | 865 | 7 | 737 | 6 | 862 | 6 | ||||||||||||||||||
United States | 152 | 1 | 262 | 2 | 511 | 4 | ||||||||||||||||||
Rest of the World | 523 | 4 | 616 | 5 | 757 | 6 | ||||||||||||||||||
12,427 | 100 | 12,044 | 100 | 13,458 | 100 | |||||||||||||||||||
Fees and commissions receivable | ||||||||||||||||||||||||
United Kingdom | 3,653 | 75 | 3,396 | 76 | 3,095 | 74 | ||||||||||||||||||
Other European Union | 343 | 7 | 247 | 6 | 258 | 6 | ||||||||||||||||||
United States | 609 | 12 | 537 | 12 | 547 | 13 | ||||||||||||||||||
Rest of the World | 291 | 6 | 274 | 6 | 302 | 7 | ||||||||||||||||||
4,896 | 100 | 4,454 | 100 | 4,202 | 100 | |||||||||||||||||||
Dealing profits | ||||||||||||||||||||||||
United Kingdom | 889 | 84 | 642 | 77 | 729 | 72 | ||||||||||||||||||
Other European Union | 11 | 1 | 8 | 1 | 21 | 2 | ||||||||||||||||||
United States | 122 | 12 | 136 | 16 | 212 | 21 | ||||||||||||||||||
Rest of the World | 32 | 3 | 47 | 6 | 49 | 5 | ||||||||||||||||||
1,054 | 100 | 833 | 100 | 1,011 | 100 | |||||||||||||||||||
Other operating income | ||||||||||||||||||||||||
United Kingdom | 192 | 39 | 150 | 41 | 253 | 59 | ||||||||||||||||||
Other European Union | 293 | 60 | 207 | 57 | 166 | 39 | ||||||||||||||||||
United States | 1 | – | 2 | 1 | 1 | – | ||||||||||||||||||
Rest of the World | 4 | 1 | 5 | 1 | 8 | 2 | ||||||||||||||||||
490 | 100 | 364 | 100 | 428 | 100 | |||||||||||||||||||
Gross income(c) | ||||||||||||||||||||||||
United Kingdom | 15,621 | 82 | 14,617 | 83 | 15,405 | 81 | ||||||||||||||||||
Other European Union | 1,512 | 8 | 1,199 | 7 | 1,307 | 7 | ||||||||||||||||||
United States | 884 | 5 | 937 | 5 | 1,271 | 6 | ||||||||||||||||||
Rest of the World | 850 | 5 | 942 | 5 | 1,116 | 6 | ||||||||||||||||||
18,867 | 100 | 17,695 | 100 | 19,099 | 100 | |||||||||||||||||||
Barclays PLC Annual Report 2003 159
Notes to the Accountsaccounts
For the Year Endedyear ended 31st December 2003
2004
5948 Segmental analysis
2004 | 2003 | 2002 | ||||||||||||||||||||||
By class of business(a) | £m | % | £m | % | £m | % | ||||||||||||||||||
Net interest income | ||||||||||||||||||||||||
UK Banking | 3,466 | 51 | 3,301 | 50 | 3,226 | 52 | ||||||||||||||||||
UK Retail Banking UK Business Banking | 2,059 1,407 | 30 21 | 2,000 1,301 | 30 20 | 1,979 1,247 | 32 20 | ||||||||||||||||||
Private Clients and International | 783 | 11 | 709 | 10 | 669 | 11 | ||||||||||||||||||
Private Clients – ongoing Private Clients – closed life assurance activities International | 302 (53 534 | ) | 4 (1 8 | ) | 288 (40 461 | ) | 4 (1 7 | ) | 281 (29 417 | ) | 5 – 7 | |||||||||||||
Barclaycard | 1,600 | 23 | 1,555 | 24 | 1,354 | 22 | ||||||||||||||||||
Barclays Capital | 1,006 | 15 | 1,024 | 16 | 939 | 15 | ||||||||||||||||||
Barclays Global Investors | 5 | – | 9 | – | 9 | – | ||||||||||||||||||
Head office functions and other operations | (18 | ) | – | 6 | – | 8 | – | |||||||||||||||||
6,842 | 100 | 6,604 | 100 | 6,205 | 100 | |||||||||||||||||||
Non interest income(b) | ||||||||||||||||||||||||
UK Banking | 2,180 | 31 | 2,204 | 38 | 1,999 | 39 | ||||||||||||||||||
UK Retail Banking UK Business Banking | 1,356 824 | 19 12 | 1,439 765 | 25 13 | 1,328 671 | 26 13 | ||||||||||||||||||
Private Clients and International | 946 | 13 | 679 | 12 | 713 | 14 | ||||||||||||||||||
Private Clients – ongoing Private Clients – closed life assurance activities International | 537 49 360 | 7 1 5 | 398 (40 321 | ) | 7 (1 6 | ) | 488 (64 289 | ) | 9 (1 6 | ) | ||||||||||||||
Barclaycard | 764 | 11 | 673 | 12 | 586 | 11 | ||||||||||||||||||
Barclays Capital | 2,375 | 33 | 1,702 | 29 | 1,387 | 27 | ||||||||||||||||||
Barclays Global Investors | 888 | 13 | 663 | 11 | 538 | 11 | ||||||||||||||||||
Head office functions and other operations | (50 | ) | (1 | ) | (114 | ) | (2 | ) | (101 | ) | (2 | ) | ||||||||||||
7,103 | 100 | 5,807 | 100 | 5,122 | 100 | |||||||||||||||||||
Total income(c) | ||||||||||||||||||||||||
UK Banking | 5,646 | 40 | 5,505 | 45 | 5,225 | 46 | ||||||||||||||||||
UK Retail Banking UK Business Banking | 3,415 2,231 | 24 16 | 3,439 2,066 | 28 17 | 3,307 1,918 | 29 17 | ||||||||||||||||||
Private Clients and International | 1,729 | 12 | 1,388 | 11 | 1,382 | 12 | ||||||||||||||||||
Private Clients – ongoing Private Clients – closed life assurance activities International | 839 (4 894 | ) | 6 – 6 | 686 (80 782 | ) | 6 (1 6 | ) | 769 (93 706 | ) | 7 (1 6 | ) | |||||||||||||
Barclaycard | 2,364 | 17 | 2,228 | 18 | 1,940 | 17 | ||||||||||||||||||
Barclays Capital | 3,381 | 25 | 2,726 | 22 | 2,326 | 21 | ||||||||||||||||||
Barclays Global Investors | 893 | 6 | 672 | 5 | 547 | 5 | ||||||||||||||||||
Head office functions and other operations | (68 | ) | – | (108 | ) | (1 | ) | (93 | ) | (1 | ) | |||||||||||||
13,945 | 100 | 12,411 | 100 | 11,327 | 100 | |||||||||||||||||||
Profit/(loss) on ordinary activities before tax(d)(e) | ||||||||||||||||||||||||
UK Banking | 2,298 | 50 | 2,103 | 55 | 1,904 | 59 | ||||||||||||||||||
UK Retail Banking UK Business Banking | 969 1,329 | 21 29 | 983 1,120 | 26 29 | 923 981 | 29 30 | ||||||||||||||||||
Private Clients and International | 380 | 8 | 238 | 6 | 249 | 8 | ||||||||||||||||||
Private Clients – ongoing Private Clients – closed life assurance activities International | 104 (4 280 | ) | 2 – 6 | 73 (80 245 | ) | 2 (2 6 | ) | 162 (93 180 | ) | 5 (3 6 | ) | |||||||||||||
Barclaycard | 760 | 17 | 723 | 19 | 613 | 19 | ||||||||||||||||||
Barclays Capital | 1,042 | 23 | 836 | 22 | 646 | 20 | ||||||||||||||||||
Barclays Global Investors | 329 | 7 | 178 | 5 | 94 | 3 | ||||||||||||||||||
Head office functions and other operations | (206 | ) | (5 | ) | (233 | ) | (7 | ) | (301 | ) | (9 | ) | ||||||||||||
4,603 | 100 | 3,845 | 100 | 3,205 | 100 | |||||||||||||||||||
174
Barclays PLC Annual Report 2004
48 Segmental analysis (continued)
2003 | 2002 | 2001 | ||||||||||||||||||||||
| restated | restated | ||||||||||||||||||||||
£m | % | £m | % | £m | % | |||||||||||||||||||
Profit on ordinary activities before tax | ||||||||||||||||||||||||
United Kingdom | 2,848 | 74 | 2,898 | 91 | 2,680 | 79 | ||||||||||||||||||
Other European Union | 526 | 14 | 351 | 11 | 410 | 12 | ||||||||||||||||||
United States | 257 | 7 | (218 | ) | (7 | ) | 85 | 2 | ||||||||||||||||
Rest of the World | 214 | 5 | 174 | 5 | 250 | 7 | ||||||||||||||||||
3,845 | 100 | 3,205 | 100 | 3,425 | 100 | |||||||||||||||||||
Attributable profit | ||||||||||||||||||||||||
United Kingdom | 1,992 | 73 | 2,025 | 90 | 1,922 | 79 | ||||||||||||||||||
Other European Union | 441 | 16 | 284 | 13 | 347 | 14 | ||||||||||||||||||
United States | 179 | 6 | (161 | ) | (7 | ) | 48 | 2 | ||||||||||||||||
Rest of the World | 132 | 5 | 82 | 4 | 129 | 5 | ||||||||||||||||||
2,744 | 100 | 2,230 | 100 | 2,446 | 100 | |||||||||||||||||||
Total assets | ||||||||||||||||||||||||
United Kingdom | 341,570 | 77 | 302,382 | 75 | 266,830 | 75 | ||||||||||||||||||
Other European Union | 29,671 | 7 | 26,126 | 6 | 20,278 | 5 | ||||||||||||||||||
United States | 49,852 | 11 | 51,919 | 13 | 48,701 | 14 | ||||||||||||||||||
Rest of the World | 22,268 | 5 | 22,635 | 6 | 20,803 | 6 | ||||||||||||||||||
443,361 | 100 | 403,062 | 100 | 356,612 | 100 | |||||||||||||||||||
Net assets | ||||||||||||||||||||||||
United Kingdom | 12,533 | 75 | 11,080 | 72 | 10,572 | 72 | ||||||||||||||||||
Other European Union | 2,730 | 16 | 2,521 | 16 | 2,294 | 16 | ||||||||||||||||||
United States | 667 | 4 | 1,074 | 7 | 988 | 7 | ||||||||||||||||||
Rest of the World | 826 | 5 | 682 | 5 | 765 | 5 | ||||||||||||||||||
16,756 | 100 | 15,357 | 100 | 14,619 | 100 | |||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
By class of business(a)(c) | £m | % | £m | % | £m | % | ||||||||||||||||||
Total assets | ||||||||||||||||||||||||
UK Banking | 122,425 | 24 | 113,788 | 26 | 110,298 | 27 | ||||||||||||||||||
UK Retail Banking UK Business Banking | 71,614 50,811 | 14 10 | 69,745 44,043 | 16 10 | 70,462 39,836 | 17 10 | ||||||||||||||||||
Private Clients and International | 31,703 | 6 | 27,647 | 6 | 16,095 | 4 | ||||||||||||||||||
Private Clients – ongoing Private Clients – closed life assurance activities International | 5,653 653 25,397 | 1 – 5 | 4,564 528 22,555 | 1 – 5 | 4,484 – 11,611 | 1 – 3 | ||||||||||||||||||
Barclaycard | 23,419 | 4 | 20,639 | 5 | 19,014 | 5 | ||||||||||||||||||
Barclays Capital | 332,606 | 64 | 268,702 | 61 | 241,565 | 60 | ||||||||||||||||||
Barclays Global Investors | 970 | – | 695 | – | 656 | – | ||||||||||||||||||
Head office functions and other operations | 2,588 | – | 3,714 | 1 | 8,095 | 2 | ||||||||||||||||||
Retail life-fund assets | 8,378 | 2 | 8,077 | 1 | 7,284 | 2 | ||||||||||||||||||
522,089 | 100 | 443,262 | 100 | 403,007 | 100 | |||||||||||||||||||
Net assets | ||||||||||||||||||||||||
UK Banking | 8,572 | 47 | 8,230 | 49 | 8,060 | 53 | ||||||||||||||||||
UK Retail Banking UK Business Banking | 5,391 3,181 | 30 17 | 5,298 2,932 | 31 18 | 5,362 2,698 | 35 18 | ||||||||||||||||||
Private Clients and International | 2,929 | 16 | 2,495 | 15 | 1,600 | 11 | ||||||||||||||||||
Private Clients – ongoing Private Clients – closed life assurance activities International | 1,063 158 1,708 | 6 1 9 | 940 160 1,395 | 6 1 8 | 714 169 717 | 5 1 5 | ||||||||||||||||||
Barclaycard | 3,569 | 19 | 2,828 | 17 | 2,503 | 16 | ||||||||||||||||||
Barclays Capital | 2,662 | 15 | 2,464 | 15 | 2,510 | 16 | ||||||||||||||||||
Barclays Global Investors | 335 | 2 | 334 | 2 | 325 | 2 | ||||||||||||||||||
Head office functions and other operations | 251 | 1 | 306 | 2 | 304 | 2 | ||||||||||||||||||
18,318 | 100 | 16,657 | 100 | 15,302 | 100 | |||||||||||||||||||
175
Notes to the accounts
For the year ended 31st December 2004
48 Segmental analysis (continued)
2004 | 2003 | 2002 | ||||||||||||||||||||||
By geographical segments(a) | £m | % | £m | % | £m | % | ||||||||||||||||||
Interest receivable | ||||||||||||||||||||||||
United Kingdom | 11,889 | 87 | 10,887 | 88 | 10,429 | 87 | ||||||||||||||||||
Other European Union | 921 | 7 | 865 | 7 | 737 | 6 | ||||||||||||||||||
United States | 270 | 2 | 152 | 1 | 262 | 2 | ||||||||||||||||||
Rest of the World | 585 | 4 | 523 | 4 | 616 | 5 | ||||||||||||||||||
13,665 | 100 | 12,427 | 100 | 12,044 | 100 | |||||||||||||||||||
Fees and commissions receivable | ||||||||||||||||||||||||
United Kingdom | 4,154 | 73 | 3,653 | 75 | 3,396 | 76 | ||||||||||||||||||
Other European Union | 388 | 7 | 343 | 7 | 247 | 6 | ||||||||||||||||||
United States | 799 | 14 | 609 | 12 | 537 | 12 | ||||||||||||||||||
Rest of the World | 331 | 6 | 291 | 6 | 274 | 6 | ||||||||||||||||||
5,672 | 100 | 4,896 | 100 | 4,454 | 100 | |||||||||||||||||||
Dealing profits | ||||||||||||||||||||||||
United Kingdom | 1,348 | 90 | 889 | 84 | 642 | 77 | ||||||||||||||||||
Other European Union | 2 | – | 11 | 1 | 8 | 1 | ||||||||||||||||||
United States | 75 | 5 | 122 | 12 | 136 | 16 | ||||||||||||||||||
Rest of the World | 68 | 5 | 32 | 3 | 47 | 6 | ||||||||||||||||||
1,493 | 100 | 1,054 | 100 | 833 | 100 | |||||||||||||||||||
Other operating income | ||||||||||||||||||||||||
United Kingdom | 248 | 38 | 86 | 18 | 150 | 41 | ||||||||||||||||||
Other European Union | 380 | 59 | 399 | 81 | 207 | 57 | ||||||||||||||||||
United States | 6 | 1 | 1 | – | 2 | 1 | ||||||||||||||||||
Rest of the World | 10 | 2 | 4 | 1 | 5 | 1 | ||||||||||||||||||
644 | 100 | 490 | 100 | 364 | 100 | |||||||||||||||||||
Gross income(c) | ||||||||||||||||||||||||
United Kingdom | 17,639 | 82 | 15,515 | 82 | 14,617 | 83 | ||||||||||||||||||
Other European Union | 1,691 | 8 | 1,618 | 8 | 1,199 | 7 | ||||||||||||||||||
United States | 1,150 | 5 | 884 | 5 | 937 | 5 | ||||||||||||||||||
Rest of the World | 994 | 5 | 850 | 5 | 942 | 5 | ||||||||||||||||||
21,474 | 100 | 18,867 | 100 | 17,695 | 100 | |||||||||||||||||||
176
Barclays PLC Annual Report 2004
48 Segmental analysis (continued)
2004 | 2003 | 2002 | ||||||||||||||||||||||
By geographical segments(a) | £m | % | £m | % | £m | % | ||||||||||||||||||
Profit on ordinary activities before tax | ||||||||||||||||||||||||
United Kingdom | 3,443 | 75 | 2,742 | 71 | 2,898 | 91 | ||||||||||||||||||
Other European Union | 550 | 12 | 632 | 16 | 351 | 11 | ||||||||||||||||||
United States | 250 | 5 | 257 | 7 | (218 | ) | (7 | ) | ||||||||||||||||
Rest of the World | 360 | 8 | 214 | 6 | 174 | 5 | ||||||||||||||||||
4,603 | 100 | 3,845 | 100 | 3,205 | 100 | |||||||||||||||||||
Attributable profit | ||||||||||||||||||||||||
United Kingdom | 2,396 | 73 | 1,886 | 69 | 2,025 | 90 | ||||||||||||||||||
Other European Union | 469 | 15 | 547 | 20 | 284 | 13 | ||||||||||||||||||
United States | 143 | 4 | 179 | 6 | (161 | ) | (7 | ) | ||||||||||||||||
Rest of the World | 260 | 8 | 132 | 5 | 82 | 4 | ||||||||||||||||||
3,268 | 100 | 2,744 | 100 | 2,230 | 100 | |||||||||||||||||||
Total assets | ||||||||||||||||||||||||
United Kingdom | 389,977 | 75 | 341,471 | 77 | 302,327 | 75 | ||||||||||||||||||
Other European Union | 27,658 | 5 | 29,671 | 7 | 26,126 | 6 | ||||||||||||||||||
United States | 80,135 | 15 | 49,852 | 11 | 51,919 | 13 | ||||||||||||||||||
Rest of the World | 24,319 | 5 | 22,268 | 5 | 22,635 | 6 | ||||||||||||||||||
522,089 | 100 | 443,262 | 100 | 403,007 | 100 | |||||||||||||||||||
Net assets | ||||||||||||||||||||||||
United Kingdom | 13,367 | 73 | 12,434 | 75 | 11,025 | 72 | ||||||||||||||||||
Other European Union | 2,593 | 14 | 2,730 | 16 | 2,521 | 16 | ||||||||||||||||||
United States | 1,341 | 7 | 667 | 4 | 1,074 | 7 | ||||||||||||||||||
Rest of the World | 1,017 | 6 | 826 | 5 | 682 | 5 | ||||||||||||||||||
18,318 | 100 | 16,657 | 100 | 15,302 | 100 | |||||||||||||||||||
(a) | Basis of class of business and geographical analysis – see Accounting Presentation on page | |
(b) | Barclays | |
(c) | Total income for class of business disclosure analyses operating income from the profit and loss account. Gross income for geographical disclosure includes interest receivable, fees and commissions receivable, dealing profits and other operating income. | |
(d) | The profit/(loss) on ordinary activities before tax by class of business reflects the following amounts for profit/(losses) from associated undertakings and joint ventures; | |
(e) | Goodwill amortisation included in the profit/(loss) on ordinary activities before tax, by class of business, is shown in the Analysis of Results by Business on pages |
160
6049 Retirement benefits
As disclosed in Note 4, Barclays accounts for pensions in accordance with SSAP 24. The disclosure in Note 4 sets out details of the assumptions underlying the SSAP 24 valuation.
FRS 17 ‘Retirement Benefits’ will be effective for companies subject to UK accounting standards for years beginning on or after 1st January 2005. In 2003,2004, the standard requires disclosures to be made of the amount of the asset or liability that would have been recognised in the balance sheet and the amounts that would have been recognised in the performance statements if the standard had been implemented.
As described in Note 4, Barclays provides pension plans for employees in most parts of the world. For the purposes of the standard, the UK Retirement Fund (UKRF) and other defined benefit pension schemes in the UK, US, Germany and Spain, are considered to be material. The scheme in Germany and one of the US schemes are unfunded. The disclosures below reflect interim actuarial valuations as at 31st December 20032004 by a professionally qualified independent actuary using the projected unit method. This method results in the current service cost in respect of closed schemes (primarily 1964 Pension Scheme) increasing as the members of the scheme approach retirement.
177
Notes to the accounts
For the year ended 31st December 2004
49 Retirement benefits (continued)
The protected rights contributions in respect of RIS and PIP were £10m£2.4m for RIS and PIP members in 2003 with expected contributions for PIP only of £4m next year.2004. Other UKRF payments include a £500m£250m contribution in December 20032004 as described in Note 4. Other UK schemes paid contributions of £14m£9m in the year (2002: £27m) and are expected to pay contributions of £5m next year.(2003: £14m). Overseas schemes paid contributions of £3m£5m in the year (2002: £1m) and are expected to pay contributions of £3m next year.(2003: £3m).
The main financial assumptions used in the actuarial valuations were:
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||||||||||||||
UK | Overseas | UK | Overseas | UK | Overseas | UK | Overseas | UK | Overseas | UK | Overseas | |||||||||||||||||||||||||||||||||||||
schemes | schemes | schemes | schemes | schemes | schemes | schemes | schemes | schemes | schemes | schemes | schemes | |||||||||||||||||||||||||||||||||||||
% p.a. | % p.a | % p.a. | % p.a. | % p.a. | % p.a. | % p.a. | % p.a. | % p.a. | % p.a. | % p.a. | % p.a. | |||||||||||||||||||||||||||||||||||||
Inflation | 2.75 | 2-2.7 | 2.3 | 2-2.5 | 2.5 | 2.0-3.5 | 2.75 | 2.0-2.7 | 2.75 | 2.0-2.7 | 2.3 | 2.0-2.5 | ||||||||||||||||||||||||||||||||||||
Rate of increase in salaries | 4.3 | 3.5-4.5 | 3.8 | 3.5-4.5 | 4 | 3.5-4.5 | 4.3 | 3.5-4.5 | 4.3 | 3.5-4.5 | 3.8 | 3.5-4.5 | ||||||||||||||||||||||||||||||||||||
Rate of increase for pensions in payment and deferred pensions | 2.75-3.25 | 0-2.0 | 2.3-3.25 | 0-2.0 | 2.5-3.25 | 1.75-2.0 | 2.75-3.25 | 0.0-2.0 | 2.75-3.25 | 0.0-2.0 | 2.3-3.25 | 0.0-2.0 | ||||||||||||||||||||||||||||||||||||
Rate used to discount scheme liabilities | 5.5 | 5.25-6.25 | 5.7 | 5.5-6.75 | 5.75 | 5.3-7.25 | 5.4 | 4.6-5.75 | 5.5 | 5.25-6.25 | 5.7 | 5.5-6.75 | ||||||||||||||||||||||||||||||||||||
The value of the assets and liabilities of the schemes, the assumed long-term real rates of return and the assets and liabilities at 31st December 2004, 31st December 2003 and 31st December 2002 were as follows:
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | UK schemes | Overseas schemes | UK schemes | Overseas schemes | UK schemes | Overseas schemes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UK schemes | Overseas schemes | UK schemes | Overseas schemes | UK schemes | Overseas schemes | Real | Real | Real | Real | Real | Real | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real | Real | Real | Real | Real | Real | rate of | rate of | rate of | rate of | rate of | rate of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
rate of | rate of | rate of | rate of | rate of | rate of | return | Value | return | Value | return | Value | return | Value | return | Value | return | Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
return | Value | return | Value | return | Value | return | Value | return | Value | return | Value | % | £m | % | £m | % | £m | % | £m | % | £m | % | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
% | £m | % | £m | % | £m | % | £m | % | £m | % | £m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom equities | 5.25 | 2,504 | – | – | 6.0 | 2,492 | 6.0 | 6 | 5.25 | 4,984 | 5.25 | 16 | 5.1 | 2,636 | 5.1 | 10 | 5.25 | 2,504 | – | – | 6.0 | 2,492 | 6.0 | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
US equities | 5.25 | 1,369 | 5.25 | 90 | 6.0 | 795 | 6.0 | 78 | 5.25 | 969 | 5.25 | 135 | 5.1 | 1,523 | 5.1 | 77 | 5.25 | 1,369 | 5.25 | 90 | 6.0 | 795 | 6.0 | 78 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other equities | 5.25 | 2,268 | 5.25 | 29 | 6.3 | 2,077 | 6.3 | 15 | 5.50 | 2,650 | 5.50 | 11 | 5.1 | 2,407 | 5.1 | 29 | 5.25 | 2,268 | 5.25 | 29 | 6.3 | 2,077 | 6.3 | 15 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom corporate bonds | 2.5 | 1,391 | – | – | 3.2-3.3 | 927 | – | – | 3.20 | 595 | – | – | 2.4 | 1,624 | – | – | 2.5 | 1,391 | – | – | 3.2-3.3 | 927 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom fixed interest gilts | 2.0 | 287 | – | – | 2.1 | 448 | – | – | 2.50 | 96 | – | – | 1.8 | 117 | – | – | 2.0 | 287 | – | – | 2.1 | 448 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom index-linked gilts | 2.0 | 2,188 | – | – | 2.1 | 1,779 | – | – | 2.50 | 1,136 | – | – | 1.7 | 2,326 | – | – | 2.0 | 2,188 | – | – | 2.1 | 1,779 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property | 3.9 | 1,157 | – | – | 4.7 | 1,159 | – | – | 4.25 | 1,177 | – | – | 3.8 | 1,409 | – | – | 3.9 | 1,157 | – | – | 4.7 | 1,159 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
US debt fund | – | – | 1.8 | 28 | – | – | 1.9 | 42 | – | – | 2.00 | 56 | – | – | 1.7 | 31 | – | – | 1.8 | 28 | – | – | 1.9 | 42 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
US Treasury stock | 1.4 | 39 | – | – | 1.5 | 61 | 0.7 | 34 | 2.50 | 41 | – | – | 1.4 | 91 | – | – | 1.4 | 39 | – | – | 1.5 | 61 | 0.7 | 34 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other overseas bonds and government stock | 2.5-3.3 | 592 | 2.3-3.3 | 78 | 3.3-4.1 | 475 | – | – | 3.2-3.6 | 340 | – | – | 1.5-2.8 | 718 | 2.2-2.8 | 80 | 2.5-3.3 | 592 | 2.3-3.3 | 78 | 3.3-4.1 | 475 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash | 1.5 | 430 | 1.0-1.5 | 14 | 2 | 231 | – | – | 2.00 | 187 | – | – | 1.5 | 431 | 1.5 | 23 | 1.5 | 430 | 1.0-1.5 | 14 | 2.0 | 231 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other (a) | – | 325 | – | – | – | 205 | – | – | – | 194 | – | – | – | 385 | – | – | – | 325 | – | – | – | 205 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset transfer following the creation of FirstCaribbean | – | (103 | ) | – | – | – | (121 | ) | – | – | – | – | – | – | – | – | – | – | – | (103 | ) | – | – | – | (121 | ) | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of scheme assets | 12,447 | 239 | 10,528 | 175 | 12,369 | 218 | 13,667 | 250 | 12,447 | 239 | 10,528 | 175 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Present value of scheme liabilities (b) | (14,037 | ) | (273 | ) | (12,017 | ) | (214 | ) | (11,955 | ) | (226 | ) | (15,844 | ) | (303 | ) | (14,037 | ) | (273 | ) | (12,017 | ) | (214 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (deficit)/surplus in the schemes | (1,590 | ) | (34 | ) | (1,489 | ) | (39 | ) | 414 | (8 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (deficit)/surplus in the schemes(c) | (2,177 | ) | (53 | ) | (1,590 | ) | (34 | ) | (1,489 | ) | (39 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net deficit in UK schemes at 31st December 20032004 includes a deficit of £1,586m (2002:£2,173m (2003: deficit of £1,311m)£1,586m) relating to the UKRF.
(a) | Other includes | |
(b) | Present value of scheme liabilities includes | |
(c) | The increased UKRF deficit is primarily attributable to a change in mortality assumptions at 31st December 2004. A reduction in corporate bond yields also resulted in a reduced discount rate for valuing liabilities and a further increase in the deficit. These factors more than offset the £250m contribution and better than assumed investment performance over the year. |
178
Barclays PLC Annual Report 2003 161
Notes to the AccountsFor the Year Ended 31st December 2003
2004
6049 Retirement benefits (continued)
The surpluses and deficits relating to pension schemes would be presented in the balance sheet as follows:
2003 | 2002 | 2004 | 2003 | |||||||||||||||||||||||||||||
Pension | Pension | Pension | Pension | Pension | Pension | Pension | Pension | |||||||||||||||||||||||||
asset | liability | asset | liability | asset | liability | asset | liability | |||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||
Scheme surpluses/(deficits) | 52 | (1,676 | ) | 28 | (1,556 | ) | 61 | (2,291 | ) | 52 | (1,676 | ) | ||||||||||||||||||||
Related deferred tax (liability)/asset | (16 | ) | 503 | (8 | ) | 467 | (18 | ) | 687 | (16 | ) | 503 | ||||||||||||||||||||
Net pension asset/(liability) | 36 | (1,173 | ) | 20 | (1,089 | ) | 43 | (1,604 | ) | 36 | (1,173 | ) | ||||||||||||||||||||
As described in Note 4, the Group also provides post-retirement health care to certain UK and US pensioners. Where appropriate, provisions for such benefits are recognised on an actuarial basis. The disclosures below reflect actuarial valuations as at 31st December 20032004 by a professionally qualified independent actuary. 2002 disclosures have been adjusted to exclude obligations accounted for under FRS 12. The long-term rate of increase in medical expenses used in the actuarial valuation was 5.75%5% (trending down over five years from 10% in the short term) in the UK (2002: 4.8%(2003: 5.75%) and 5% (trending down over five years from 10% in the short term) in the US (2002: 4.75%(2003: 5%) and the discount rate used was 5.5%5.4% in the UK (2002: 5.7%(2003: 5.5%) and 6.25%5.75% in the US (2002: 6.75%(2003: 6.25%).
The deficit relating to post-retirement health care would be presented in the balance sheet as follows:
2003 | 2002 | 2004 | 2003 | |||||||||||||
£m | £m | £m | £m | |||||||||||||
Deficit | (62 | ) | (59 | ) | (66 | ) | (62 | ) | ||||||||
Related deferred tax asset | 19 | 18 | 20 | 19 | ||||||||||||
Net post-retirement liability | (43 | ) | (41 | ) | (46 | ) | (43 | ) | ||||||||
The net reserve for pension schemes and post-retirement health care is £1,180m (2002: £1,110m)£1,607m (2003: £1,180m).
The amounts that would have been recognised in the profit and loss account and statement of total recognised gains and losses in respect of pension schemes and post-retirement health care in 20032004 were as follows:
2003 | 2002 | 2004 | 2003 | |||||||||||||
Analysis of amounts which would have been charged to operating profit | £m | £m | £m | £m | ||||||||||||
Current service cost(a) | 289 | 322 | 331 | 289 | ||||||||||||
Past service cost | 12 | 19 | 5 | 12 | ||||||||||||
Gains and losses on settlements and curtailments | (13 | ) | 5 | (23 | ) | (13 | ) | |||||||||
Total operating charge | 288 | 346 | 313 | 288 | ||||||||||||
(a) | Current service cost includes |
2004 | 2003 | |||||||||||
Analysis of amounts which would have been included as other finance income | £m | £m | ||||||||||
Expected return on scheme assets | 814 | 720 | ||||||||||
Interest on scheme liabilities | (760 | ) | (680 | ) | ||||||||
Net return | 54 | 40 | ||||||||||
2003 | 2002 | |||||||
Analysis of amounts which would have been included as other finance income | £m | £m | ||||||
Expected return on scheme assets | 720 | 892 | ||||||
Interest on scheme liabilities | (680 | ) | (685 | ) | ||||
Net return | 40 | 207 | ||||||
2004 | 2004 | |||||||||||||||||||||||
UK schemes | Overseas schemes | |||||||||||||||||||||||
As % of | As % of | |||||||||||||||||||||||
present | present | |||||||||||||||||||||||
As % of | value of | As % of | value of | |||||||||||||||||||||
scheme | scheme | scheme | scheme | |||||||||||||||||||||
Analysis of amounts which would have been included in the | assets | liabilities | assets | liabilities | ||||||||||||||||||||
Statement of total recognised gains and losses | £m | % | % | £m | % | % | ||||||||||||||||||
Actual return less expected return on scheme assets | 577 | 4 | – | 11 | 4 | – | ||||||||||||||||||
Experience gains and losses arising on the scheme liabilities | 36 | – | – | – | – | – | ||||||||||||||||||
Changes in assumptions underlying the present value of scheme liabilities | (1,224 | ) | – | 8 | (36 | ) | – | 10 | ||||||||||||||||
Actuarial (loss)/gain recognised in statement of total recognised gains and losses | (611 | ) | – | 4 | (25 | ) | – | 7 | ||||||||||||||||
162
179
60 Retirement benefits (continued)
2003 | 2003 | |||||||||||||||||||||||
UK schemes | Overseas schemes | |||||||||||||||||||||||
As % of | As % of | |||||||||||||||||||||||
present | present | |||||||||||||||||||||||
As % of | value of | As % of | value of | |||||||||||||||||||||
scheme | scheme | scheme | scheme | |||||||||||||||||||||
Analysis of amounts which would have been included in the | assets | liabilities | assets | liabilities | ||||||||||||||||||||
statement of total recognised gains and losses | £m | % | % | £m | % | % | ||||||||||||||||||
Actual return less expected return on scheme assets | 938 | 8 | – | 17 | 7 | – | ||||||||||||||||||
Experience gains and losses arising on the scheme liabilities | 155 | – | 1 | (1 | ) | – | – | |||||||||||||||||
Changes in assumptions underlying the present value of scheme liabilities | (1,624 | ) | – | 12 | (23 | ) | – | 8 | ||||||||||||||||
Actuarial (loss)/gain recognised in statement of total recognised gains and losses | (531 | ) | – | 4 | (7 | ) | – | 3 | ||||||||||||||||
2003 | ||||||||||||
Post- | ||||||||||||
UK | Overseas | retirement | ||||||||||
pension | pension | health | ||||||||||
Analysis of movements in pension scheme and post-retirement | schemes | schemes | care | |||||||||
health care surpluses/(deficits) during 2003 | £m | £m | £m | |||||||||
Surplus/(deficit) in the schemes at beginning of year | (1,489 | ) | (39 | ) | (59 | ) | ||||||
Contributions | 669 | 3 | 4 | |||||||||
Current service cost | (284 | ) | (4 | ) | (1 | ) | ||||||
Past service cost | (9 | ) | (3 | ) | – | |||||||
Settlements and curtailments | 13 | – | – | |||||||||
Exchange movements | – | 1 | 5 | |||||||||
Other finance income/(cost) | 47 | (3 | ) | (4 | ) | |||||||
Actuarial loss | (528 | ) | (3 | ) | (7 | ) | ||||||
Acquisition gain | (9 | ) | 14 | – | ||||||||
Deficit in the schemes at end of year | (1,590 | ) | (34 | ) | (62 | ) | ||||||
Contributions of £669m include a payment of £500m in December 2003, as described in Note 4.
