SECURITIES AND EXCHANGE COMMISSION
FORM 20-F
   
o Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
 or
xþ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 20032004
 or
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 For the transition period from _____________ to ____________________..
   
Commission file numbers: Barclays PLC                           0-13790
Barclays Bank PLC2-71497-01

BARCLAYS PLC          BARCLAYS BANK PLC

BARCLAYS PLCBARCLAYS BANK PLC
(Exact names of registrants as specified in their charters)
(Exact names of registrants as specified in their charters)

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 Exchange*

New York Stock Exchange
 
Barclays Bank PLC Convertible Capital7.4% Subordinated Notes
American Depositary Note Receipts, representing
interests in Convertible Capital Notes 2009
 New York Stock Exchange**

New York Stock Exchange

* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
**Not for trading, but only in connection with the registration of American Depositary Note Receipts, pursuant to the requirements of the Securities and Exchange Commission.

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  6,562,731,3106,453,561,180 
  £1 staff shares  875,000 
Barclays Bank PLC £1 ordinary shares  2,301,860,515
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     x     No2,309,360,515 
 
Indicate by check mark which financial statement item the registrants have elected to follow.
 
Item 17£1 preference shares Item 18     x     1,000 
 
(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.
Yes100 preference shares No100,000 

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 PICTURES)(DIRECTORS AND OFFICERS PICTURES)

Directors and Officers of Barclays PLC
and Barclays Bank PLC

1 Sir Peter Middleton, GCB,Matthew William Barrett, Chairman
Sir 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 Chairman
Sir 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

(DIRECTORS AND OFFICERS PICTURES)

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


(DIRECTORS AND OFFICERS PICTURES)

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 Executive
Matthew 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 Executive
John 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 Banking
Roger 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 Institutional
Robert 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 Officer
Gary 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, Barclaycard
Gary 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 Director
Naguib 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-Chairman
Christopher 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 Director
Robert 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 & International
David 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 Officer
David 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
Matthew BarrettJohn Varley
 Group Chief Executive  19991996 
Roger Davis
 Chief Executive, UK Banking  2003 
BobRobert Diamond
 Chief Executive,
Wholesale & International Barclays Capital
Chairman, Barclays Global Investors
Chief Executive, Private Clients
 1997 
Gary Dibb
Chief Administrative Officer2000
Gary Hoffman
 Chief Executive, Barclaycard  2001 
Paul Idzik
Chief Operating Officer2004
Naguib Kheraj
 Group Finance Director  2003 
Chris Lendrum
Vice-Chairman1996
Robert Nimmo
Group Risk Director2002
David Roberts
 Chief Executive,
Private Clients International Retail
and International
Commercial Banking 2001 
John Varley
Group Deputy Chief Executive1996
David Weymouth
Chief Information Officer2000 
       
Other officers   Appointed to position
Lawrence Dickinson
 GroupCompany Secretary  2002 
Patrick Gonsalves
 Joint Secretary,
Barclays Bank PLC  2002 
Mark Harding
 Group General Counsel  2003 
Robert Le Blanc
Risk Director2004
Colin Walklin
 Director of Group Finance  2002 


4


Barclays PLC Annual Report 2004

Directors’ Reportreport


Directors’ Report

Profit Attributable

The profit attributable to shareholders for the year amounted to £2,744m,£3,268m, compared with £2,230m£2,744m in 2002.2003.

Dividends

The final dividends for the year ended 31st December 20032004 of 13.45p15.75p per ordinary share of 25p each and 10p per staff share of £1 each have been approved by the Directors. The final dividends will be paid on 30th29th April 20042005 in respect of the ordinary shares registered at the close of business on 27th25th February 20042005 and in respect of the staff shares so registered on 31st December 2003.2004. With the interim dividenddividends of 7.05p8.25p per ordinary share and of 10p per staff share that were paid on 1st October 2003,2004, the total distribution for 20032004 is 20.50p (2002: 18.35p)24.0p (2003: 20.50p) per ordinary share and 20p (2002:(2003: 20p) per staff share. The dividends for the year absorb a total of £1,340m (2002: £1,206m)£1,538m (2003: £1,340m).

Dividend Reinvestment Plan

Ordinary shareholders may have their dividends reinvested in Barclays PLC ordinary shares by participating in the Dividend Reinvestment Plan. The Plan is available to all ordinary shareholders provided that they do not live in, or are subject to the jurisdiction of, any country where their participation in the Plan would require Barclays or The Plan Administrator to take action to comply with local government or regulatory procedures or any similar formalities. Any shareholder wishing to obtain details of the Plan and a mandate form should contact The Plan Administrator to Barclays at The Causeway, Worthing, BN99 6DA. Those wishing to participate for the first time in the Plan should send their completed mandate form to The Plan Administrator so as to be received by 7th8th April 20042005 for it to be applicable to the payment of the final dividend on 30th29th April 2004.2005. Existing participants should take no action unless they wish to alter their current mandate instructions, in which case they should contact The Plan Administrator.

Share Capital

During the year, Barclays PLC purchased in the market for cancellation 49.4140.1 million of its ordinary shares of 25p at a total cost of £204m£699m as part of its programme of returning excess capital to shareholders. These transactions represented some 0.75%2.17% of the issued ordinary share capital at 31st December 2003.2004. As at 11th28th February 2004,2005 (the latest practicable date for inclusion in this report), the Company hashad an unexpired authority to repurchase further shares up to a maximum of 963.1930.4 million ordinary shares of 25p.

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

As at 11th28th February 2004,2005, the Company hashad not been notified of any major interests in its shares as required by sections 198 to 208 of the Companies Act 1985.

Board Membership

The membership of the Boards of Directors of Barclays PLC and Barclays Bank PLC is identical and biographical details of the current members are set out on pages 2 to 4. Professor Dame Sandra Dawson and Sir Richard Broadbent were appointed as non-executive Directors on 1st March 2003 and 1st September 2003, respectively. Roger Davis, Gary Hoffman, Naguib Kheraj and David Roberts were appointed as executive Directors with effect from 1st January 2004. John Stewart Sir Andrew Likierman

and Graham Wallace resignedLeigh Clifford were appointed as non-executive Directors with effect from the Board on 27th February 20031st September 2004 and 2nd April 2003,1st October 2004, respectively. Sir Nigel MobbsPeter Middleton and Sir Brian Jenkins both retired from the Board on 24th April 2003.

1st September 2004, at which time Matthew W Barrett became Chairman and John Varley became Group Chief Executive. Dame Hilary Cropper, who served as a Board member since 1998, died on 26th December 2004. Christopher Lendrum retired from the Board on 31st December 2004.

Retirement and Re-election of Directors

In accordance with its Articles of Association, one-third (rounded down) of the Directors of Barclays PLC are required to retire by rotation at each AGM,Annual General Meeting (AGM), together with Directors appointed by the Board since the last AGM. The retiring Directors are eligible to stand for re-election. In addition, under the UK Combined Code ofon Corporate Governance, every Director should seek re-election by shareholders at least every three years.

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’ interests in the shares of the Group on 31st December 2003,2004, according to the register maintained under the Companies Act 1985, are shown on page 22.25. The register is available for inspection during business hours at the Group’s Head office and will be available for inspection at the 20042005 AGM.

Directors’ Emoluments and Options

Information on emoluments and share options of Directors of Barclays PLC, in accordance with the Companies Act 1985 and the Listing Rules of the United Kingdom Listing Authority, is given in the Corporate Governance Report by the Board on pages 1517 to 2225 and in Notes 55 and 56Note 46 to the accounts.