2002 | 2002 | |||||||||||||||||||||||
UK schemes | Overseas schemes | |||||||||||||||||||||||
As % of | As % of | |||||||||||||||||||||||
present | present | |||||||||||||||||||||||
As % of | value of | As % of | value of | |||||||||||||||||||||
scheme | scheme | scheme | scheme | |||||||||||||||||||||
Analysis of amounts which would have been included in the | assets | liabilities | assets | liabilities | ||||||||||||||||||||
statement of total recognised gains and losses | £m | % | % | £m | % | % | ||||||||||||||||||
Actual return less expected return on scheme assets | (2,153 | ) | 21 | – | (31 | ) | 18 | – | ||||||||||||||||
Experience gains and losses arising on the scheme liabilities | 36 | – | – | (2 | ) | – | 1 | |||||||||||||||||
Changes in assumptions underlying the present value of scheme liabilities | 295 | – | 2 | 2 | – | 1 | ||||||||||||||||||
Actuarial (loss)/gain recognised in statement of total recognised gains and losses | (1,822 | ) | – | 15 | (31 | ) | – | 14 | ||||||||||||||||
2002 | ||||||||||||
Post- | ||||||||||||
UK | Overseas | retirement | ||||||||||
pension | pension | health | ||||||||||
Analysis of movements in pension scheme and post-retirement | schemes | schemes | care | |||||||||
health care surpluses/(deficits) during 2002 | £m | £m | £m | |||||||||
Surplus/(deficit) in the schemes at beginning of year | 414 | (8 | ) | (54 | ) | |||||||
Contributions | 42 | 1 | 4 | |||||||||
Current service cost | (316 | ) | (5 | ) | (1 | ) | ||||||
Past service cost | (18 | ) | (1 | ) | – | |||||||
Settlements and curtailments | (6 | ) | 1 | – | ||||||||
Exchange movements | – | 2 | 4 | |||||||||
Other finance income/(cost) | 209 | 2 | (4 | ) | ||||||||
Actuarial loss | (1,814 | ) | (31 | ) | (8 | ) | ||||||
Deficit in the schemes at end of year | (1,489 | ) | (39 | ) | (59 | ) | ||||||
Barclays PLC Annual Report 2003 163
Notes to the Accountsaccounts
For the Year Endedyear ended 31st December 2003
2004
6149 Retirement benefits (continued)
2003 | 2003 | |||||||||||||||||||||||
UK schemes | Overseas schemes | |||||||||||||||||||||||
As % of | As % of | |||||||||||||||||||||||
present | present | |||||||||||||||||||||||
As % of | value of | As % of | value of | |||||||||||||||||||||
scheme | scheme | scheme | scheme | |||||||||||||||||||||
Analysis of amounts which would have been included in the | assets | liabilities | assets | liabilities | ||||||||||||||||||||
statement of total recognised gains and losses | £m | % | % | £m | % | % | ||||||||||||||||||
Actual return less expected return on scheme assets | 938 | 8 | – | 17 | 7 | – | ||||||||||||||||||
Experience gains and losses arising on the scheme liabilities | 155 | – | 1 | (1 | ) | – | – | |||||||||||||||||
Changes in assumptions underlying the present value of scheme liabilities | (1,624 | ) | – | 12 | (23 | ) | – | 8 | ||||||||||||||||
Actuarial loss recognised in statement of total recognised gains and losses | (531 | ) | – | 4 | (7 | ) | – | 3 | ||||||||||||||||
2002 | 2002 | |||||||||||||||||||||||
UK schemes | Overseas schemes | |||||||||||||||||||||||
As % of | As % of | |||||||||||||||||||||||
present | present | |||||||||||||||||||||||
As % of | value of | As % of | value of | |||||||||||||||||||||
scheme | scheme | scheme | scheme | |||||||||||||||||||||
Analysis of amounts which would have been included in the | assets | liabilities | assets | liabilities | ||||||||||||||||||||
statement of total recognised gains and losses | £m | % | % | £m | % | % | ||||||||||||||||||
Actual return less expected return on scheme assets | (2,153 | ) | 21 | – | (31 | ) | 18 | – | ||||||||||||||||
Experience gains and losses arising on the scheme liabilities | 36 | – | – | (2 | ) | – | 1 | |||||||||||||||||
Changes in assumptions underlying the present value of scheme liabilities | 295 | – | 2 | 2 | – | 1 | ||||||||||||||||||
Actuarial loss recognised in statement of total recognised gains and losses | (1,822 | ) | – | 15 | (31 | ) | – | 14 | ||||||||||||||||
2004 | 2003 | ||||||||||||||||||||||||
Post- | Post- | ||||||||||||||||||||||||
UK | Overseas | retirement | UK | Overseas | retirement | ||||||||||||||||||||
pension | pension | health | pension | pension | health | ||||||||||||||||||||
Analysis of movements in pension scheme and post-retirement | schemes | schemes | care | schemes | schemes | care | |||||||||||||||||||
health care surpluses/(deficits) during 2004 | £m | £m | £m | £m | £m | £m | |||||||||||||||||||
Deficit in the schemes at beginning of year | (1,590 | ) | (34 | ) | (62 | ) | �� | (1,489 | ) | (39 | ) | (59 | ) | ||||||||||||
Contributions | 270 | 5 | 4 | 669 | 3 | 4 | |||||||||||||||||||
Current service cost | (324 | ) | (6 | ) | (1 | ) | (284 | ) | (4 | ) | (1 | ) | |||||||||||||
Past service cost | (5 | ) | – | – | (9 | ) | (3 | ) | – | ||||||||||||||||
Settlements and curtailments | 23 | – | – | 13 | – | – | |||||||||||||||||||
Exchange movements | – | 3 | 3 | – | 1 | 5 | |||||||||||||||||||
Other finance income/(cost) | 59 | (1 | ) | (4 | ) | 47 | (3 | ) | (4 | ) | |||||||||||||||
Actuarial loss | (610 | ) | (20 | ) | (6 | ) | (528 | ) | (3 | ) | (7 | ) | |||||||||||||
Acquisition (loss)/gain | – | – | – | (9 | ) | 14 | – | ||||||||||||||||||
Deficit in the schemes at end of year | (2,177 | ) | (53 | ) | (66 | ) | (1,590 | ) | (34 | ) | (62 | ) | |||||||||||||
Contributions of £270m include a payment of £250m in December 2004, as described in Note 4.
180
Barclays PLC Annual Report 2004
50 Subsidiary undertakings
Percentage | ||||||||
of equity | ||||||||
Country of registration | capital held | |||||||
or incorporation | Company name | Nature of Business | % | |||||
Botswana | Barclays Bank of Botswana Limited | Banking | 74.9 | |||||
Cayman Islands | Barclays Capital Japan Limited | Securities dealing | 100 | * | ||||
Egypt | Barclays Bank Egypt SAE | Banking | 100 | |||||
England | Barclays Bank PLC | Banking, holding company | 100 | * | ||||
England | Barclays Private Bank Limited | Banking | 100 | * | ||||
England | Barclays Mercantile Business Finance Limited | Commercial finance, holding company, leasing | 100 | |||||
England | Barclays Global Investors UK Holdings Limited | Holding company | 88.9 | |||||
England | Barclays Global Investors Limited | Investment management | 94.8 | * | ||||
England | Barclays Life Assurance Company Limited | Life and pensions business | 100 | |||||
England | Barclays Bank Trust Company Limited | Banking, securities industries and trust services | 100 | |||||
England | Barclays Stockbrokers Limited | Stockbroking | 100 | |||||
England | Barclays Capital Securities Limited | Securities dealing | 100 | |||||
England | Barclays Global Investors Pensions Management Limited | Investment management | 94.8 | * | ||||
England | FIRSTPLUS Financial Group PLC | Consumer finance | 100 | * | ||||
England | Gerrard Limited | Banking | 100 | |||||
England | Barclays Financial Planning Limited | Financial advisory services | 100 | * | ||||
Ghana | Barclays Bank of Ghana Limited | Banking | 100 | |||||
Ireland | Barclays Insurance (Dublin) Limited | Insurance | 100 | * | ||||
Ireland | Barclays Assurance (Dublin) Limited | Insurance | 100 | * | ||||
Isle of Man | Barclays Private Clients International Limited | Banking | 100 | |||||
Jersey | Barclays Private Bank and Trust Limited | Banking, holding company | 100 | * | ||||
Kenya | Barclays Bank of Kenya Limited | Banking | 68.5 | |||||
Spain | Barclays Bank SA | Banking | 99.8 | |||||
Switzerland | Barclays Bank (Suisse) SA | Banking and trust services | 100 | * | ||||
USA | Juniper Financial Corporation | Banking | 100 | |||||
USA | Barclays Capital Inc. | Securities dealing | 100 | * | ||||
USA | Barclays Global Investors, National Association | Investment management | 94.8 | * | ||||
Zimbabwe | Barclays Bank of Zimbabwe Limited | Banking | 65.8 | * | ||||
In accordance with Section 231(5) of the Companies Act 1985, the above information is provided solely in relation to principal subsidiary undertakings.
With the exception of Barclays Capital Japan Limited which operates in Japan, the country of registration or incorporation is also the principal area of operation for each of the above undertakings. Investments in these undertakings are held directly by Barclays Bank PLC except where marked*.
Full information of all subsidiaries will be included in the Annual Return.
51 Legal proceedings
Proceedings have been brought in the United States against a number of defendants including Barclays following the collapse of Enron. In each case the claims are against groups of defendants. Barclays considers that the claims against it are without merit and is defending them vigorously. A court ordered mediation commenced in September 2003 but no material progress has been made towards a resolution of the litigation. In addition, in respect of investigations relating to Enron, Barclays is continuing to provide information in response to enquiries by regulatory and governmental authorities in the US and elsewhere including subpoenas from the US Securities and Exchange Commission. It is not possible to estimate Barclays possible loss in relation to these matters, nor the effect that it might have upon operating results in any particular financial period.
Barclays is engaged in various other litigation proceedings both in the United Kingdom and a number of overseas jurisdictions, including the United States, involving claims by and against it, which arise in the ordinary course of business. Barclays does not expect the ultimate resolution of any of the proceedings to which Barclays is party to have a significant adverse effect on the financial position of the Group.
181
Notes to the accounts
For the year ended 31st December 2004
52 Differences between UK GAAP and US GAAP accounting principles
The accounts presented in this report have been prepared in accordance with accounting principles generally accepted in the UK (UK GAAP). Such principles vary in significant respects from those generally accepted in the United States (US GAAP). Preparing the financial statements requires management to make estimates and assumptions that affect reported income, expenses, assets and liabilities and disclosures of contingent assets and liabilities. Actual results could be different from those estimates. The significant differences applicable to the Group’s accounts are summarised below.
UK GAAP | US GAAP | |||
SFAS 141 and SFAS 142 require intangible assets to be separately identified, no amortisation to be charged on goodwill balances and goodwill balances to be reviewed at least annually for impairment.
US GAAP can require the recognition of certain assets and liabilities that would either not be recognised or have a different measurement value under UK GAAP. This will lead to a different value of goodwill for US purposes.
Intangible assets Intangible assets are recognised under UK GAAP only if they are separately identifiable and can be disposed of without disposing of a business of the entity. |
Intangible assets are initially recognised at fair value. An intangible asset with a finite useful life is amortised over the period for which it contributes to the future cash flows of the entity. An intangible asset with an indefinite useful life is not amortised, but is tested annually for impairment or more frequently if events or changes in circumstances indicate that its carrying value may not be recoverable.
Pensions In respect of defined benefit schemes, consistent with the requirements of SSAP 24, the assets are assessed at fair value, while the projected liabilities are discounted to a present value at a long-term interest rate reflecting the expected return on the scheme’s assets. Any variation between the SSAP 24 calculation described above and the amount held on the Bank’s balance sheet is For defined contribution schemes, the net pension cost recognised in the profit and loss account represents the contributions payable along with an allowance for risk and expense costs. In respect of defined benefit schemes, the same actuarial calculation approach is used under SFAS 87 as under UK GAAP, but to comply with the relevant standards, differences arise in certain assumptions and methodologies and in the measurement date adopted for calculation purposes. In particular, under SFAS 87, assets are assessed at a fair value and the present value of the projected liabilities are assessed at a current settlement rate as at a measurement date of 30th September each year. The current settlement rate for this purpose reflects the yield on high-quality corporate bonds as at the measurement date. Variations between the funded status of the scheme and the amount held on the Bank’s balance sheet falling outside of the allowable corridor under SFAS 87 are allocated over the average remaining service lives of current employees. For defined contribution schemes, SFAS 87 provides for the same treatment as under UK GAAP. |
164
182
Barclays PLC Annual Report 2004
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
UK GAAP | US GAAP | |
Where an actuarial basis is not appropriate, provisions are recognised for present obligations arising as consequences of past events where it is probable that a transfer of economic benefit will be necessary to settle the obligation and it can be reliably estimated.
Where an actuarial basis is not appropriate the treatment is the same as under UK GAAP.
Following the introduction of FRS 19, deferred tax is provided in full in respect of timing differences that have originated but not reversed at the balance sheet date. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recoverable.
Compensation arrangements Where shares are purchased, the difference between the purchase price and any contribution made by the employee is charged to the profit and loss account in the period to which it relates. Where shares are issued, or options granted, the charge made to the profit and loss account is the difference between the fair value at the time the award is made and any contribution made by the employee. For these purposes fair value is equal to the intrinsic value of the option. Non-share-based compensation arrangements awarded to employees where no performance criteria, other than continued service, are required to be met, are accrued fully on the date of grant. The Group adopted SFAS 123 which encourages the adoption of accounting for share compensation schemes, based on their estimated fair values at the date of the grant. Accordingly, the Group charges this fair value to the profit and loss account over the period to their vesting dates. Non-share-based compensation arrangements awarded to employees where no performance criteria, other than continued service, are required to be met, are accrued evenly over the period of grant to date of payout. |
Barclays PLC Annual Report 2003 165
The net present value of the profits inherent in the in-force life and pensions policies of the long-term assurance fund is not recognised by the Group under US GAAP. An adjustment is made for the amortisation of acquisition costs and fees in accordance with SFAS 60 and SFAS 97.
183
Notes to the Accountsaccounts
For the Year Endedyear ended 31st December 2003
2004
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
UK GAAP | US GAAP |
Restructuring of business provisions
In accordance with FRS 3 and FRS 12, provisions have been made for any direct costs and net future operating losses arising from a business that management is committed to restructure, sell or terminate, has a detailed formal plan for exit, and has raised a valid expectation of carrying out the restructuring plan.
Prior to the issuance of SFAS 146, Emerging Issues Task Force (EITF) 94-3 and Staff Accounting Bulletin (SAB) 100 set out specific conditions which must be met to enable liabilities relating to restructuring, sale or involuntary terminations to be recognised in the period management approve the termination plan. In respect of costs other than employee termination benefits, the basic requirements for recognition at the date of commitment to the plan to terminate are that they are not associated with, or do not benefit from, activities that will be continued.
SFAS 146 is effective for exit or disposal activities initiated after 31st December 2002. Liabilities recognised prior to the initial application of SFAS 146 continue to be accounted for in accordance with EITF 94-3.
Extinguishment of liabilities
Under FRS 5, a liability is extinguished if an entity’s obligation to transfer economic benefits is satisfied, removed or is no longer likely to occur. Satisfaction would encompass an ‘in-substance’ defeasance transaction where liabilities are satisfied from the cash flows arising from essentially risk free assets transferred by the debtor to an irrevocable defeasance trust.
Under SFAS 140, a debtor may derecognise a liability if and only if either (a) the debtor pays the creditor and is relieved of its obligation for the liability, or (b) the debtor is legally released from being the primary obligor under the liability either financially or by the creditor. SFAS 140 does not allow for the derecognition of a liability by means of an ‘in-substance’ defeasance transaction or if it is no longer believed likely that the liability will be settled.
Revaluation of property
Property is carried either at original cost or at subsequent valuation less related depreciation, calculated on the revalued amount where applicable. Prior to 1st January 2000, revaluation surpluses were taken directly to shareholders’ funds, with deficits below cost, less any related depreciation, included in attributable profit.
Following the introduction of FRS 15 in 2000, the revalued book amounts are retained without subsequent revaluation subject to the requirement to test for impairment.
Depreciation is charged on the cost or revalued amounts of freehold and long-leasehold properties over their estimated useful economic lives.
Revaluations of property are not permitted under US GAAP.
Freehold and long-leasehold property is depreciated over its estimated useful economic life based on the historical cost.
Computer software developed or obtained for internal use
The Group’s general policy is to write-off such expenditure as incurred except where the software is required to facilitate the use of new hardware. Capitalised amounts are recorded as tangible fixed assets and amortised over the useful life of the hardware.
AICPA Statement of Position (SOP) 98-1 requires certain costs incurred in respect of software for internal use to be capitalised and subsequently amortised over its useful life. Capitalised amounts are reviewed regularly for impairment.
184
Barclays PLC Annual Report 2004
52 Differences between UK GAAP and US GAAP accounting principles (continued)
UK GAAP | US GAAP | |
Derivatives
Derivatives used for hedging purposes are measured on an accruals basis consistent with the assets, liabilities, positions or future cash flows being hedged. The gains and losses on these instruments (arising from changes in fair value) are not recognised in the profit and loss account immediately as they arise. Such gains are either not recognised in the balance sheet or are recognised and carried forward. When the hedged transaction occurs, the gain or loss is recognised in the profit and loss account at the same time as the hedged item.
Derivatives entered into as trading transactions, together with any associated hedging, are measured at fair value, and the resultant profits and losses are included in dealing profits.
Products which contain embedded derivatives are valued with reference to the total product inclusive of the derivative element.
SFAS 133 requires all derivatives to be recorded at fair value as adjusted by the requirements of EITF 02-03. If certain conditions are met then the derivative may be designated as a fair value hedge, cash flow hedge or hedge of the foreign currency exposure of a net investment in a foreign subsidiary. The change in value of the fair value hedge is recorded in income along with the change in fair value of the hedged asset or liability. The change in value of a cash flow hedge is recorded in other comprehensive income and reclassified to income as the hedged cash flows affect earnings. The change in the value of a net investment hedge is recorded in the currency translation reserve and only released to income when the underlying investment is sold. With a limited number of exceptions, Barclays has chosen not to update the documentation of derivative hedges to comply fully with the requirements of SFAS 133.
Certain terms and conditions of hybrid contracts which themselves would be standalone derivatives are bifurcated from the underlying hybrid contract and fair valued if they are not clearly and closely related to the contract in which they are contained. These are referred to as embedded derivatives.
Fair value of securities
Positions in investment debt securities and investment equity shares are stated at cost less any provision for impairment. The cost of dated investment securities is adjusted for the amortisation of premiums or discount on purchase over the period to redemption. Investment securities are those intended for use on a continuing basis by the Group.
Under SFAS 115, debt and marketable equity securities are classified as one of three types. Trading securities are carried at fair value with changes in fair value taken through profit and loss; held to maturity debt securities are carried at amortised cost where there is the ability and intent to hold to maturity; available for sale securities that are held for continuing use in the business are carried at fair value with movements in fair value recorded in shareholders’ equity. Declines in fair value below cost that are deemed other-than-temporary impairment are recognised on the held to maturity and available for sale categories and are reflected in the profit and loss account.
Non-marketable securities held by investment companies are carried at fair value with movements in fair value recorded in net income.
Foreign exchange on investment debt securities
Movements resulting from changes in foreign currency exchange rates are reflected in the profit and loss account.
Under EITF 96-15, as amended by SFAS 133, the change in value of available for sale debt securities as a result of changes in foreign currency exchange rates is reflected in shareholders’ equity.
Loan origination
Fee income relating to the origination of loans is recognised in the profit and loss account to match the cost over the period in which the service is provided, together with a reasonable profit margin.
166 The cost of mortgage incentives, which comprise cashbacks and interest discounts, are charged to the profit and loss account as a reduction to interest receivable as incurred.
SFAS 91 requires loan origination fees and incremental direct costs of loan origination to be deferred and amortised over the life of the loan as an adjustment to interest income.
185
Notes to the accounts
For the year ended 31st December 2004
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
UK GAAP | US GAAP | |
Consolidation
Entities should be consolidated when they are under the control of the reporting entity. Under FRS 2, control is the ability to direct the financial and operating policies of the entity with a view to gaining economic benefit and may be exercised through majority voting rights or other means. In addition, under FRS 5, entities which give rise to benefits that are, in substance, no different from those that would arise were the entity a subsidiary are included in the consolidated accounts.
Under US GAAP, the Group determines whether it has a controlling financial interest in an entity by initially evaluating whether the entity is a variable interest entity (VIE), voting interest entity, or a qualifying special purpose entity (QSPE).
Under FIN 46-R, a controlling financial interest in a variable interest entity is present where an enterprise has a variable interest, or a combination of variable interests, that will absorb the majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. The enterprise with a controlling financial interest is the primary beneficiary and is required to consolidate the VIE.
Voting interest entities are evaluated for consolidation in accordance with ARB 51. ARB 51 states that the usual condition for a controlling financial interest in an entity is ownership of a majority voting interest.
In accordance with SFAS 140 and FIN 46-R, QSPEs are not consolidated.
Securitisations
Where undertakings have issued debt securities or entered into funding arrangements with lenders through special-purpose entities in order to finance specific loans and advances to customers, the balances are either accounted for on the basis of linked presentation or through separate recognition of the gross assets and related funding, in accordance with FRS 5. The special-purpose entities are treated as ‘quasi-subsidiaries’ and are consolidated in accordance with FRS 5.
Transfers of financial assets deemed as sales under SFAS 140 are derecognised and, where appropriate, a servicing asset/liability and retained interest are recognised. The asset/liability is amortised over the period in which the benefits are expected to be received.
Guarantees
Under UK GAAP, a provision will be set up only if it is probable that a transfer of economic benefits will be required to settle the obligation. Where this is not the case, no liability is recognised.
Under FIN 45, guarantees issued or modified from 1st January 2003 are recognised at inception at fair value as a liability on the balance sheet.
Revenue recognition
The Group recognises revenue on both external and internal transactions executed on an arm’s-length basis in accordance with current market practice, FRS 5 and appropriate industry SORPs.
Under US GAAP, there are several sources of guidance on income recognition including SAB 101. The application of this guidance in certain circumstances may lead to an alternative recognition profile, particularly the elimination of intra-Group transactions.
Dividend payable
Dividends declared after the period end are recorded in the period to which they relate.
Dividends are recorded in the period in which they are declared.
Classification of debt and equity and related translation differences
Under UK GAAP, the Reserve Capital Instruments are classified as liabilities.
Certain debt issuances, including Reserve Capital Instruments, are treated as hedges of foreign operations and exchange differences are taken directly to reserves.
Under US GAAP, the Reserve Capital Instruments are classified as equity instruments and are translated at the rate ruling on date of issue.
Other debt issuances designated as hedges under UK GAAP are similarly treated under US GAAP in the instances where the SFAS 133 hedge accounting criteria are met.
186
Barclays PLC Annual Report 2003 1672004
Notes to the AccountsFor the Year Ended 31st December 2003
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
UK GAAP | US GAAP | |
Taxation
Profit before tax and the tax charge for the year includes tax at the effective rate on certain transactions including the shareholders’ interest in the long-term assurance fund.
Income before tax and the tax charge do not include such adjustments for tax.
Earnings per share
Basic earnings per share (EPS) is net income per weighted average share in issue. Diluted EPS reflects the effect that existing options would have on the basic EPS if they were to be exercised, by increasing the number of ordinary shares.
The basic EPS under US GAAP differs to the extent that income under US GAAP differs. In addition, the diluted EPS differs as the increased shares are reduced by the number of shares that could be bought (using the average market price over the year) with the assumed exercise proceeds (actual proceeds arising on exercise plus unamortised compensation costs, where appropriate). Any options that are antidilutive are excluded from this calculation.
Acceptances
|
168
Transfer and servicing of financial assets
Under FRS 5, where a transaction involving a previously recognised asset transfers to others (a) all significant rights or other access to benefits relating to that asset and (b) all significant exposure to the risks inherent in those benefits, the entire asset should cease to be recognised.
Under SFAS 140, control passes where the following criteria are met: (a) the assets are isolated from the transferor (the seller), i.e. they are beyond the reach of the transferor, even in bankruptcy or other receivership; (b) the transferee (the buyer) has the right – free of any conditions that constrain it from taking advantage of the right – to pledge or exchange the assets, and (c) the transferor does not maintain effective control over the transferred assets.
Transfers of assets not deemed as sales cause a gross-up of the balance sheet to show the assets transferred as remaining on the balance sheet. In addition, non-cash collateral received on certain stock lending transactions results in a balance sheet gross-up under the provisions of SFAS 140.
Netting
Under FRS 5, items should be aggregated into a single item where there is a right to insist on net settlement and the debit balance matures no later than the credit balance.
Under FASB interpretation No. (FIN) 39, netting is only permitted where there is a legal right of set-off and an intention to settle on a net basis. In addition, under FIN 41, repurchase and reverse repurchase agreements may only be netted where they have the same explicit settlement date specified at the inception of the agreement.
Netting presentation differences exist between UK and US GAAP in relation to repurchase and reverse repurchase agreements, securities lending and borrowing agreements, receivables and payables in respect of unsettled trades, long and short securities, and cash collateral held against derivatives.
Investment contracts
In accordance with FRS 5, certain products offered to institutional pension funds are accounted for as investment products when the substance of the investment is that of managed funds. The assets and related liabilities are excluded from the consolidated balance sheet.
Where the legal form of these products is similar to insurance contracts, they are accounted for in accordance with SFAS 97. Accordingly, the assets and liabilities are recorded on the balance sheet.
187
Notes to the accounts
For the year ended 31st December 2004
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
UK GAAP | US GAAP | |
Own shares
The number of own shares held in the ESOP trust, which are included in the Group’s accounts, is reduced to the extent that the shares have vested in accordance with GAAP.
The number of shares which have vested under the ESAS plan has been reduced for the anticipated level of forfeitures.
Under SFAS 123, the basic awards under ESAS are fully vested at the date of grant, and no adjustment is made for forfeitures. Consequently, the number of own shares held in the ESOP trust which are included in the Group’s accounts is lower.
Cash flow statement
The cash flow statement is prepared according to the requirements of FRS 1 (revised). It defines cash as cash and balances at central banks and loans and advances to banks repayable on demand.
The cash flow statement for US GAAP is prepared under SFAS 95, as amended by SFAS 104. This defines cash as inclusive of cash equivalents which are short-term highly liquid investments that are both readily convertible into known amounts of cash and are so near maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally only investments with original maturities of three months or less are included as cash equivalents.
The two statements differ with regard to the classification of items within the cash flow statement and with regard to the definition of cash.
Classification | Classification | |||
under FRS 1 (revised) | under SFAS 95/104 | |||
Dividends received | Returns on investment and servicing of finance | Operating activities | ||
Dividends paid – equity | Equity dividends paid | Financing activities | ||
Tax paid | Taxation | Operating activities | ||
Net change in loans and advances, including finance lease receivables | Operating activities | Investing activities | ||
Net change in deposits and debt securities in issue | Operating activities | Financing activities |
188
Barclays PLC Annual Report 2003 1692004
Notes to the AccountsFor the Year Ended 31st December 2003
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
Applicable developments in US GAAP
SFAS 143: Accounting for Asset Retirement ObligationsFIN 46-R: Consolidation of Variable Interest Entities
In June 2001,December 2003, the Financial Accounting Standards Board (FASB) issued FASB issued SFASInterpretation No. 143 ‘Accounting for Asset Retirement Obligations’46(R) (Revised December 2003) ‘Consolidation of Variable Interest Entities, an interpretation of ARB No. 51’ (FIN 46-R). SFAS 143 requires a provision to be raised forFIN 46-R is an update of FASB Interpretation No. 46 ‘Consolidation of Variable Interest Entities, an interpretation of ARB No. 51’ (FIN 46) and contains different implementation dates based on the legal obligation in relationtypes of entities subject to the other-than-temporary removal ofstandard and based on whether a tangible fixed asset, at fair value, when incurred.company had already adopted FIN 46. The Standard was effectiveGroup originally adopted FIN 46 for all Variable Interest Entities (VIEs) created or acquired after 31st January 2003 during the year ended 31st December 2003. The Group has adopted FIN 46-R for all VIEs, including those created or acquired prior to 31st January 2003 from 1st January 2004.
The impact of the adoption of FIN 46-R in 2004 was a net credit to pre-tax income of £138m, resulting from the release of the majority of the shareholders’ equity adjustment for leasing-lessor to income (£123m) offset by an additional adjustment under US GAAP from differing consolidation treatment of certain entities which gave rise to a pre-tax credit of £15m included in the consolidation adjustment.
For additional information on VIEs see Note 52 on pages 202 and 203.
SFAS 150: Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity
Statement of Financial Accounting Standards No. 150 (SFAS 150) was issued in May 2003. The Statement sets out the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that these instruments be classified as liabilities in statements of financial position. The Group adopted the Statement prospectively for financial instruments entered into or modified after 31st May 2003 during the year ended 31st December 2003. It has adopted the Statement for all other financial instruments from 1st January 2004. Adoption did not have a material effect on the Group’s financial condition or results of operations or financial condition as determined under US GAAP.GAAP for the year ended and as of 31st December 2004.
SFAS 146:SOP 03-01: Accounting and Reporting by Insurance Enterprises for costs associated with exits or disposalsCertain Non traditional Long-Duration Contracts and for Separate AccountsIn June 2002,The Statement of Position 03-01 (SOP 03-01) provides guidance on the FASB issued SFAS No. 146 ‘Accountingclassification and valuation of long-duration contract liabilities, the accounting for Costs Associated with Exits or Disposals’. SFAS 146 addresses the financial accountingsales inducements and reporting for costs associated with exit or disposal activitiesseparate account presentation and requires that the fair value of a liability for a cost associated with an exit or disposal activity be recognised when the liability is incurred and nullifies EITF 94-3 which requires the recognition of a liability at the date of an entity’s commitment to an exit plan. SFAS 146 is effectivevaluation. The Group adopted SOP 03-01 from 1st January 2003 and was adopted by the Group during the year ended 31st December 2003.2004. Adoption did not have a material effectimpact on the Group’s financial condition or results of operations as determined under US GAAP.
EITF Issue 02-03: Issues involved in accounting for derivative contracts held for trading purposes and contracts involved in Energy Trading and Risk Management activitiesThe principal requirement affecting the Group is that, for energy derivative contracts with effect from July 2002 and non-energy contracts with effect from 21st November 2002, where the fair value is not determined using either observable market prices or models which use market-observable variables as inputs, the unrealised gain or loss at inception on new contracts should not be recognised.
Adoption did not have a material effect on the Group’s financial condition or results of operations as determined under US GAAP in 2002. The impact in 2003 is reflected in Note 61(o) on page 182.
FIN 45: Guarantor’s accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of othersIn November 2002, the FASB issued FASB Interpretation No. 45 ‘Guarantor’s accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others’. FIN 45 requires a liability to be recognised for all obligations assumed under guarantees issued and requires disclosure by guarantors in respect of guarantees issued (including guarantees embedded in other contracts). The disclosure requirements are effective for periods ending after 15th December 2002 and are reflected on pages 187 to 188 in this report. The measurement requirements are effective for guarantees issued from 1st January 2003 and were adopted by the Group during the year ended and as of 31st December 2003. The impact in 2003 on net income of £(8)m is shown on page 172.
FIN 46: Consolidation of variable interest entitiesIn January 2003, the FASB issued FIN 46 ‘Consolidation of Variables Interest Entities’, as an interpretation of Accounting Research Bulletin No. 51, ‘Consolidated Financial Statements’. This was revised in December 2003 and reissued as FIN 46-R. FIN 46 addresses consolidation of variable interest entities (‘VIEs’) by parties holding variable interests in these entities. An entity is considered a VIE if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or if the equity investors lack one of three characteristics of a controlling financial interest. First, the equity investors lack the ability to make decisions about the entity’s activities through voting rights or similar rights. Second, they do not bear the obligation to absorb the expected losses of the entity if they occur. Lastly, they do not claim the right to receive expected returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses.
FIN 46 requires that VIEs be consolidated by the interest holder exposed to the majority of the entity’s expected losses or residual returns, that is, the primary beneficiary.
In accordance with the transition provisions of FIN 46, the Group adopted FIN 46 immediately for all VIEs created or acquired after 31st January 2003 and as at 31st December 2003 consolidates certain asset securitisation entities described in Note 61(p) on page 183. The Group will adopt FIN 46-R for all VIEs in 2004. Disclosures in relation to the nature, size and potential maximum loss in relation to other VIEs created or acquired before 1st February 2003 where it is reasonably possible the Group will consolidate these entities on adoption of FIN 46-R, or where the Group is not the primary beneficiary but has a significant variable interest are reflected in Note 61(p) of this report.
170
61 Differences between UK GAAP and US GAAP accounting principles (continued)
SFAS 132: Employers’ disclosures about pensions and other post-retirement benefits
The additional disclosures for plans established in the UK are generallywere required for the year ended 31st December 2003 and are included in Note 61(c) below.2003. The remaining disclosures including those in respect of foreign plans are required for years ending after 15th June 2004 and therefore will be adopted by the Group during the year ended 31st December 2004.
SFAS 150: Accounting for certain financial instruments with characteristics of both liability and equity
The Group has adopted the applicable provisions of SFAS No. 150 to all financial instruments entered into or modified after 31st May 2003 during the year ended 31st December 2003. Adoption did not have a material effect on the Group’s financial condition or results of operations as determined under US GAAP. The Group will adopt the Standard for other financial instruments during the six months ending 30th June 2004. Management does not expect adoption to have a material effect on the firm’s financial condition or results of operations as determined under US GAAP.Note 52 (c) below.
SOP 03-3:03-03: Accounting for Certain Loans or Debt Securities Acquired in a Transfer
The SOPStatement of Position 03-03 (SOP 03-03) addresses accounting for differences between the contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable to credit quality. This SOP is effective for loans acquired in accounting periods beginning after 15th December 2004. Barclays is currently assessing the impact of this SOP on its US GAAP reconciliations.
International Financial Reporting Standards (IFRS)SAB 105: Application of Accounting Principles to Loans Commitments
In March 2004, the SEC issued Staff Accounting Bulletin No. 105 (SAB 105). The SAB addresses the initial recognition and measurement of loan commitments that meet the definition of a derivative. The SAB is effective for all applicable loan commitments entered into, or substantially modified, on or after 1st April 2004. Adoption did not have a material effect on the Group’s results of operations or financial condition as determined under US GAAP for the year ended and as of 31st December 2004.