Activities

Barclays PLC Group is an internationala major global financial services groupprovider engaged primarily in retail and commercial banking, credit cards, investment banking, wealth management and asset management.investment management services. The Group operates through branches, offices and subsidiaries in the UK and overseas. The activities of the Group are described on pages 64 to 6875 and 76 and developments in the Group’s business during the year and an indication of likely future developments are analysed in the Risk management section on pages 25 to 59 and the Financial review on pages 7078 to 95.107, with additional information on potential risk factors discussed on pages 28 and 29.

Community Involvement
Community support totalled £32.8m (2002: £32.3m)

The total commitment for 2004 was £32m (2003: £32.8m).

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



Barclays has an extensive community programme covering many countries around the world. The Group provides funding and support to over 6,500 charities and voluntary organisations, ranging from small, local charities like Coyote Theatre in Teesside, UK to international organisations like Sightsavers International. We also have a very successful employee programme which in 2004 saw more than 25,000 employees and pensioners worldwide taking part in Barclays-supported volunteering and fundraising activities.

Political Donations

No political donations were made during the year. At the AGM in 2002 shareholders gave a four-year authority for Barclays Bank PLC and a number of other subsidiaries to make political donations and incur political expenditure up to a maximum aggregate sum of £250,000 per annum as a precautionary measure in light of the wide definitions in The Political Parties, Elections and Referendums Act 2000.

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

Barclays is committed to ensuring that employees share in the success of the CompanyCompany. Staff are encouraged to participate in share option and share purchase schemes and have a substantial sum invested in Barclays shares.

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 is committed to giving full and fair consideration to applications for employment from people with disabilities and to continuing the employment of staff who become disabled and arranging any appropriate training to achieve this.

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

Barclays is committed to ensuring the health, safety and welfare of its employees and, as far as is reasonably practicable, to providing and maintaining safe working conditions. This commitment goes beyond just fulfilling its statutory legal obligations; the Bank has a wish to be proactive in its management of health and safety in the workplace, and recognises that this will strengthen both its physical and human resources.

It is also recognised that in addition to its employees, Barclays has responsibilities towards all persons on its premises, such as customers, contractors, visitors and members of the public, and will ensure, as far as is reasonably practicable, that they are not exposed to risks to their 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

Barclays policy follows the DTI’s Better Payment Practice Code, copies of which can be obtained from the Better Payment Practice Group’s website at www.payontime.co.uk. The Code states that a company should have a clear, consistent policy, adhered to by the finance and purchasing departments, that payment terms are agreed at the outset and payment procedures explained to suppliers, that bills are settled in accordance with payment terms agreed with suppliers, that complaints are dealt with quickly and that suppliers are advised of disputes. Barclays values its suppliers and acknowledges the importance of paying invoices, especially those of small businesses, promptly. Normal policy is to pay all small business purchases within 30 days.

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 Auditors
PricewaterhouseCoopers 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 Board Audit Committee approves and reviews the appointment of the external auditors, as well as their relationship with the Group, including monitoring the Group’s use of the auditors for non-audit services and the balance of audit and non-audit fees paid to the auditors. More details on this can be found on pagepages 9 and 10 and Note 5 to the accounts. Having reviewed the independence and effectiveness of the external auditors, the Committee has recommended to the Board that the existing auditors, PricewaterhouseCoopers LLP, be reappointed. PricewaterhouseCoopers LLP have signified their willingness to continue in office and ordinary resolutions reappointing them as auditors and authorising the Directors to set their remuneration will be proposed at the 2005 AGM.

The Annual General Meeting

The AGM will be held at The Queen Elizabeth II Conference Centre on Thursday 29th28th April 2004.2005. The Notice of Annual General Meeting is included in the Annual Review and Summary Financial Statement 2003a separate document sent to shareholders with this report.

By order of the Board


Lawrence Dickinson
GroupCompany Secretary
11th February 200410th March 2005



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2003 Corporate Governance Report

Chairman’s StatementIntroduction

2004 has been a year of major change for Barclays. At Barclays,the beginning of the year we are committedreorganised some of our businesses under new leaders. In September, we completed our succession plans for the leadership of the Group, four months ahead of schedule. The smoothness of the transition was a testament to havingthe robust and effective corporate governance practices that we already had in placeplace.

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 PLC
On 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 Governance
The new

As a UK listed Company, Barclays is required to state whether it has complied with the provisions set out in section 1 of the UK Listing Authority’s Combined Code on Corporate Governance will apply for reporting years beginning on or after 1st November 2003. The Code will require an explanation in cases(the Code) and, where an individual who previously was a Chief Executive Officer of a company is appointed Chairman of the Board. In Barclays case, this will be included in the Report and Accounts for 2003. However, I am writing to you today on behalf of the Boardprovisions have not been complied with, to provide an early explanation of our decision.

Background
Mr 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.

Process
The 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.

Criteria
It 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:

(a)Strong commitment to the creation of shareholder value and high standards of corporate governance.
(b)Experience of large multinational businesses.
(c)Ability to command the respect of Board members, shareholders, employees and other key stakeholders.
(d)Understanding of the role of Chairman, including an ability to bring a wider view to bear and work harmoniously with the new Group Chief Executive.
(e)Knowledge of the global financial services industry.

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 Decision
Mr Barrett emerged as the Board’s unanimous choice, ahead of all other candidates, for the following reasons:

(a)Mr Barrett is an experienced international businessman. Prior to his service with Barclays, he served 37 years with the Bank of Montreal. He was Chief Executive Officer there for ten years. He has also served as a non-executive Director on the Boards of multinational companies, serving at various times as Chairman of Audit, Finance, Remuneration and Corporate Governance Committees.
(b)Mr Barrett’s knowledge of the financial services industry is deep and broad. He brings a wide experience and perspective yet, when he retires as Group Chief Executive, he will have spent a relatively short part of his career with Barclays. The Board feels that there is much to be gained for the Group from his continued presence, as Chairman. There is no reason to believe that his objectivity will be affected – as it might have been had his whole career been with Barclays.



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(c)Mr Barrett is totally committed to shareholder value and is an inspirational leader for Barclays employees. Barclays results during his period of office speak for themselves.
(d)Mr Barrett was Chairman of the Bank of Montreal for nine years and therefore has long experience of managing a Board of a major institution. He fully understands UK corporate governance and the different roles played by Chairman and Chief Executive.
(e)The Board is confident that Mr Barrett will continue to have a productive and excellent relationship with John Varley, the new Group Chief Executive and other members of the Group executive. In particular, the Board feels that the new management team will continue to develop the business, bringing benefits to shareholders, customers, staff and the communities in which Barclays operates.

Senior Independent Director
The Board intends to appoint a Senior Independent non-executive Director in line with the new Combined Code during 2004.

Terms and Conditions
Mr 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.

Consultation
We 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 Middleton
Chairman

Board Structure
The

As at the date of this report, the Board consists of the Chairman, who has no executive responsibilities, five executive Directors and eight non-executive Directors, (allall of whom are considered to be independent by the Board)Board. The Board, excluding the Chairman, has a majority of independent non-executive Directors.

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 Board is responsible to 4. shareholders for creating and delivering sustainable shareholder value through the management of the Group’s businesses.

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.



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During the year, work commenced on a Charter of Expectations, which sets out both the Role Profile and the behaviours and competencies required for each role on the Board, namely Chairman, Deputy Chairman, Senior Independent Director, non-executive Directors, executive Directors and Committee Chairmen. The Charter will provide a yardstick against which each Director’s effectiveness will be evaluated during 2005. A copy of the Charter is available on the Group’s website www.barclays.com or can be obtained by writing to the Company Secretary.

Appointment of Directors

The process for appointing new Directors to the Board is determined by the Board Corporate Governance and Nominations Committee, the operation of which is described on page 9. Criteria for the desired background and competencies of new non-executive Directors are agreed and reported to the Board before a search commences. The Chairman, also meets annually with eachGroup Chief Executive and at least two members of the non-executives to discuss their performance as Directors duringCommittee interview each potential new Director, who has typically been identified with the year.

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

On appointment to all Directors at the Company’s expense upon request.

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

During the year, elevena review was conducted of Board meetings were heldeffectiveness. The Board enlisted the services of the management consulting firm, Egon Zehnder International, to facilitate a revised evaluation process for the Board, Board Committees and individual Directors. The process was based on a detailed questionnaire, which included a two-day meetingwas sent to each Director, supplemented by individual interviews. Peer group evaluation of Directors was also undertaken as part of this process. A report on the Group’s European operationsperformance of the Board as a whole and of Board Committees was made to the Board at its meeting in December 2004.

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

The Board meets regularly, usually ten times a year, including a full day spent reviewingeach year devoted to the Group’s strategy. The attendance of individual DirectorsRegular items discussed at Board meetings during 2003 is shown ininclude the table below:
Meetings Attended
Sir Peter Middleton
11/11
Matthew Barrett
11/11
David Arculus
10/11
Sir Richard Broadbent (appointed on 1st September 2003)
5/5
Hilary Cropper
7/11
Professor Dame Sandra Dawson (appointed on 1st March 2003)
10/11
Sir Brian Jenkins
11/11
Chris Lendrum
10/11
Sir Nigel Mobbs (retired on 24th April 2003)
2/2
Sir Nigel Rudd
11/11
Stephen Russell
11/11
John Stewart (resigned on 27th February 2003)
1/1
John Varley
11/11
Graham Wallace (resigned on 2nd April 2003)
1/2
Dr Jürgen Zech
8/11




Combined Code Statement of Compliance
As 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.



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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

Specific responsibilities have been delegated to Board committees. All Board Committees, which have access to independent expert advice at the Group’s expense and, as explained above, are or will be subject to an annual self-assessment, the results of which are or will be reported to the Board.expense. The terms of reference for the principal Board committeesCommittees are also available, on request, from the Group Secretary.Company Secretary and from the Company’s website at www.barclays.com. The four principal Board committees are:Committees are the Board Audit Committee, the Board HR and Remuneration Committee, the Board Corporate Governance and Nominations Committee and the Board Risk Committee. Membership of each Committee is set out in the Directors’ biographies on pages 2 to 4.

Board HR and Remuneration Committee

During 2004, the remit of the Board Remuneration Committee was extended to include reviewing strategic Human Resources (HR) issues and it was renamed the 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 role of this Committee was also revised during the year and the remit extended to include corporate governance issues. The Committee was consequently renamed the Board Corporate Governance and Nominations Committee. While the Committee met only once during 2004, it will in future meet at least three times a year.

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.

The Committee’s responsibilities were extended during the year to cover corporate governance issues, including consideration of the Group’s responses to important developments in corporate governance and overseeing the annual performance evaluation of the Board, each committee of the Board, the Chairman of the Board (led by the Senior Independent Director), the Group Chief Executive and individual Directors.

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
Membership

The 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.

The Committee is made up entirely ofcurrently comprises four independent non-executive Directors. WhileDuring the year, the Board appointed Sir Andrew Likierman as a member of the Committee has collectively the skills and experience required to fully discharge its duties, and has accessdetermined him to independent expert advice at the Group’s expense, the Board has determined that no

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

During 2004, the Board Audit Committee of an individual who meets both tests is a priority for the Board in 2004. However, Sir Brian Jenkins, a member of the Committee, is a chartered accountant and an ex-senior partner of Coopers & Lybrand.

Members of the Committee during 2003, together with a record of their attendance at Committee meetings, are set out below:

Meetings Attended
Stephen Russell, Chairman5/5
Sir Brian Jenkins5/5
Dr Jürgen Zech (appointed on 11th February 2003)3/4
Professor Dame Sandra Dawson1/2
(appointed on 1st August 2003)
Sir Nigel Mobbs (until 24th April 2003)2/2

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.



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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

The Committee annually appraises the effectiveness of the external auditors. The evaluation process includes a questionnaire completed by senior members of the Finance function. The results are then



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reported to the Committee. The lead audit partner is also rotated on a five-year basis and consequently a new lead audit partner will take over following the publication of this Annual 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

The Committee has continued to play a pivotal role in reviewing the Group’s annual and interim financial statements, including reviewing the effectiveness of the Group’s disclosure controls and procedures and systems of internal control.

For the disclosures made in the 2004 Annual Report, the Committee, having reviewed athe report of the Disclosure Committee and the Turnbull attestations made by senior management, has concluded and reported to the Board for their approval that the Group has maintained effective disclosure controls and procedures and that management has continued to operate an effective system of internal control.

Work of the Committee during 2004

In addition to the regular items discussed by the Committee, described above, the Committee received reports from Business Heads on the control environment affecting their businesses and more detailed reports on specific control issues.

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 Russell
Board Audit Committee Chairman

Board Remuneration Committee
The members of the Committee during 2003, together with a record of their attendance at Committee meetings, are set out below:

Meetings Attended
Sir Nigel Rudd, Chairman5/5
David Arculus5/5
Sir Brian Jenkins5/5
Graham Wallace (until 2nd April 2003)1/1
Sir Nigel Mobbs (until 24th April 2003)2/2

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 Committee
The members of the Committee during 2003, together with a record of their attendance at Committee meetings, are set out below:

Meetings Attended
Sir Peter Middleton, Chairman1/1
David Arculus1/1
Sir Brian Jenkins1/1
Sir Nigel Rudd1/1
Graham Wallace (until 2nd April 2003)0/0
Sir Nigel Mobbs (until 24th April 2003)0/0
Secretary: Lawrence Dickinson

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 membersCommittee met three times during the year, but will normally meet four times a year. The purpose of the Committee during 2003, together with a record of their attendance at Committee meetings, are set out below:
Meetings Attended
Sir Peter Middleton, Chairman4/4
Sir Brian Jenkins4/4
Stephen Russell4/4
Hilary Cropper (appointed on 11th February 2003)3/4
John Varley (until 5th February 2004)3/4

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 likelihood of the risks concerned materialising, and
the completeness of the Group’s system of internal controls to manage those risks.

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

-s- Stephen Russell

Stephen Russell
Board Audit and Board Risk Committee Chairman



10


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

As a non-US company listed on the New York Stock Exchange (NYSE), Barclays is required to disclose any significant ways in which its corporate governance practices differ from those followed by domestic US companies listed on the NYSE. As Barclays main listing is on the London Stock Exchange, it follows the United Kingdom Listing Authority’s Combined Code on Corporate Governance (the Code). Key differences are set out below.

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

The Group’s approach to managing the interests of its stakeholders is fully described in the Corporate Responsibility Report, copies of which are available from the Company Secretary or at www.barclays.com.

Relations with Shareholders

Barclays has a proactive approach to its institutional and private shareholders, totalling around 877,000.842,500. In the UK, senior executives hold meetings with our key institutional shareholders to discuss strategy, financial performance and investment activities. Throughout Europe and in the US, we arrange road showsroadshows about the Group for key investors. In addition, the

The Chairman meets regularly with investor bodies and investors to discuss the Group’s approach to corporate governance issues.

Sir Richard Broadbent, the Senior Independent Director, is available to investors should they wish to raise any issues with him.

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

-s- Matthew W Barrett

Matthew W Barrett
Chairman



10 

12


Corporate Governance
Barclays 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)

All members of the Committee are independent non-executive Directors. The primary purpose of the Committee is to determine the Group’s policy on the remuneration of executive Directors and their specific remuneration packages.