EITF Issue 03-01: The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments
The European ParliamentEITF Issue 03-01 (EITF 03-01) provides guidance on recognising other-than-temporary impairments on securities classified as either available for sale or held to maturity under SFAS 115 and Councilfor investments accounted for under the cost method. In September 2004, the FASB issued FSP EITF 03-01-1 which delayed the effective date of EITF 03-01 until the European Union issued a regulation in 2002 that will require all EU listed companiesFASB staff addresses additional measurement issues affecting the consensus.
189
\
Notes to prepare their consolidatedthe accounts in accordance with IFRS rather than the existing national GAAP. The regulation takes effect from 2005 and consequently the accounting framework under which the Group reports will change. The Group will produce its consolidated accounts in accordance with IFRS for
For the year ended 31st December 2005. Barclays is currently assessing the impact of this change on its US GAAP reconciliations. For further details on the conversion to IFRS, see pages 105 to 106.
Barclays PLC Annual Report 2003 171
Notes to the Accounts2004For the Year Ended 31st December 2003
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||
Note | £m | £m | £m | Note | £m | £m | £m | |||||||||||||||||||||||||
Attributable profit of Barclays PLC Group (UK GAAP) | 2,744 | 2,230 | 2,446 | 3,268 | 2,744 | 2,230 | ||||||||||||||||||||||||||
Goodwill | (a | ) | 272 | 237 | 5 | (a | ) | 246 | 272 | 237 | ||||||||||||||||||||||
Intangible assets | (b | ) | (175 | ) | (64 | ) | (64 | ) | (b | ) | (141 | ) | (175 | ) | (64 | ) | ||||||||||||||||
Pensions | (c | ) | (147 | ) | (195 | ) | (203 | ) | (c | ) | (180 | ) | (139 | ) | (187 | ) | ||||||||||||||||
Post-retirement benefits | (c | ) | 27 | (18 | ) | (17 | ) | (c | ) | 12 | 27 | (18 | ) | |||||||||||||||||||
Leasing – lessor | 21 | (7 | ) | 9 | 120 | 21 | (7 | ) | ||||||||||||||||||||||||
Leasing – lessee | – | (10 | ) | (3 | ) | – | – | (10 | ) | |||||||||||||||||||||||
Deferred tax | (d | ) | – | (32 | ) | 30 | (d | ) | – | – | (32 | ) | ||||||||||||||||||||
Compensation arrangements | (e | ) | (74 | ) | (82 | ) | (81 | ) | (e | ) | (15 | ) | (74 | ) | (82 | ) | ||||||||||||||||
Shareholders’ interest in the long-term assurance fund | (f | ) | (6 | ) | 109 | 87 | (f | ) | (146 | ) | (6 | ) | 109 | |||||||||||||||||||
Provisions for restructuring of business | (l | ) | (16 | ) | (22 | ) | 23 | (l | ) | – | (16 | ) | (22 | ) | ||||||||||||||||||
Disposal of investments | – | – | (3 | ) | ||||||||||||||||||||||||||||
Extinguishment of liabilities | (135 | ) | (159 | ) | – | (32 | ) | (135 | ) | (159 | ) | |||||||||||||||||||||
Revaluation of property | 7 | 5 | 1 | 11 | 7 | 5 | ||||||||||||||||||||||||||
Business combinations | (k | ) | (4 | ) | 206 | – | (k | ) | 13 | (4 | ) | 206 | ||||||||||||||||||||
Internal use software | (m | ) | (14 | ) | (207 | ) | 70 | (m | ) | (47 | ) | (14 | ) | (207 | ) | |||||||||||||||||
Derivatives | (o | ) | (1,102 | ) | 553 | 278 | (o | ) | (364 | ) | (1,102 | ) | 553 | |||||||||||||||||||
Fair value of securities | (h | ) | 374 | (276 | ) | (39 | ) | (h | ) | 80 | 374 | (276 | ) | |||||||||||||||||||
Foreign exchange on available for sale securities | (n | ) | (443 | ) | 152 | 210 | (n | ) | 428 | (443 | ) | 152 | ||||||||||||||||||||
Loan origination | (114 | ) | 31 | 43 | (66 | ) | (114 | ) | 31 | |||||||||||||||||||||||
Fair value amortisation credit | (r | ) | 8 | 8 | 8 | |||||||||||||||||||||||||||
Consolidation | (p | ) | – | – | 72 | (p | ) | 15 | – | – | ||||||||||||||||||||||
Securitisations | (q | ) | 130 | – | – | (q | ) | 21 | 130 | – | ||||||||||||||||||||||
Guarantees | (u | ) | (8 | ) | – | – | (t | ) | (9 | ) | (8 | ) | – | |||||||||||||||||||
Revenue recognition | (180 | ) | – | – | ||||||||||||||||||||||||||||
Tax effect on the above UK/US GAAP reconciling items | 395 | 17 | (177 | ) | (2 | ) | 395 | 17 | ||||||||||||||||||||||||
Net income (US GAAP) | 1,740 | 2,476 | 2,695 | 3,032 | 1,740 | 2,476 | ||||||||||||||||||||||||||
Barclays PLC Group | p | p | p | Note | p | p | p | |||||||||||||||||||||||||
Basic earnings per 25p ordinary share | (g | ) | 26.8 | 37.4 | 40.5 | (g | ) | 47.5 | 26.8 | 37.4 | ||||||||||||||||||||||
Diluted earnings per 25p ordinary share | (g | ) | 26.5 | 37.2 | 40.1 | (g | ) | 46.8 | 26.5 | 37.2 | ||||||||||||||||||||||
2003 | 2002 | |||||||||||||||||||||||||||||||
£m | £m | 2004 | 2003 | |||||||||||||||||||||||||||||
Note | £m | £m | ||||||||||||||||||||||||||||||
Equity shareholders’ funds (UK GAAP) | 16,473 | 15,205 | ||||||||||||||||||||||||||||||
Shareholders’ funds (UK GAAP) | 17,417 | 16,473 | ||||||||||||||||||||||||||||||
Prior year adjustment (UK GAAP) | (x | ) | (4 | ) | (y | ) | (99 | ) | ||||||||||||||||||||||||
16,473 | 15,201 | 17,417 | 16,374 | |||||||||||||||||||||||||||||
Goodwill | (a | ) | 570 | 298 | (a | ) | 812 | 570 | ||||||||||||||||||||||||
Intangible assets | (b | ) | (315 | ) | (140 | ) | (b | ) | (452 | ) | (315 | ) | ||||||||||||||||||||
Pensions | (c | ) | (1,013 | ) | (848 | ) | (c | ) | (1,249 | ) | (988 | ) | ||||||||||||||||||||
Post-retirement benefits | (c | ) | (23 | ) | (50 | ) | (c | ) | (11 | ) | (23 | ) | ||||||||||||||||||||
Leasing – lessor | (145 | ) | (166 | ) | (25 | ) | (145 | ) | ||||||||||||||||||||||||
Compensation arrangements | (e | ) | (1 | ) | – | (e | ) | 45 | (1 | ) | ||||||||||||||||||||||
Shareholders’ interest in the long-term assurance fund | (f | ) | (555 | ) | (549 | ) | (f | ) | (621 | ) | (555 | ) | ||||||||||||||||||||
Provisions for restructuring of business | (l | ) | – | 16 | ||||||||||||||||||||||||||||
Extinguishment of liabilities | (294 | ) | (159 | ) | (326 | ) | (294 | ) | ||||||||||||||||||||||||
Revaluation of property | (i | ) | (224 | ) | (241 | ) | (i | ) | (212 | ) | (224 | ) | ||||||||||||||||||||
Internal use software | (m | ) | 67 | 81 | (m | ) | 20 | 67 | ||||||||||||||||||||||||
Derivatives | (o | ) | 341 | 1,273 | (o | ) | (78 | ) | 341 | |||||||||||||||||||||||
Fair value of securities | (h | ) | 876 | 515 | (h | ) | 491 | 876 | ||||||||||||||||||||||||
Dividend payable | 883 | 787 | 1,011 | 883 | ||||||||||||||||||||||||||||
Own shares | (99 | ) | (55 | ) | ||||||||||||||||||||||||||||
Loan origination | (23 | ) | 91 | (89 | ) | (23 | ) | |||||||||||||||||||||||||
Fair value amortisation credit | (r | ) | 25 | 17 | ||||||||||||||||||||||||||||
Consolidation | (p | ) | 8 | – | ||||||||||||||||||||||||||||
Securitisations | (q | ) | 130 | – | (q | ) | 151 | 130 | ||||||||||||||||||||||||
Guarantees | (u | ) | (8 | ) | – | (t | ) | (17 | ) | (8 | ) | |||||||||||||||||||||
Revenue recognition | (180 | ) | – | |||||||||||||||||||||||||||||
Translation differences | (260 | ) | – | |||||||||||||||||||||||||||||
Own shares | 45 | – | ||||||||||||||||||||||||||||||
Tax effect on the above UK/US GAAP reconciling items | 165 | (56 | ) | 473 | 165 | |||||||||||||||||||||||||||
Shareholders’ equity (US GAAP) | 16,830 | 16,015 | 16,953 | 16,830 | ||||||||||||||||||||||||||||
Selected financial data, adjusted from UK GAAP to reflect the main differences from US GAAP, is given on page 204.225.
172
190
Barclays PLC Annual Report 2004
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
The following table provides the Group’s balance sheet on a UK presentation, incorporating only those adjustments required under US GAAP that are discussed on pages 182 to 188.
2004 | 2003 | |||||||
£m | £m | |||||||
Cash and balances at central banks | 48,855 | 50,518 | ||||||
Items in course of collection from other banks | 1,772 | 2,006 | ||||||
Treasury bills and other eligible bills | 5,002 | 5,359 | ||||||
Loans and advances to banks | 57,380 | 48,830 | ||||||
Loans and advances to customers | 279,438 | 229,562 | ||||||
Debt and equity securities | 151,242 | 112,450 | ||||||
Interests in associated undertakings and joint ventures | 448 | 428 | ||||||
Intangible and tangible fixed assets | 6,537 | 6,377 | ||||||
Other assets (including prepayments and accrued income) | 35,128 | 29,263 | ||||||
Retail life-fund assets attributable to policyholders | 68,778 | 57,176 | ||||||
Total assets | 654,580 | 541,969 | ||||||
Deposits by banks | 139,461 | 127,591 | ||||||
Customer accounts | 235,599 | 188,218 | ||||||
Items in course of collection to other banks | 1,205 | 1,286 | ||||||
Debt securities in issue | 78,989 | 54,647 | ||||||
Other liabilities (including accruals and deferred income) | 97,826 | 81,637 | ||||||
Provisions for liabilities and charges | ||||||||
– deferred taxation | 575 | 636 | ||||||
– other provisions for liabilities and charges | 1,750 | 1,380 | ||||||
Subordinated liabilities | 10,693 | 10,634 | ||||||
Minority interests – equity and non-equity | 2,751 | 1,934 | ||||||
Shareholders’ equity | 16,953 | 16,830 | ||||||
Retail life-fund liabilities attributable to policyholders | 68,778 | 57,176 | ||||||
Total liabilities and shareholders’ funds | 654,580 | 541,969 | ||||||
Segmental analysis of the Group is provided in Note 48, Segmental analysis. The significant differences for each segment under US GAAP are in respect of netting adjustments as disclosed in Note 52(w), the treatment of insurance products, the consolidation of certain entities and securitisation adjustment. The impact of these adjustments is to increase the total assets of Barclays Capital by £46,750m (2003: £29,672m), increase the total assets of Barclays Global Investors by £68,534m (2003: £58,062m) and decrease the total assets of Barclaycard by £3,122m (2003: £2,350m).
(a) Goodwill
The current carrying value of goodwill for US GAAP purposes has been allocated to the reportable business clusters of the Group:
Reallocation | ||||||||||||||||||||||||||||||||||||||||||||||||||||
At beginning | between | Exchange | Reallocation | |||||||||||||||||||||||||||||||||||||||||||||||||
of year | clusters | Additions | Disposals | and other | 2003 | At beginning | between | Exchange | ||||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | of year | clusters | Additions | Disposals | Impairment | and other | 2004 | ||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||||||||
Personal Financial Services | 2,712 | (218 | ) | – | – | – | 2,494 | |||||||||||||||||||||||||||||||||||||||||||||
Barclays Private Clients | 629 | 218 | 458 | – | – | 1,305 | ||||||||||||||||||||||||||||||||||||||||||||||
UK Retail Banking | 2,692 | – | – | – | – | – | 2,692 | |||||||||||||||||||||||||||||||||||||||||||||
UK Business Banking | 63 | – | 17 | (1 | ) | (17 | ) | – | 62 | |||||||||||||||||||||||||||||||||||||||||||
Private Clients | 546 | – | 2 | – | – | – | 548 | |||||||||||||||||||||||||||||||||||||||||||||
International | 461 | 8 | 16 | – | (12 | ) | (19 | ) | 454 | |||||||||||||||||||||||||||||||||||||||||||
Barclaycard | 224 | – | 40 | – | (113 | ) | 151 | 245 | – | 90 | – | – | 1 | 336 | ||||||||||||||||||||||||||||||||||||||
Business Banking | 41 | – | 5 | – | – | 46 | ||||||||||||||||||||||||||||||||||||||||||||||
Barclays Africa | 7 | – | 4 | – | – | 11 | ||||||||||||||||||||||||||||||||||||||||||||||
Barclays Capital | 47 | – | 39 | (5 | ) | – | 81 | 81 | – | – | – | (39 | ) | – | 42 | |||||||||||||||||||||||||||||||||||||
Barclays Global Investors | 175 | – | 6 | – | (101 | ) | 80 | 80 | (8 | ) | 47 | – | – | (3 | ) | 116 | ||||||||||||||||||||||||||||||||||||
Head office functions and other operations | 10 | – | – | – | – | 10 | 10 | – | – | – | – | – | 10 | |||||||||||||||||||||||||||||||||||||||
3,845 | – | 552 | (5 | ) | (214 | ) | 4,178 | 4,178 | – | 172 | (1 | ) | (68 | ) | (21 | ) | 4,260 | |||||||||||||||||||||||||||||||||||
Included within exchange191
Notes to the accounts
For the year ended 31st December 2004
52 Differences between UK GAAP and other is £186m relating to goodwill previously recognised within Barclaycard and Barclays Global Investors, which on further investigation represents other intangible assets and has been reflected in the table below. The impact of prior year amortisation being recorded in the current year is a reduction in net income of £64m.US GAAP accounting principles (continued)
(b) Intangible assets
Core | Purchased | Licences | Merchant | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core | Purchased | Licences | deposit | Customer | credit card | and other | credit card | |||||||||||||||||||||||||||||||||||||||||||||||||||||
deposit | Customer | credit card | and other | intangible | Brand | lists | relationship | contracts | partnerships | Software | 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||
intangible | Brand | lists | relationship | contracts | Software | 2003 | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost or valuation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At beginning of year | 458 | – | – | – | – | – | 458 | 521 | 33 | 184 | 112 | 19 | – | 12 | 881 | |||||||||||||||||||||||||||||||||||||||||||||
Additions | 63 | 33 | 184 | 112 | 19 | 12 | 423 | – | – | – | 22 | 1 | 37 | – | 60 | |||||||||||||||||||||||||||||||||||||||||||||
Write-offs | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange/other | – | – | (5 | ) | – | – | – | – | (5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cost carried forward | 521 | 33 | 184 | 112 | 19 | 12 | 881 | 521 | 33 | 179 | 134 | 20 | 37 | 12 | 936 | |||||||||||||||||||||||||||||||||||||||||||||
Accumulated amortisation and impairment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At beginning of year | 140 | – | – | – | – | – | 140 | 211 | 9 | 55 | 39 | 1 | – | 315 | ||||||||||||||||||||||||||||||||||||||||||||||
Current year charge | 71 | 9 | 55 | 39 | 1 | – | 175 | 75 | 20 | 17 | 22 | 5 | – | 4 | 143 | |||||||||||||||||||||||||||||||||||||||||||||
Write-offs/disposals | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange/other | – | – | (4 | ) | – | – | – | – | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Amortisation carried forward | 211 | 9 | 55 | 39 | 1 | – | 315 | 286 | 29 | 68 | 61 | 6 | – | 4 | 454 | |||||||||||||||||||||||||||||||||||||||||||||
Net book value 2003 | 310 | 24 | 129 | 73 | 18 | 12 | 566 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net book value 2004 | 235 | 4 | 111 | 73 | 14 | 37 | 8 | 482 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average amortisation period for additions (months) | 240 | 17 | 193 | 60 | 60 | 36 | 120 | 45 | 60 | |||||||||||||||||||||||||||||||||||||||||||||||||||
The amortisation expense for the net carrying amount of intangible assets is estimated to be £146m in 2004, £121m£134m in 2005, £119m£131m in 2006, £81m£95m in 2007, £33m in 2008 and £17m£28m in 2008.2009.
(c) Pensions and post-retirement benefits
The excess of pension plan assets over the projected benefit obligation, as at the transition date, iswas recognised as a reduction of pension expense on a prospective basis over approximately 15 years.years, which ended in 2003.
The provisions of US GAAP have been applied to the main UK pension scheme, the UK Retirement Fund (UKRF) and the Woolwich Pension Fund (WPF) based on a valuation date of 30th September 2003.2004. Consequently the £500m contribution made to the UKRF in December 2003 is included in the US GAAP analysis of the plan assets and the £250m contribution made to the UKRF in December 2004 is excluded from the US GAAP analysis.analysis of plan assets. The following analysis relates to the UKRF (1964 Pension Scheme, Retirement Investment Scheme, and Pension Investment Plan)Plan, afterwork and the WPFCareer Average Section) which together makemakes up approximately 95% of all the Group’s schemes in terms of assets and actuarial liabilities.
Under the terms of an agreement between the Bank, the Trustees of the WPFWoolwich Pension Fund (WPF) and the Trustees of the UKRF, the final transfer of the liabilities in respect of all pensioners and deferred pensioners, along with consenting active members ofthe WPF into the UKRF was made on 1st May 2004, following which the remaining £56.2m assets in the WPF were transferred intoto the UKRF on 14th February 2003. Payments were made on 1st July 2003, with the WPF Trustees transferring assets worth £418m and Woolwich plc making a special contribution of £138m on 4th July 2003.£2m was paid into the UKRF.
Barclays PLC Annual Report 2003 173
Notes to the AccountsFor the Year Ended 31st December 2003
61 Differences between UK GAAP and US GAAP accounting principles (continued)
(c) Pensions and post-retirement benefits (continued)
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||||||||||||||
Post- | Post- | Post- | Post- | Post- | ||||||||||||||||||||||||||||||||||||||||||||
retirement | retirement | retirement | retirement | retirement | ||||||||||||||||||||||||||||||||||||||||||||
Pensions | benefits | Pensions | benefits | Pensions | benefits | Pensions | benefits | Pensions | Benefits | Pensions | benefits | |||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||
Components of net periodic benefit cost | ||||||||||||||||||||||||||||||||||||||||||||||||
Service cost | 292 | 1 | 275 | 1 | 374 | 1 | 319 | 1 | 292 | 1 | 275 | 1 | ||||||||||||||||||||||||||||||||||||
Interest cost | 630 | 5 | 624 | 5 | 652 | 3 | 692 | 5 | 630 | 5 | 624 | 5 | ||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (664 | ) | – | (807 | ) | – | (854 | ) | – | (738 | ) | – | (664 | ) | – | (807 | ) | – | ||||||||||||||||||||||||||||||
Amortisation of transition adjustment | (12 | ) | 1 | (23 | ) | 1 | (23 | ) | 1 | – | – | (12 | ) | 1 | (23 | ) | 1 | |||||||||||||||||||||||||||||||
Curtailment and termination benefits | – | – | 76 | 2 | (5 | ) | – | – | – | – | – | 76 | 2 | |||||||||||||||||||||||||||||||||||
Recognised net actuarial deficit | 33 | 2 | – | 1 | – | 1 | 27 | 2 | 33 | 2 | – | 1 | ||||||||||||||||||||||||||||||||||||
Net periodic benefit cost | 279 | 9 | 145 | 10 | 144 | 6 | 300 | 8 | 279 | 9 | 145 | 10 | ||||||||||||||||||||||||||||||||||||
For measurement purposes, the calculation assumes a 12%10.6% and 5% annual rate of increase in the per capita cost of covered medical benefits and dental benefits respectively for pensioners in schemes in the US.US at the end of the 2004 year (12% and 5% at the end of 2003). The medical benefit rate for 2005 is further assumed to reduce steadily each yearbe 10% and to decrease 1% annually to 5% in 20082010 and remain at that level thereafter.
192
Barclays PLC Annual Report 2004
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(c) Pensions and post-retirement benefits (continued)
For pensioners in schemes in the UK a 5.6% annual rate ofthe same assumption for the increase in the per capita cost of covered medical benefits is assumed.adopted for the 2004 year-end as in the US (5.6% annual rate as at the end of 2003).
A one percentage point change in assumed health care trend rates would have the following effects for 2003:2004:
1% increase | 1% decrease | |||||||||||||||
1% increase | 1% decrease | £m | £m | |||||||||||||
£m | £m | |||||||||||||||
Effect on total of service and interest cost components | 1 | (1 | ) | 1 | (1 | ) | ||||||||||
Effect on post-retirement benefit obligation | 13 | (12 | ) | 18 | (15 | ) | ||||||||||
The following table presents the estimated funded status of the pension schemes and post-retirement benefits (the latter are unfunded) under US GAAP:
2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||||||||||||||
Post- | Post- | Post- | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||||||||||||||
retirement | retirement | retirement | Post- | Post- | Post- | |||||||||||||||||||||||||||||||||||||||||||
Pensions | benefits | Pensions | benefits | Pensions | benefits | retirement | retirement | retirement | ||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | Pensions | benefits | Pensions | benefits | Pensions | benefits | |||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||
Change in benefit obligation | ||||||||||||||||||||||||||||||||||||||||||||||||
Benefit obligation at beginning of period | 12,296 | 79 | 10,789 | 70 | 13,361 | 54 | ||||||||||||||||||||||||||||||||||||||||||
Change in benefit obligation Benefit obligation at beginning of period | 13,331 | 85 | 12,296 | 79 | 10,789 | 70 | ||||||||||||||||||||||||||||||||||||||||||
Service cost | 292 | 1 | 275 | 1 | 374 | 1 | 319 | 1 | 292 | 1 | 275 | 1 | ||||||||||||||||||||||||||||||||||||
Interest cost | 630 | 5 | 624 | 5 | 652 | 3 | 692 | 5 | 630 | 5 | 624 | 5 | ||||||||||||||||||||||||||||||||||||
Plan participants’ contributions | 17 | – | 6 | – | 7 | – | 26 | – | 17 | – | 6 | – | ||||||||||||||||||||||||||||||||||||
Curtailment and termination benefits | – | – | 76 | – | (24 | ) | – | – | – | – | – | 76 | – | |||||||||||||||||||||||||||||||||||
Prior period service cost | 2 | – | – | – | – | – | 1 | – | 2 | – | – | – | ||||||||||||||||||||||||||||||||||||
Actuarial loss/(gain) | 559 | 8 | 941 | 12 | (3,159 | ) | 14 | |||||||||||||||||||||||||||||||||||||||||
Actuarial loss | 843 | 16 | 559 | 8 | 941 | 12 | ||||||||||||||||||||||||||||||||||||||||||
Benefits paid | (465 | ) | (5 | ) | (415 | ) | (4 | ) | (422 | ) | (2 | ) | (445 | ) | (4 | ) | (465 | ) | (5 | ) | (415 | ) | (4 | ) | ||||||||||||||||||||||||
Exchange and other | – | (3 | ) | – | (5 | ) | – | – | – | (3 | ) | – | (3 | ) | – | (5 | ) | |||||||||||||||||||||||||||||||
Benefit obligation at end of period | 13,331 | 85 | 12,296 | 79 | 10,789 | 70 | 14,767 | 100 | 13,331 | 85 | 12,296 | 79 | ||||||||||||||||||||||||||||||||||||
Change in plan assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of plan assets at beginning of period | 10,152 | – | 11,135 | – | 13,452 | – | ||||||||||||||||||||||||||||||||||||||||||
Change in plan assets Fair value of plan assets at beginning of period | 10,980 | – | 10,152 | – | 11,135 | – | ||||||||||||||||||||||||||||||||||||||||||
Actual return on plan assets | 1,102 | – | (618 | ) | – | (1,981 | ) | – | 1,284 | – | 1,102 | – | (618 | ) | – | |||||||||||||||||||||||||||||||||
Employer contribution/transfers | 174 | 5 | 44 | 4 | 97 | 3 | 511 | 4 | 174 | 5 | 44 | 4 | ||||||||||||||||||||||||||||||||||||
Curtailment adjustment | – | – | – | – | (18 | ) | – | |||||||||||||||||||||||||||||||||||||||||
Plan participants’ contributions | 17 | – | 6 | – | 7 | – | 26 | – | 17 | – | 6 | – | ||||||||||||||||||||||||||||||||||||
Benefits paid | (465 | ) | (5 | ) | (415 | ) | (4 | ) | (422 | ) | (3 | ) | (445 | ) | (4 | ) | (465 | ) | (5 | ) | (415 | ) | (4 | ) | ||||||||||||||||||||||||
Fair value of plan assets at end of period | 10,980 | – | 10,152 | – | 11,135 | – | 12,356 | – | 10,980 | – | 10,152 | – | ||||||||||||||||||||||||||||||||||||
Funded status – (deficit)/surplus | (2,351 | ) | (85 | ) | (2,144 | ) | (79 | ) | 346 | (70 | ) | |||||||||||||||||||||||||||||||||||||
Funded status — deficit | (2,411 | ) | (100 | ) | (2,351 | ) | (85 | ) | (2,144 | ) | (79 | ) | ||||||||||||||||||||||||||||||||||||
Unrecognised transition amount | – | 6 | (12 | ) | 8 | (35 | ) | 12 | – | 5 | – | 6 | (12 | ) | 8 | |||||||||||||||||||||||||||||||||
Unrecognised net actuarial loss/(gain) | 1,678 | 31 | 1,590 | 24 | (774 | ) | 12 | |||||||||||||||||||||||||||||||||||||||||
Unrecognised net actuarial loss | 1,948 | 46 | 1,678 | 31 | 1,590 | 24 | ||||||||||||||||||||||||||||||||||||||||||
Unrecognised prior service cost | 2 | – | – | – | – | – | 3 | – | 2 | – | – | – | ||||||||||||||||||||||||||||||||||||
Accrued benefit cost | (671 | ) | (48 | ) | (566 | ) | (47 | ) | (463 | ) | (46 | ) | (460 | ) | (49 | ) | (671 | ) | (48 | ) | (566 | ) | (47 | ) | ||||||||||||||||||||||||
174
193
Notes to the accounts
For the year ended 31st December 2004
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
(c) Pensions and post-retirement benefits (continued)
2004 | 2003 | |||||||||||||||||||
UKRF | WPF | UKRF | UKRF | WPF | ||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||
Scheme assets at market value | 10,943 | 37 | 12,356 | 10,943 | 37 | |||||||||||||||
Accumulated Benefit Obligation (ABO) | 11,749 | 31 | 13,109 | 11,749 | 31 | |||||||||||||||
Minimum liability (excess of ABO over market value of assets) | 806 | (6 | ) | 753 | 806 | (6 | ) | |||||||||||||
(Accrued) pension cost | (595 | ) | (76 | ) | (460 | ) | (595 | ) | (76 | ) | ||||||||||
Minimum additional liability | 211 | – | 293 | 211 | – | |||||||||||||||
Prior period service cost | (2 | ) | – | (3 | ) | (2 | ) | – | ||||||||||||
Accumulated other comprehensive income 2003 | 209 | – | ||||||||||||||||||
Accumulated other comprehensive income | 290 | 209 | – | |||||||||||||||||
Accumulated other comprehensive income 2002 | 191 | – | ||||||||||||||||||
A long-term strategy has been set for the pension plan asset allocationsallocation which comprises a mixture of equities, bonds, property and other appropriate assets. This recognises that different asset classes are likely to produce different long-term returns, and some asset classes will be more volatile than others.
One of the factors in the choice of a long-term strategy is to ensure that the investments are adequately diversified. The managers are permitted some flexibility to vary the asset allocation from the long-term strategy within control ranges agreed with the Trustee from time to time.
The table below shows the percentage of the fair value of each major category as at the measurement date.
UKRF (defined benefits only) | WPF | UKRF (defined benefits only) | ||||||||||||||||||||||||||||||||||
Target | Target | Target | ||||||||||||||||||||||||||||||||||
(2004) | 30/9/03 | 30/9/02 | (2004) | 30/9/03 | 30/9/02 | (2004) | 30/9/04 | 30/9/03 | ||||||||||||||||||||||||||||
% | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||||||
Equity securities | 51 | 50 | 49 | 55 | 51 | 49 | 51 | 48 | 50 | |||||||||||||||||||||||||||
Debt securities | 37 | 36 | 36 | 45 | 42 | 41 | 37 | 38 | 36 | |||||||||||||||||||||||||||
Property | 12 | 11 | 12 | – | – | 10 | 12 | 11 | 11 | |||||||||||||||||||||||||||
All other assets | – | 3 | 3 | – | 7 | – | – | 3 | 3 | |||||||||||||||||||||||||||
Total | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | |||||||||||||||||||||||||||
The expected return on assets is determined by calculating a total return estimate based on a weighted average of estimated returns for each asset class. Asset class returns are estimated using current and projected economic and market factors such as inflation, credit spreads and equity risk premiums.
Employer cash contributions for the year to 31st December 20042005 for the UKRF and WPF schemesscheme is expected to be £352m.
Estimated future benefit payments
The following benefit payments, which reflect future service, as appropriate, are expected to be £4mpaid:
Post- | ||||||||
retirement | ||||||||
Pensions | benefits | |||||||
£m | £m | |||||||
2005 | 407 | 1 | ||||||
2006 | 417 | 1 | ||||||
2007 | 431 | 2 | ||||||
2008 | 446 | 2 | ||||||
2009 | 461 | 2 | ||||||
Years 2010 - 2014 | 2,704 | 11 | ||||||
194
Barclays PLC Annual Report 2004
52 Differences between UK GAAP and £3m respectively.
In accordance with US GAAP requirements, the actuariesaccounting principles (continued)
(c) Pensions and post-retirement benefits (continued)
The weighted-average assumptions used to determine net periodic benefit cost for the pension planspensions are as follows:
2004 | 2003 | 2002 | ||||||||||
% | % | % | ||||||||||
Discount rate | 5.4 | 5.3 | 6.0 | |||||||||
Rate of compensation increase | 4.1 | 3.8 | 4.0 | |||||||||
Expected long-term return on plan assets | 6.8 | 6.8 | 7.5 | |||||||||
The weighted-average assumptions used the following assumptions on a weighted average basis; discount rate of 5.4% (2002: 5.3%, 2001: 6.0%), rate of compensation increase of 4.1% (2002: 3.75%, 2001: 4.0%), and expected long-term rate of return on plan assets of 6.8% (2002: 6.8%, 2001: 7.5%).to determine benefit obligations for pensions are as follows:
As at 31st December | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
% | % | % | ||||||||||
Discount rate | 5.6 | 5.4 | 5.3 | |||||||||
Rate of compensation increase | 4.3 | 4.1 | 3.8 | |||||||||
Details of the post-retirement health care expense under UK GAAP are given in Note 449 to the accounts.
In accordance with the US GAAP requirements, theThe accounting for the post-retirement benefits charge assumed a discount rate of 6.25% (2002:(2003: 6.25%, 2002: 6.75%, 2001: 7.25%) for US benefits and 5.6% (2003: 5.4% (2002: 5.3%, 2001: 6.0%2002: 5.3%) for UK benefits on a weighted average basis.
Barclays PLC Annual Report 2003 175
NotesThe additional pensions cost of £180m (2003: £139m, 2002: £187m) includes a £8m credit (2003: £8m, 2002: £8m) relating to amortisation of an additional fair value adjustment under US GAAP. This is being amortised over the AccountsForexpected life of the Year Ended 31st December 2003
61 Differences between UK GAAP and US GAAP accounting principles (continued)relevant pension liability.
(d) Deferred tax
2003 | 2002 | ||||||||||||||||
£m | £m | 2004 | 2003 | ||||||||||||||
£m | £m | ||||||||||||||||
Deferred tax liabilities: | |||||||||||||||||
Leasing transactions | (739 | ) | (766 | ) | |||||||||||||
Deferred tax liabilities: Leasing transactions | (759 | ) | (739 | ) | |||||||||||||
In respect of UK/US GAAP reconciling items | (336 | ) | (332 | ) | (224 | ) | (336 | ) | |||||||||
Other | (592 | ) | (266 | ) | (630 | ) | (592 | ) | |||||||||
Total deferred tax liabilities | (1,667 | ) | (1,364 | ) | (1,613 | ) | (1,667 | ) | |||||||||
Deferred tax assets: | |||||||||||||||||
Specific allowances | 25 | 15 | 26 | 25 | |||||||||||||
General allowance | 252 | 245 | 226 | 252 | |||||||||||||
Tax losses | 236 | 203 | 299 | 236 | |||||||||||||
Capital allowances | 90 | 108 | 107 | 90 | |||||||||||||
In respect of UK/US GAAP reconciling items | 311 | 254 | 387 | 311 | |||||||||||||
Other | 224 | 159 | 210 | 224 | |||||||||||||
Total deferred tax assets before valuation allowance | 1,138 | 984 | 1,255 | 1,138 | |||||||||||||
Less: valuation allowance | (107 | ) | (159 | ) | (217 | ) | (107 | ) | |||||||||
Deferred tax assets less valuation allowance | 1,031 | 825 | 1,038 | 1,031 | |||||||||||||
Net deferred tax liability under US GAAP | (636 | ) | (539 | ) | (575 | ) | (636 | ) | |||||||||
176 The valuation allowance relates to the Group’s capital losses and unrelieved overseas tax losses. These assets will be recognised in the future when it becomes likely that they will be utilised.
195
Notes to the accounts
For the year ended 31st December 2004
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
(e) Compensation arrangements
The SFAS 123 charge forin respect of the fair value of options granted since 1995 is £79m (2003: £73m, (2002: £82m, 2001: £81m)2002: £82m). A net credit of £50m (2003: £nil) relates to the write-back of National Insurance liability which will be recognised on exercise of the relevant options.
The net chargecredit with respect to other deferred compensation plans is £14m (2003: charge of £1m, (2002: £nil, 2001:2002: £nil).
The Executive Share Option Scheme (ESOS), Save As You Earn (SAYE), Incentive Share Option Plan (ISOP), the BGI Equity Ownership Plan (EOP)(BGI EOP), Executive Share Award Scheme (ESAS), the Woolwich Executive Share Option Plan (Woolwich ESOP) and the Woolwich SAYE scheme fall within the scope of SFAS 123.
Analysis of the movement in the number and weighted average exercise price of options is set out below.