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 20032004 reflect very strong corporate performance for the year. Group profit before tax and Group economic profit (EP)1 are 20% and 15%32% higher than in 2002. 2003.
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 total shareholder return (TSR)TSR for 20032004 was 37%23%, which was higher than both the average for the peer group and the FTSE 100 Index. 2003index. 2004 was also the endfirst year of a four-year performance cycle, a period during which the primary goal wasis to deliver top quartile TSR relative to peers. Barclays met this goal, beingwas ranked third of twelve major banks with a TSR of 31%, which was almost double the 16% average of the peer group.first for 2004.
   
 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 thisthe peer group. The 20002001 grant under the ISOP vested in 2003. Although2004. Barclays was ranked thirdfourth of the twelve banks and therefore inover the top quartile, thisthree-year period. This performance was sufficient only for 50%25% of the maximum number of shares under the TSR condition to vest. The other 50%75% lapsed.
   
 As shown in the table on page 22,25, the executive Directors each have a personal interest in Barclays shares, through shares they own, and shares and options held in employee share plans on their behalf. A significant percentageproportion of annual bonus was delivered inis made up of an award over Barclays shares and payment of the shares element was deferred for a period of at least three years.

The Committee unanimously recommendrecommends that you vote in favour ofto approve this report at the AGM.



Signed on behalf of the Board

-s- Sir Nigel Rudd
Sir Nigel Rudd
Board HR and Remuneration Committee Chairman

Notes
1 Economic profit (EP) is defined as profit after tax and minority interests plus certain gains (and losses) reported within the statement of total recognised gains and losses where they arise from the Group’s business activities and are in respect of transactions with third parties, less a charge for the cost of average shareholders’ funds (which includes purchased goodwill).
 
2 Towers Perrin, and Mercer haveHuman given their written consent to the inclusion of references to their names in the form and context in which they appear.

Board HR and Remuneration Committee Members

The Committee comprised the following independent non-executive Directors:

Sir Nigel Rudd, Chairman
David Arculus
Sir Brian Jenkins
Sir Nigel Mobbs(a)
Graham Wallace(b)

Sir Nigel Rudd, Chairman
David Arculus
Sir Richard Broadbent(a)
Sir Brian Jenkins(b)

Notes
(a) Sir Nigel Mobbs retired fromRichard Broadbent joined the Board on 24th1st September 2003 and the Committee on 1st April 2003.2004.
 
(b) Graham Wallace resigned fromSir Brian Jenkins ceased to be a member of both the Board and the Committee on 2nd April 2003.1st September 2004.

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

The Committee has access to executive remuneration consultants to ensure that it receives the best independent advice. The selection of advisers is entirely at the discretion of the Committee Chairman. Advisers are appointed by the Committee for specific pieces of work, as necessary, and are required to disclose to the Committee any potential conflict of interest tointerest.

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

We are committed to using reward to support a performance-orientedhigh-performance culture. Executive Directors can expect outstanding reward if performance is outstanding.outstanding and below median reward for below median performance. This philosophy applies to reward policies and practices for all employees in the Group. The Committee considers reward levels across the Group when determining remuneration for executive Directors.

TheBarclays remuneration policy is:is as follows:

to incentivise excellence and balance in both short term (one year) and longer term (three year plus) performance such that the primary goal of achieving top quartile TSR is met and sustained;



13


Corporate governance
Barclays report on remuneration



 to align the interests of executive Directors with those of the shareholders to create value;
to recognise excellent performance ofenable the Group businessto attract and individual;retain people of proven ability, experience and skills in the pools in which we compete for talent;
 to encourage the right behaviours which lead to achieve excellent performance;excellence and appropriate balance in: financial performance, governance and controls, customer service, human resource management, brand and reputation management, and risk management;
 that reward is to be commercially competitive;promote attention to maximising personal contribution, contribution to the business in which the individuals work, and contribution to the Group overall; and
 to ensure, both internally and externally, that reward is to beremuneration policies and programmes are transparent, well communicated, easily understood and easily understood.serve well the interests of shareholders.



Barclays PLC Annual Report 2003       11


Corporate Governance
Barclays 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(TOTAL SHAREHOLDER RETURN LINE GRAPH)

(LINE GRAPH)

This graph shows the value, by 31st December 2004, of £100 invested in Barclays on 31st December 1999 compared with the value of £100 invested in the FTSE 100 Index. The other points plotted are the values at intervening financial year-ends. TSR above is calculated on a net dividend reinvestment basis.

Note

The Directors’ Remuneration Report Regulations 2002 require that the graph shows TSR for the five years ending with the relevant financial year.

The Reward Package for Executiveexecutive Directors

The reward package for the executive Directors and other senior executives comprises:comprised:

 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

This is a fixed cash sum, payable monthly. The Committee reviews salaries each year as part of the total reward package, recognising market levels and individual contribution.

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 
 
Note
(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 2004 annual bonusbonuses for executive Directors iswere linked to Group economic profitEP performance and individual performance. Group EP was more than 30% above the level for 2003, which contributed to bonuses being paid towards the top end of the range for 2004. For 2004, the maximum bonus opportunity for outstanding performance was 187.5% of base salary in cash and a further 62.5% in deferred shares. Cash bonuses for current executive Directors whofor 2004 performance were on the Board during 2003 were 174%154% of base salary as at 31st December 20032004 for the Group Chief Executive,Mr Varley, and between 90%150% and 103%187.5% of base salary for the other executivecurrent Directors. Up

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)

The ISOP is designed to provide the opportunity for individualsexecutive Directors and senior managers to receive rewards for creating sustained shareholder value growth. Participants are granted options over Barclays PLC ordinary shares, which are normally exercisable after three years at the market price at the time of grant. The number of shares over which options can be exercised depends upon Barclays performance against specific targets. In establishing the performance targets, the Committee has sought to encourage excellent business



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 Profit
This 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)

Number of shares
under option that
Performance Achievedbecome exercisable
Above the ‘Target’ range (i.e. the 3-year cumulative EP for the performance period is above £5,200m)2 x Target Award

In the ‘Target’ range (i.e. the 3-year cumulative EP for the performance period is between £3,900m and £5,200m)1 x Target Award

Below the ‘Target’ range (i.e. the 3-year cumulative EP for the performance period is below £3,900m)0.5 x Target Award

EP growth is not positive (i.e. the 3-year cumulative EP for the performance period is not more than the cumulative EP for the previous 3-year period)Zero
Note
(a)EP for 2003, the first year of the 3-year performance period was £1,420m.

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.



has been posted to shareholders with their Report. It can be accessed via the Company’s website at www.investorrelations.barclays.co.uk. Awards made in 2004 were made under the existing ISOP Plan.

12 


2.ISOP Total Shareholder Return, Performance Condition

A proportion of the shares under option are subject to a separatechallenging performance condition based on TSR measured against a financial services peer group approved by the Committee. This peer group comprises eleven other leading UK and international financial institutions that have been chosen to reflect Barclays business mix. For the performance period 20032004 to 2005,2006, the 2003 peer group is Abbey, ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland, JP Morgan Chase and Standard Chartered.UBS.

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(a)
 
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.
Note
(a)Under the TSR condition, the ability to exercise is also subject to the condition that EP for the three-year performance period is greater than the previous performance period.
Under the TSR condition, the ability to exercise is also subject to the condition that EP for the three-year performance period is greater than the previous performance period.

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

All eligible employees including executive Directors have the opportunity to participate in the Barclays Sharesave Scheme. Sharesave is an Inland Revenue approved all-employee share plan. The Inland Revenue does not permit performance conditions to be attached to the exercise of options. Under the plan, participants are granted options over Barclays PLC ordinary shares. Each participant may save up to £250 per month to purchase Barclays shares at a discount. For the 20032004 grant, the discount was 20% of the market value at the time the option was granted.

Sharepurchase (previously named Share Incentive PlanPlan)
The Share Incentive Plan

Sharepurchase was introduced in January 2002. It is an Inland Revenue approved all-employee share plan. The plan is open to all eligible UK employees, including executive Directors. Under the plan, participants are able to purchase up to £125£1,500 worth of Barclays PLC ordinary shares each month,per tax year, which, if kept in trust for five years, can be withdrawn from the plan tax-free. Any shares in the plan will earn dividends in the form of additional shares, which must normally be held by the trustee for three years before being eligible for release.

Employee Benefits Trust (EBT)

The shares provided to employees in the ESAS are held in an EBT. The trustees of the Barclays EBT have informed Barclays that their normal policy is to abstain in any shareholder voting, in respect of the Barclays shares held in trust.

Pensions

A pension is payable on retirement at contractual retirement date (normally 60), and is calculated either by reference to an executive Director’s length of service and pensionable salary or to a money purchase arrangement, depending upon date of hire. Pensionable pay comprises base salary only. Matthew W Barrett is not a member of the Group’s main pension schemes. A notional fund is accruinghas accrued on his behalf outside the pension scheme (see page 1618 for further details).

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 Group has service contracts with its Chairman, executive Directors and senior executives1.executives. The effective dates of the contracts for the Chairman and executive Directors who served during 20032004 are shown in the table below. Non-executive Directors do not have service contracts.on page 16. The service contracts do not have a fixed term but provide for a notice period from the Group of one year and normally for retirement at age 602.60. The Committee’s policy is that executive Directors’ contracts should allow for termination with contractual notice from the Company, except in circumstances of gross misconduct when notice is not given.

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 
Sir Peter Middleton3
1st May 19991 yearn/acontractual
        contractual
MW Barrett(b)
1st Sep 20041 yearn/aremuneration
JS Varley1st Sep 20041 year31st Mar 2016
RJ Davis1st Jan 20041 year3rd Jun 2016
GA Hoffman1st Jan 20041 year20th Oct 2020
N Kheraj1st Jan 20041 year14th Jul 2024
DL Roberts1st Jan 20041 year11th Sep 2022
Former Directors
     remuneration 

MW Barrett
Sir Peter
Middleton(c)
 1st Jan 2002May 1999 1 year 19th Sep 2009n/a " 

 
CJ Lendrum 15th Jun 1992 1 year 14th Jan 2007n/a " 

JS Varley1st Jan 20041 year31st Mar 2016" 

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.

Notes
1(a) Details of executive Directors standing for re-election at the 20042005 AGM are set out on page 5.
(b) There is no formal retirement date under Mr Barrett’s contract.
 
2Mr Barrett’s contract provides for normal retirement at age 65.
3(c) Sir Peter Middleton’s service contract doesdid not provide for a retirement date.



Barclays PLC Annual Report 2003       13

Capital and Barclays Global Investors
The Committee has established frameworks for the governance and control of compensation in these businesses. Ranges have been set for key financial and compensation ratios such as operating costs to net revenue, compensation to pre-compensation Profit Before Tax and bonus expenditure as a percentage of pre-bonus profits. The Committee approves aggregate bonus and long-term incentive expenditure, and strategic investment on new hires, in these businesses, taking account of these agreed ratios. The Committee also approves individual compensation for the members of the management teams in these businesses.


Corporate Governance
Barclays Report on Remuneration


Non-executive Directors

The Board determines the fees of non-executive Directors. Directors, which are reviewed annually.

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 
  Effective    liability in the 
Non-executive
 date ofthe event
letter ofAppointment Notice event of early 
Directors
 appointmentdate period terminationtermination
 
TDG Arculus 1st Feb 1997 6 months months' months’
fees
 

 
Sir Richard Broadbent 1st Sep 2003  "" 

 
HM Cropper
RL Clifford 1st Jun 1998Oct 2004  "" 

 
Professor Dame

Sandra Dawson
 1st Mar 2003  "" 

 
Sir Brian JenkinsAndrew Likierman 25th Oct 20001st Sep 2004  "" 

 
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 Jenkins25th 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

The Committee will keepintends to continue to review the existing remuneration arrangements, as detailed in this Report under review during 20042005 and will seek to ensure that Barclays reward programmes remain competitive and provide appropriate incentive for performance.to perform. As usual, there will be individual reviews of base salary, annual bonus (including ESAS) and ISOPawards under the long-term incentive plans.

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

As we informed shareholders in 2000, Barclays will reviewrequired by Part 3 of Schedule 7A of the ISOP after five years to consider whether it still meetsCompanies Act 1985, the Group’s business needs.

auditors, PricewaterhouseCoopers LLP, have audited the information contained on pages 17 to 24.



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(f)(g)
          
TDG Arculus  58        58   52        68    68  58     
Sir Richard Broadbent(g)
  17        17           83    83  17     
HM Cropper  57        57   52      
RL Clifford(h)
  13    13       
Professor Dame Sandra Dawson(h)
  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     
Notes
(a) Emoluments include amounts, if any, payable by Barclays subsidiary undertakings and by other companies where services are undertaken at the Group’s request.undertakings.
 
(b) The Chairman and executive Directors receive benefits in kind, which may include life cover, the use of a companyCompany owned vehicle or cash equivalent, and medical insurance and tax advice, on similar terms to other senior executives.
 
(c) The amounts shown for ESAS 2003 represent payments which are expected to be made by the trustee to fund the provisional allocation of shares in 2005, in respect of 2004 performance, including a maximum potential 30% bonus share element, which is added to the award in two parts: 20% after 3three years, 10% after 5five years.
 
(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 20032004 of £73,000 (2002: £72,000)£74,000 (2003: £73,000). Details of the paymentspayment are not included in the table above since this is a pension in payment relating to his Barclays service prior to becoming Chairman.
 
(e)(k) John StewartChris Lendrum ceased to be a Director with effect from 27th February 2003. After ceasing to be a Director, he remained an employee of Barclays until 7th August 2003. In accordance with his contract of employment, on 7th August he31st December 2004. He received a payment in lieu of base salaryremuneration in the form of a pension contribution for the balance of his 12-month contractual notice period ending 26th February 2004. All other benefits, including pension accrual ceased on 7th August 2003.24th June 2005, less £43,000 for services to Barclays to be undertaken in the period between 1st January and 24th June 2005. These services include Chairmanship of the Barclays Bank UK Retirement Fund.
 
(l) Dame Hilary Cropper died on 26th December 2004.
 
(f)Fees to non-executive Directors include an amount of not less than £20,000 which, after tax, is used to buy Barclays PLC ordinary shares for each non-executive Director. Further details are provided on page 14.
(g)(m) Sir Richard Broadbent was appointed asBrian Jenkins ceased to be a non-executive Director on 1st September 2003.2004.
 
(h)(n) Professor Dame Sandra Dawson wasFor those Directors who were appointed as a non-executive Director on 1st March 2003.
(i)Sir Nigel Mobbs retired fromduring the Board on 24th April 2003.
(j)Graham Wallace resigned fromyear and for those who ceased to be Directors during the Board on 2nd April 2003.year the remuneration shown relates to the period for which they were Directors.

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 
Notes
(a) Pension accrued during the year represents the increase in accrued pension (including inflation at the prescribed rate of 2.8%3.1%) which occurred during the entire year. All pensions are reviewed annually, with a guaranteed increase in line with retail price inflation, up to a maximum of 5%.
 