ESOS (a) | SAYE (a) | ESOS (a) | SAYE (a) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number | Weighted average | Number | Weighted average | Number | Weighted average | Number | Weighted average | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(000's) | ex. price (£) | (000's) | ex. price (£) | (000’s) | ex. price (£) | (000’s) | ex. price (£) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Outstanding at beginning of year | 8,168 | 9,546 | 4.09 | 4.04 | 126,895 | 123,441 | 3.34 | 3.29 | 5,952 | 8,168 | 4.11 | 4.09 | 105,853 | 126,895 | 3.59 | 3.34 | |||||||||||||||||||||||||||||||||||||||||||||||||
Granted in the year | – | – | – | – | 22,284 | 30,216 | 3.73 | 3.50 | – | – | – | – | 21,353 | 22,284 | 4.08 | 3.73 | |||||||||||||||||||||||||||||||||||||||||||||||||
Exercised in the year | (1,134 | ) | (1,066 | ) | 3.73 | 3.56 | (32,617 | ) | (20,087 | ) | 2.71 | 3.22 | (1,296 | ) | (1,134 | ) | 4.01 | 3.73 | (22,637 | ) | (32,617 | ) | 3.59 | 2.71 | |||||||||||||||||||||||||||||||||||||||||
Forfeited or expired in the year | (1,082 | ) | (312 | ) | 4.36 | 4.33 | (10,709 | ) | (6,675 | ) | 3.56 | 3.51 | (110 | ) | (1,082 | ) | 4.25 | 4.36 | (7,303 | ) | (10,709 | ) | 3.66 | 3.56 | |||||||||||||||||||||||||||||||||||||||||
Outstanding at end of year | 5,952 | 8,168 | 4.11 | 4.09 | 105,853 | 126,895 | 3.59 | 3.34 | 4,546 | 5,952 | 4.13 | 4.11 | 97,266 | 105,853 | 3.69 | 3.59 | |||||||||||||||||||||||||||||||||||||||||||||||||
ISOP (a) | BGI EOP (b) | ISOP (a) | BGI EOP (b) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number | Weighted average | Number | Weighted average | Number | Weighted average | Number | Weighted average | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(000's) | ex. price (£) | (000's) | ex. price (£) | (000’s) | ex. price (£) | (000’s) | ex. price (£) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Outstanding at beginning of year | 77,593 | 42,523 | 4.98 | 4.83 | 17,809 | 13,407 | 8.91 | 7.87 | 98,932 | 77,593 | 4.56 | 4.98 | 13,525 | 17,809 | 9.51 | 8.91 | |||||||||||||||||||||||||||||||||||||||||||||||||
Granted in the year | 28,122 | 36,397 | 3.33 | 5.14 | 545 | 5,885 | 10.92 | 10.92 | 61,937 | 28,122 | 4.80 | 3.33 | 2,009 | 545 | 20.11 | 10.92 | |||||||||||||||||||||||||||||||||||||||||||||||||
Exercised in the year | (2,613 | ) | – | 3.91 | – | (4,122 | ) | (659 | ) | 7.10 | 6.36 | (4,502 | ) | (2,613 | ) | 4.18 | 3.91 | (7,783 | ) | (4,122 | ) | 9.05 | 7.10 | ||||||||||||||||||||||||||||||||||||||||||
Forfeited or expired in the year | (4,170 | ) | (1,327 | ) | 4.49 | 4.77 | (707 | ) | (824 | ) | 9.44 | 8.33 | (18,497 | ) | (4,170 | ) | 5.18 | 4.49 | (176 | ) | (707 | ) | 12.19 | 9.44 | |||||||||||||||||||||||||||||||||||||||||
Outstanding at end of year | 98,932 | 77,593 | 4.56 | 4.98 | 13,525 | 17,809 | 9.51 | 8.91 | 137,870 | 98,932 | 4.59 | 4.56 | 7,575 | 13,525 | 12.74 | 9.51 | |||||||||||||||||||||||||||||||||||||||||||||||||
Woolwich SAYE (a) | Woolwich ESOP (a) | Woolwich SAYE (a) | Woolwich ESOP (a) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number | Weighted average | Number | Weighted average | Number | Weighted average | Number | Weighted average | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(000's) | ex. price (£) | (000's) | ex. price (£) | (000’s) | ex. price (£) | (000’s) | ex. price (£) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Outstanding at beginning of year | 3,764 | 4,529 | 3.16 | 3.18 | 8,785 | 10,448 | 3.77 | 3.79 | 609 | 3,764 | 3.34 | 3.16 | 4,416 | 8,785 | 3.80 | 3.77 | |||||||||||||||||||||||||||||||||||||||||||||||||
Granted in the year | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercised in the year | (2,898 | ) | (504 | ) | 3.12 | 3.30 | (4,160 | ) | (1,522 | ) | 3.73 | 3.97 | (393 | ) | (2,898 | ) | 3.35 | 3.12 | (2,089 | ) | (4,160 | ) | 3.79 | 3.73 | |||||||||||||||||||||||||||||||||||||||||
Forfeited or expired in the year | (257 | ) | (261 | ) | 3.20 | 3.28 | (209 | ) | (141 | ) | 3.89 | 3.50 | (52 | ) | (257 | ) | 3.34 | 3.20 | (26 | ) | (209 | ) | 4.02 | 3.89 | |||||||||||||||||||||||||||||||||||||||||
Outstanding at end of year | 609 | 3,764 | 3.34 | 3.16 | 4,416 | 8,785 | 3.80 | 3.77 | 164 | 609 | 3.32 | 3.34 | 2,301 | 4,416 | 3.80 | 3.80 | |||||||||||||||||||||||||||||||||||||||||||||||||
ESAS (a)(c) | ||||||||||||||||||||
Number | Weighted average | |||||||||||||||||||
(000’s) | ex. price (£) | |||||||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||||||
Outstanding at beginning of year | 70,967 | 51,515 | – | – | ||||||||||||||||
Granted in the year | 42,885 | 34,735 | – | – | ||||||||||||||||
Exercised in the year | (12,071 | ) | (13,111 | ) | – | – | ||||||||||||||
Forfeited or expired in the year | (1,497 | ) | (2,172 | ) | – | – | ||||||||||||||
Outstanding at end of year | 100,284 | 70,967 | – | – | ||||||||||||||||
(a) | Options granted over Barclays PLC | |
(b) | Options granted over BGI UK Holdings Limited | |
(c) | ESAS is a nil cost award. |
196
Barclays PLC Annual Report 2003 1772004
Notes to the AccountsFor the Year Ended 31st December 2003
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
(e) Compensation arrangements (continued)
2003 | 2002 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | Weighted | Weighted | Weighted | Weighted | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
average | Weighted | average | average | Weighted | average | Exercise | average | Weighted | average | Exercise | average | Weighted | average | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise | exercise | average | remaining | Exercise | exercise | average | remaining | price | exercise | average | remaining | price | exercise | average | remaining | ||||||||||||||||||||||||||||||||||||||||||||||||||
price range | price | fair value | life | price range | price | fair value | life | range | price | fair value | life | range | price | fair value | life | ||||||||||||||||||||||||||||||||||||||||||||||||||
£ | £ | £ | Years | £ | £ | £ | Years | £ | £ | £ | Years | £ | £ | £ | Years | ||||||||||||||||||||||||||||||||||||||||||||||||||
ESOS(a) | 1.76-4.45 | 4.11 | 1.14 | 4 | 1.76-4.45 | 4.09 | 1.13 | 6 | 1.76-4.45 | 4.13 | 1.13 | 4 | 1.76-4.45 | 4.11 | 1.14 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||
SAYE(a) | 1.57-4.11 | 3.59 | 1.92 | 3 | 1.57-4.11 | 3.33 | 1.85 | 3 | 1.57-4.11 | 3.69 | 1.84 | 4 | 1.57-4.11 | 3.59 | 1.92 | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||
ISOP(a) | 3.77-5.62 | 4.56 | 1.71 | 8 | 3.77-5.62 | 4.98 | 2.06 | 7 | 3.26-5.62 | 4.59 | 1.71 | 8 | 3.26-5.62 | 4.56 | 1.71 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||
BGIEOP(b) | 6.11-10.92 | 9.51 | 3.23 | 8 | 6.11-10.92 | 8.91 | 3.03 | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BGI EOP(b) | 6.11-20.11 | 12.74 | 4.12 | 8 | 6.11-10.92 | 9.51 | 3.23 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Woolwich SAYE(a) | 3.08-3.37 | 3.34 | 2.60 | 1 | 3.08-3.37 | 3.16 | 2.48 | 1 | 3.08-3.37 | 3.32 | 2.75 | 5 | 3.08-3.37 | 3.34 | 2.60 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Woolwich ESOP(a) | 3.29-4.22 | 3.80 | 2.69 | 6 | 3.29-4.22 | 3.77 | 2.71 | 7 | 3.29-4.22 | 3.80 | 2.68 | 5 | 3.29-4.22 | 3.80 | 2.69 | 6 | |||||||||||||||||||||||||||||||||||||||||||||||||
ESAS(a)(c) | – | – | 4.15 | 3 | – | – | 3.99 | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair values for the ISOP, ESOS, SAYE, the Woolwich ESOP, the Woolwich SAYE and the BGI EOP are calculated at the date of grant using the Black-Scholesappropriate option pricing model. The significant weighted average assumptions used to estimate the fair value of the options granted in 20032004 are as follows:
BGI | ||||||||||||||||||||||||
ISOP | SAYE | EOP(b) | ISOP | SAYE | BGI EOP(b) | |||||||||||||||||||
Risk-free interest rate | 4.19 | % | 4.60 | % | 3.97 | % | 4.65% | 5.12% | 2.81% | |||||||||||||||
Expected life (years) | 5 | 5 | 7 | 5 | 5 | 5 | ||||||||||||||||||
Expected volatility | 32 | % | 32 | % | 25 | % | 34% | 25% | 25% | |||||||||||||||
ESAS provides nil cost awards on which the performance conditions are substantially completed at the date of grant. Consequently the fair value of these awards is the market value at that date.
The range, weighted average exercise price, weighted average remaining contractual life and number of options outstanding, including those exercisable at year endyear-end (see page 179)196), are as follows:
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||
average | average | average | average | |||||||||||||||||||||
exercise | remaining | Number of | exercise | remaining | Number of | |||||||||||||||||||
price | life | options | price | life | options | |||||||||||||||||||
Exercise Price Range | £ | Years | outstanding | £ | Years | outstanding | ||||||||||||||||||
ESOS(a) | ||||||||||||||||||||||||
£1.50 – £2.49 | 1.86 | 2 | 127,024 | 1.90 | 1 | 87,024 | ||||||||||||||||||
£2.50 – £3.49 | 3.47 | 2 | 415,000 | 3.47 | 1 | 97,176 | ||||||||||||||||||
£3.50 – £4.49 | 4.21 | 4 | 5,410,020 | 4.19 | 4 | 4,362,014 | ||||||||||||||||||
SAYE(a) | ||||||||||||||||||||||||
£1.50 – £2.49 | 1.99 | 1 | 456,580 | |||||||||||||||||||||
£2.50 – £3.49 | 3.15 | 2 | 22,660,494 | 3.14 | 1 | 17,032,334 | ||||||||||||||||||
£3.50 – £4.49 | 3.72 | 3 | 82,735,657 | 3.81 | 4 | 80,234,128 | ||||||||||||||||||
ISOP(a) | ||||||||||||||||||||||||
£2.50 – £3.49 | 3.26 | 9 | 26,249,000 | 3.26 | 8 | 25,568,000 | ||||||||||||||||||
£3.50 – £4.49 | 3.91 | 7 | 12,092,324 | 3.90 | 6 | 8,084,068 | ||||||||||||||||||
£4.50 – £5.49 | 5.25 | 7 | 60,591,024 | 4.97 | 8 | 103,895,508 | ||||||||||||||||||
£5.50 – £6.49 | 5.62 | 7 | 322,192 | |||||||||||||||||||||
BGI EOP(b) | ||||||||||||||||||||||||
£6.00 – £9.99 | 8.36 | 7 | 7,420,301 | |||||||||||||||||||||
£10.00 – £13.99 | 10.92 | 9 | 6,104,368 | |||||||||||||||||||||
£6.00 – £13.99 | 10.15 | 7 | 5,605,697 | |||||||||||||||||||||
£14.00 – £21.99 | 20.11 | 9 | 1,969,000 | |||||||||||||||||||||
ESAS(a)(c) | – | 3 | 100,283,752 | |||||||||||||||||||||
Woolwich SAYE(a) | ||||||||||||||||||||||||
£2.50 – £3.49 | 3.34 | 1 | 608,920 | 3.32 | 5 | 164,040 | ||||||||||||||||||
Woolwich ESOP(a) | ||||||||||||||||||||||||
£2.50 – £3.49 | 3.29 | 6 | 844,528 | 3.29 | 5 | 422,648 | ||||||||||||||||||
£3.50 – £4.49 | 3.92 | 6 | 3,571,924 | 3.92 | 5 | 1,878,016 | ||||||||||||||||||
(a) | Options granted over Barclays PLC | |
(b) | Options granted over BGI UK Holdings Limited | |
(c) | ESAS is a nil cost award. |
178
197
61Notes to the accounts
For the year ended 31st December 2004
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(e) Compensation arrangements (continued)
Weighted | ||||||||||||||||
Weighted | average | |||||||||||||||
average | Number of | exercise | Number of | |||||||||||||
exercise price | options | price | options | |||||||||||||
Exercise Price Range | £ | exercisable | £ | exercisable | ||||||||||||
ESOS(a) | ||||||||||||||||
£1.50 – £2.49 | 1.86 | 127,024 | 1.90 | 87,024 | ||||||||||||
£2.50 – £3.49 | 3.47 | 415,000 | 3.47 | 97,176 | ||||||||||||
£3.50 – £4.49 | 4.21 | 5,410,020 | 4.19 | 4,362,014 | ||||||||||||
SAYE(a) | ||||||||||||||||
£1.50 – £2.49 | 1.99 | 456,580 | ||||||||||||||
£2.50 – £3.49 | 3.11 | 903,304 | 3.17 | 268,152 | ||||||||||||
£3.50 – £4.49 | 3.78 | 1,141,460 | ||||||||||||||
ISOP(a) | ||||||||||||||||
£3.50 – £4.49 | 3.91 | 9,755,471 | ||||||||||||||
£4.50 – £5.49 | 5.31 | 9,929,900 | ||||||||||||||
BGI EOP(b) | ||||||||||||||||
£6.11 – £10.92 | 8.83 | 7,172,713 | ||||||||||||||
£6.00 – £13.99 | 9.67 | 3,482,272 | ||||||||||||||
ESAS(a)(c) | – | 10,144,101 | ||||||||||||||
Woolwich SAYE(a) | ||||||||||||||||
£2.50 – £3.49 | 3.34 | 608,920 | ||||||||||||||
£3.50 – £4.49 | 3.32 | 164,040 | ||||||||||||||
Woolwich ESOP(a) | ||||||||||||||||
£2.50 – £3.49 | 3.29 | 844,528 | 3.29 | 422,648 | ||||||||||||
£3.50 – £4.49 | 3.92 | 3,571,924 | 3.92 | 1,878,016 | ||||||||||||
(a) | Options granted over Barclays PLC | |
(b) | Options granted over BGI UK Holdings Limited | |
(c) | ESAS is a nil cost award. |
The expected dividends for all schemes are assumed to grow in line with the expected increases in share prices for the industry sector until exercise.
The ESOS is a long-term incentive scheme and was available by invitation to certain senior executives of the Group with grants usually made annually. Options were issued at the market price at the date of the grant without any discount, calculated in accordance with the rules of the Scheme, and are normally exercisable between three and ten years from that date. No further awards are made under ESOS.
Eligible employees in the UK may participate in the SAYE. Under this Scheme, employees may enter into contracts to save up to £250 per month and, at the expiry of a fixed term of three, five or seven years, have the option to use these savings to acquire shares in the Company at a discount, calculated in accordance with the rules of the Scheme. The discount is currently 20% of the market price at the date the options were granted.
The ISOP has beenwas introduced to replace the ESOS. It is open by invitation to the employees and Directors of Barclays PLC. Options are granted at the market price at the date of grant calculated in accordance with the rules of the Plan, and are normally exercisable between three and ten years from that date. The final number of shares over which the option may be exercised will be determined by reference to set performance criteria. The number of shares under option represents the maximum possibleexpected number that maywill be exercised.
The BGI Equity Ownership Plan is extended to senior employees of BGI. The exercise price of the options is determined by formula at the dateRemuneration Committee of grant and is not less thanBarclays PLC based on the marketfair value of the share at the time of grant.as determined by an independent appraiser. The options are granted over shares in BGI UK Holdings Limited, a subsidiary of Barclays Bank PLC. Options are normally not exercisable until vesting, with a third of the options heldgenerally becoming exercisable at each anniversary of grant. Options lapse ten years after grant. At 31st December 2003 13.5m (2002: 17.8m)2004 7.6 million (2003: 13.5 million) options were outstanding under the terms of the BGI Equity Ownership Plan enabling certain members of staff to subscribe for shares in BGI UK Holdings Limited between 20042005 and 20132014 at prices between £6.11 and £10.92.£20.11.
For certain employees of the Group an element of their annual bonus is in the form of a deferred award of Barclays PLC shares under ESAS. The total value of the bonus made to the employee of which ESAS is an element is dependent upon the business unit, Group and individual employee performance. The ESAS element of the annual bonus must be held for at least three years and is subject to potential forfeit if the individual resigns and commences work with a competitor business.
(f) Shareholders’ interest in the long-term assurance fund
198
Barclays PLC Annual Report 2003 1792004
Notes to the Accounts
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
(g) Earnings per share
2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||||||||||||||
average | Per-share | average | Per-share | average | Per-share | |||||||||||||||||||||||||||||||
Income | share no. | amount | Income | share no. | amount | Income | share no. | amount | ||||||||||||||||||||||||||||
£m | (in millions) | pence | £m | (in millions) | pence | £m | (in millions) | pence | ||||||||||||||||||||||||||||
Basic EPS Net income (US GAAP) available to ordinary shareholders | 1,740 | 6,483 | 26.8 | 2,476 | 6,626 | 37.4 | 2,695 | 6,651 | 40.5 | |||||||||||||||||||||||||||
Effect of dilutive securities | ||||||||||||||||||||||||||||||||||||
Employee share options | 26 | 40 | 60 | |||||||||||||||||||||||||||||||||
Other schemes | 61 | (6 | ) | 4 | ||||||||||||||||||||||||||||||||
Diluted EPS | 1,740 | 6,570 | 26.5 | 2,476 | 6,660 | 37.2 | 2,695 | 6,715 | 40.1 | |||||||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||||||||||||||
average | Per-share | average | Per-share | average | Per-share | |||||||||||||||||||||||||||||||
Income | share no. | amount | Income | share no. | amount | Income | share no. | amount | ||||||||||||||||||||||||||||
£m | (in millions) | pence | £m | (in millions) | pence | £m | (in millions) | pence | ||||||||||||||||||||||||||||
Basic EPS | ||||||||||||||||||||||||||||||||||||
US GAAP net income available to ordinary shareholders | 3,032 | 6,381 | 47.5 | 1,740 | 6,483 | 26.8 | 2,476 | 6,626 | 37.4 | |||||||||||||||||||||||||||
Effect of dilutive securities: – Employee share options | 34 | 26 | 40 | |||||||||||||||||||||||||||||||||
– Other schemes | 65 | 61 | (6 | ) | ||||||||||||||||||||||||||||||||
Diluted EPS | 3,032 | 6,480 | 46.8 | 1,740 | 6,570 | 26.5 | 2,476 | 6,660 | 37.2 | |||||||||||||||||||||||||||
Net income for the year ended 31st December 2001, adjusted to exclude the amortisation expense related to goodwill of £199m which is no longer amortised following adoption of SFAS 142, was £2,894m. The impact on 2001 EPS of this adjustment would have been to increase both basic and diluted EPS by 3.0p to 43.5p and 43.1p respectively.
UK EPS is detailed in Note 12. Of the total number of employees’ share options existingshares under option at the year end,year-end, the following were not included in the dilution calculation above because they were antidilutive:of the circumstances prevailing at year-end:
2003 | 2002 | 2001 | ||||||||||
in millions | in millions | in millions | ||||||||||
Number of options | 116 | 80 | 52 |
2004 | 2003 | 2002 | ||||||||||
in millions | in millions | in millions | ||||||||||
Number of options | 216 | 224 | 181 | |||||||||
Certain incentive plan shares have been excluded from the calculation of the basic EPS. These shares are subsequently brought into the diluted earnings per share calculation (called ‘Other schemes’) above.
(h) Fair value of securities
All long investment securities are classified as being ‘available for sale’ unless the Group has a clear intention and ability to hold them to maturity. Other debt securities are classified as trading securities (see Note 17)16).
180
61 Differences between UK GAAP and US GAAP accounting principles (continued)
(h) Fair value of securities (continued)
Less than 12 months | 12 months or more | Total | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||||||||||
Unrealised | Unrealised | Unrealised | Unrealised | Unrealised | Unrealised | |||||||||||||||||||||||||||||||||||||||||||
Fair value | losses | Fair value | losses | Fair value | losses | Fair value | losses | Fair value | losses | Fair value | losses | |||||||||||||||||||||||||||||||||||||
Description of securities | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||
United Kingdom government | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
Other government | 2,687 | (15 | ) | – | – | 2,687 | (15 | ) | 488 | (5 | ) | 127 | (3 | ) | 615 | (8 | ) | |||||||||||||||||||||||||||||||
Mortgage-backed securities | 5,138 | (60 | ) | – | – | 5,138 | (60 | ) | 6,922 | (31 | ) | 347 | (1 | ) | 7,269 | (32 | ) | |||||||||||||||||||||||||||||||
Corporate issuers | 2,256 | (14 | ) | 2,065 | (6 | ) | 4,321 | (20 | ) | 1,100 | (1 | ) | 421 | – | 1,521 | (1 | ) | |||||||||||||||||||||||||||||||
Other issuers | – | – | – | – | – | – | 1 | – | – | – | 1 | - | ||||||||||||||||||||||||||||||||||||
Total | 10,081 | (89 | ) | 2,065 | (6 | ) | 12,146 | (95 | ) | 8,511 | (37 | ) | 895 | (4 | ) | 9,406 | (41 | ) | ||||||||||||||||||||||||||||||
The Group performs a review of each individual investment security on a regular basis to determine whether any evidence of impairment exists. This review considers factors such as the duration and amount at which fair value is below cost, the credit standing and prospects of the issuer, and the intent and ability of the Group to hold the investment security for such sufficient time to allow for any anticipated recovery in fair value.
Under US GAAP, 87177 investment debt securities had unrealised losses as at 31st December 2003.2004. Based on thea review performed at 31st December 2003,2004, management believes that the unrealised losses as at that date are temporary in nature. The unrealised losses are due to market movesmovements in interest rates. The credit quality of the bond issuers remains strong with 100% rated as investment grade or higher and the Group has the ability and intent to hold these investments are also intendedpositions until recovery.
199
Notes to be held for the longer term such that their fair value is expected to recover.accounts
For the year ended 31st December 2004
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(i) Revaluation of property
(j) Loan impairment and disclosure
In accordance with SFAS 114, the Group’s total impaired loans are those reported asbeing non-performing, on page 39, less impaired loans outside the scope of SFAS 114, and amount to £2,378m£1,386m at 31st December 2003 (2002: £2,604m)2004 (2003: £1,700m). Credit risk provisions of £1,340m,£721m, estimated in accordance with SFAS 114, were held against these loans (2002: £1,335m)(2003: £762m). The average level of such impaired lendings in 20032004 was £2,533m (2002: £2,147m)£1,736m (2003: £1,832m).
Where cash received represents the realisation of security, or there is doubt regarding the recovery of a loan, such receipts are treated as repayments of the loan principal. Otherwise, cash received in respect of impaired loans is recognised as interest income. Estimated interest income which was recognised in 20032004 on impaired loans within the scope of SFAS 114 was £28m (2002: £5m)£24m (2003: £18m).
SFAS 114 modifies the accounting for in-substance foreclosure, in that collateralised debts where the Group takes physical possession of the collateral, regardless of formal insolvency procedures, would be reclassified as if the collateral had been acquired for cash. At 31st December 2003,2004, under US GAAP, the amount of collateral recorded at the lower of the book value of the debt or the fair value of the collateral that would be reclassified as ‘other real estate owned’ was £11m (2002: £6m)£7m (2003: £11m) and as debt and equity instruments was £48m (2002: £6m)£34m (2003: £48m).
ThereMortgage loans of £3,482m are no mortgage loans included within loans and advances to customers which are held with the intention of resale (2002: £830m)(2003: £nil). During the year £645m£4,762m of loans were sold (2002: £nil)(2003: £645m) generating a net profit of £31m (2003: net loss of £10m (2002: £nil)£10m).
(k) Business combination
In 2003,2004, an adjustment of £13m (2003: £(4)mm) was made to the gain of £206m, also recognised under UK GAAP in the Statement of Total Recognised Gains and Losses.
(l) Provisions for restructuring of business
The Group does not currently have any restructuring programmes which have to be accounted under SFAS 146 ‘Accounting for Costs Associated with Exit or Disposal Activities’.
200
During 2003, a restructuring charge of £209m (2002: £187m, 2001: £171m) was booked under UKGAAP, reflecting severance and other termination costs of £146m (2002: £124m, 2001: £114m), costs in connection with planned disposition of certain facilities £28m (2002: £27m, 2001: £38m) and other related costs of £35m (2002: £36m, 2001: £19m). Of the 2003 charge, £nil has been disallowed for US GAAP purposes. Of the 2002 charge under EITF 94-3, £5m was disallowed in 2002 and charged in 2003. Of the 2001 charge £11m was disallowed in 2001, £4m was charged in 2002 and £7m was charged in 2003. Of the 2000 charge, £10m was disallowed in 2000, £13m was disallowed in 2001, £19m was charged in 2002 and £4m was charged in 2003.
Barclays PLC Annual Report 2003 1812004
Notes to the Accounts
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
(l) Provisions for restructuring of business (continued)
(m) Internal use software
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||
Additional US GAAP shareholders’ funds brought forward | 81 | 288 | 218 | 67 | 81 | 288 | ||||||||||||||||||||||||||||||||||||||||||
Expenditure to be capitalised under US GAAP | 74 | 60 | 186 | 23 | 74 | 60 | ||||||||||||||||||||||||||||||||||||||||||
Amortisation | (64 | ) | (136 | ) | (110 | ) | (20 | ) | (64 | ) | (136 | ) | ||||||||||||||||||||||||||||||||||||
Write-offs | (24 | ) | (131 | ) | (6 | ) | (50 | ) | (24 | ) | (131 | ) | ||||||||||||||||||||||||||||||||||||
(Charge)/credit to US GAAP net income | (14 | ) | (207 | ) | 70 | |||||||||||||||||||||||||||||||||||||||||||
Charge to US GAAP net income | (47 | ) | (14 | ) | (207 | ) | ||||||||||||||||||||||||||||||||||||||||||
Additional US GAAP shareholders’ funds carried forward | 67 | 81 | 288 | 20 | 67 | 81 | ||||||||||||||||||||||||||||||||||||||||||
A review of costs capitalised in previous years and useful lives assigned is undertaken annually. Capitalised costs which are no longer considered recoverable are written off.
(n) Foreign exchange on available for sale securities
Under US GAAP, the change in value of the investments is taken directly to reserves while the offsetting change in sterling terms of the borrowing is taken to the income statement.
A similar difference arises where foreign currency assets are covered using forward contracts but where the Group does not manage these hedges to conform with the detailed US designation requirements.
The impact of this requirement is to transfer net foreign exchange gains or losses on currency securities from net income to other comprehensive income. No difference between the Group’s UK and US GAAP shareholders’ equity arises from this transfer.
(o) Derivatives
The adjustment to net income comprises the following elements:
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001(b) | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Mark to market adjustment(a) | (761 | ) | 548 | 476 | (586 | ) | (761 | ) | 548 | |||||||||||||||
Embedded derivatives | (194 | ) | 109 | (90 | ) | 182 | (194 | ) | 109 | |||||||||||||||
Deferred gains and losses | (46 | ) | 12 | (28 | ) | 10 | (46 | ) | 12 | |||||||||||||||
Amortisation of fair value hedge | (140 | ) | (156 | ) | (128 | ) | (10 | ) | (140 | ) | (156 | ) | ||||||||||||
Reclassification of gains and losses from Other comprehensive income to net income | 39 | 40 | 28 | 40 | 39 | 40 | ||||||||||||||||||
Hedges of available for sale securities | – | – | 20 | |||||||||||||||||||||
(1,102 | ) | 553 | 278 | (364 | ) | (1,102 | ) | 553 | ||||||||||||||||
(a) | EITF 02-03 was clarified in November 2002 to require the measurement of the derivative fair values based on quoted market prices, or in the absence of quoted market prices, valuation techniques with observable inputs from active markets. For all Over The Counter derivatives which contain significant valuation inputs not currently evidenced by observable market inputs, inception gains and losses have been fully reserved. | |
They will be released as and when the inputs become observable. The mark to market adjustment in the above table is shown net of the reversal of unrealised day 1 profit and loss on derivative contracts. | ||
182
201
61Notes to the accounts
For the year ended 31st December 2004
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(p) Consolidation
Under US GAAP, the Group consolidates entities in which it has a controlling financial interest. This is determined by initially evaluating whether the entity is a voting interest entity, a variable interest entity (VIE), or a qualifying special purpose entity (QSPE).
Voting interest entities
Voting interest entities are entities in which the total equity investment at risk is sufficient to enable each entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the rights to receive residual returns and the right to make decisions about the entity’s activities. Voting interest entities are consolidated in accordance with ARB 51 which states that the usual condition for a controlling financial interest in an entity is ownership of a majority voting interest.
Variable interest entities
As defined in FIN 46 and FIN 46-R, an entity is considered a VIE subject to consolidation if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or if the equity investors lack one of three characteristics of a controlling financial interest described above. First, the equity investors lack the ability to make decisions about the entity’s activities through voting rights or similar rights. Second, they do not bear the obligation to absorb the expected losses of the entity if they occur. Lastly, they do not claim the right to receive expected returns of the entity if they occur, which are the compensation for the risk of absorbing the expected losses.
VIEs are consolidated by the interest holder that remains exposed to the majority of the entity’s expected losses or residual returns, that is, the primary beneficiary.
The business activities within the Barclays Group where VIEs are used include multi-seller conduit programmes, asset securitisations, client intermediation, credit structuring, asset realisations and the credit structuring.fund management.
Multi-seller conduit programmes
Barclays creates, administers and provides liquidity and credit enhancements to several commercial paper conduit programmes, primarily in the United States. These conduits provide clients access to liquidity in the commercial paper markets by allowing them to sell consumer or trade receivables to the conduit, which then issues commercial paper to investors to fund the purchase. The conduits have sufficient collateral, credit enhancements and liquidity support to maintain an investment grade rating for the commercial paper.
Asset securitisations
The Group assists companies with the formation of asset securitisations. These entities have minimal equity and rely upon funding in the form of notes to purchase the assets for securitisation. The Group provides both senior and/or junior lending and derivative contracts to the entities. Whereentities, where junior notes are provided and in certain circumstances where derivative contracts are provided, the Group may be the primary beneficiary of the entity.
Client intermediation
As a financial intermediary, the Group is involved in structuring transactions to meet investor and client needs. These transactions may involve entities that fall within the scope of FIN 4646-R structured by either Barclays or the client and that are used to modify cash flows of third-party assets to create investments with specific risk or return profiles, or to assist clients in the efficient management of other risks. These transactions may include derivative instruments, and often contain contractual clauses to enable Barclays to terminate the transaction under certain circumstances, for example, if the legal or accounting basis on which the transaction was completed changes. In addition, Barclays invests as a limited partner in lessor partnerships and as a parent in wholly owned subsidiaries specifically to acquire assets for leasing. In a portion of these leasing transactions, there may be risk mitigants in place which result in a third-party consolidating the entities as the primary beneficiary.
Credit structuring Asset realisations Fund management 202
The Group structures investments to provide specific risk profiles to investors. This may involve the sale of credit exposures, often by way of credit derivatives, to an entity which subsequently funds the credit exposures by issuing securities. These securities may initially be held by Barclays prior to sale outside of the Group.
The Group establishes SPEs to facilitate the recovery of banking facilities in circumstances where the borrower has suffered financial loss.
The Group provides asset management services to a large number of investment entities on an arm’s-length basis and at market terms and prices. The majority of these entities are investment funds that are owned by a large and diversified number of investors. In addition, there are various partnerships, funds and open-ended investment companies that are used by a limited number of independent third parties to facilitate their tailored private debt, debt securities or hedge fund investment strategies.
In accordance with the transition provisions of FIN 46, the Group adopted FIN 46 immediately for all VIEs created or acquired after 31st January 2003.
Barclays PLC Annual Report 2004
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(p) Consolidation (continued)
The Group is the primary beneficiary in the following variable entities created or acquired after that date:VIEs, classified by type of activity:
2004 | 2003(a) | |||||||
Total assets | Total assets | |||||||
Activity | £m | £m | ||||||
Asset securitisations(b) | 3,926 | 4,982 | ||||||
Multi-seller conduit programmes | 12,404 | – | ||||||
Client intermediation | 216 | – | ||||||
Credit structuring | 2,343 | – | ||||||
Asset realisations | 68 | – | ||||||
The creditors do not have recourse to the general credit of the Group in respect of the variable interest entities consolidated by the Group.
Under UK GAAP, the Group consolidates all of the above entities with the exception of certain asset securitisation entities.
Barclays PLC Annual Report 2003 183
Notes to the Accounts
61 Differences between UK GAAP and US GAAP accounting principles (continued)
(p) Consolidation (continued)
31st | ||||||||
December | ||||||||
Total | 2003 | |||||||
assets | Maximum | |||||||
£m | loss(a) | |||||||
Asset securitisations | 4,435 | 2,271 | ||||||
Client intermediation | 5,400 | 453 | ||||||
The Group has also created or acquired VIEs prior to 1st February 2003. Where it is reasonably possible the Group will be the primary beneficiary and therefore be required to consolidate the following types of entities on adoption of FIN46-R or that the Group will have a significant variable interest, the maximum loss and total assets have been provided below.
31st December 2003 | ||||||||||||||||||||||||||||
Already | 2004 | 2003(a) | ||||||||||||||||||||||||||
consolidated | Total | Maximum | Total | Maximum | ||||||||||||||||||||||||
Total | under | Maximum | assets | loss(c) | assets | loss | ||||||||||||||||||||||
assets | US GAAP(b) | loss(a) | £m | £m | £m | £m | ||||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||||||
Multi-seller conduit programmes | 12,650 | 3,035 | 12,650 | (c) | ||||||||||||||||||||||||
Asset securitisations | 7,949 | 178 | 230 | 10,199 | 282 | 4,435 | 2,271 | |||||||||||||||||||||
Client intermediation | 1,815 | 289 | 738 | 9,799 | 989 | 5,400 | 453 | |||||||||||||||||||||
Credit structuring | 3,186 | 2,877 | 1,478 | 281 | 6 | – | – | |||||||||||||||||||||
Fund management | 2,380 | 1,028 | – | – | ||||||||||||||||||||||||
(a) | Due to the transitional arrangements of FIN 46, the disclosures provided for 31st December 2003 reflect only VIEs created after 31st January 2003 where Barclays either was the primary beneficiary or had a significant variable interest. | |
(b) | Resulting from a refinement of Group policy in respect of vanilla derivative transactions executed with VIEs, the Group no longer believes it is the primary beneficiary of certain entities consolidated in 2003, amounting to £2,978m, which have not been consolidated in 2004. | |
(c) | The maximum exposure to loss represents a ‘worst case’ scenario in the event that all such entities simultaneously fail. It does not provide an indication of ongoing exposure which is managed within the Group’s risk management framework. Where a maximum exposure to loss is quoted, this represents the Group’s total exposure and includes both drawn and undrawn lending facilities. The Group’s exposure is determined by changes in the value of the variable interests it holds within these entities, which primarily comprise liquidity, credit enhancements, derivative transactions and financing arrangements. | |
Qualifying Special Purpose Entities (QSPEs)
In accordance with SFAS 140 and FIN 46,46-R, the Group does not consolidate QSPEs. QSPEs are passive entities used by the Group to hold financial assets transferred to them by the Group and are commonly used in mortgage and other securitisation transactions as described in Note 61(q)52(q) below.
Prior to the adoption of FIN 46, the Group consolidated all non-qualifying SPEs if the Group controlled the SPE and held a majority of the SPE’s substantive risks and rewards.
(q) Securitisations
Investors have no recourse against the Group if cash flows generated from the securitised assets are not sufficient to service the obligations of the QSPEs.
The Group has no right or obligation to repurchase the benefit of any securitised balance, except if certain representations and warranties given by the Group at the time of transfer are breached.
The Group has entered into interest rate currency swaps with the QSPEs. These swaps convert a proportion of the Sterling variable interest flows arising from the Loan Note Certificates to US Dollar variable and fixed rate interest flows to match the interest payable on the Medium Term Notes issued.
184
203
61Notes to the accounts
For the year ended 31st December 2004
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(q) Securitisations (continued)
The Group estimates the fair value of the retained interests by determining the present value of future expected cash flows using valuation models that incorporate management’s best estimates of key assumptions, which include:
(a) the expected prepayment rate of the receivables each year;
(b) the anticipated credit losses from the receivables; and
(c) a discount rate to calculate future income flows.
The retained interests that are subject to prepayment risk such that the Group may not recover substantially all of its investment are recorded at fair value with subsequent adjustments reflected in net income.
The servicing liability represents the shortfall of future servicing income from the Group’s obligation to service the transferred assets compared to the costs of servicing those assets. The servicing liability is amortised over the expected life of the receivables.
Securitisation activity during the year
During 2003,2004, the Group securitised credit card receivables with a book value of £2,508m£810m (2003: £2,508m) recognising a resultant pre-tax gain on sale of £132m.£38m (2003: £132m). The Group has recognised an interest only strip asset and a servicing liability in connection with the transfer.
The derecognition of the securitised assets results in a reduction in net loans and advances to customers of £2,447m.£3,270m (2003: £2,447m).
Mortgage Loans Securitisation
In 2004, Barclays acquired and then securitised ten static pools of residential mortgage loans which were originated by unaffiliated mortgage companies. All of the securitisations were affected through the sale of mortgage loans to Qualifying Special Purpose Vehicles (‘QSPEs’).
To fund the acquisition of these mortgage loans, the trust issued FRNs. The FRNs were underwritten by Barclays and sold to third party investors. The offering circulars for the issues of FRN’s stated that they are the obligations of the respective trust only and are not guaranteed by, or the responsibility of, any other party. A call right is held by the originator with the right to liquidate the trust if the principal balance of the mortgage shares has fallen below 10% of their initial amount, provided all obligations under the bonds can be satisfied in full.
Securitisation activity during the year
Non-returnable proceeds of these securitisations totalled £4,538m at issue. In 2004, Barclays recognised a net gain of £25m arising from the transfer of these assets to the QSPEs.
The retained interests that are subject to prepayment risk such that the Group may not recover substantially all of its investment are recorded at fair value with subsequent adjustments reflected in net income.
Interest only strip
The movement in fair value of retained interests during the period is as follows:Credit cardreceivables£mValue at inception107Transfer to net income(10)Value at 31st December 200397 2004 2003 2004 2003 Mortgage Mortgage Credit card Credit card loans loans receivables receivables £m £m £m £m Value at 1st January – – 97 – Value at inception of new securitisations 270 – 30 107 Transfer to net income – – (10 ) (10 ) Cash flow from interests retained (90 ) – – – Foreign exchange differences (9 ) – – – Value at 31st December 171 – 117 97
Key economic assumptions used in measuring the interest only strip at the time of the securitisation during 2003 were as follows:
2004 | 2003 | 2004 | 2003 | |||||||||||||
Mortgage | Mortgage | Credit card | Credit card | |||||||||||||
loans | loans | receivables | receivables | |||||||||||||
Fair value of interest only strip at inception of new securitisations | £270m | – | £30m | £107m | ||||||||||||
Constant prepayment rate per annum | 15%-17% | – | 100% | 100% | ||||||||||||
Credit losses per annum(a) | 2%-4.25% | – | 5.5% | 5.3% | ||||||||||||
Discount rate | 15%-25% | – | 5.0% | 5.0% | ||||||||||||
(a) | Annual percentage credit loss is based only on positions in which expected credit loss is a key assumption in the determination of fair values. |
204
Barclays PLC Annual Report 2003 1852004
Notes to the Accounts
6152 Differences between UK GAAP and US GAAP accounting principles (continued)
(q) Securitisations (continued)
2004 | 2003 | |||||||
Credit card | Credit card | |||||||
receivables | receivables | |||||||
£m | £m | |||||||
Balance at 1st January | 28 | 31 | ||||||
Balance at inception of new securitisations | 11 | – | ||||||
Amortisation for the year | 6 | (3 | ) | |||||
Balance at 31st December | 45 | 28 | ||||||
The fair value of the servicing liability is £45m (2003: £28m).
No servicing assets or liabilities arise on the securitisation of the mortgages, as the originator has retained the right to service these assets.
The cash flows between the Group and the securitisation vehicles were as follows during the year ended 31st December 2003:2004:
2004 | 2003 | 2004 | 2003 | |||||||||||||
Mortgage | Mortgage | Credit card | Credit card | |||||||||||||
loans | loans | receivables | receivables | |||||||||||||
£m | £m | £m | £m | |||||||||||||
Proceeds from new securitisations | 4,538 | – | 810 | 2,508 | ||||||||||||
Proceeds from collection reinvested in receivables | – | – | 7,336 | 4,277 | ||||||||||||
Cash inflow from servicing fees | – | – | 22 | 13 | ||||||||||||
Cash inflow on interests retained | 90 | – | 216 | 149 | ||||||||||||
Interest only strip at year end
At 3131st December 2003,2004, key economic assumptions and a sensitivity analysis showing the hypothetical effect on the fair value of those interests of two unfavourable variations from the expected levels for each key assumption are as follows:Year ended31st December2003Credit cardreceivablesFair value of interest only strip£97mConstant prepayment rate per annum100% Impact of 33% adverse change£(13)m Impact of 50% adverse change£(38)mCredit losses per annum(a)5.3% Impact of 10% adverse change£(6)m Impact of 20% adverse change£(13)mDiscount rate5.0% Impact of 10% adverse change£(8)m Impact of 20% adverse change£(16)m 2004 2004 Mortgage Credit card loans receivables Fair value of interest only strip £ 171m £ 117m Constant prepayment rate per annum 15%-17 % 100 % Impact of 33% adverse change £ (69)m £ (18)m Impact of 50% adverse change £ (79)m £ (50)m 2%-5 % 5.5 % Impact of 10% adverse change £ (15)m £ (8)m Impact of 20% adverse change £ (29)m £ (16)m Discount rate 15%-25 % 5.0 % Impact of 10% adverse change £ (7)m £ (11)m Impact of 20% adverse change £ (25)m £ (20)m (a) Annual percentage credit loss is based only on positions in which expected credit loss is a key assumption in the determination of fair values.
The sensitivity analysis illustrates the potential magnitude of significant adverse changes in key assumptions used in valuing the interest only strip. However, changes in fair value based on a variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Furthermore, the sensitivities for each key variable are calculated independently of changes in the other key variables.
The following table presentstables present information about principal balances of managed and securitised receivables as of and for the year ended 31st December 2003.2004.
2004 | 2003 | |||||||||||||||||||||||||||||||||||
Credit card receivables | Credit card receivables | |||||||||||||||||||||||||||||||||||
Credit card receivables | Total | Delinquent | Net | Total | Delinquent | Net | ||||||||||||||||||||||||||||||
Total | Delinquent | Net | loans | loans(a) | write-offs(b) | loans | loans(a) | write-offs(b) | ||||||||||||||||||||||||||||
loans | loans(a) | write-offs(b) | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||||||||||||||
Total receivables managed | 11,078 | 228 | 438 | 14,146 | 235 | 515 | 11,078 | 228 | 438 | |||||||||||||||||||||||||||
Less: receivables securitised(c) | (2,508 | ) | (36 | ) | (52 | ) | (3,317 | ) | (49 | ) | (92 | ) | (2,508 | ) | (36 | ) | (52 | ) | ||||||||||||||||||
Assets on US GAAP balance sheet | 8,570 | 192 | 386 | 10,829 | 186 | 423 | 8,570 | 192 | 386 | |||||||||||||||||||||||||||
205
Notes to the accounts
For the year ended 31st December 2004
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(q) Securitisations (continued)
2004 Mortgages | ||||||||||||
Total | Delinquent | Net | ||||||||||
loans | loans | write-offs | ||||||||||
£m | £m | £m | ||||||||||
Total receivables managed | 8,020 | – | – | |||||||||
Less: receivables securitised(c) | (4,538 | ) | – | – | ||||||||
Assets on US GAAP Balanced Sheet | 3,482 | – | – | |||||||||
(a) | Delinquent loans are loans 90 days or more past | |
(b) | Net of recoveries during the | |
(c) | Securitised and derecognised from the balance sheet under US |
186
61 Differences between UK GAAP and US GAAP accounting principles (continued)
(r) Fair value amortisation creditFair value adjustments that are different from those recognised under UK GAAP are amortised over the expected life of the relevant asset/liability. This resulted in an additional credit of £8m (2002: £8m, 2001: £8m) under US GAAP.
(s) Collateral
Under a repo (sale and repurchase agreement), an asset is sold to a counterparty with a commitment to repurchase it at a future date at an agreed price. The Group engages in repos and reverse repos, which are the same transaction in the opposite direction, i.e. the Group buying an asset with a fixed commitment to resell.
The following amounts were included in the balance sheet for repos and reverse repos and are reported on a net basis where permitted:
2004 | 2003 | 2002 | ||||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||||
Reverse repos (assets) | ||||||||||||||||||||||||||
Loans and advances to banks | 50,392 | 41,001 | 32,042 | 61,075 | 50,392 | 41,001 | ||||||||||||||||||||
Loans and advances to customers | 49,962 | 42,505 | 29,731 | 58,304 | 49,962 | 42,505 | ||||||||||||||||||||
100,354 | 83,506 | 61,773 | 119,379 | 100,354 | 83,506 | |||||||||||||||||||||
Repos (liabilities) | ||||||||||||||||||||||||||
Deposits by banks | 39,810 | 37,857 | 25,048 | 42,969 | 39,810 | 37,857 | ||||||||||||||||||||
Customer accounts | 23,661 | 24,580 | 16,204 | 35,382 | 23,661 | 24,580 | ||||||||||||||||||||
63,471 | 62,437 | 41,252 | 78,351 | 63,471 | 62,437 | |||||||||||||||||||||
The average and maximum amount of reverse repos for 20032004 were £133,256m and £164,242m (2003: £109,315m and £137,025m, (2002:2002: £76,215m and £103,895m, 2001: £95,849m and £119,942m)£103,895m) respectively. The average and maximum amount of repos for 20032004 were £100,939m and £133,987m (2003: £84,040m and £109,445m, (2002:2002: £61,416m and £92,219m, 2001: £88,311m and £116,458m)£92,219m).
Reverse repos and stock borrowing transactions are accounted for as collateralised loans. It is the Group’s policy to seek collateral at the outset equal to 100% to 105% of the loan amount. The level of collateral held is monitored daily and further collateral calls made to bring the level of cash held and the market value of collateral in line with the loan balance.
Under certain transactions including reverse repo and stock borrowing transactions the Group is allowed to sell or repledge the collateral held. At 31st December 2003,2004, the fair value of collateral held was £126,085m (2002: £108,935m)£167,033m (2003: £126,085m) of which £91,280m (2002: £93,148m)£122,888m (2003: £91,280m) related to items that have been sold or repledged.
Repos and stock lending transactions are accounted for as secured borrowings. At 31st December 2003,2004, the Group had given £58,316m (2002: £52,427m)£114,568m (2003: £58,316m) of its assets as collateral in respect of these transactions. Of the total collateral given £44,002m (2002: £35,573m)£85,611m (2003: £44,002m) was on terms which gave the recipient the right to sell or repledge, comprising debt securities of £43,665m (2002: £33,729m)£83,833m (2003: £43,665m) and equity securities of £337m (2002: £1,844m)£1,778m (2003: £337m). The residual £14,314m (2002: £16,854m)£28,957m (2003: £14,314m) was on terms by which the counterparty cannot sell or repledge comprised £14,024m (2002: £16,854m)£28,957m (2003: £14,024m) of debt securities and £290m (2002: £nil)£nil (2003: £290m) of equity securities.
For the pledge of collateral to secure on-balance sheet liabilities see Note 41.35.
(t)(s) Provisions for bad and doubtful debts
During 2003,2004, there was a net write-back of £10m (2003: £nil, (2002:2002: £2m write-back, 2001: £9m charge)write-back) in respect of credit losses on derivatives. None£20m of the year end specific provisions related to credit losses on derivatives (2002:(2003: £nil).
During 2003,2004, there was a net write-back of £nil (2003: £14m, (2002: £nil, 2001:2002: £nil) of the general provision in the respect of off-balance sheet exposures (including derivatives). At 31st December 2003, £nil2004, £62m of the general provision (2002: £14m)(2003: £nil) was held in respect of off-balance sheet exposures (including derivatives).
The specific provision for contingent liabilities and commitments is £12m (2002: £14m)£nil (2003: £12m).
(u)206
Barclays PLC Annual Report 2004
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(t) Guarantees
An element of Barclays normal banking business is to issue guarantees on behalf of its customers. In almost all cases, Barclays will hold collateral against the exposure, have a right of recourse to the customer or both. In addition, Barclays issues guarantees on its own behalf. The major categories of these guarantees are:
Financial guarantees
These are given to banks and financial institutions on behalf of customers to secure loans, overdrafts and other banking facilities. These are commonly called facility guarantees.
Included within this category are stock borrowing indemnities. These relate to funds managed by Barclays on behalf of clients, which participate in stock lending programmes. Barclays indemnifies the clients against any losses incurred by the clients resulting from borrower default. Collateral, principally cash, is maintained against all stock borrowing transactions ranging from 102% to 105% of the securities loaned with adjustments to collateral made daily. It is possible that the exposure could exceed the collateral provided should the value of the security rise concurrently with the default of the borrowers.
Barclays PLC Annual Report 2003 187
Notes to the AccountsFor the Year Ended 31st December 2003
61 Differences between UK GAAP and US GAAP accounting principles (continued)
(u) Guarantees (continued)
Standby letters of credit
These are irrevocable commitments to pay a third party, on behalf of our customers, the value of which on demand is subject to certain criteria being complied with. Any amounts paid are debited to the customers accounts. These contracts are used when required in substitution of guarantees due to a greater acceptability in the beneficiary country.
Other guarantees
This category includes the following types of contracts:
Performance guarantees – a guarantee given by the bank on behalf of a customer, undertaking to pay a certain sum if our customer has failed to carry out the terms or certain terms of the contract.
Advance payment guarantees – enables the beneficiary to demand repayment of an advance in funds in certain circumstances.
Tender guarantees – provided during a tender process to lend support to a customer’s commitment to a tender process.
Customs and Excise – guarantees provided to HM Customs and Excise to cover a customer’s liability, most commonly for import duties.
Retention guarantees – similar to advance payments but are used to secure early release of retained contract payments.
The following table provides the maturity analysis of guarantees issued by the Group. The amounts disclosed represent the maximum potential amount of future payments (undiscounted) the Group could be required to make under the guarantee, before any recovery through recourse or collaterisation provisions.
2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||
Less than | One to | Four to | Over | |||||||||||||||||||||||||||||||||||||||||
Less than | One to | Four to | Over | one year | three years | five years | five years | Total | Total | |||||||||||||||||||||||||||||||||||
one year | three years | five years | five years | Total | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||
Financial guarantees | 16,838 | 945 | 308 | 721 | 18,812 | 19,842 | 367 | 292 | 826 | 21,327 | 18,812 | |||||||||||||||||||||||||||||||||
Standby letters of credit | 3,951 | 805 | 865 | 163 | 5,784 | 4,772 | 1,721 | 1,452 | 739 | 8,684 | 5,784 | |||||||||||||||||||||||||||||||||
Other guarantees | 6,455 | 920 | 690 | 362 | 8,427 | 6,227 | 1,156 | 379 | 483 | 8,245 | 8,427 | |||||||||||||||||||||||||||||||||
Credit card guarantees
Under the Consumer Credit Act of 1974, Barclays may be liable to customers to refund payments made for unsatisfactory goods or services or unfulfilled contracts where payment was made through a credit card. The maximum liability that Barclays could have is the total credit limits marked to customers of £32,734m (2002: £29,208m)£42,813m (2003: £32,734m). These limits are included within commitments with a maturity of less than one year, as the limit can be revoked at any time.
Warranties and indemnities given as part of acquisition and disposal activity
Warranties and indemnities are routinely provided to counterparties as part of the terms and conditions required in a business acquisition, disposal or investing in joint ventures. Most commonly, these relate to indemnification against tax liabilities arising from pre-transaction activities. Usually the total aggregate liability, in respect of warranties and indemnities for a transaction is capped and the maximum exposure under these is £4,000m (2002: £4,100m)£2,686m (2003: £4,000m). No collateral or recourse to third parties is generally available.
Certain derivative contracts
In addition to the contracts described above, there are certain derivative contracts to which the Group is a counterparty that meet the characteristics of a guarantee under FIN 45. These derivatives are recorded in the Group’s balance sheet at fair value under US GAAP.
Included in other provisions for liabilities and charges is £nil (2002: £4m)£26m (2003: £nil) in respect of guarantees. The Group considers the amounts provided in the balance sheet represent a reasonable estimate of amounts actually anticipated to be paid under such arrangements.
(v) Total assetsThe adjustments to total assets arising from the GAAP differences dealt with in the tables on page 172, and Notes (p) and (q) amounted to £3,677m (2002: £6,202m). Additional adjustments arise due to further differences in GAAP, as set out below.
In accordance with ARB No. 43, Barclays PLC shares shown for UK GAAP within Other assets in Note 23 have been netted against US GAAP shareholders’ equity.
188
207
61Notes to the accounts
For the year ended 31st December 2004
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(u) Asset retirement obligation
The Group recognises a liability for an asset retirement obligation and capitalises an amount for asset retirement cost. The entity estimates the initial fair value of the liability using an expected present value technique. 2004 2003 £m £m Asset retirement obligations at beginning of year 4 – Liability incurred in the period 36 4 Asset retirement obligations at end of year 40 4
(v) Assets held for sale
The Group acquired an interest in New World Networks International Ltd (NWN) following a debt for equity restructuring in February 2003 and has consequently classified it as an asset held for sale under Statement of Financial Accounting Standards 144. The Group is aiming to partially recover its exposure by disposing of its interest in NWN to a third party and has engaged a third party to find a buyer. The Group is currently in negotiations with several interested parties and anticipate a disposal to occur in 2005. NWN has property, plant and equipment of £76m and liabilities of £83m.
(w) Total assets (continued)
Netting
Certain transactions have been netted in the UK as required under FRS 5. To the extent these arrangements do not satisfy the requirement of FIN 39 and FIN 41, total assets have been increased by £45,277m (2002: £43,216m)£65,505m (2003: £45,277m).
2004 | 2003 | |||||||||||||||
2003 | 2002 | £m | £m | |||||||||||||
£m | £m | |||||||||||||||
Repurchase and reverse repurchase agreements | 9,684 | 10,041 | 18,572 | 9,684 | ||||||||||||
Securities lending and borrowing agreements | 18,743 | 17,259 | 21,824 | 18,743 | ||||||||||||
Receivables and payables in respect of unsettled trades | (6,030 | ) | (2,420 | ) | (7,250 | ) | (6,030 | ) | ||||||||
Cash collateral held against derivatives | 7,964 | 5,750 | 14,787 | 7,964 | ||||||||||||
Loans and deposits | 14,916 | 12,586 | 17,572 | 14,916 | ||||||||||||
Total | 45,277 | 43,216 | 65,505 | 45,277 | ||||||||||||
Gross assets and liabilities have been increased by £49,099m (2002: £36,541m)£60,400m (2003: £49,099m) due to inclusion of certain BGI insurance products. The legal form of these products is similar to insurance contracts, which are accounted for in accordance with SFAS 97. Accordingly, the assets and liabilities associated with these products are recorded on the balance sheet.
The inclusion of acceptances resulted in an increase in total assets under US GAAP of £654m (2002: £2,588m)£263m (2003: £654m).
(w)(x) Profit and loss account presentation
There are certain differences in the presentation of the profit and loss account between UK GAAP and US GAAP. Profits or losses on disposal of Group undertakings (2003:Exceptional items (2004: £45m profit, 2003: £4m profit, 2002: £3m loss, 2001: £4m loss) would be classified as operating income or expense under US GAAP rather than being shown separately. Under US GAAP, net interest received (2003:(2004: £(219)m, 2003: £68m, 2002: £75m, 2001: £387m paid)£75m) relating to trading activities would be shown within net interest revenue, rather than included in dealing profits. Reconciling differences arising from associated undertakings (2003:(2004: £7m profit, 2003: £7m profit, 2002: £6m profit, 2001: £nil)profit) would be included within a single component of net income.
(x)(y) Changes in UK GAAP
During 2003,2004, Barclays restated the 20022003 shareholders’ funds under UK GAAP in respect of changesa change of accounting policy for the purchase and sales of own shares held in ESOP trusts, as required by UITF 37,38, as described on page 105.115. The restatement had no impact on net income. There has been no effect on the reported US GAAP figures.
Shareholders’ funds
Original | Restated | |||||||||||||||||||||||
reconciliation | Prior year | reconciliation | Original | |||||||||||||||||||||
item | adjustment | item | reconciliation | Prior year | Reconciliation | |||||||||||||||||||
£m | £m | £m | item | adjustment | item | |||||||||||||||||||
2002 | ||||||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
2003 | ||||||||||||||||||||||||
Own shares | (59 | ) | 4 | (55 | ) | (99 | ) | 99 | – | |||||||||||||||
Total affected reconciling items | (59 | ) | 4 | (55 | ) | (99 | ) | 99 | – | |||||||||||||||
62208
Barclays PLC Annual Report 2004
53 Consolidated statement of cash flows
Interest paid in the year, including amounts relating to trading activities, was £14,842m (2003: £10,768m, (2002: £10,167m, 2001: £13,319m)2002: £10,167m).
For the purposes forof the US GAAP cash flow, cash and cash equivalents are defined as short-term highly liquid investments which are readily convertible into known amounts of cash with original maturity of three months.
Set out below, for illustrative purposes, is a summary consolidated statement of cash flows presented on a US GAAP basis:
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Net cash provided by operating activities | 13,367 | 15,267 | 6,440 | 9,250 | 13,367 | 15,267 | ||||||||||||||||||
Net cash used in investing activities | (30,683 | ) | (46,968 | ) | (32,413 | ) | (73,161 | ) | (30,683 | ) | (46,968 | ) | ||||||||||||
Net cash provided by financing activities | 16,846 | 34,977 | 36,223 | 61,112 | 16,846 | 34,977 | ||||||||||||||||||
Effect of exchange rate changes on cash and due from banks | 750 | 990 | 143 | 1,136 | 750 | 990 | ||||||||||||||||||
Net increase/(decrease) in cash and cash equivalents | 280 | 4,266 | 10,393 | |||||||||||||||||||||
Net (decrease)/increase in cash and cash equivalents | (1,663 | ) | 280 | 4,266 | ||||||||||||||||||||
Cash and cash equivalents at beginning of year | 50,238 | 45,972 | 35,579 | 50,518 | 50,238 | 45,972 | ||||||||||||||||||
Cash and cash equivalents at end of year | 50,518 | 50,238 | 45,972 | 48,855 | 50,518 | 50,238 | ||||||||||||||||||
Barclays PLC Annual Report 2003 189
Notes to the AccountsFor the Year Ended 31st December 2003
6354 Regulatory capital requirements
Capital adequacy and the use of regulatory capital are monitored by the Group, employing techniques based on the guidelines developed by the Basel Committee on Banking Regulations and Supervisory Practices (the Basel Committee) and European CommunityUnion Directives, as implemented by the Financial Services Authority (FSA) for supervisory purposes. The FSA regards the risk asset ratio calculation, originally developed by the Basel Committee, as a key supervisory tool and sets individual minimum ratio requirements for banks in the UK at or above the minimum of 8%. The concept of risk weighting and the basis for calculating eligible capital resources are described under capital ratios on page 88.100.
The following tables summarises capital resources and capital ratios, as defined for supervisory purposes:
Barclays PLC Group and Barclays Bank PLC Group
Amount | Ratio | |||||||||||||||
As at 31st December 2003 | £m | % | ||||||||||||||
Amount | Ratio | |||||||||||||||
As at 31st December 2004 | £m | % | ||||||||||||||
Total net capital resources | 24,223 | 12.8 | 25,216 | 11.5 | ||||||||||||
Tier 1 capital resources | 14,994 | 7.9 | 16,662 | 7.6 | ||||||||||||
Amount | Ratio | |||||||||||||||
As at 31st December 2002 | £m | % | ||||||||||||||
Amount | Ratio | |||||||||||||||
As at 31st December 2003 | £m | % | ||||||||||||||
Total net capital resources | 22,191 | 12.8 | 24,223 | 12.8 | ||||||||||||
Tier 1 capital resources | 14,204 | 8.2 | 14,994 | 7.9 | ||||||||||||
64209
Notes to the accounts
For the year ended 31st December 2004
55 Significant Group concentration of credit risk
A concentration of credit risk is defined as existingexists when a number of counterparties are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Barclays has three significant concentrations of exposures to credit risk: to the UK economy, to home loans and to banks and other financial institutions.banks.
Credit exposure is concentrated in the UK where the majority of the Group’s activities are conducted. Gross credit exposure to borrowers on the banking book in the UK (based on the location of the office recording the transaction) was £143,809m£159bn at 31st December 2003 (2002: £135,900m)2004 (2003: £144bn). In the UK, the Group’s collateral policy differs by line of business and product but is broadly in lineconsistent with UK market practice (see also below). It enters into nettingpractice. Netting agreements are made with counterparties in wholesale marketscounterparties whenever practical and to the extent that such agreements are enforceable in law.legally enforceable.
Lending in respect of home loans to customers in the UK and the rest of Europe totalled £72,159m£78bn at 31st December 2003 (2002: £64,679m)2004 (2003: £72bn). This represents 40% (2003: 42% (2002: 40%) of loans to customers on the total banking book lending to customers. Elsewhere they were insignificant.book. As collateral, Barclays requires a first mortgage over the residential property for the acquisition of which the loan is made.
As an active participant in the international bankingfinancial markets, the Group has significant credit exposure to banks and other financial institutions.banks. In total, credit risk exposure to financial institutionsbanks at 31st December 20032004 was estimated to have amounted to £87bn (2002:£107bn (2003: £87bn) of which £62bn (2002: £60bn)£75bn (2003: £62bn) consisted of loans and advances to banks and £9bn (2002: £10bn)£10bn (2003: £9bn) of mark to marketmark-to-market balances in respect of derivatives. The remaining credit risk exposure is largely related to letters of credit and guarantees. The Group may require collateral before entering into exposure to a credit commitment with another bank, depending on the naturetype of the financial product or type of exposure and the bankcounterparty involved. The Group’s policy is to enter into nettingNetting agreements with other banksare secured whenever possible and to the extent that such agreements are enforceable in law.legally enforceable.
The concentrations of credit exposure described above are not proportionally related to credit loss. Some segments of the Group’s portfolio have and are expected to have proportionally higher credit charges in relation to the exposure than others. Moreover, the volatility of credit loss is different in different parts of the portfolio. Thus it is possible that comparatively large credit charges could arise in parts of the portfolio not mentioned above.
190
6556 Ratio of earnings to fixed charges and preference share dividends
2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||||||||||||||||||||||||
Ratio of earnings to fixed charges | |||||||||||||||||||||||||||||||||||||||||
UK GAAP: | |||||||||||||||||||||||||||||||||||||||||
Excluding interest on deposits | 1.55 | 1.50 | 1.40 | 1.49 | 1.48 | 1.48 | 1.55 | 1.50 | 1.40 | 1.49 | |||||||||||||||||||||||||||||||
Including interest on deposits | 1.35 | 1.31 | 1.26 | 1.29 | 1.29 | 1.32 | 1.35 | 1.31 | �� | 1.26 | 1.29 | ||||||||||||||||||||||||||||||
US GAAP: | |||||||||||||||||||||||||||||||||||||||||
Excluding interest on deposits | 1.36 | 1.58 | 1.47 | 1.49 | 1.42 | 1.47 | 1.36 | 1.58 | 1.47 | 1.49 | |||||||||||||||||||||||||||||||
Including interest on deposits | 1.23 | 1.36 | 1.30 | 1.29 | 1.26 | 1.31 | 1.23 | 1.36 | 1.30 | 1.29 | |||||||||||||||||||||||||||||||
Ratio of earnings to combined fixed charges, preference share dividends and payments made in respect of Reserve Capital Instruments (RCIs) | |||||||||||||||||||||||||||||||||||||||||
Ratio of earnings to combined fixed charges, preference share dividends and payments to Reserve Capital Instrument holders | |||||||||||||||||||||||||||||||||||||||||
UK GAAP: | |||||||||||||||||||||||||||||||||||||||||
Excluding interest on deposits | 1.55 | 1.50 | 1.40 | 1.48 | 1.47 | 1.48 | 1.55 | 1.50 | 1.40 | 1.48 | |||||||||||||||||||||||||||||||
Including interest on deposits | 1.35 | 1.31 | 1.26 | 1.29 | 1.29 | 1.32 | 1.35 | 1.31 | 1.26 | 1.29 | |||||||||||||||||||||||||||||||
US GAAP: | |||||||||||||||||||||||||||||||||||||||||
Excluding interest on deposits | 1.34 | 1.55 | 1.45 | 1.47 | 1.41 | 1.46 | 1.34 | 1.55 | 1.45 | 1.47 | |||||||||||||||||||||||||||||||
Including interest on deposits | 1.22 | 1.35 | 1.29 | 1.28 | 1.25 | 1.31 | 1.22 | 1.35 | 1.29 | 1.28 | |||||||||||||||||||||||||||||||
210
Barclays PLC Annual Report 2003 191
SEC Form 20-F cross reference and other information
SEC Form 20-F Cross Reference and Other Information
Form 20-F | Page reference | |||||
Item number | in this document | |||||
1 | Identity of Directors, Senior Management and Advisors | |||||
Not applicable | ||||||
2 | Offer Statistics and Expected Timetable | |||||
Not applicable | ||||||
3 | ||||||
Risk factors | 28 | |||||
Currency of presentation | 212 | |||||
73/224 | ||||||
Dividends | 227 | |||||
4 | ||||||
Presentation of information | 27 | |||||
Glossary | 213 | |||||
Business description | 75 | |||||
117 | ||||||
Financial overview | 78 | |||||
Recent developments | 77 | |||||
Supervision and regulation | ||||||
76 | ||||||
141 | ||||||
Note | 155 | |||||
Note | 181 | |||||
Note 48 Segmental analysis | 174 | |||||
5 | Operating and Financial Review and Prospects | |||||
Financial Review | ||||||
78 | ||||||
51 | ||||||
6 | Directors, Senior Management and Employees | |||||
Directors and Officers | 2 | |||||
Directors’ report | 5 | |||||
Corporate governance report | 7 | |||||
Barclays report on remuneration | 13 | |||||
Audit and Accountability | 26 | |||||
Note 3 Administrative expenses – staff costs | 125 | |||||
Note 4 | 126 | |||||
Note | ||||||
170 | ||||||
Note 46 Directors’ and and interests | ||||||
7 | Major Shareholders and Related Party Transactions | |||||
Presentation of information | 27 | |||||
Directors’ report | 5 | |||||
Note | 170 | |||||
Trading market for ordinary shares | ||||||
of Barclays PLC | 228 | |||||
8 | ||||||
Note | 130 | |||||
Note | 181 | |||||
Post balance sheet events | ||||||
Not applicable | ||||||
9 | The Offer and Listing | |||||
Trading market for ordinary shares of Barclays PLC | 228 | |||||
Form 20-F | Page reference | ||||||
Item number | in this document | ||||||
10 | |||||||
Memorandum and Articles of Association | 230 | ||||||
Taxation | 231 | ||||||
Exchange controls and other | |||||||
limitations affecting security holders | 233 | ||||||
Documents on display | 233 | ||||||
11 | about market risk | ||||||
Risk management and control – overview | 30 | ||||||
Credit risk management | 35 | ||||||
Analysis of loans and advances | 38 | ||||||
Provisions for bad and doubtful debts | 43 | ||||||
Potential credit risk | 42 | ||||||
Loans and advances in non-local currencies | |||||||
63 | |||||||
Market risk management | 47 | ||||||
Derivatives | |||||||
57 | |||||||
51 | |||||||
Note 37 Derivatives and other financial instruments | 157 | ||||||
12 | Description of Securities Other than Equity Securities | ||||||
Not applicable | |||||||
13 | and Delinquencies | ||||||
Not applicable | |||||||
14 | Material Modifications to the Rights of Security | ||||||
Holders and Use of Proceeds | |||||||
Not applicable | |||||||
15 | |||||||
Disclosure controls and procedures | 26 | ||||||
16A | 9 | ||||||
16B | 12 | ||||||
16C | Principal Accountant Fees and Services | 128 | |||||
16E | 151 | ||||||
17 | Financial Statements | ||||||
Not applicable | |||||||
18 | |||||||
US audit report | 109 | ||||||
Accounting policies | 110 | ||||||
Consolidated accounts Barclays PLC | 118 | ||||||
except page | 124 | ||||||
Notes to accounts of Barclays PLC | 125 | ||||||
Consolidated accounts Barclays Bank PLC | 214 | ||||||
Notes to consolidated accounts of Barclays Bank PLC | 220 | ||||||
19 | Exhibits | ||||||
192
211
SEC Form 20-F Cross Referencecross reference and Other Informationother information
Currency of Presentation
Currency of Presentation
In this report, unless otherwise specified, all amounts are expressed in pounds Sterling. For the months indicated, the high and low noon buying rates in New York City for cable transfers in pounds Sterling, as certified for customs purposes by the Federal Reserve Bank of New York (the noon buying rate), were:
(US Dollars per pound Sterling) | ||||||||||||||||||||||||||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||||||||||||||||||||||||||
(US Dollars per pound Sterling) | February | January | December | November | October | September | ||||||||||||||||||||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||||||
February | January | December | November | October | September | |||||||||||||||||||||||||||||||||||||||||||
High | 1.90 | 1.85 | 1.78 | 1.72 | 1.70 | 1.67 | 1.92 | 1.91 | 1.95 | 1.91 | 1.84 | 1.81 | ||||||||||||||||||||||||||||||||||||
Low | 1.82 | 1.79 | 1.72 | 1.67 | 1.66 | 1.57 | 1.86 | 1.86 | 1.91 | 1.83 | 1.78 | 1.77 | ||||||||||||||||||||||||||||||||||||
For the years indicated, the average of the noon buying rates on the last day of each month were:
(US Dollars per pound Sterling) | ||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
Average | 1.64 | 1.61 | 1.45 | 1.51 | 1.62 |
(US Dollars per pound Sterling) | ||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
Average | 1.84 | 1.64 | 1.61 | 1.45 | 1.51 | |||||||||||||||
On 26th28th February 2004,2005, the noon buying rate was US$1.861.92 per pound Sterling. No representation is made that pounds Sterling amounts have been, or could have been, or could be, converted into US Dollars at that rate or at any of the above rates. For the purpose of presenting financial information in this report, exchange rates other than those shown above may have been used.