(b) Matthew W Barrett is not a member of the Group’s main pension schemes. A notional fund is accruinghas been accrued on his behalf outside the pension scheme. In the event of Mr Barrett’s death before retirement, a capital sum of up to four times salary would be payable.
 
(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. Chris LendrumGary Hoffman and John VarleyDavid Roberts are members of the closed non-contributory pension scheme with benefits of 1/60th of final pensionable salary per year of service. Their Normal Retirement Age is 60. John Varley is also a member of the closed non-contributory pension scheme and arehe is entitled to enhanced benefits that will give thema pension of 60% of pensionable salary without reduction for early retirement if he retires from age 55 and two-thirds of their pensionable salary at age 60.
 
(d)John Stewart ceased to be a Director with effect from 27th February 2003. After ceasing to be a Director, he remained an employee of Barclays until 7th August 2003. He was entitled to a pension of two-thirds of pensionable salary if he served to age 60. He retired early on 7th August 2003 and his accrued pension benefit, detailed in the table above, based on actual service, became a pension in payment from 8th August 2003. The pension in payment is reviewed annually in line with retail price inflation, subject to a minimum of 3% and a maximum of 5%.
(e) The accrued pension amounts at the end of the year for Mr LendrumHoffman, Mr Roberts and Mr Varley are the values if the Director left service on that date.
 
(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 
Notes
(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 the Profit Sharing Scheme and the Share Incentive Plan.Sharepurchase.
 
(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.
 
(d)(e) The value is based on the share price as at 31st December 2002.2003. In the case of share options, the value is the ‘in-the-money’ value. The notional value of shares under option under the Incentive Share Option Plan (ISOP), Executive Share Option Scheme (ESOS) and Sharesave have been set at zero where the market price at 31st December 20022003 is lower than the exercise price per share.
 
(e)(f) The value is based on the share price as at 31st December 2003.2004. In the case of share options, the value is the ‘in-the-money’ value. The notional value of shares under option under ISOP, ESOS and Sharesave have been set at zero where the market price at 31st December 20032004 is lower than the exercise price per share.
(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    
 
Notes
(a) TheESAS is a deferred share award plan in which awards are initially granted in the form of a provisional allocation and do not give rise to any entitlement to the shares. These awards were granted in the years 2000 to 2004, and include mandatory bonus deferrals. For mandatory bonus deferrals under ESAS, the size of any award under ESAS is subject to the same Group and individual performance criteria as the annual bonus. Awards under ESAS are granted in the form of provisional allocations over Barclays PLC ordinary shares, which do not give rise to any entitlement to these shares. Normally, the trustees will permit the executive to call for the shares from the end of the third year from grant of an award by granting a right to acquire shares (a nil cost option) exercisable for two years. As this nil cost option is part of the structure of an ESAS award described above, which is a deferred share award scheme,plan, it would not be appropriate to attach a performance condition to the exercise of options. If the right is not exercised, the trustees, may at the end of the fifth year, release all of the shares, including bonus shares equal to 30% of the basic award. If the right is exercised, an executive may lose the opportunity of receiving one-third of the bonus shares. The number of shares shown in the table includes the bonus shares.shares where applicable.
 
(b) The trustees may release additional shares to participants which represent accumulated net dividends in respect of shares under award. During 2003,2004, the trustees released the following accumulated dividend shares – 1,4565,994 to John Varley, 1,501 to Gary Hoffman, 945 to David Roberts and 2,997 to Chris Lendrum and 14,121 to John Varley.Lendrum. These are not awarded as part of the original award and consequently are not included in the Released column.
 
(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.
 
(c)(d)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 20032004 and relate to provisional allocations made in 19992000 and 20002001 except that the figures do not include accumulated dividend shares under option as follows: 4,779 shares for Matthew Barrett, 2,636 shares for Chris Lendrum and 4,4263,740 shares for John Varley.Varley, 18,363 shares for Roger Davis, 2,550 shares for Gary Hoffman, 1,516 shares for David Roberts and 3,182 for Chris Lendrum. Under ESAS, a participant pays £1 to exercise an option, irrespective of the number of shares involved. No options were either exercised or lapsed during the year.
 
(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.
 
(d)(g) The awards in respect of 20032004 were made in February 2004.2005. The shares awarded represent shares purchased by the trustees after 16th10th February 20042005 at £4.91£5.91 in respect of a recommendation by the Company for an award, including a maximum potential 30% bonus shares, of £831,395£715,000 to Matthew W Barrett, £357,500 to Roger Davis, £357,500 to Gary Hoffman, £406,250 to Naguib Kheraj, £333,125 to David Roberts and £184,092£568,750 to John Varley.
(e)John Stewart ceased to be a Director with effect from 27th February 2003.

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 
 
Notes
(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)For details of the performance targets which must be satisfied for options to become exercisable and the extent to which options will become exercisable see pages 12 and 13.
(c)As there were no options exercised during the year, the table does not show the market price on the exercise date.
(d)(b) The 20012002 grant is due to vest on 12th20th March 2004.2005. The number of shares due to vest represents the number over which an option may be exercised after the third anniversary from grant, as determined by the Committee in respect of the performance conditions attached to the options originally set at the time of the grant of the option. The shares under option that are not due to vest will lapse. The result of the economic profit performance against the target has resulted in half the Target Award vesting. The result of the relative TSR performance target against the comparator group of companies placed Barclays in 4thfourth position for the 20012002 to 20032004 performance period with a vesting multiplier of one times the Target Award.
(e)John Stewart ceased to be a Director with effect from 27th February 2003.
(f)(c) 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.
(d)Chris Lendrum ceased to be a Director on 31st December 2004.

22


Barclays PLC Annual Report 2003       19


Corporate Governance
Barclays 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 
Notes
(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) Please see page 13 for details of the Sharesave scheme. No options lapsed during the year.
(c)John Stewart was previously awarded an option over Woolwich plc shares. This option was rolled over into an option over Barclays PLC shares in accordance with the scheme of arrangement for the acquisition of Woolwich plc. These figures represent options held under the Woolwich plc Sharesave Scheme. Mr StewartChris Lendrum ceased to be a Director with effect from 27th February 2003.on 31st December 2004.

20 

23


Directors: closed Group incentive schemes (Executive Share Option Scheme (ESOS) andCorporate governance
Woolwich 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 
 
Notes
(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)Or on cessation of employment if earlier.
(d) The independent trustee of the Barclays Group (PSP and ESOS)(ESOS) employees’ benefit trust granted Matthew W Barrett a share award in 1999 comprising an option on similar terms to options granted under ESOS. For convenience these are described as granted under ESOS in the above table.
 
(e)(d) John Stewart ceasedExecutive Directors continue to be a Director with effect from 27th February 2003. After ceasing to be a Director, he remained an employee of Barclays until 7th August 2003.
(f)Under The Woolwich ESOP, John Stewart held an option over Woolwich plc shares. This was rolled over into a new option over Barclays PLC shareshave interests under the termsESOS scheme (as indicated in the table above). No further awards will be made under this scheme. 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 Price Index plus 6%, over the same period. The Woolwich ESOP in accordance with proposals offered to all Woolwich employees participating in The Woolwich ESOP followingperformance target for the acquisition of Woolwich plc.1999 ESOS grant was met.

24


Barclays PLC Annual Report 2003       21


Corporate Governance
Barclays 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    
 
Notes
(a) Beneficial interests in the table above represent shares held by Directors who were on the Board as at 31st December 2003,2004, either directly or through a nominee, their spouse andor children under 18. They include any interests held through the 1991 UK Profit Sharing Schemes (PSS) and the Share Incentive Plan,Sharepurchase, but do not include any awards under ESAS, ISOP, PSP, ESOS and Sharesave schemes or under the Woolwich Sharesave or the Woolwich plc 2000 Sharesave Scheme (together The Woolwich Sharesave scheme), or the ESOP.schemes. At 31st December 2003, Sir Peter Middleton2004, Matthew W Barrett and the executive Directors, together with other senior executives, were potential beneficiaries in respect of a total of 82,797,943115,956,111 Barclays PLC ordinary shares (1st January 2003: 70,656,045)2004: 82,797,943) held by the trustees of the Barclays Group Employees’ Benefit Trusts. At 11th28th February 2004,2005, a total of 82,797,943148,391,046 shares were held by the trustees.
 
(b) Or date appointed to the Board if later.
 
(c) Between 31st December 20032004 and 11th28th February 2004,2005, 42 ordinary shares were purchased for each of John Varley, Gary Hoffman and Chris Lendrum each purchased 48 ordinary sharesDavid Roberts through the Share Incentive Plan.Sharepurchase.
 
(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 2003.
(e)Appointed with effect from 1st March 2003.2004.

22 

25


Corporate Governancegovernance

Accountability and Auditaudit


Accountability and Audit

Going Concern

The Directors confirm they are satisfied that the Company and the Group hashave adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt the ‘going concern’ basis for preparing the accounts.

Internal Control

The Directors have responsibility for ensuring that management maintain an effective system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. Throughout the year ended 31st December 2003,2004, and to date, the Group has operated a system of internal control which provides reasonable assurance of effective and efficient operations covering all controls, including financial and operational controls and compliance with laws and regulations. Processes are in place for identifying, evaluating and managing the significant risks facing the Group in accordance with the guidance ‘Internal Control: Guidance for Directors on the Combined Code’ issued by the Institute of Chartered Accountants in England and Wales. The Board regularly reviews these processes through the Board Committees.

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


-s- Matthew W Barrett

Sir Peter MiddletonMatthew W Barrett
11th February 200410th March 2005

Disclosure Controls and Procedures

The Group Chief Executive, Matthew Barrett,John Varley, and the Group Finance Director, Naguib Kheraj, conducted with Group Management an evaluation of the effectiveness of the design and operation of the Group’s disclosure controls and procedures as at 31st December 2003,2004, which are defined as those controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the US Securities Exchange Act of 1934 is recorded, processed, summarised and reported within specified time periods. As of the date of the evaluation, the Group Chief Executive and Group Finance Director concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to their evaluation.



26


Barclays PLC Annual Report 2003       23


2004

Presentation of Informationinformation


Presentation of Information

Barclays PLC is a public limited company registered in England and Wales under company number 48839. The Company, originally named Barclay & Company Limited, was incorporated in England and Wales on 20th July 1896 under the Companies Acts 1862 to 1890 as a company limited by shares. The company name was changed to Barclays Bank Limited on 17th February 1917 and it was re-registered in 1982 as a public limited company under the Companies Acts 1948 to 1980. On 1st January 1985, the company changed its name to Barclays PLC.

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

The consolidated accounts of Barclays PLC and its subsidiary undertakings are set out on pages 107118 to 112123 along with the accounts of Barclays PLC itself on page 113.124. The consolidated accounts of Barclays Bank PLC and its subsidiary undertakings are set out on pages 195214 to 200.219. The accounting policies on pages 101110 to 106115 and the Notes commencing on page 114125 apply equally to both sets of accounts unless otherwise stated.



24 

27


Risk Management

Risk Management and Control – Overviewfactors


Risk Factors

The following discussion sets forth certain risk factors that the Group believes could cause its actual future results to differ materially from expected results. 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 Economy

The profitability of Barclays aimsbusinesses could be adversely affected by a worsening of general economic conditions in the United Kingdom or globally. 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 employ superiora 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 practicesthat a greater number of the Group’s customers would be unable to optimisemeet their obligations.

Credit Risk

The Group’s provisions for credit losses provide for losses inherent in loans and advances and other credit exposures. Estimating losses is inherently uncertain and depends on many factors, including general economic conditions, rating migration, structural and technological changes within industries and changes in customer preferences that alter competitive positions, mismanagement by customers and other external factors such as legal and regulatory requirements.

Market Risks

The most significant market risks the Group faces are interest rate, credit spread, foreign exchange, commodity price and equity price risks. Changes in interest rate levels, yield curves and spreads may affect the interest rate margin realised between lending income 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 value. Our approachbusiness operations. In addition, the value of assets held in the Group’s pension and long-term assurance funds are also affected by the performance of financial markets.

Capital Risk

The Group’s authority to operate as a bank is dependent upon the maintenance of an adequate capital base. It is required to meet capitalisation requirements in the UK and in other markets where banking activities are undertaken. As the level of capitalisation may affect the Group’s debt rating, the Group also manages its capital to secure the maintenance of its strong rating. Moreover, the absence of a sufficiently strong capital base may constrain the Group’s growth and strategic options. Unforeseen circumstances may arise under which the Group is unable to maintain its desired capitalisation.

Liquidity Risk

Liquidity risk managementis the risk that the Group is unable to meet its payment obligations when they fall due and control continued to evolvereplace funds when they are withdrawn; the consequence of which may be the failure to meet obligations to repay depositors and fulfil commitments to lend. This risk exists in 2003the UK as well as in overseas markets. There is a risk that the Group mismanages its liquidity or that circumstances may arise under which it is unable to reflect best practice. maintain adequate liquidity.

Operational Risks

The Group’s businesses are dependent on the ability to process a large number of transactions efficiently and accurately. Operational risks 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 (see page 54 for a fuller list). 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 operational risks faced by the Group.

Regulatory Compliance Risk

The Group takes risks that are commensurateis subject to extensive supervisory and regulatory regimes in the UK, elsewhere in Europe, the US, the Asia-Pacific region and in the many other countries around the world in which it operates.

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

The Group is subject to comprehensive legal obligations in the UK, the European Union, the US, the Asia-Pacific region and in the many other countries around the world in which the Group operates. As a result, the Group is exposed to many forms of legal risk, governance framework is based on the following:which may arise in a number of ways. Primarily:

 Risk appetite is approved by the Board.
Group business may not be conducted in accordance with applicable laws;
 Internal controls focus on risks that could preventcontractual obligations may either not be enforceable as intended or may be enforced against the Group from creating outstanding shareholder value.
in an adverse way;
 Risk management systems provide management with assurance that risks are being managed appropriately and that the internal controls are adequate.
Responsibility for internal controls is clearly defined and documented.
Staff training supports the risk culture and ensures that risks are regularly monitored and that corrective action can be taken in a timely manner.
The Group’s risk profile is reviewed on a regular basis.
The Board systematically monitors the effectivenessintellectual property of the risk management processesGroup (such as its trade names) may not be adequately protected; and systems of internal control at least annually.

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 Control
The responsibilities for risk management and control within the overall governance framework rest with:

the Board, which ensures that management maintains an effective system of internal control and reviews its effectiveness;
 the Group Risk Director, under delegation frommay be liable for damages to third parties harmed by the Group Chief Executive, who has responsibility for the adequacyconduct of risk management and control;
business leaders, who are responsible for the identification and management of the risks in their businesses;
business risk Directors and their teams in the businesses, who are responsible for assisting business leaders in the identification and management of their business risk profiles;
Group Risk Type Heads and their teams in the Group Centre, who are responsible for the risk control oversight of credit risk, market risk, operational and business risk, and regulatory compliance risk;
other Function Heads in the Group centre, who are responsible for the risk control oversight of risks within their functional responsibilities;
Group Internal Audit which is responsible for the independent review of the control environment.its business.