212
Barclays PLC Annual Report 2003 193
SEC Form 20-F Cross Reference and Other InformationGlossary
2004
Glossary
Term used in Annual | US equivalent or brief description | |||||
Accounts | Financial statements | |||||
Allotted | Issued | |||||
Attributable profit | Net income | |||||
Ordinary shares, issued and fully paid | ||||||
Capital allowances | Tax term equivalent to US tax depreciation allowances | |||||
Cash at bank and in hand | Cash | |||||
Class of business | Industry segment | |||||
Fees and commissions receivable | Fee and commission income | |||||
Fees and commissions payable | Fee and commission expense | |||||
Finance lease | Capital lease | |||||
Freehold | Ownership with absolute rights in perpetuity | |||||
Interest receivable | Interest income | |||||
Interest payable | Interest expense | |||||
Loans and advances | Lendings | |||||
Loan capital | Long-term debt | |||||
Net asset value | Book value | |||||
Profit | Income | |||||
Profit and loss account | Income statement | |||||
Profit and loss account reserve | Retained earnings | |||||
Provisions | Allowances | |||||
Revaluation reserve | No direct US equivalent. Represents the increase in the valuation of | |||||
certain assets as compared with historical cost | ||||||
Share capital | Ordinary shares, capital stock or common stock issued | |||||
and fully paid | ||||||
Shareholders’ funds | ||||||
Share premium account | Additional paid-up capital or paid-in surplus | |||||
Shares in issue | Shares outstanding | |||||
Tangible fixed assets | Property and equipment | |||||
Write-offs | Charge-offs | |||||
194
213
Barclays Bank PLC Data
data
Consolidated profit and loss account
Consolidated profit and loss account
2004 | 2003 | 2002 | ||||||||||||||||||||||||||
Note | £m | £m | £m | |||||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||||||
Note | £m | £m | £m | |||||||||||||||||||||||||
Interest receivable: | ||||||||||||||||||||||||||||
Interest receivable and similar income arising from debt securities | 2,384 | 2,030 | 2,383 | 2,414 | 2,384 | 2,030 | ||||||||||||||||||||||
Other interest receivable and similar income | 10,043 | 10,014 | 11,075 | 11,251 | 10,043 | 10,014 | ||||||||||||||||||||||
12,427 | 12,044 | 13,458 | 13,665 | 12,427 | 12,044 | |||||||||||||||||||||||
Interest payable | (5,823 | ) | (5,839 | ) | (7,492 | ) | (6,823 | ) | (5,823 | ) | (5,839 | ) | ||||||||||||||||
Net interest income | 6,604 | 6,205 | 5,966 | 6,842 | 6,604 | 6,205 | ||||||||||||||||||||||
Fees and commissions receivable | 4,896 | 4,454 | 4,202 | 5,672 | 4,896 | 4,454 | ||||||||||||||||||||||
Less: fees and commissions payable | (633 | ) | (529 | ) | (465 | ) | (706 | ) | (633 | ) | (529 | ) | ||||||||||||||||
Dealing profits | 1 | 1,054 | 833 | 1,011 | 1 | 1,493 | 1,054 | 833 | ||||||||||||||||||||
Other operating income | 2 | 490 | 364 | 428 | (a | ) | 653 | 490 | 364 | |||||||||||||||||||
Operating income | 12,411 | 11,327 | 11,142 | 13,954 | 12,411 | 11,327 | ||||||||||||||||||||||
Administrative expenses – staff costs | (a | ) | (4,295 | ) | (3,757 | ) | (3,716 | ) | (b | ) | (4,998 | ) | (4,295 | ) | (3,757 | ) | ||||||||||||
Administrative expenses – other | 5 | (2,404 | ) | (2,312 | ) | (2,303 | ) | 5 | (2,758 | ) | (2,404 | ) | (2,312 | ) | ||||||||||||||
Depreciation | 6 | (289 | ) | (303 | ) | (308 | ) | 6 | (295 | ) | (289 | ) | (303 | ) | ||||||||||||||
Goodwill amortisation | (265 | ) | (254 | ) | (229 | ) | 6 | (299 | ) | (265 | ) | (254 | ) | |||||||||||||||
Operating expenses | (7,253 | ) | (6,626 | ) | (6,556 | ) | (8,350 | ) | (7,253 | ) | (6,626 | ) | ||||||||||||||||
Operating profit before provisions | 5,158 | 4,701 | 4,586 | 5,604 | 5,158 | 4,701 | ||||||||||||||||||||||
Provisions for bad and doubtful debts | 16 | (1,347 | ) | (1,484 | ) | (1,149 | ) | 15 | (1,091 | ) | (1,347 | ) | (1,484 | ) | ||||||||||||||
Provisions for contingent liabilities and commitments | 7 | 1 | (1 | ) | (1 | ) | (2 | ) | 1 | (1 | ) | |||||||||||||||||
Provisions | (1,346 | ) | (1,485 | ) | (1,150 | ) | (1,093 | ) | (1,346 | ) | (1,485 | ) | ||||||||||||||||
Operating profit | 3,812 | 3,216 | 3,436 | 4,511 | 3,812 | 3,216 | ||||||||||||||||||||||
Profit/(loss) from joint ventures | 1 | (5 | ) | (1 | ) | |||||||||||||||||||||||
(Loss)/profit from joint ventures | (3 | ) | 1 | (5 | ) | |||||||||||||||||||||||
Profit/(loss) from associated undertakings | 28 | (5 | ) | (8 | ) | 59 | 28 | (5 | ) | |||||||||||||||||||
Profit/(loss) on disposal/termination of Group undertakings | 8 | 4 | (3 | ) | (4 | ) | ||||||||||||||||||||||
Exceptional items | 7 | 45 | 4 | (3 | ) | |||||||||||||||||||||||
Profit on ordinary activities before tax | 3,845 | 3,203 | 3,423 | 4,612 | 3,845 | 3,203 | ||||||||||||||||||||||
Tax on profit on ordinary activities | 9 | (1,076 | ) | (955 | ) | (943 | ) | 8 | (1,289 | ) | (1,076 | ) | (955 | ) | ||||||||||||||
Profit on ordinary activities after tax | 2,769 | 2,248 | 2,480 | 3,323 | 2,769 | 2,248 | ||||||||||||||||||||||
Minority interests – equity | 10 | (25 | ) | (20 | ) | (31 | ) | 9 | (44 | ) | (25 | ) | (20 | ) | ||||||||||||||
Profit for the financial year attributable to the members of Barclays Bank PLC | 2,744 | 2,228 | 2,449 | |||||||||||||||||||||||||
Profit attributable to the members of Barclays Bank PLC | 3,279 | 2,744 | 2,228 | |||||||||||||||||||||||||
Profit attributable to non-equity shareholders | (2 | ) | – | – | ||||||||||||||||||||||||
Dividends payable to Barclays PLC | (c | ) | (1,580 | ) | (1,798 | ) | (1,317 | ) | (d | ) | (2,247 | ) | (1,580 | ) | (1,798 | ) | ||||||||||||
Dividends payable to preference shareholders | (c | ) | – | – | (5 | ) | ||||||||||||||||||||||
Profit retained for the financial year | 1,164 | 430 | 1,127 | 1,030 | 1,164 | 430 | ||||||||||||||||||||||
The Note numbers refer to the Notes on pages 114125 to 191,210, whereas the Note letters refer to those on pages 201220 to 202.223.
All results arise from continuing operations. For each of the years reported above, there was no material difference between profit before tax and profit retained and profit on an historical cost basis.
The consolidated profit and loss account of Barclays Bank PLC for the year ended 31st December 2003,2004, contains a chargecredit of £9m (2003: £nil, (2002: £2m, 2001: £2m)2002: £nil) in respect of dividends on own shares within staff costsother operating income that is debited directly to reservesshown as a deduction against dividends in the consolidated accounts of Barclays PLC. The amounts in respectAdditionally, a charge of administration expenses –£nil (2003: £nil, 2002: £2m) is included within staff costs other staff costs, and all related profit and loss items, including profit retained forwhich is debited directly to revenues in the financial year on pages 70 to 95 are forconsolidated accounts of Barclays PLC. These amounts should be debited by £nil to reflect those for Barclays Bank PLC (2002: £2m, 2001: £2m).
214
Barclays PLC Annual Report 2003 1952004
Barclays Bank PLC DatadataStatement of Total Recognised Gains and Losses
Statement of total recognised gains and losses
Statement of total recognised gains and losses
2004 | 2003 | 2002 | ||||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Profit for the financial year attributable to the members of Barclays Bank PLC | 2,744 | 2,228 | 2,449 | 3,279 | 2,744 | 2,228 | ||||||||||||||||||
Exchange rate translation differences | (4 | ) | (61 | ) | 10 | (33 | ) | (4 | ) | (61 | ) | |||||||||||||
(Loss)/gain arising from transactions with third parties | (4 | ) | 206 | – | ||||||||||||||||||||
Gain/(loss) arising from transactions with third parties | 13 | (4 | ) | 206 | ||||||||||||||||||||
Other items | (3 | ) | 8 | (24 | ) | 5 | (3 | ) | 8 | |||||||||||||||
Joint ventures and associated undertakings | (22 | ) | 2 | (15 | ) | (30 | ) | (22 | ) | 2 | ||||||||||||||
Total recognised gains relating to the period | 2,711 | 2,383 | 2,420 | |||||||||||||||||||||
Total recognised gain relating to the period | 3,234 | 2,711 | 2,383 | |||||||||||||||||||||
196215
Barclays Bank PLC DatadataConsolidated Balance Sheet
Consolidated balance sheet
Consolidated balance sheet
2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||
Note | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | |||||||||||||||||||||||||||||||||||||||||||
Note | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | 1,726 | 2,032 | 1,753 | 1,726 | ||||||||||||||||||||||||||||||||||||||||
Items in course of collection from other banks | 2,006 | 2,335 | 1,772 | 2,006 | ||||||||||||||||||||||||||||||||||||||||
Treasury bills and other eligible bills | 13 | 7,177 | 7,645 | 12 | 6,658 | 7,177 | ||||||||||||||||||||||||||||||||||||||
Loans and advances to banks – banking | 17,254 | 15,369 | 24,986 | 17,254 | ||||||||||||||||||||||||||||||||||||||||
Loans and advances to banks – trading | 44,670 | 42,805 | ||||||||||||||||||||||||||||||||||||||||||
14 | 61,924 | 58,174 | ||||||||||||||||||||||||||||||||||||||||||
– trading | 50,145 | 44,670 | ||||||||||||||||||||||||||||||||||||||||||
13 | 75,131 | 61,924 | ||||||||||||||||||||||||||||||||||||||||||
Loans and advances to customers – banking | 167,858 | 157,222 | 189,847 | 167,858 | ||||||||||||||||||||||||||||||||||||||||
Loans and advances to customers – trading | 58,961 | 45,176 | ||||||||||||||||||||||||||||||||||||||||||
– trading | 65,099 | 58,961 | ||||||||||||||||||||||||||||||||||||||||||
15 | 226,819 | 202,398 | 14 | 254,946 | 226,819 | |||||||||||||||||||||||||||||||||||||||
Debt securities | 17 | 97,393 | 94,229 | 16 | 127,428 | 97,393 | ||||||||||||||||||||||||||||||||||||||
Equity shares | 18 | 7,871 | 3,133 | 17 | 12,177 | 7,871 | ||||||||||||||||||||||||||||||||||||||
Interests in joint ventures – share of gross assets | 266 | 242 | 147 | 266 | ||||||||||||||||||||||||||||||||||||||||
Interests in joint ventures – share of gross liabilities | (208 | ) | (184 | ) | ||||||||||||||||||||||||||||||||||||||||
– share of gross liabilities | (119 | ) | (208 | ) | ||||||||||||||||||||||||||||||||||||||||
19 | 58 | 58 | 18 | 28 | 58 | |||||||||||||||||||||||||||||||||||||||
Interests in associated undertakings | 19 | 370 | 397 | 18 | 381 | 370 | ||||||||||||||||||||||||||||||||||||||
Intangible fixed assets | 20 | 4,406 | 3,934 | 19 | 4,295 | 4,406 | ||||||||||||||||||||||||||||||||||||||
Tangible fixed assets | 21 | 1,790 | 1,626 | 20 | 1,921 | 1,790 | ||||||||||||||||||||||||||||||||||||||
Other assets | 23 | 19,835 | 16,839 | 21 | 22,307 | 19,835 | ||||||||||||||||||||||||||||||||||||||
Prepayments and accrued income | 25 | 3,921 | 2,982 | 21 | 5,078 | 3,921 | ||||||||||||||||||||||||||||||||||||||
513,875 | 435,296 | |||||||||||||||||||||||||||||||||||||||||||
435,296 | 395,782 | |||||||||||||||||||||||||||||||||||||||||||
Retail life-fund assets attributable to policyholders | 24 | 8,077 | 7,284 | 22 | 8,378 | 8,077 | ||||||||||||||||||||||||||||||||||||||
Total assets | 443,373 | 403,066 | 522,253 | 443,373 | ||||||||||||||||||||||||||||||||||||||||
The Note numbers refer to the Notes on pages 114125 to 191.210.
Equity shares and shareholders’ funds for Barclays Bank PLC differ from Barclays PLC by £12m (2002: £4m). As a result related balances in Note 18, Note 40, Note 45 and Note 59 differ£11m (2003: £12m) due to treasury shares. Other assets for Barclays Bank PLC differ from Barclays PLC by the same amounts.£153m (2003: £99m) due to ESOP shares. The balances reported in Notes 17 and 21 are for Barclays PLC. Additionally, minority interests differ by £690m (2003: £nil). All these differences are matched by a commensurate change in shareholders’ funds.
216
Barclays PLC Annual Report 2003 197
Barclays Bank PLC DataConsolidated Balance Sheet
Consolidated balance sheet 2003 2004 2003 Note £m £m £m £m 2003 2002 Note £m £m £m £m Deposits by banks – banking 57,641 48,751 74,211 57,641 36,451 38,683 26 94,092 87,434 – trading 36,813 36,451 23 111,024 94,092 Customer accounts – banking 155,814 144,078 171,963 155,814 29,054 27,420 – trading 45,755 29,054 27 184,868 171,498 24 217,718 184,868 Debt securities in issue 28 49,569 45,885 25 67,806 49,569 Items in course of collection due to other banks 1,286 1,416 1,205 1,286 Other liabilities 29 69,497 56,564 76,550 69,497 Balances due to Barclays PLC 879 788 1,026 879 Accruals and deferred income 30 4,983 4,352 26 6,582 4,983 Provisions for liabilities and charges – deferred tax 31 646 461 27 738 646 Provisions for liabilities and charges – other 32 369 486 28 467 369 Subordinated liabilities: Undated loan capital – convertible to preference shares – 310 – non-convertible 33 6,310 6,368 33 6,310 6,678 Undated loan capital – non-convertible 29 6,149 6,310 Dated loan capital – convertible to preference shares 17 11 15 17 – non-convertible 34 6,012 4,848 6,113 6,012 30 6,128 6,029 34 6,029 4,859
495,393 418,528 418,528 380,421
Minority and other interests and shareholders’ funds
Minority interests – equity 283 156 Minority and other interests and shareholders’ funds Minority interests – equity 211 283 Called up share capital (b ) 2,302 2,293 (c ) 2,316 2,302 Share premium account 5,743 5,603 6,531 5,743 Revaluation reserve 24 24 24 24 Profit and loss account 8,416 7,285 9,400 8,416 Shareholders’ funds – equity 16,485 15,205 17,581 16,485 – non-equity 690 – 18,271 16,485
16,768 15,361 18,482 16,768
435,296 395,782 513,875 435,296 Retail life-fund liabilities to policyholders 24 8,077 7,284 22 8,378 8,077
443,373 403,066 522,253 443,373
2003 2002 Note £m £m 44 Contingent liabilities: Acceptances and endorsements 671 2,589 Guarantees and assets pledged as collateral security 24,596 16,043 Other contingent liabilities 8,427 7,914
33,694 26,546
Commitments – standby facilities, credit lines and other 114,847 101,378
2004 | 2003 | |||||||||||||||||||
Note | £m | £m | ||||||||||||||||||
Memorandum items | 36 | |||||||||||||||||||
Contingent liabilities: | ||||||||||||||||||||
Acceptances and endorsements | 303 | 671 | ||||||||||||||||||
Guarantees and assets pledged as collateral security | 30,011 | 24,596 | ||||||||||||||||||
Other contingent liabilities | 8,245 | 8,427 | ||||||||||||||||||
38,559 | 33,694 | |||||||||||||||||||
Commitments – standby facilities, credit lines and other | 134,051 | 114,847 | ||||||||||||||||||
The Note numbers refer to the Notes on pages 114125 to 191,210, whereas the Note letters refer to those on pages 201220 to 202.223.
Equity shares and shareholders’ funds for Barclays Bank PLC differ from Barclays PLC by £12m (2002:£4m). As a result related balances in Note 18, Note 40, Note 45 and Note 59 differ£11m (2003: £12m) due to treasury shares. Other assets for Barclays Bank PLC differ from Barclays PLC by the same amounts.£153m (2003: £99m) due to ESOP shares. The balances reported in Notes 17 and 21 are for Barclays PLC. Additionally, minority interests differ by £690m (2003: £nil). All these differences are matched by a commensurate change in shareholders’ funds.
198217
Barclays Bank PLC Datadata
Consolidated Statementstatement of Changeschanges in Reserves
reserves
Consolidated statement of changes in reserves 2003 2004 2003 2002 £m £m £m 2003 2002 2001 £m £m £m At beginning of year 5,603 5,475 5,269 5,743 5,603 5,475 Premium arising on shares issued 140 128 199 788 140 128 Exchange rate translation differences – 7
At end of year 5,743 5,603 5,475 6,531 5,743 5,603
At beginning of year 24 30 35 24 24 30 Exchange rate translation differences 2 – (1 ) – 2 – Released on transaction with third parties (2 ) (6 ) – – (2 ) (6 ) Other items – – (4 )
At end of year 24 24 30 24 24 24
At beginning of year 7,285 6,694 5,746 8,416 7,285 6,694 Profit retained 1,164 430 1,127 1,030 1,164 430 Redemption of preference shares – – (148 ) Exchange rate translation differences (31 ) (61 ) 4 (58 ) (31 ) (61 ) Goodwill written-back on disposals – 10 – – – 10 (Loss)/gain arising from transaction with third parties (4 ) 212 – Gain/(loss) arising from transaction with third parties 13 (4 ) 212 Other items 2 – (35 ) (1 ) 2 –
At end of year 8,416 7,285 6,694 9,400 8,416 7,285
14,183 12,912 12,199 15,955 14,183 12,912
The Group operates in a number of countries subject to regulations under which a local subsidiary undertaking has to maintain a minimum level of capital. The current policy of the Group is that local capital requirements are met, as far as possible, by the retention of profit. Certain countries operate exchange control regulations which limit the amount of dividends that can be remitted to non-resident shareholders. It is not possible to determine the amount of profit retained and other reserves that is restricted by these regulations, but the net profit retained of overseas subsidiaries, associated undertakings and joint ventures at 31st December 20032004 totalled £1,417m (2003: £925m, (2002: £1,038m, 2001: £1,149m)2002: £1,038m). If such overseas reserves were to be remitted, other tax liabilities, which have not been provided for in the accounts, might arise.
Accumulated exchange rate translation differences are £578m debit (2003: £520m debit, (2002:2002: £491m debit, 2001: £430m debit).
Goodwill amounting to £205m (2002:(2003: £205m, 2001: £215m)2002: £205m) has been charged directly against reserves in the current and prior years in respect of acquisitions. This amount is net of any goodwill attributable to subsidiary undertakings disposed of prior to the balance sheet date.
218
Barclays PLC Annual Report 2003 1992004
Barclays Bank PLC Datadata
Consolidated Cash Flow Statementcash flow statement
Consolidated cash flow statement 2003 2003 2002 2001 Note £m £m £m £m £m £m 2004 2003 2002 (d ) (2,379 ) 6,803 3,224 Note £m £m £m £m £m £m (e ) 6,122 (2,379 ) 6,803 7 1 3 15 7 1 Returns on investments and servicing of finance: Interest paid on loan capital and other subordinated liabilities (606 ) (607 ) (598 ) Interest paid on loan capital and other subordinated liabilities (652 ) (606 ) (607 ) Preference dividends paid – – (5 ) – – – Dividends paid to minority shareholders (14 ) (23 ) (17 ) (19 ) (14 ) (23 ) (620 ) (630 ) (620 ) (671 ) (620 ) (630 ) (910 ) (828 ) (1,004 ) (690 ) (910 ) (828 ) Capital expenditure and financial investment: Capital expenditure (310 ) (301 ) (351 ) (532 ) (310 ) (301 ) Sale of property and equipment 97 289 152 125 97 289 Purchase of investment securities (36,886 ) (28,128 ) (20,173 ) (47,520 ) (36,886 ) (28,128 ) Redemption of investment securities 17,137 10,247 5,704 18,441 17,137 10,247 Sale of investment securities 21,394 11,137 13,338 22,722 21,394 11,137 1,432 (6,756 ) (1,330 ) (6,764 ) 1,432 (6,756 ) Acquisitions and disposals: Net cash outflow from formation of FirstCaribbean International Bank Ltd 49 – (160 ) – Net cash outflow from formation of FirstCaribbean International Bank Limited 42 – – (160 ) Acquisition of subsidiary undertakings 52 (985 ) (451 ) (36 ) 41 (211 ) (985 ) (451 ) Acquisition of associated undertakings and joint ventures (21 ) – – Sale of Group undertakings 49 39 (1 ) 42 42 – 39 (1 ) Sale of other Group undertakings 16 – – Sale of other associated undertakings 47 16 – (930 ) (612 ) 6 (185 ) (930 ) (612 ) (1,400 ) (1,796 ) (1,254 ) (2,139 ) (1,400 ) (1,796 )
(4,800 ) (3,818 ) (975 ) (4,312 ) (4,800 ) (3,818 ) Financing: (e ) Issue of loan capital and other subordinated liabilities (net of expenses) 1,926 2,173 3,019 666 1,926 2,173 Redemption/repurchase of loan capital and other subordinated liabilities (974 ) (376 ) (715 ) (611 ) (974 ) (376 ) Non-recourse financing 3,262 644 607 Net cash inflow from non-recourse financing 4,264 3,262 644 Issue of ordinary shares 149 135 210 61 149 135 Redemption of preference shares – – (148 ) – – – Issue of preference shares 688 – – Issue of shares to minority interests 65 35 – 52 65 35 4,428 2,611 2,973 5,120 4,428 2,611
51 (372 ) (1,207 ) 1,998 44 808 (372 ) (1,207 )
The Note numbers refer to the Notes on pages 114125 to 191,210, whereas the Note letters refer to those on pages 201220 to 202.223.
200
219
Barclays Bank PLC Datadata
Notes to the Accounts
accounts
(a) Other operating income
2004 | 2003 | 2002 | ||||||||||
£m | £m | £m | ||||||||||
Premium income on insurance underwriting | 211 | 264 | 178 | |||||||||
Net gain on disposal of investment securities | 181 | 73 | 58 | |||||||||
Income/(loss) from the long-term assurance business | 58 | (33 | ) | (51 | ) | |||||||
Property rentals | 9 | 15 | 20 | |||||||||
Dividend income from equity shares | 17 | 6 | 7 | |||||||||
Other income | 177 | 165 | 152 | |||||||||
653 | 490 | 364 | ||||||||||
(b) Administrative expenses – staff costs
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Salaries and accrued incentive payments | 3,441 | 3,159 | 3,149 | 4,043 | 3,441 | 3,159 | ||||||||||||||||||
Social security costs | 278 | 240 | 243 | 339 | 278 | 240 | ||||||||||||||||||
Pension costs | 180 | (27 | ) | (17 | ) | 160 | 180 | (27 | ) | |||||||||||||||
Post-retirement health care | 19 | 15 | – | 22 | 19 | 15 | ||||||||||||||||||
Other staff costs | 377 | 370 | 341 | 434 | 377 | 370 | ||||||||||||||||||
4,295 | 3,757 | 3,716 | 4,998 | 4,295 | 3,757 | |||||||||||||||||||
(b)(c) Called up share capital
Ordinary shares
The authorised ordinary share capital of the Bank, as at 31st December 2003,2004, was 3,000m (2002: 3,000m)3,000 million (2003: 3,000 million) ordinary shares of £1 each.
2003 | 2002 | |||||||
£m | £m | |||||||
Called up share capital, allotted and fully paid At beginning of year | 2,293 | 2,286 | ||||||
Issued for cash | 9 | 7 | ||||||
At end of year | 2,302 | 2,293 | ||||||
Preference shares
The authorised preference share capital of theBarclays Bank is 150m (2002: 150m)PLC, at 31st December 2004, was 150 million (2003: 150 million) preference shares of US$0.01 each. There are noeach together with 1,000 preference shares outstanding asof £1 each and 400,000 preference shares of€100 each.
The issued preference share capital of Barclays Bank PLC, at 31st December 2003 (2002:2004, comprised 1,000 (2003: nil) preference shares of £1 each and 100,000 (2003: nil) preference shares of€100 each.
2004 | 2003 | |||||||||||
£m | £m | |||||||||||
Called up share capital, allotted and fully paid | ||||||||||||
At beginning of year | 2,302 | 2,293 | ||||||||||
Issued for cash | 7 | 9 | ||||||||||
At end of year | 2,309 | 2,302 | ||||||||||
Called up preference share capital, allotted and fully paid | ||||||||||||
At beginning of year | – | – | ||||||||||
Issued for cash | 7 | – | ||||||||||
At the end of year | 7 | – | ||||||||||
Called up share capital | 2,316 | 2,302 | ||||||||||
Sterling preference shares
1,000 sterling cumulative callable preference shares of £1 each (the ‘Sterling Preference Shares’) were issued on 31st December 2004 at nil premium.
The Sterling Preference Shares entitle the holders thereof to receive sterling cumulative cash dividends out of distributable profits of Barclays Bank PLC, semi-annually at a rate reset semi-annually equal to the sterling interbank offered rate for six-month sterling deposits.
Barclays Bank PLC shall be obliged to pay such dividends if (1) it has profits available for the purpose of distribution under the Companies Act 1985 as at each dividend payment date and (2) it is solvent on the relevant dividend payment date, provided that a capital regulations condition is satisfied on such dividend payment date. The dividends shall not be due and payable on the relevant dividend payment date except to the extent that Barclays Bank PLC could make such payment and still be solvent immediately thereafter. Barclays Bank PLC shall be considered solvent on any date if (i) it is able to pay its debts to senior creditors as they fall due and (ii) its auditors have reported within the previous six months that its assets exceed its liabilities.
220
Barclays PLC Annual Report 2004
(c) Called up share capital (continued)
If Barclays Bank PLC shall not pay, or shall pay only in part, a dividend for a period of seven days or more after the due date for payment, the holders of the Sterling Preference Shares may institute proceedings for the winding-up of Barclays Bank PLC. No remedy against Barclays Bank PLC shall be available to the holder of any Sterling Preference Shares for the recovery of amounts owing in respect of Sterling Preference Shares other than the institution of proceedings for the winding-up of Barclays Bank PLC and/or proving in such winding-up.
On a winding-up or other return of capital (other than a redemption or purchase by Barclays Bank PLC of any of its issued shares, or a reduction of share capital, permitted by the Articles of Barclays Bank PLC and under applicable law), the assets of Barclays Bank PLC available to shareholders shall be applied in priority to any payment to the holders of Ordinary Shares and any other class of shares in the capital of Barclays Bank PLC then in issue ranking junior to the Sterling Preference Shares on such a return of capital and pari passu on such a return of capital with the holders of any other class of shares in the capital of Barclays Bank PLC then in issue (other than any class of shares in the capital of Barclays Bank PLC then in issue ranking in priority to the Sterling Preference Shares on a winding-up or other such return of capital), in payment to the holders of the Sterling Preference Shares of a sum equal to the aggregate of: (1) an amount equal to the dividends accrued thereon for the then current dividend period (and any accumulated arrears thereof) to the date of the commencement of the winding-up or other such return of capital; and (2) an amount equal to £1 per Sterling Preference Share.
After payment of the full amount of the liquidating distributions to which they are entitled, the holders of the Sterling Preference Shares will have no right or claim to any of the remaining assets of Barclays Bank PLC and will not be entitled to any further participation in such return of capital.
The Sterling Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, subject to the Companies Act and its Articles.
Holders of the Sterling Preference Shares are not entitled to receive notice of, or to attend, or vote at, any general meeting of Barclays Bank PLC.
Euro preference shares
100,000 euro 4.875% non-cumulative callable preference shares of€100 each (the ‘4.875% Preference Shares’) were issued on 8th December 2004 for a consideration of€993.6m (£688.4m), of which the nominal value was€10m and the balance was share premium.
The 4.875% Preference Shares entitle the holders thereof to receive euro non-cumulative cash dividends out of distributable profits of Barclays Bank PLC, annually at a fixed rate of 4.875% per annum until 15th December 2014, and thereafter quarterly at a rate reset quarterly equal to 1.05% per annum above the euro interbank offered rate for three-month euro deposits.
The 4.875% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, on 15th December 2014, and on each dividend payment date thereafter at€10,000 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.
No redemption or purchase of any 4.875% Preference Shares may be made by Barclays Bank PLC without the prior consent of the UK Financial Services Authority and any such redemption will be subject to the Companies Act and the Articles of Barclays Bank PLC.
On a winding-up of Barclays Bank PLC or other return of capital (other than a redemption or purchase of shares of Barclays Bank PLC, or a reduction of share capital), a holder of 4.875% Preference Shares will rank in the application of assets of Barclays Bank PLC available to shareholders (1) junior to the holder of any shares of Barclays Bank PLC in issue ranking in priority to the 4.875% Preference Shares, (2) equally in all respects with holders of other preference shares and any other shares of Barclays Bank PLC in issue ranking pari passu with the 4.875% Preference Share and (3) in priority to the holders of ordinary shares and any other shares of Barclays Bank PLC in issue ranking junior to the 4.875% Preference Shares.
The holders of the £400m 6% Callable Perpetual Core Tier One Notes and the US$1,000m 6.86% Callable Perpetual Core Tier One Notes of Barclays Bank PLC (together, the ‘TONs’) and the holders of the US$1,250m 8.55% Step-up Callable Perpetual Reserve Capital Instruments, the US$750m 7.375% Step-up Callable Perpetual Reserve Capital Instruments and the€850m 7.50% Step-up Callable Perpetual Reserve Capital Instruments of Barclays Bank PLC (together, the ‘RCIs’) would, for the purposes only of calculating the amounts payable in respect of such securities on a winding-up of Barclays Bank PLC, subject to limited exceptions and to the extent that the TONs and the RCIs are then in issue, rank pari passu with the holders of the most senior class or classes of preference shares then in issue in the capital of Barclays Bank PLC. Accordingly, the holders of the 4.875% Preference Shares would rank equally with the holders of such TONs and RCIs on such a winding-up of Barclays Bank PLC (unless one or more classes of shares of Barclays Bank PLC ranking in priority to the 4.875% Preference Shares are in issue at the time of such winding-up, in which event the holders of such TONs and RCIs would rank equally with the holders of such shares and in priority to the holders of the 4.875% Preference Shares).
Subject to such ranking, in such event holders of the 4.875% Preference Shares will be entitled to receive out of assets of Barclays Bank PLC available for distributions to shareholders, liquidating distributions in the amount of€10,000 per 4.875% Preference Share plus an amount equal to the accrued dividend for the then current dividend period to the date of the commencement of the winding up or other such return of capital.
If a dividend is not paid in full on any 4.875% Preference Shares on any dividend payment date, then a dividend restriction shall apply. This dividend restriction will mean that neither Barclays Bank PLC nor Barclays PLC may (a) declare or pay a dividend (other than payment by Barclays PLC of a final dividend declared by its shareholders prior to the relevant dividend payment date, or a dividend paid by Barclays Bank PLC to Barclays PLC or to a wholly-owned subsidiary) on any of their respective ordinary shares, other preference shares or other share capital
221
Barclays Bank PLC data
Notes to the accounts
(c) Called up share capital (continued)
or (b) redeem, purchase, reduce or otherwise acquire any of their respective share capital, other than shares of Barclays Bank PLC held by Barclays PLC or a wholly-owned subsidiary, until the earlier of (1) the date on which Barclays Bank PLC next declares and pays in full a preference dividend and (2) the date on or by which all the 4.875% Preference Shares are redeemed in full or purchased by Barclays Bank PLC.
Holders of the 4.875% Preference Shares are not entitled to receive notice of, or to attend, or vote at, any general meeting of Barclays Bank PLC.
Barclays Bank PLC is not permitted to create a class of shares ranking as regards participation in the profits or assets of Barclays Bank PLC in priority to the 4.875% Preference Shares, save with the sanction of a special resolution of a separate general meeting of the holders of the 4.875% Preference Shares (requiring a majority of not less than three-fourths of the holders of the 4.875% Preference Shares voting at the separate general meeting), or with the consent in writing of the holders of three-fourths of the 4.875% Preference Shares.
Except as described above, the holders of the 4.875% Preference Shares have no right to participate in the surplus assets of Barclays Bank PLC.
(d) Dividends
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | £m | £m | £m | |||||||||||||||||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||||||||||||||||||
On ordinary shares | ||||||||||||||||||||||||||||||||||||||||
Interim dividends | 697 | 1,010 | 635 | 1,270 | 697 | 1,010 | ||||||||||||||||||||||||||||||||||
Final interim dividend | 883 | 788 | 682 | |||||||||||||||||||||||||||||||||||||
Final dividend | 977 | 883 | 788 | |||||||||||||||||||||||||||||||||||||
1,580 | 1,798 | 1,317 | 2,247 | 1,580 | 1,798 | |||||||||||||||||||||||||||||||||||
These dividends are paid to enable Barclays PLC to fund its dividends to its shareholders and, in 2003,2004, to fund the repurchase by Barclays PLC of ordinary share capital at a total cost of £204m (2002:£699m (2003: total cost of £546m)£204m), and to fund contributions of £36m (2002: £46m) made by Barclays PLC to£1m (2003: £36m) for the QUEST (see page 111) to enable the purchase of new Barclays PLC ordinary shares on the exercise of options under the SAYE Share Option Scheme.122).
Series D1 and Series D2 preference shares were redeemed on 29th March 2001. Dividends paid in respect of these preference shares were US$7m (£5m) in 2001.
(d)(e) Reconciliation of operating profit to net cash flow from operating activities
2003 | 2002 | 2001 | ||||||||||
£m | £m | £m | ||||||||||
Net cash (outflow)/inflow from operating activities of Barclays PLC (see Note 48) | (2,290 | ) | 6,747 | 3,192 | ||||||||
(Decrease)/increase in balance due by Barclays Bank PLC to Barclays PLC | (89 | ) | 56 | 32 | ||||||||
Net cash (outflow)/inflow from operating activities of Barclays Bank PLC | (2,379 | ) | 6,803 | 3,224 | ||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||||||
Net cash inflow/(outflow) from operating activities of Barclays PLC (see Note 39) | 6,089 | (2,290 | ) | 6,747 | ||||||||||||||||||||||||
Increase/(decrease) in balance due by Barclays Bank PLC to Barclays PLC | 33 | (89 | ) | 56 | ||||||||||||||||||||||||
Net cash inflow/(outflow) from operating activities of Barclays Bank PLC | 6,122 | (2,379 | ) | 6,803 | ||||||||||||||||||||||||
The detailed movements disclosed in Note 4839 differ for Barclays Bank PLC in the following respects; net increase in debt securities and equity shares by £8m (2002: £4m)£11m (2003: £8m), dividends paid to own shares of £9m (2003: £nil) and other non-cash movements by £(8)£(2)m (2002: £(4)(2003: £(8)m).
Barclays PLC Annual Report 2003 201
Barclays Bank PLC DataNotes to the Accounts
(e)(f) Changes in financing during the year
The following table takes account of the Group’s contribution to the Employee Share Option Plan (ESOP) of £54m.
Non- | Undated | Dated | ||||||||||||||||||||||||||||||||||||||||||||||||||
Non- | Undated | Dated | recourse | loan | loan | Ordinary | Preference | Share | Minority | |||||||||||||||||||||||||||||||||||||||||||
recourse | loan | loan | Ordinary | Share | Minority | financing | capital | capital | shares | Shares | premium | interests | ||||||||||||||||||||||||||||||||||||||||
financing | capital | capital | shares | premium | interests | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||||||
Barclays Bank PLC | ||||||||||||||||||||||||||||||||||||||||||||||||||||
At beginning of year | 1,251 | 6,678 | 4,859 | 2,293 | 5,603 | 156 | 4,513 | 6,310 | 6,029 | 2,302 | – | 5,743 | 283 | |||||||||||||||||||||||||||||||||||||||
Exchange rate and other movements | – | (177 | ) | 27 | – | – | 62 | – | (161 | ) | 44 | – | – | – | (124 | ) | ||||||||||||||||||||||||||||||||||||
Net cash inflow from financing | 3,262 | (191 | ) | 1,143 | 9 | 140 | 65 | 4,264 | – | 55 | 7 | 7 | 788 | 52 | ||||||||||||||||||||||||||||||||||||||
At end of year | 4,513 | 6,310 | 6,029 | 2,302 | 5,743 | 283 | 8,777 | 6,149 | 6,128 | 2,309 | 7 | 6,531 | 211 | |||||||||||||||||||||||||||||||||||||||
(f)(g) Segmental analysis
2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | £m | % | £m | % | £m | % | ||||||||||||||||||||||||||||||||||||||||||||
£m | % | £m | % | £m | % | |||||||||||||||||||||||||||||||||||||||||||||||
By geographical segments(a) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Attributable profit | ||||||||||||||||||||||||||||||||||||||||||||||||||||
UK | 1,992 | 73 | 2,023 | 90 | 1,925 | 79 | 2,407 | 73 | 1,886 | 69 | 2,023 | 90 | ||||||||||||||||||||||||||||||||||||||||
Other European Union | 441 | 16 | 284 | 13 | 347 | 14 | 469 | 15 | 547 | 20 | 284 | 13 | ||||||||||||||||||||||||||||||||||||||||
United States | 179 | 6 | (161 | ) | (7 | ) | 48 | 2 | 143 | 4 | 179 | 6 | (161 | ) | (7 | ) | ||||||||||||||||||||||||||||||||||||
Rest of the World | 132 | 5 | 82 | 4 | 129 | 5 | 260 | 8 | 132 | 5 | 82 | 4 | ||||||||||||||||||||||||||||||||||||||||
2,744 | 100 | 2,228 | 100 | 2,449 | 100 | 3,279 | 100 | 2,744 | 100 | 2,228 | 100 | |||||||||||||||||||||||||||||||||||||||||
(a) | For the basis of the geographical analysis, see Analyses by geographical segments and classes of business on page |
(g)222
Barclays PLC Annual Report 2004
(h) Differences between UK and US accounting principles – Barclays Bank PLC
The following table summarises the significant adjustments to consolidated attributable profit (net income under US GAAP) and shareholders’ funds (shareholders’ equity under US GAAP) which would result from the application of US GAAP instead of UK GAAP.
2003 | 2002 | 2001 | ||||||||||||||||||||||
£m | £m | £m | 2004 | 2003 | 2002 | |||||||||||||||||||
Net income (US GAAP) of Barclays PLC Group (from page 172) | 1,740 | 2,476 | 2,695 | |||||||||||||||||||||
£m | £m | £m | ||||||||||||||||||||||
Net income (US GAAP) of Barclays PLC Group (from page 190) | 3,032 | 1,740 | 2,476 | |||||||||||||||||||||
Preference share dividends and other appropriations of Barclays Bank PLC | 102 | 104 | 102 | 96 | 102 | 104 | ||||||||||||||||||
Share compensation charge in Barclays Bank PLC shown as reserve movement in Barclays PLC | – | (2 | ) | (2 | ) | |||||||||||||||||||
Share compensation charge in Barclays Bank PLC | ||||||||||||||||||||||||
shown as reserve movement in Barclays PLC | – | – | (2 | ) | ||||||||||||||||||||
Other income in Barclays Bank PLC recorded as reduction in dividend in | ||||||||||||||||||||||||
Barclays PLC | 9 | – | – | |||||||||||||||||||||
Net income (US GAAP) of Barclays Bank PLC Group | 1,842 | 2,578 | 2,795 | 3,137 | 1,842 | 2,578 | ||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||
2003 | 2002 | Note | £m | £m | ||||||||||||||||||||
Note | £m | £m | ||||||||||||||||||||||
Shareholders’ funds (UK GAAP) of Barclays Bank PLC Group | 16,485 | 15,205 | 18,271 | 16,485 | ||||||||||||||||||||
Goodwill | (a | ) | 570 | 298 | (a | ) | 812 | 570 | ||||||||||||||||
Intangible assets | (b | ) | (315 | ) | (140 | ) | (b | ) | (452 | ) | (315 | ) | ||||||||||||
Pensions | (c | ) | (1,013 | ) | (848 | ) | (c | ) | (1,249 | ) | (988 | ) | ||||||||||||
Post-retirement benefits | (c | ) | (23 | ) | (50 | ) | (c | ) | (11 | ) | (23 | ) | ||||||||||||
Leasing – lessor | (145 | ) | (166 | ) | (25 | ) | (145 | ) | ||||||||||||||||
Compensation arrangements | (e | ) | (1 | ) | – | (e | ) | 45 | (1 | ) | ||||||||||||||
Shareholders’ interest in the long-term assurance fund | (f | ) | (555 | ) | (549 | ) | (f | ) | (621 | ) | (555 | ) | ||||||||||||
Provisions for restructuring of business | (l | ) | – | 16 | ||||||||||||||||||||
Extinguishment of liabilities | (294 | ) | (159 | ) | (326 | ) | (294 | ) | ||||||||||||||||
Revaluation of property | (i | ) | (224 | ) | (241 | ) | (i | ) | (212 | ) | (224 | ) | ||||||||||||
Internal use software | (m | ) | 67 | 81 | (m | ) | 20 | 67 | ||||||||||||||||
Derivatives | (o | ) | 341 | 1,273 | (o | ) | (78 | ) | 341 | |||||||||||||||
Fair value on securities | (h | ) | 876 | 515 | (h | ) | 491 | 876 | ||||||||||||||||
Dividend payable | 883 | 788 | 971 | 883 | ||||||||||||||||||||
Loan origination fees | (23 | ) | 91 | |||||||||||||||||||||
Fair value amortisation credit | (r | ) | 25 | 17 | ||||||||||||||||||||
Loan origination | (89 | ) | (23 | ) | ||||||||||||||||||||
Consolidation | 8 | – | ||||||||||||||||||||||
Securitisations | (q | ) | 130 | – | (q | ) | 151 | 130 | ||||||||||||||||
Guarantees | (u | ) | (8 | ) | – | (t | ) | (17 | ) | (8 | ) | |||||||||||||
Revenue recognition | (180 | ) | – | |||||||||||||||||||||
Reserve Capital Instruments | 1,705 | 1,771 | 1,612 | 1,705 | ||||||||||||||||||||
Tax effect on the above UK/US GAAP reconciling items | 165 | (56 | ) | 473 | 165 | |||||||||||||||||||
Shareholders’ equity (US GAAP) of Barclays Bank PLC Group | 18,646 | 17,846 | 19,594 | 18,646 | ||||||||||||||||||||
2004 | 2003 | |||||||||||
£m | £m | |||||||||||
Total assets (US GAAP) of Barclays PLC Group (from page 191) | 654,580 | 541,969 | ||||||||||
Shares in Barclays PLC | 119 | 111 | ||||||||||
654,699 | 542,080 | |||||||||||
202
223
Barclays Bank PLC Datadata
Financial Datadata
2003 | 2002 | 2001 | 2000 | 1999 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||
Selected financial statistics | Selected financial statistics | % | % | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||||||||
Attributable profit as a percentage of: | Attributable profit as a percentage of: | ||||||||||||||||||||||||||||||||||||||||
average total assets(a) | average total assets(a) | 0.6 | 0.5 | 0.6 | 0.8 | 0.7 | 0.5 | 0.6 | 0.5 | 0.6 | 0.8 | ||||||||||||||||||||||||||||||
average shareholders’ funds | average shareholders’ funds | 16.9 | 14.7 | 17.3 | 24.6 | 21.2 | 19.2 | 17.0 | 14.7 | 17.3 | 24.6 | ||||||||||||||||||||||||||||||
Average shareholders’ funds as a percentage of average total assets(a) | 3.3 | 3.5 | 3.7 | 3.3 | 3.5 | ||||||||||||||||||||||||||||||||||||
Average shareholders’ funds as a | |||||||||||||||||||||||||||||||||||||||||
percentage of average total assets(a) | 2.7 | 3.3 | 3.5 | 3.7 | 3.3 | ||||||||||||||||||||||||||||||||||||
Selected profit and loss account data | Selected profit and loss account data | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||
Interest receivable | Interest receivable | 12,427 | 12,044 | 13,458 | 11,788 | 9,320 | 13,665 | 12,427 | 12,044 | 13,458 | 11,788 | ||||||||||||||||||||||||||||||
Interest payable | Interest payable | (5,823 | ) | (5,839 | ) | (7,492 | ) | (6,682 | ) | (4,696 | ) | (6,823 | ) | (5,823 | ) | (5,839 | ) | (7,492 | ) | (6,682 | ) | ||||||||||||||||||||
Profit on redemption/repurchase of loan capital | Profit on redemption/repurchase of loan capital | – | – | – | 2 | 3 | – | – | – | – | 2 | ||||||||||||||||||||||||||||||
Non-interest income | Non-interest income | 5,807 | 5,122 | 5,176 | 4,386 | 3,769 | 7,112 | 5,807 | 5,122 | 5,176 | 4,386 | ||||||||||||||||||||||||||||||
Operating expenses | Operating expenses | (7,253 | ) | (6,626 | ) | (6,556 | ) | (5,492 | ) | (5,144 | ) | (8,350 | ) | (7,253 | ) | (6,626 | ) | (6,556 | ) | (5,492 | ) | ||||||||||||||||||||
Provisions | – bad and doubtful debts | (1,347 | ) | (1,484 | ) | (1,149 | ) | (817 | ) | (621 | ) | ||||||||||||||||||||||||||||||
– contingent liabilities and commitments | 1 | (1 | ) | (1 | ) | 1 | (1 | ) | |||||||||||||||||||||||||||||||||
Profit/(loss) from joint ventures | 1 | (5 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||
Provisions – bad and doubtful debts | (1,091 | ) | (1,347 | ) | (1,484 | ) | (1,149 | ) | (817 | ) | |||||||||||||||||||||||||||||||
– contingent liabilities and commitments | (2 | ) | 1 | (1 | ) | (1 | ) | 1 | |||||||||||||||||||||||||||||||||
(Loss)/profit from joint ventures | (3 | ) | 1 | (5 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||
Profit/(loss) from associated undertakings | Profit/(loss) from associated undertakings | 28 | (5 | ) | (8 | ) | (7 | ) | (13 | ) | 59 | 28 | (5 | ) | (8 | ) | (7 | ) | |||||||||||||||||||||||
Loss on sale or restructure of BZW businesses | – | – | – | – | (30 | ) | |||||||||||||||||||||||||||||||||||
Profit/(loss) on disposal/termination of other Group undertakings | 4 | (3 | ) | (4 | ) | 214 | (108 | ) | |||||||||||||||||||||||||||||||||
Exceptional items | 45 | 4 | (3 | ) | (4 | ) | 214 | ||||||||||||||||||||||||||||||||||
Profit before tax | Profit before tax | 3,845 | 3,203 | 3,423 | 3,392 | 2,478 | 4,612 | 3,845 | 3,203 | 3,423 | 3,392 | ||||||||||||||||||||||||||||||
Attributable profit | 2,744 | 2,228 | 2,449 | 2,469 | 1,799 | ||||||||||||||||||||||||||||||||||||
Profit attributable to members of BB Plc | 3,279 | 2,744 | 2,228 | 2,449 | 2,469 | ||||||||||||||||||||||||||||||||||||
Selected balance sheet data | Selected balance sheet data | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||
Shareholders’ funds | 16,485 | 15,205 | 14,485 | 13,183 | 8,493 | ||||||||||||||||||||||||||||||||||||
Shareholders’ funds – equity | 17,581 | 16,485 | 15,205 | 14,485 | 13,183 | ||||||||||||||||||||||||||||||||||||
– non-equity | 690 | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Dated and undated loan capital | Dated and undated loan capital | 12,339 | 11,537 | 9,987 | 7,720 | 4,597 | 12,277 | 12,339 | 11,537 | 9,987 | 7,720 | ||||||||||||||||||||||||||||||
Deposits by banks, customer accounts, debt securities in issue and items in course of collection | Deposits by banks, customer accounts, debt securities in issue and items in course of collection | 329,815 | 304,817 | 273,073 | 240,607 | 191,781 | 397,753 | 329,815 | 304,817 | 273,073 | 240,607 | ||||||||||||||||||||||||||||||
Loans and advances to banks and customers | Loans and advances to banks and customers | 288,743 | 260,572 | 228,382 | 198,536 | 156,194 | 330,077 | 288,743 | 260,572 | 228,382 | 198,536 | ||||||||||||||||||||||||||||||
Total assets | Total assets | 443,373 | 403,066 | 356,612 | 316,186 | 254,830 | 522,253 | 443,373 | 403,066 | 356,612 | 316,186 | ||||||||||||||||||||||||||||||
(a) | For the purposes of this summary, the retail life-fund assets attributable to policyholders have been excluded from average total assets. |
224
Barclays PLC Annual Report 2003 203
US GAAP financial data
US GAAP Financial Data
US GAAP Financial Data
The following financial information has been adjusted from data prepared under UK GAAP to reflect significant differences from accounting principles generally accepted in the US (US GAAP). See Note 6152 for an explanation of these differences.
Selected financial statistics
2004(a) | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||||||||||||||||||||||
2003 | (a) | 2003 | 2002 | 2001 | 2000 | 1999 | ¢ | p | p | p | p | p | ||||||||||||||||||||||||||||||||||||
¢ | p | p | p | p | p | |||||||||||||||||||||||||||||||||||||||||||
Barclays PLC Group | ||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per 25p ordinary share | 47.7 | 26.8 | 37.4 | 40.5 | 36.3 | 28.3 | 91.2 | 47.5 | 26.8 | 37.4 | 40.5 | 36.3 | ||||||||||||||||||||||||||||||||||||
Dividends per 25p ordinary share | 34.0 | 19.1 | 17.3 | 15.3 | 13.1 | 11.3 | 41.7 | 21.7 | 19.1 | 17.3 | 15.3 | 13.1 | ||||||||||||||||||||||||||||||||||||
Book value per 25p ordinary share | 463 | 260 | 242 | 246 | 196 | 138 | 511 | 266 | 260 | 242 | 246 | 196 | ||||||||||||||||||||||||||||||||||||
% | % | % | % | % | % | % | % | % | % | |||||||||||||||||||||||||||||||||||||||
Net income as a percentage of: | ||||||||||||||||||||||||||||||||||||||||||||||||
average total assets | 0.33 | 0.52 | 0.60 | 0.62 | 0.62 | 0.45 | 0.33 | 0.52 | 0.60 | 0.62 | ||||||||||||||||||||||||||||||||||||||
average shareholders’ equity | 10.57 | 16.57 | 19.00 | 22.72 | 20.82 | 18.02 | 10.57 | 16.57 | 19.00 | 22.72 | ||||||||||||||||||||||||||||||||||||||
Dividends as a percentage of net income | 71.49 | 44.67 | 37.63 | 35.49 | 39.88 | 46.54 | 71.49 | 44.67 | 37.63 | 35.49 | ||||||||||||||||||||||||||||||||||||||
Average shareholders’ equity as a percentage of average total assets | 3.16 | 3.12 | 3.16 | 2.75 | 2.96 | 2.51 | 3.16 | 3.12 | 3.16 | 2.75 | ||||||||||||||||||||||||||||||||||||||
Barclays Bank PLC Group | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income as a percentage of: | ||||||||||||||||||||||||||||||||||||||||||||||||
average total assets | 0.35 | 0.54 | 0.62 | 0.64 | 0.63 | 0.47 | 0.35 | 0.54 | 0.62 | 0.64 | ||||||||||||||||||||||||||||||||||||||
average shareholders’ equity | 10.08 | 15.60 | 17.73 | 21.37 | 20.43 | 17.16 | 10.08 | 15.60 | 17.73 | 21.37 | ||||||||||||||||||||||||||||||||||||||
Average shareholders’ equity as a percentage of average total assets | 3.50 | 3.44 | 3.52 | 3.00 | 3.06 | 2.73 | 3.50 | 3.44 | 3.52 | 3.00 | ||||||||||||||||||||||||||||||||||||||
Selected financial statement data
2004(a) | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||||||||||||||||||||||
2003 | (a) | 2003 | 2002 | 2001 | 2000 | 1999 | $m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||
$m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||||||
Net income:(b) | ||||||||||||||||||||||||||||||||||||||||||||||||
Barclays PLC Group | 3,097 | 1,740 | 2,476 | 2,695 | 2,195 | 1,695 | 5,821 | 3,032 | 1,740 | 2,476 | 2,695 | 2,195 | ||||||||||||||||||||||||||||||||||||
Barclays Bank PLC Group | 3,279 | 1,842 | 2,578 | 2,795 | 2,252 | 1,723 | 6,023 | 3,137 | 1,842 | 2,578 | 2,795 | 2,252 | ||||||||||||||||||||||||||||||||||||
Shareholders’ equity:(b) | ||||||||||||||||||||||||||||||||||||||||||||||||
Barclays PLC Group | 29,957 | 16,830 | 16,015 | 14,813 | 13,029 | 8,262 | 32,550 | 16,953 | 16,830 | 16,015 | 14,813 | 13,029 | ||||||||||||||||||||||||||||||||||||
Barclays Bank PLC Group | 33,190 | 18,646 | 17,846 | 16,645 | 14,513 | 8,537 | 37,620 | 19,594 | 18,646 | 17,846 | 16,645 | 14,513 | ||||||||||||||||||||||||||||||||||||
Total assets:(b) | ||||||||||||||||||||||||||||||||||||||||||||||||
Barclays PLC Group | 964,705 | 541,969 | 491,466 | 413,580 | 368,980 | 277,868 | 1,256,794 | 654,580 | 541,969 | 491,466 | 413,580 | 368,980 | ||||||||||||||||||||||||||||||||||||
Barclays Bank PLC Group | 964,902 | 542,080 | 491,586 | 413,586 | 368,985 | 277,873 | 1,257,022 | 654,699 | 542,080 | 491,586 | 413,586 | 368,985 | ||||||||||||||||||||||||||||||||||||
(a) | The Dollar financial information has been translated for convenience at the rate of US$ | |
(b) | Net income and shareholders’ equity have been adjusted to reflect significant differences between UK and US GAAP, as shown on pages |
204
225
Reconciliation of Economic Profiteconomic profit
Reconciliation of economic profit
Economic profit for 20032004 was £1.4bn, which, added to the £3.9bn generated between 2000-2002 inclusive, delivered a£1.9bn. The cumulative total of £5.3bn was generated for the 2000-2003preceding goal period.period, 2000-2003.
For the new goal period cycle, 2004-2007, the first year of the new goal cycle generated economic profit of £1.9bn.
The 2000-20032000-2004 breakdown of economic profit performance is shown below and its reconciliation to profit after tax and minority interests.
2003 | 2002 | 2001 | 2000 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||||
Profit after tax and minority interests | 2,744 | 2,230 | 2,446 | 2,445 | 3,268 | 2,744 | 2,230 | 2,446 | 2,445 | |||||||||||||||||||||||||||||||||||
Goodwill amortisation | 265 | 254 | 229 | 51 | 299 | 265 | 254 | 229 | 51 | |||||||||||||||||||||||||||||||||||
Tax credit on goodwill | (7 | ) | (5 | ) | (5 | ) | – | (11 | ) | (7 | ) | (5 | ) | (5 | ) | – | ||||||||||||||||||||||||||||
Goodwill relating to associated undertakings | 7 | 1 | – | – | 7 | 7 | 1 | – | – | |||||||||||||||||||||||||||||||||||
Goodwill on disposals | – | 10 | – | – | – | – | 10 | – | – | |||||||||||||||||||||||||||||||||||
Profit after tax and minority interests excluding goodwill amortisation | 3,009 | 2,490 | 2,670 | 2,496 | 3,563 | 3,009 | 2,490 | 2,670 | 2,496 | |||||||||||||||||||||||||||||||||||
(Loss)/gain on disposal recognised in the statement of total recognised gains and losses | (4 | ) | 206 | – | – | |||||||||||||||||||||||||||||||||||||||
Gain/(loss) on disposal recognised in the statement of total recognised gains and losses | 13 | (4 | ) | 206 | – | – | ||||||||||||||||||||||||||||||||||||||
3,005 | 2,696 | 2,670 | 2,496 | 3,576 | 3,005 | 2,696 | 2,670 | 2,496 | ||||||||||||||||||||||||||||||||||||
Average shareholders’ funds including average historical goodwill | 17,135 | 15,812 | 14,528 | 10,118 | 18,237 | 17,019 | 15,800 | 14,514 | 10,117 | |||||||||||||||||||||||||||||||||||
Post-tax cost of equity | 9.5% | 9.5% | 10.5% | 11.0% | 9.5% | 9.5% | 9.5% | 10.5% | 11.0% | |||||||||||||||||||||||||||||||||||
Cost of average shareholders’ funds including average historical goodwill | (1,585 | ) | (1,459 | ) | (1,443 | ) | (1,094 | ) | (1,691 | ) | (1,575 | ) | (1,458 | ) | (1,441 | ) | (1,094 | ) | ||||||||||||||||||||||||||
Economic profit | 1,420 | 1,237 | 1,227 | 1,402 | 1,885 | 1,430 | 1,238 | 1,229 | 1,402 | |||||||||||||||||||||||||||||||||||
The difference between the average shareholders’ funds (excluding minority interests) and that reported above represents cumulative goodwill amortisation charged and goodwill previously written off to reserves.
The cost of average shareholders’ funds includes a charge for purchased goodwill. A post-tax cost of equity of 8.5% has been used for goodwill associated with the acquisition of Woolwich plc. A post-tax cost of equity of 9.5% (2002:(2003: 9.5%, 2002: 9.5%, 2001: 10.5%, 2000: 11.0%) has been used for all other goodwill.
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Barclays PLC Annual Report 2003 205
Shareholder Information
Shareholder Information2004
Shareholder information
Dividends on the ordinary shares of Barclays PLC
The dividends declared for each of the last five years were:
Pence per 25p ordinary share
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||||||||||||||||||
Interim | 7.050 | 6.350 | 5.750 | 5.000 | 4.375 | 8.25 | 7.05 | 6.35 | 5.75 | 5.00 | ||||||||||||||||||||||||||||||
Final | 13.450 | 12.000 | 10.875 | 9.500 | 8.125 | 15.75 | 13.45 | 12.00 | 10.88 | 9.50 | ||||||||||||||||||||||||||||||
20.500 | 18.350 | 16.625 | 14.500 | 12.500 | 24.00 | 20.50 | 18.35 | 16.63 | 14.50 | |||||||||||||||||||||||||||||||
US Dollars per 25p ordinary share
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||||||||||||||||||
Interim | 0.12 | 0.10 | 0.08 | 0.07 | 0.07 | 0.15 | 0.12 | 0.10 | 0.08 | 0.07 | ||||||||||||||||||||||||||||||
Final | 0.25 | 0.19 | 0.16 | 0.13 | 0.12 | 0.30 | 0.24 | 0.19 | 0.16 | 0.13 | ||||||||||||||||||||||||||||||
0.37 | 0.29 | 0.24 | 0.20 | 0.19 | 0.45 | 0.36 | 0.29 | 0.24 | 0.20 | |||||||||||||||||||||||||||||||
The gross dividends applicable to an American Depositary Share (ADS) representing four ordinary shares, before deduction of withholding tax, but including the UK imputed tax credit for dividends paid before 6th April 1999 (see Taxation of US holders (page 211)) are as follows.follows:
US Dollars per American Depositary Share
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||||||||||||||||||
Interim | 0.48 | 0.40 | 0.34 | 0.29 | 0.29 | 0.60 | 0.48 | 0.40 | 0.34 | 0.29 | ||||||||||||||||||||||||||||||
Final | 1.00 | 0.76 | 0.64 | 0.54 | 0.51 | 1.21 | 0.95 | 0.76 | 0.64 | 0.54 | ||||||||||||||||||||||||||||||
1.48 | 1.16 | 0.98 | 0.83 | 0.80 | 1.81 | 1.43 | 1.16 | 0.98 | 0.83 | |||||||||||||||||||||||||||||||
Dividends expressed in Dollars are translated at the noon buying rates in New York City for cable transfers in pounds Sterling as certified for customs purposes by the Federal Reserve Bank of New York (the ‘noon buying rate’) for the days on which dividends are paid, except for the 20032004 final dividend, payable in the UK on 30th29th April 2004,2005, which is translated at noon buying rate applicable on 26th28th February 2004, the latest practical date for inclusion in this report.2005. No representation is made that pounds Sterling amounts have been, or could have been, or could be, converted into Dollars at these rates.
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Shareholder information
Trading Market for Ordinary Shares of Barclays PLC
The principal trading market for Barclays PLC ordinary shares is the London Stock Exchange. Ordinary share listings were also obtained on the Tokyo Stock Exchange with effect from 1st August 1986 and the New York Stock Exchange (NYSE) with effect from 9th September 1986.
Trading on the NYSE is in the form of ADSs under the symbol ‘BCS’. Each ADS represents four 25p ordinary shares and is evidenced by an American Depositary Receipt (ADR). The ADR depositary is The Bank of New York. Details of trading activity are published in the stock tables of leading daily newspapers in the US.
There were 229144 ADR holders and 8901,224 recorded holders of ordinary shares with US addresses at 31st December 2003,2004, whose shareholdings represented approximately 1.71%2.21% of total outstanding ordinary shares on that date. Since certain of the ordinary shares and ADRs were held by brokers or other nominees, the number of recorded holders in the US may not be representative of the number of beneficial holders or of their country of residence.
The following table shows the high and low sales prices for the ordinary shares of 25p during the periods indicated, based on mid-market prices at close of business on the London Stock Exchange and the high and low sale prices for ADSs as reported on the NYSE composite tape.
From 29th January 2001, decimal pricing was introduced for trading on the NYSE.
American | ||||||||||||||||||||||||||||||||
25p ordinary shares | Depositary Shares | American | ||||||||||||||||||||||||||||||
High | Low | High | Low | 25p ordinary shares | Depositary Shares | |||||||||||||||||||||||||||
p | p | US$ | US$ | High | Low | High | Low | |||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||
p | p | US$ | US$ | |||||||||||||||||||||||||||||
2005 | ||||||||||||||||||||||||||||||||
By month: | ||||||||||||||||||||||||||||||||
January | 604 | 574 | 45.97 | 43.33 | ||||||||||||||||||||||||||||
February | 614 | 565 | 47.00 | 43.74 | ||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||
By month: | ||||||||||||||||||||||||||||||||
December | 513 | 476 | 36.57 | 33.50 | 586 | 545 | 45.99 | 42.15 | ||||||||||||||||||||||||
November | 512 | 486 | 35.99 | 33.04 | 577 | 540 | 43.15 | 39.52 | ||||||||||||||||||||||||
October | 527 | 485 | 36.15 | 32.04 | 572 | 532 | 41.72 | 39.04 | ||||||||||||||||||||||||
September | 503 | 460 | 33.24 | 29.10 | 545 | 520 | 39.59 | 37.38 | ||||||||||||||||||||||||
August | 492 | 436 | 32.05 | 28.28 | 524 | 460 | 38.81 | 33.52 | ||||||||||||||||||||||||
July | 468 | 438 | 31.20 | 28.60 | 468 | 443 | 35.05 | 32.78 | ||||||||||||||||||||||||
By quarter: | ||||||||||||||||||||||||||||||||
Fourth quarter | 527 | 476 | 36.57 | 32.04 | 586 | 532 | 45.99 | 39.04 | ||||||||||||||||||||||||
Third quarter | 503 | 436 | 33.24 | 28.28 | 545 | 443 | 39.59 | 32.78 | ||||||||||||||||||||||||
Second quarter | 475 | 373 | 32.37 | 23.34 | 514 | 470 | 37.78 | 34.49 | ||||||||||||||||||||||||
First quarter | 397 | 311 | 25.87 | 20.30 | 536 | 473 | 39.88 | 34.94 | ||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||
Fourth quarter | 478 | 370 | 30.42 | 23.55 | 527 | 476 | 36.57 | 32.04 | ||||||||||||||||||||||||
Third quarter | 558 | 355 | 34.48 | 21.37 | 503 | 436 | 33.24 | 28.28 | ||||||||||||||||||||||||
Second quarter | 624 | 521 | 38.00 | 30.83 | 475 | 373 | 32.37 | 23.34 | ||||||||||||||||||||||||
First quarter | 576 | 516 | 34.00 | 29.67 | 397 | 311 | 25.87 | 20.30 | ||||||||||||||||||||||||
2004 | 586 | 443 | 45.99 | 32.78 | ||||||||||||||||||||||||||||
2003 | 527 | 311 | 36.57 | 20.30 | 527 | 311 | 36.57 | 20.30 | ||||||||||||||||||||||||
2002 | 624 | 355 | 38.00 | 21.37 | 624 | 355 | 38.00 | 21.37 | ||||||||||||||||||||||||
2001 | 582 | 379 | 34.12 | 22.25 | 582 | 379 | 34.12 | 22.25 | ||||||||||||||||||||||||
2000 | 528 | 334 | 32.19 | 22.72 | 528 | 334 | 32.19 | 22.72 | ||||||||||||||||||||||||
1999 | 502 | 322 | 32.18 | 22.71 | ||||||||||||||||||||||||||||
The high and low prices for 25p ordinary shares and American depositary shares in January 2004 were 536p and 495p and US$39.43 and US$36.20 respectively.
This section incorporates information on the prices at which securities of Barclays PLC and Barclays Bank PLC have traded. It is emphasised that past performance cannot be relied upon as a guide to future performance.
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Barclays PLC Annual Report 2003 207
Shareholder Information
2004
Shareholdings at 31st December 20032004(a)
Shares held | ||||||||||||||||||||||||||||||||
Shares held | as a | |||||||||||||||||||||||||||||||
Shareholders | as a | Shareholders | percentage | |||||||||||||||||||||||||||||
percentage | Percentage | Number of | of issued | |||||||||||||||||||||||||||||
Percentage | Number of | of issued | of total | shares held | ordinary | |||||||||||||||||||||||||||
of total | shares held | ordinary | Number | holders | (millions) | shares | ||||||||||||||||||||||||||
Number | holders | (millions) | shares | |||||||||||||||||||||||||||||
Classification of shareholders | ||||||||||||||||||||||||||||||||
Personal holders | 855,595 | 97.61 | 797.1 | 12.15 | 822,286 | 97.59 | 767.1 | 11.89 | ||||||||||||||||||||||||
Banks and nominees | 18,591 | 2.12 | 5,537.1 | 84.37 | 18,069 | 2.14 | 5,493.0 | 85.11 | ||||||||||||||||||||||||
Other companies | 2,217 | 0.25 | 153.8 | 2.34 | 2,119 | 0.25 | 136.9 | 2.12 | ||||||||||||||||||||||||
Insurance companies | 21 | 0.01 | 45.7 | 0.70 | 18 | 0.01 | 23.3 | 0.36 | ||||||||||||||||||||||||
Pensions funds | 44 | 0.01 | 29.0 | 0.44 | 40 | 0.01 | 33.3 | 0.52 | ||||||||||||||||||||||||
Totals | 876,468 | 100.00 | 6,562.7 | 100.00 | 842,532 | 100.00 | 6,453.6 | 100.00 | ||||||||||||||||||||||||
Shareholding range | ||||||||||||||||||||||||||||||||
1 – 100 | 26,331 | 3.00 | 1.3 | 0.02 | 26,632 | 3.16 | 1.3 | 0.02 | ||||||||||||||||||||||||
101 – 250 | 352,197 | 40.18 | 75.0 | 1.14 | 337,130 | 40.01 | 71.7 | 1.11 | ||||||||||||||||||||||||
251 – 500 | 244,676 | 27.92 | 86.6 | 1.32 | 234,947 | 27.89 | 83.1 | 1.29 | ||||||||||||||||||||||||
501 – 1,000 | 117,502 | 13.41 | 82.0 | 1.25 | 113,350 | 13.45 | 79.3 | 1.23 | ||||||||||||||||||||||||
1,001 – 5,000 | 100,874 | 11.51 | 203.5 | 3.10 | 97,277 | 11.55 | 196.6 | 3.05 | ||||||||||||||||||||||||
5,001 – 10,000 | 18,025 | 2.06 | 127.1 | 1.94 | 17,274 | 2.05 | 121.9 | 1.89 | ||||||||||||||||||||||||
10,001 – 25,000 | 11,307 | 1.29 | 171.2 | 2.61 | 10,664 | 1.27 | 161.5 | 2.50 | ||||||||||||||||||||||||
25,001 – 50,000 | 2,855 | 0.33 | 97.9 | 1.49 | 2,689 | 0.32 | 92.3 | 1.43 | ||||||||||||||||||||||||
50,001 and over | 2,701 | 0.30 | 5,718.1 | 87.13 | 2,569 | 0.30 | 5,645.9 | 87.48 | ||||||||||||||||||||||||
Totals | 876,468 | 100.00 | 6,562.7 | 100.00 | 842,532 | 100.00 | 6,453.6 | 100.00 | ||||||||||||||||||||||||
United States holdings | 890 | 0.10 | 1.1 | 0.01 | 1,224 | 0.15 | 1.9 | 0.03 | ||||||||||||||||||||||||
(a) | These figures include Barclays Sharestore members. |
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Shareholder information
Memorandum and
Articles of Association
The Company was incorporated in England and Wales on 20th July 1896 under the Companies Acts 1862 to 1890 as a company limited by shares and was re-registered in 1982 as a public limited company under the Companies Acts 1948 to 1980. The Company is registered under company number 48839. The Company was re-registered as Barclays PLC on 1st January 1985.
The objects of the Company are set out in full in clause 4 of its Memorandum of Association which provides, among other things, that the Company’s objects are to carry on the business ofas an investment and holding company in all respects.its aspects.
Directors
A Director may not vote or count towards the quorum on any resolution concerning any proposal in which he (or any person connected with him) has a material interest (other than by virtue of his interest in securities of the Company) or if he has a duty which conflicts or may conflict with the interests of the Company, unless the resolution relates to any proposal:
(i) to indemnify a Director in respect of any obligation incurred for the benefit of the Company (or any other member of the Group);
(ii) to indemnify a third party in respect of any obligation for which the Director has personally assumed responsibility;
(iii) to indemnify a Director for any liability which he may incur in the performance of his duties or to obtain insurance against such a liability;
(iv) involving the acquisition by a Director of any securities of the Company pursuant to an offer to existing holders of securities or to the public;
(v) that the Director underwrite any issue of securities of the Company (or any of its subsidiaries);
(vi) concerning any other company in which the Director is interested as an officer or creditor or shareholder, but only if he owns less than 1% of either the issued equity share capital or of the voting rights of that company;
(vii) concerning any superannuation fund or retirement, death or disability benefits scheme or employees’ share scheme, so long as any such fund or scheme does not give additional advantages to the Directors which are not granted to the employees who are in the fund or scheme; and
(viii) concerning any other arrangement for the benefit of employees of the Company or any other member of the Group under which the Director benefits in a similar manner to the employees concerned and which does not give the Director any advantage which the employees to whom the arrangement relates would not receive.
A Director may not vote or be counted in the quorum on any resolution which concerns his own employment with the Company or any other company in which the Company is interested.
The Directors may exercise all the powers of the Company to borrow money.
A Director must retire from office at the conclusion of the first annual general meetingAGM after he reaches the age of 70. He is however, eligible to stand for re-election at that meeting.
A Director is required to hold an interest in ordinary shares having a nominal value of at least £500. A Director may act before acquiring those shares but must acquire the qualification shares within two months afterfrom his or her appointment.
At each annual general meetingAGM one-third of the Directors for the time being (rounded down if necessary) are required to retire from office.
Classes of share
The Company has two classes of shares, ordinary shares and staff shares, to which the provisions set out below apply.
(a) Dividends
Under English law, dividends are payable on the Company’s ordinary shares only out of profits available for distribution, as determined in accordance with accounting principles generally accepted in the UK and by the Companies Act 1985. The Company in general meeting may declare dividends by ordinary resolution, but such dividend may not exceed the amount recommended by the Directors. The Directors may pay interim or final dividends if it appears they are justified by the Company’s financial position.
The profits which are resolved to be distributed in respect of any financial period are applied first in payment of a fixed dividend of 20% per annum on the staff shares and then in payment of dividends on the ordinary shares.
If a dividend is not claimed after 12 years of it becoming payable, it is forfeited and reverts to the Company.
The Directors may, with the approval of an ordinary resolution of the Company, offer shareholders the right to chosechoose to receive an allotment of new ordinary shares credited as fully paid instead of cash in respect of all or part of any dividend.
(b) Voting
Every member who is present in person or represented at any general meeting of the Company and who is entitled to vote has one vote on a show of hands. On a poll, every member who is present or represented has one vote for every share held.
If any sum remains unpaid in relation to a member’s shareholding, that member is not entitled to vote that share unless the Board otherwise determines.
If any member, or any other person appearing to be interested in any shares in the Company, is served with a notice under Section 212 of the Companies Act 1985 and does not supply the Company with the information required in the notice, then the Board, in its absolute discretion, may direct that that member shall not be entitled to attend or vote at any meeting of the Company.
(c) Liquidation
In the event of any return of capital on liquidation the ordinary shares and the staff shares rank equally in proportion to the amounts paid up or credited as paid up on the shares of each class, except that in the event of a winding up of the Company the holders of the staff shares are only entitled to participate in the surplus assets available for distribution up to the amount paid up on the staff shares plus 10%.
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Barclays PLC Annual Report 2003 209
Shareholder Information
(d) Redemption provisions
Subject to the Companies Act 1985, any share may be issued on terms that it is, at the option of the Company or the holder of such share, redeemable. The Company has no redeemable shares in issue.
(e) Calls on capital
The Directors may make calls upon the members in respect of any monies unpaid on their shares. A person upon whom a call is made remains liable even if the shares in respect of which the call is made have been transferred.
(f) Variation of rights
The rights attached to any class of shares may be varied with the sanction of an extraordinary resolution passed at a separate meeting of the holders of the shares of that class.
Annual and extraordinary general meetings
The Company is required to hold a general meeting each year as its annual general meetingAGM in addition to other meetings (called extraordinary general meetings) as the Directors think fit. The type of the meeting will be specified in the notice calling it. Not more than 15 months may elapse between the date of one annual general meetingAGM and the next.
In the case of an annual general meetingAGM or a meeting for the passing of a special resolution (requiring the consent of a 75% majority) 21 clear days’ notice is required. In other cases 14 clear days’ notice is required. The notice must specify the place, the dateday and the hour of the meeting, and the general nature of the business to be transacted.
Subject as noted in (b) above, all shareholders are entitled to attend and vote at general meetings. The articles of association do, however, provide that arrangements may be made for simultaneous attendance at a general meeting at a place other than that specified in the notice of meeting, in which case some shareholders may be excluded from the specified place.
Limitations on foreign shareholders
There are no limitations imposed by English law or the Company’s memorandum or articles of association on the right of non-residents or foreign persons to hold or vote the Company’s ordinary shares other than the limitations that would generally apply to all of the Company’s shareholders.
Taxation
The following is a summary of the principal tax consequences for holders of ordinary shares of Barclays PLC, preference shares of the Bank, ADSs representing such ordinary shares or preference shares, who are citizens or residents of the UK or US, or otherwise who are subject to UK tax or US federal income tax on a net income basis in respect of such securities, that own the shares or ADSs as capital assets for tax purposes. It is not, however, a comprehensive analysis of all the potential tax consequences for such holders, and it does not discuss the tax consequences of members of special classes of holders subject to special rules or holders that, directly or indirectly, hold 10% or more of Barclays voting stock. Investors are advised to consult their tax advisers regarding the tax implications of their particular holdings, including the consequences under applicable state and local law, and in particular whether they are eligible for the benefits of the Old Treaty and/or the New Treaty, as defined below.
A US holder is a beneficial owner of shares or ADSs that is for US federal income tax purposes (i) a citizen or resident of the US, (ii) a US domestic corporation, (iii) an estate whose income is subject to US federal income tax regardless of its source, or (iv) a trust if a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorised to control all substantial decisions of the trust.
Unless otherwise noted, the statements of tax laws set out below are based on the tax laws of the UK in force as at 12th28th February 20042005 and are subject to any subsequent changes in UK law, in particular any announcements made in the Chancellor’s UK Budget on the 17th16th March 2004.2005. This section is also based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions (the Code), and on the Double Taxation Convention between the UK and the US as entered into force in 1980 (the Old Treaty) and the Double Taxation Convention between the UK and the US that was ratified in March 2003 (the New Treaty), all of which are subject to change, possibly on a retroactive basis.
Generally, the New Treaty is effective in respect of taxes withheld at source for amounts paid or credited on or after 1st May 2003. Other provisions of the New Treaty, however, took effect for UK tax purposes for individuals on 6th April 2003 (1st April 2003 for UK companies) and took effect for US federal income tax purposes on 1st January 2004. The rules of the Old Treaty remain applicable until these effective dates. A taxpayer may in any case elect to have the Old Treaty apply in its entirety for a period of 12 months after the applicable effective dates of the New Treaty.
This section is based in part upon the representations of the ADR Depositary and the assumption that each obligation of the Deposit Agreement and any related agreement will be performed in accordance with its terms.
For purposes of the Old Treaty, the New Treaty, the estate and gift tax convention (the Estate Tax Convention) and for the purposes of the Code, the holders of ADRs evidencing ADSs will be treated as owners of the underlying ordinary shares or preference shares, as the case may be. Generally, exchanges of shares for ADRs, and ADRs for shares, will not be subject to US federal income tax or to UK tax, other than stamp duty or stamp duty reserve tax, as described below.overleaf.
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Shareholder information
Taxation of UK holders
Taxation of dividends
In accordance with UK law, Barclays PLC and the Bank pay dividends on ordinary shares and preference shares without any deduction or withholding tax in respect of any taxes imposed by the UK government or any UK taxing authority.
If the shareholder is a UK resident individual liable to income tax only at the basic rate or the lower rate, then there will be no further tax liability in respect of the dividend received. If, however, the individual shareholder is subject to income tax at the higher rate (currently 40%), there will be a further liability to tax. Higher rate taxpayers are taxable on dividend income at a special rate of (currently 32.5%) against which can be offset a tax credit of one-ninth of the dividend paid. Tax credits are no longer repayable to shareholders with no tax liability.
Taxation of shares under the Dividend Reinvestment Plan
Where a shareholder elects to purchase shares using their cash dividend, the individual will be liable for income tax on dividends reinvested in the Plan on the same basis as if they had received the cash and arranged the investment themselves. They should accordingly include the dividend received in their annual tax return in the normal way. The tax consequences for a UK individual are the same as described in ‘Taxation of dividends’ above.
Taxation of capital gains
Where shares are disposed of by open market sale, a capital gain may result if the disposal proceeds exceed the sum of the base cost of the shares sold and any other allowable deductions such as share dealing costs, indexation relief (up to 5th April 1998) and taper relief (generally on shares held at 16th March 1998 and subsequent acquisitions). To arrive at the total base cost of any Barclays PLC shares held, the amount subscribed for rights taken up in 1985 and 1988 must be added to the cost of all other shares held. For this purpose, current legislation permits the market valuation at 31st March 1982 to be substituted for the original cost of shares purchased before that date.
The calculations required to compute chargeable capital gains, particularly taper and indexation reliefs, may be complex. Capital gains may also arise from the gifting of shares to connected parties such as relatives (although not spouses) and family trusts. Shareholders are advised to consult their personal financial adviser if further information regarding a possible tax liability in respect of their holdings of Barclays PLC shares is required.
Stamp duty
On the purchase of shares, stamp duty or stamp duty reserve tax at the rate of 0.5% is normally payable on the purchase price of the shares.
Inheritance tax
An individual may be liable to inheritance tax on the transfer of ordinary shares or preference shares. Where an individual is liable, inheritance tax may be charged on the amount by which the value of his or her estate is reduced as a result of any transfer by way of gift or other gratuitous transaction made by them or treated as made by them.
Taxation of US holders
Taxation of dividends
A US holder is subject to US federal income taxation on the gross amount of any dividend paid by Barclays out of its current or accumulated earnings and profits (as determined for US federal income tax purposes). Dividends paid to a non-corporate US holder in taxable years beginning after 31st December 2002 and before 1st January 2009 that constitute qualified dividend income will be taxable to the holder at a maximum tax rate of 15%, provided that the holder has a holding period of the shares or ADSs of more than 60 days during the 120-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. On 19th February 2004, the IRS announced that it will permit taxpayers to apply a proposed legislative change to the holding period requirement described in the preceding sentence as if such change were already effective. This legislative ‘technical correction’ would change the minimum required holding period, retroactive to 1st January 2003, to more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Dividends paid by Barclays with respect to the shares or ADSs will generally be qualified dividend income.
Under the Old Treaty, a US holder entitled to its benefits is entitled to a tax credit from the UK Inland Revenue equal to the amount of the tax credit available to a shareholder resident in the United Kingdom (i.e. one-ninth of the dividend received), but the amount of the dividend plus the amount of the refund are also subject to withholding in an amount equal to the amount of the tax credit. A US holder that is eligible for the benefits of the Old Treaty may include in the gross amount of the dividend the UK tax deemed withheld from the dividend payment pursuant to the Old Treaty. Subject to certain limitations, the UK tax withheld in accordance with the Old Treaty and effectively paid over to the UK Inland Revenue will be creditable against the US holder’s US federal income tax liability, provided the US holder is eligible for the benefits of the Old Treaty and has properly filed Internal Revenue Form 8833. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate.
Under the New Treaty, a US holder will not be entitled to a UK tax credit, but will also not be subject to UK withholding tax. The US holder will include in gross income for US federal income tax purposes only the amount of the dividend actually received from Barclays, and the receipt of a dividend will not entitle the US holder to a foreign tax credit.Barclays.
Dividends must be included in income when the US holder, in the case of shares, or the Depositary, in the case of ADSs, actually or constructively receives the dividend, and will not be eligible for the dividends-received deduction generally allowed to US corporations in respect of dividends received from other US corporations. Dividends will be income from sources outside the US, and will generally be ‘passive income’ or ‘financial services income,’ which is treated separately from other types of income for the purposes of computing any allowable foreign tax credit.
The amount of the dividend distribution will be the US Dollar value of the pound Sterling payments made, determined at the spot Pound Sterling/US Dollar rate on the date the dividend distribution is includable in income, regardless of whether the payment is in fact converted into US Dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includable in income to the date the payment is converted into US Dollars will be treated as ordinary income or loss and, for foreign tax credit limitation purposes, from sources within the US.
Barclays PLC Annual Report 2003 211
Shareholder Information
Distributions in excess of Barclays current or accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a return of capital to the extent of the US holder’s basis in the shares or ADSs and thereafter as capital gain.
Taxation of capital gains
Generally, US holders will not be subject to UK tax, but will be subject to US tax on capital gains realised on the sale or other disposition of ordinary shares, preference shares or ADSs. Capital gain of a non-corporate US holder that is recognised on or after 6th May 2003 and before 1st January 2009 is generally taxed at a maximum rate of 15% where the holder has a holding period of greater than one year.
Taxation of premium on redemption or purchase of shares
No refund of tax will be available under the Old Treaty or the New Treaty in respect of any premium paid on a redemption of preference shares by the Bank or on a purchase by Barclays PLC of its own shares. For US tax purposes, redemption premium generally will be treated as an additional amount realised in the calculation of gain or loss.
232
Barclays PLC Annual Report 2004
Stamp duty
No UK stamp duty is payable on the transfer of an ADS, provided that the separate instrument of transfer is not executed in, and remains at all times outside, the UK.
Estate and gift tax
Under the Estate Tax Convention, a US holder generally is not subject to UK inheritance tax.
Exchange Controls and Other Limitations
Affecting Security Holders
Other than certain emergency restrictions which may be in force from time to time, there are currently no UK laws, decrees or regulations which would affectrestrict the transfer of capital or remittance of dividends, interest and other payments to holders of Barclays securities who are not residents of the UK. There are also no restrictions under the Articles of Association of either Barclays PLC or the Bank, or under current UK laws, which limit the right of non-resident or foreign owners, to hold Barclays securities or, when entitled to vote, to do so.
Documents on Display
It is possible to read and copy documents that have been filed by Barclays PLC and Barclays Bank PLC with the US SecuritiesUS-Securities and Exchange Commission at the US Securities and Exchange Commission’s public reference room located at 450 5th Street, NW, Washington, DC20549. Please call the US Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. Filings with the US Securities and Exchange Commission are also available to the public from commercial document retrieval services, and in the website maintained by the SEC at www.sec.gov.
Shareholder Enquiries
Investors who have any questions about their investment in Barclays, or about Barclays in general, may write to:
to the Director, Investor Relations at our Head ofoffice as follows:
Director, Investor Relations
Barclays PLC
54 Lombard Street
London EC3P 3AH
or, in the United States of America,
The Corporate Communications Department
Barclays Bank PLC
222 Broadway
New York, NY 10038, USA
Registered and Head office:
54 Lombard Street
London
EC3P 3AH
Tel: 020+44 (0) 20 7699 5000
Please note that from 31st May 2005, the registered and head office will move to:
1 Churchill Place
London
E14 5HP
Tel: +44 (0) 20 7116 1000
Registrar:
The Registrar to Barclays PLC
The Causeway
Worthing
BN99 6DA
Tel: 0870 609 4535
E-mail: questions@share-registers.co.uk
ADR Depositary:
The Bank of New York
PO Box 11258
Church Street Station
New York
NY 10286-1258
Tel: 1-888-BNY-ADRS (toll-free for US domestic callers)
or +1 610 312 5315382 7836
E-mail: shareowner-svcs@bankofny.com
212
233
Group senior management and principal offices
Group Senior Management and Principal Offices
Group SeniorManagement andPrincipal Offices
Sir Peter Middleton GCBChairmanMatthew BarrettGroup Chief ExecutiveJohn VarleyGroup Deputy Chief Executive
Allan BarrDirector, Barclays SolutionsGraham BrammerGroup Property Services DirectorToby BroomeDirector, Service and Supplier Management
Leigh BruceGroup Communications Director
Mark CarawanDirector, Group Internal AuditJohn ChartersGroup Non-Financial Risk DirectorJohn CottonCanary Wharf Programme Director
Mike DavisDirector of Public Policy DirectorColette Delaney-SmithHeather DevineChief Operating Officer, Group Risk
Gary DibbGroup Chief Administrative OfficerTax Director
Lawrence DickinsonGroupCompany SecretaryJohn GilbertFinance and Business Risk Director, Group Functions
Peter GoshawkGroup TreasurerSimon GullifordGroup Marketing Director
Mark HardingGroup General Counsel
Brian HarteGroupHead of Compliance OfficerNaguib KherajGroup Finance Director
Robert Le BlancGroup Financial Risk DirectorKathy LissonDirector of Operational TransformationKevin LloydGroup Chief Technology Officer
Ian Menzies-ConacherGroup Taxation DirectorSenior Tax Adviser
Mark MersonGroup Financial ControllerRobert NimmoGroup Risk DirectorJohn OttGroup Director, Strategy and PlanningDavid PostingsManaging Director, EnableValerie ScoularGroup Human Resources Director
Cathy TurnerHead ofDirector, Investor Relations
Colin WalklinDirector Groupof Finance
David WeymouthChief Information OfficerCorporate Responsibility Director
Roger DavisChief Executive OfficerJayne Almond*Managing Director, Home Finance
Wai AuChief Operating Officer
Alistair Camp*CampManaging Director, Medium Business &and Agriculture CustomersRobin Dickie*Managing Director, Personal CustomersSimon GullifordGroup Marketing & Communications DirectorClaire HafnerAngus GrantFinance Director
Peter Harvey*HarveyManaging Director, Larger Business Customers
Jim HytnerGroup Brand and UK Banking Marketing Director
Frederic NzeManaging Director, Products
Mike Rogers*RogersManaging Director, Personal
and Small Business and Premier CustomersJohn SandsHuman Resources Director
Andy SimmondsRisk DirectorDavid WeymouthRachael YatesChief Information OfficerHuman Resources Director
David RobertsChief Executive
John EatonChief Operating Officer
Jon AndersonFinance DirectorBob BashfordRobert EastRisk DirectorJohn EatonChief Operating Officer
Allan FielderHuman Resources Director
Private ClientsRay Greenshields*Dominic BruynseelsChief Executive, Africa
and Middle East
Jacobo González-RobattoChief Executive, Southern Europe
Pascal RochéManaging Director Investment Managementand
Country Manager, France
InternationalChief Operating OfficerDominic Bruynseels*Managing Director, AfricaJacobo Gonzalez-Robatto*Managing Director, Iberia and Country Manager, SpainPascal Roché*Managing Director, FranceRui Semedo*Country Manager, PortugalColin Vincent*Country Manager, Italy
Gary HoffmanChief Executive OfficerPeter Crook*Keith CoulterManaging Director, UK Consumer FinanceCards and LoansDavid CurdRichard DaviesDirector, IT and OperationsMark Evans*Acting Managing Director, Barclaycard CorporatePartnerships
Mark EvansChief Operating Officer,
UK Consumer
Peter Herbert*HerbertManaging Director, Barclaycard InternationalAlison HutchinsonGerald KitchenMarketingActing Managing Director, Barclaycard Business
Dale RoskomDirector, UK Consumer
Credit Risk
Richard SommersFinance Director
Sue TurnerDirector, Human Resources
* With effect from 31st May 2005
our registered office will be:
1 Churchill Place
London
E14 5HP
Tel: +44 (0) 20 7116 1000
234
Barclays PLC Annual Report 2003 213
Group Senior Management and Principal Offices
Barclays Capital
5 The North Colonnade,
Canary Wharf
London E14 4BB
Tel: 020+44 (0) 20 7623 2323
Robert E Diamond Jr.JrChief Executive Officer
Patrick ClacksonChief Financial Officer
Richard RicciChief Operating Officer
Hans-Joerg RudloffChairman
Jerry del Missier*MissierGlobal Head of Rates and Private Equity, and Chief Executive, ContinentalRegional Head of EuropePaul IdzikChief Operating Officer
Roger Jenkins*JenkinsGlobal Head of Structured Capital Markets
Thomas L KalarisGlobal Head of Distribution and Research and Chief Executive, Americas
Grant Kvalheim*KvalheimGlobal Head of Investment Banking and Credit Products
Robert MorriceChairman and Chief Executive, Asia Pacific
Robert E.E Diamond Jr.JrChairman
Blake GrossmanGlobal Co-Chief Executive Officer
Andrew SkirtonGlobal Co-Chief Executive Officer
Richard RicciChief Operating Officer
Frank RyanChief Financial Officer
Lindsay TomlinsonVice-Chairman, Europe
Thulisizwe JohnsonManaging Director
Colin PlowmanManaging Director
Nicholas JohnsonChief Executive Officer, Australia
Pascal RochéJean BarbizetManaging Director
Dr Rainer StephanManaging DirectorChairman of the Barclays Capital Board in Germany
901-4Kobina QuansahMargaret MwanakatweCountry Managing Director
Tim Streatfeild-JamesGibraltarCountry Director
Robert MorriceChairman and Chief Executive, Asia Pacific
Mani SubramanianChiefCo-Chief Executive Officer, India
Madan MenonCo-Chief Executive Officer, India
Tom McAleeseManaging Director, Ireland and Country Manager
Hugh MalimCountry Head, Italy
Colin VincentCountry ManagerManaging Director,
Banca Woolwich
235
Group senior management and principal offices
Jeffrey DeckCountry Head, Japan and Chief ExecutiveOperating Officer,
*Strategic Business Unit head
214
St. Helier
Jersey
JE4 8PU
Tel: +44 (0) 1534 873741
Email: barclays.kenya@barclays.com
Adan MohamedCountry Managing Director
Enrique AriasDeputy Chief Executive Officer
Jacques de NavacelleKamal TaposeeaCountry Managing Director
Rui SemedoCountry Manager
Frank HoareauCountry Managing Director
Quek Suan KiatBranchChief Operating Officer and Country Manager
Isaac TakawiraMarcus AndradeCountry Managing Director
Jin Sool JooManaging Director
Jacobo González-RobattoManaging Director, Private Clients & International IberiaChief Executive, Southern Europe and Country ManagerHead
Pedro Fernandez de SantaellaManaging Director,Head of Barclays Capital for Spain and Portugal
Michael MorleyChief Executive Officer
Karl StumkeCountry Managing Director
Thomas L KalarisChief Executive, Americas
Blake GrossmanCo-Chief ExecutiveAndrew SkirtonCo-Chief Executive
+(256) (41) 230972-6
Email: barclays.uganda@barclays.comFrank GriffithsNick MbuviCountry Managing Director
(0) 4362 6888
Mark PetchellManaging DirectorGroup Country Manager
224 713Margaret MwanakatweAndy RiggCountry Managing Director
Alexander JongweCharity JinyaCountry Managing Director
236
Barclays PLC Annual Report 2003 2152004
Annual Report 2004 index
Accountability and Audit | 26 | |||
Accounting | ||||
developments | 115 | |||
policies | 110 | |||
Acquisitions and disposals | 117 | |||
Administrative expenses | ||||
other costs | 128 | |||
staff costs | 125 | |||
Annual General Meeting | 6 | |||
Annual Report and Accounts (approval) | 118 | |||
Assets | ||||
analysis | 154 | |||
by class of business | 175 | |||
by geographical region | 177 | |||
other | 142 | |||
Auditors | ||||
report | 109 | |||
Balance sheet | ||||
average | 84 | |||
consolidated | 120 | |||
consolidated (Barclays Bank) | 216 | |||
Barclaycard | ||||
business analysis | 96 | |||
business description | 75 | |||
senior management | 234 | |||
Barclays Bank PLC | ||||
consolidated accounts | 214 | |||
financial data | 224 | |||
notes to the accounts | 220 | |||
Barclays Capital | ||||
business analysis | 97 | |||
business description | 75 | |||
senior management | 235 | |||
Barclays Global Investors | ||||
business analysis | 98 | |||
business description | 76 | |||
senior management | 235 | |||
Business description | 75 | |||
Capital adequacy data | ||||
capital ratios and weighted risk assets | 100 | |||
capital resources | 99 | |||
Cash flow statement | ||||
consolidated | 123 | |||
consolidated (Barclays Bank) | 219 | |||
notes to the accounts | 168 | |||
Competition and outlook | 76 | |||
Contingent liabilities and commitments | 155 | |||
Contractual obligations | 53 | |||
Corporate governance report | 7 | |||
Critical accounting estimates | 80 | |||
Currency of presentation | 212 | |||
Debt securities | 137 |
Deposits | ||||
average balances | 102 | |||
by banks | 143 | |||
by customer accounts | 143 | |||
Derivatives and other financial instruments | ||||
definitions | 57 | |||
notes to the accounts | 157 | |||
Directors’ and officers’ | ||||
biographies | 2 | |||
emoluments | 17 | |||
interests | 25 | |||
notes to the accounts | 172 | |||
Directors’ report | 5 | |||
Dividends | 130 | |||
Earnings per ordinary share | 131 | |||
Economic capital | 34 | |||
Economic profit | 226 | |||
Employees | ||||
equality and diversity | 6 | |||
involvement | 6 | |||
Equity shares | 138 | |||
Fair values of financial instruments | 166 | |||
Financial data | ||||
Barclays Bank PLC | 224 | |||
Barclays PLC | 73 | |||
Financial overview | 78 | |||
Glossary (UK/US) | 213 | |||
Goodwill | 140 | |||
Group senior management and principal offices | 234 | |||
Head office functions and other operations | ||||
business analysis | 98 | |||
business description | 76 | |||
Intangible fixed assets | 140 | |||
Internal control | 26 | |||
International | ||||
business analysis | 95 | |||
business description | 75 | |||
senior management | 234 | |||
International Financial Reporting Standards | 115 | |||
Legal proceedings | 181 | |||
Liabilities | ||||
analysis | 154 | |||
other | 145 | |||
Life assurance business | 105 |
237
Annual Report 2004 index
Loans and advances to banks | ||||
interest rate sensitivity | 59 | |||
maturity analysis | 59 | |||
notes to the accounts | 131 | |||
Loans and advances to customers | ||||
interest rate sensitivity | 60 | |||
maturity analysis | 62 | |||
notes to the accounts | 133 | |||
Loan capital | ||||
dated | 149 | |||
undated | 149 | |||
Memorandum and Articles of Association | 230 | |||
Memorandum items | 121 | |||
Minority interests | 130 | |||
Net interest income | 83 | |||
average balance sheet | 84 | |||
Off balance sheet arrangements | 106 | |||
Other operating income | 125 | |||
Parent company accounts (Barclays PLC) | 124 | |||
Pensions | ||||
directors | 18 | |||
pension costs | 126 | |||
Potential credit risk loans | 42 | |||
Presentation of information | 27 | |||
Private Clients | ||||
business analysis | 94 | |||
business description | 75 | |||
senior management | 234 | |||
Private Clients and International | ||||
business analysis | 94 | |||
business description | 75 | |||
Profit and loss | ||||
consolidated | 118 | |||
consolidated (Barclays Bank) | 214 | |||
Provision for bad and doubtful debts | ||||
net charge to profit and loss account | 44 | |||
notes to the accounts | 136 | |||
risk management | 43 | |||
Recent developments | 77 | |||
Related party transactions | 170 | |||
Remuneration report | 13 | |||
Results by business | 92 | |||
Results by nature of income and expense | 78 | |||
Retirement benefits | 177 | |||
Risk factors | 28 | |||
Risk management | 30 | |||
Risk tendency | 36 |
SEC Form 20-F | 211 | |||
Securitisation | ||||
UK disclosure | 135 | |||
US disclosure | 203 | |||
Segmental analysis | ||||
by class of business | 174 | |||
by geographical segments | 176 | |||
Share capital | ||||
called up | 151 | |||
Shareholder information | 227 | |||
Shareholders’ funds | 153 | |||
Short-term borrowings | 102 | |||
Statement of total recognised gains and losses | ||||
consolidated | 119 | |||
consolidated (Barclays Bank) | 215 | |||
Subsidiary undertakings | 181 | |||
Supervision and regulation | 76 | |||
Tangible fixed assets | 141 | |||
Taxation | ||||
deferred tax | 145 | |||
notes to the accounts | 129 | |||
shareholder information | 231 | |||
UK Banking | ||||
business analysis | 92 | |||
business description | 75 | |||
senior management | 234 | |||
UK Business Banking | ||||
business analysis | 93 | |||
business description | 75 | |||
UK Retail Banking | ||||
business analysis | 92 | |||
business description | 75 | |||
US GAAP | ||||
Barclays Bank | 223 | |||
differences from UK GAAP accounting principles | 182 | |||
financial data | 225 |
238
Signatures
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.
Date March | Barclays PLC (Registrant) | |||||||
By | ||||||||
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.
Date March | Barclays Bank PLC (Registrant) | |||||||
By | ||||||||
ITEM 19: EXHIBIT INDEX 2003
EXHIBIT INDEX
EXHIBIT | ||
NUMBER | DESCRIPTION | |
1.1 | Memorandum and Articles of Association of Barclays PLC (incorporated by reference to the 2002 Form 20-F filed on March 25th, 2003) | |
1.2 | Memorandum and Articles of Association of Barclays Bank PLC | |
2.1 | Long term debt instruments | |
4.1 | Rules of the Barclays Group SAYE Share Option Scheme (incorporated by reference to the 2000 Form 20-F filed on April 16th, 2001) | |
4.2 | Rules of the Barclays PLC Renewed 1986 Executive Share Option Scheme (incorporated by reference to the 2000 Form 20-F filed on April 16th, 2001) | |
4.3 | Rules of the Barclays Group Performance Share Plan (incorporated by reference to the 2000 Form 20-F filed on April 16th, 2001) | |
4.4 | Trust Deed constituting the Barclays PLC 1991 UK Profit Sharing Scheme (incorporated by reference to the 2000 Form 20-F filed on April 16th, 2001) | |
4.5 | Rules of the Barclays PLC Approved and Unapproved Incentive Share Option | |
4.6 | Trust Deed and Supplemental Trust Deed of the Barclays Group Share Incentive Plan | |
4.7 | Service Contract – Sir Peter Middleton (incorporated by reference to the 2000 Form 20-F filed on April 16th, 2001) | |
4.8 | Service Contract – Matthew Barrett | |
4.9 | Service Contract – John Varley (incorporated by reference to the 2003 Form 20-F filed on March 26th, 2004) | |
4.10 | Service Contract – Roger Davis (incorporated by reference to the 2003 Form 20-F filed on March 26th, 2004) | |
4.11 | Service Contract – Naguib Kheraj (incorporated by reference to the 2003 Form 20-F filed on March 26th, 2004) | |
4.12 | Service Contract – Gary Hoffman (incorporated by reference to the 2003 Form 20-F filed on March 26th, 2004) | |
4.13 | Service Contract – David Roberts (incorporated by reference to the 2003 Form 20-F filed on March 26th, 2004) | |
4.14 | Service Contract and Subsequent Amendment to Service Contract – Chris Lendrum | |
4.15 | Appointment Letter and Subsequent Amendment to appoint as Senior Independent Director – Sir Richard Broadbent | |
4.16 | Appointment Letter – Professor Sandra Dawson | |
4.17 | Appointment Letter and Subsequent Amendment to appoint as Deputy Chairman – Sir Nigel Rudd | |
4.18 | Appointment Letter – Stephen Russell | |
4.19 | Appointment Letter – Dr Jurgen Zech | |
4.20 | Appointment Letter – Leigh Clifford | |
4.21 | Appointment Letter – Sir Andrew Likierman | |
4.22 | Appointment Letter – Sir Brian Jenkins | |
4.23 | Appointment Letter – Dame Hilary Cropper | |
7.1 | Ratios of earnings under UK GAAP to fixed charges | |
7.2 | Ratios of earnings under US GAAP to fixed charges | |
7.3 | Ratios of earnings under UK GAAP to combined fixed charges and preference share dividends | |
7.4 | Ratios of earnings under US GAAP to combined fixed charges, | |
8.1 | List of subsidiaries | |
11.1 | Code of Ethics (incorporated by reference to the 2003 Form 20-F file on March 26th, 2004) | |
12.1 | Certifications filed pursuant to 17 CFR 240. 13(a)-14(a) | |
13.1 | Certifications | |
14.1 | Consent of PricewaterhouseCoopers |