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

Tax risk is the risk associated with changes in, or errors in the interpretation of, taxation rates or law. This could result in increased charges or financial loss.

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

The executionGroup’s businesses and earnings can be affected by the fiscal or other policies and other actions of various regulatory authorities of the UK, other European Union or foreign governments and international agencies. The nature and impact of future changes in such policies and regulatory action are not predictable and are beyond the Group’s control.

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 Group’s management committees. The main riskmonetary, interest rate and governance committeesother policies of central banks and their principal risk management and control responsibilities are shown in the risk governance structure chart on page 26. The committees’ roles are reviewed and refreshed regularly;regulatory authorities;
 business and regional Governance and Control Committees. These committees reportgeneral changes in government or regulatory policy that may significantly influence investor decisions in particular markets in which the Group operates;

general changes in the regulatory requirements, for example, prudential rules relating to the Group Governancecapital adequacy framework (pages 99 to 101);
changes in competition and Control Committee. Together, they are responsiblepricing environments;
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 ensuring that business risk governance and control frameworks have been established in each business, consistent with the Group’s risk governanceproducts and control framework. They also review and assess the completeness and effectiveness of, and compliance with, internal controls within each business.services.

Impact of Strategic Decisions taken by the Group

The 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.

Competition

The 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 Group

The 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 similarly. 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 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

Risk Managementmanagement and ControlcontrolOverviewoverview


Group Risk Governance Structure

(FLOW CHART)

26 


Introduction

At Barclays the identification and management of risk is a high priority and is integral to the execution of our banking activity and strategy. Our approach is built on formal governance processes, relies on individual responsibility and collective oversight, uses advanced analyses, and is informed by comprehensive reporting.

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 Management
Risk management in

The pages that follow describe our approach to risk management. This first section deals with the businessesoverall approach – applicable to all risks. It is the responsibilityfollowed by material covering individual types of business management, who are advised and supported by Business Risk Directors who also have a functional reporting line to the Group Risk Director.risk.

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

Barclays applies a five-step approach to assistrisk management.
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

The principal responsibilities extend throughout the businesses to maximise value by:organisation.

 performing high qualityThe Board requires that management maintains an appropriate system of internal control and reviews its effectiveness. The Board approves risk analyses;appetite and monitors the Group’s risk profile against this appetite.
 ensuring that risksBusiness leaders are properly controlled, consistent with agreedresponsible for the identification and management of risk appetite;in their businesses.
 evaluating economic trade-offs betweenThe Risk Director, under delegated authority from the Group Chief Executive and Group Finance Director, has responsibility for ensuring effective risk management and return;control.
 designing cost-effective ways of mitigatingRisk Type Heads and transferring risks;their teams in Central Support are responsible for risk oversight and policy.
 generating alternativeBusiness risk strategies;teams, each under the management of a Business Risk Director, are responsible for assisting business leaders in the identification and management of their business risk profiles and for implementing appropriate risk management processes.
 ensuring that Group level policies are properly implemented in their business line.Internal Audit is responsible for the independent review of the control environment.

SpecialistMatrix of risk teams ledresponsibilities at Barclays

(FLOWCHART)

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 ManagementLiquidity
Capital PlanningMarket
Corporate ResponsibilityOperations
CreditPeople
Financial CrimeRegulatory Compliance
Financial Reporting, Taxation and BudgetingChange
LegalStrategic 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

(FLOWCHART)

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

In 2004, Barclays adopted an improved approach to the setting of risk appetite across the Group, using a more formal, quantitative methodology based on advanced risk analytics. Risk Appetite is the Group’s chosen balance of return and risk employed as we implement our business plans, recognising a range of possible outcomes. This framework, approved by the Board Risk Committee, builds on the analytical capability developed and used within Barclays since the mid 1990s.

Their role isThe objectives of the risk appetite framework are to:

 create and maintainhelp protect the Group’s risk management and control framework;performance;
 measure aggregateenable unused risk by type;capacity to be identified and thus profitable opportunities to be highlighted;
 set high level policiesimprove management confidence and controls within the overalldebate regarding our risk governance framework;
perform research, development and quality assurance;
provide analytical support to businesses;
provide comprehensive reports to all levels of management and the Board to enable them to make effective risk management decisions;profile; and
 operatehelp executive management improve control and co-ordination of risk-taking across businesses.

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.

(GRAPH)

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 limit setting systemsfactors in each business;
relevant, recognising the impact and in the caselikelihood of certain risks such as credit, provide independent input to material risk acceptance decisions.losses;
aggregated across businesses where appropriate.

Stress Testing

The Risk MeasurementAppetite numbers are validated by estimating our sensitivity to macroeconomic events using stress testing and scenario analysis. Changes in certain macroeconomic variables represent environmental stresses which may reveal systemic credit and market risk sensitivities in our retail and wholesale portfolios. The stresses considered include, for example, the following sensitivities:

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

Barclays manages both its capital supply and demand for capital in order to optimise capital efficiency.

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

(PIE CHART)

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.

(PIE CHART)



Barclays PLC Annual Report 2003       27


Risk Management
Risk 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 

 

 

 
Notes
(a)Includes Transition Businesses (see page 68).
(b)The capital held at Group centre represents the variance between average economic capital by business and average shareholders’ funds.

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 (BAR CHART)

(BAR CHART)

34


Barclays PLC Annual Report 2004 

Risk management

Credit 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).

(BAR CHART)

Note
(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 Responsibility
Barclays recognises that the taking of credit risk involves judgement, skill and knowledge.

The Group’s approach to

In managing credit risk, is consistent with the GovernanceGroup applies the five-step risk management process and internal control framework described previously but varies in execution according to the specific nature of the(page 30). The credit risk management teams in each of the businesses.

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 Analysis
Data and analytical tools are integral to risk management.

Barclays has been in the forefront of the development and use of advanced credit risk systems. These systems assist the bank in managing credit risk, both in front-line credit decisions on new commitments and in managing the portfolio of existing exposures. They enable the application of consistent risk measurementsmeasurement across all credit exposures, retail and wholesale. The key building blocks in the measurement system, which are described below, are theprobability of customer default (expressed(expressed through an internal risk rating), severity, and exposure in the event of default.default, andseverity of loss-given-default. Using these, Barclays builds the analyses that lead to its decision support systems in the Risk Appetite context described previously.

Probability of Default: Internal risk ratingsRisk Ratings

Internal risk ratings are used to assessBarclays assesses the credit quality of borrowers.and assigns an internal risk rating to all borrowers and other counterparties, including retail customers. Each internal rating corresponds to a probability of default, which is the statistical probability of a customer in that rating class defaulting within athe next 12-month period. This internalMultiple rating is derived from different sources depending uponmethodologies may be used to inform the borrower, e.g. internalrating decision on individual large credits. For smaller credits, a single source may suffice such as a rating model or credit rating agency.result. The table below shows the expected ranges of annual default probabilities associated with Barclays internal ratings, and the associated expected probabilities of default.

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 
RatingMinimumMaximumMid 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 Management
Credit Risk Management



Severity
Severity 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

Exposure in the event of default represents the expected level of usage of the credit facility when default occurs. For example, atAt default the customer may not have drawn the loan up to the approved limitfully or may already have repaid some of it. the principal, so that exposure is typically less than the approved loan limit. When the Group evaluates loans, it takes exposure at default into consideration, using its extensive historical experience. It recognises that customers may make heavier than average usage of their facilities as they approach 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

When a customer defaults, much of the amount outstanding on its loan or loans is usually recovered. The part that is not recovered, the actual loss, is called the loss-given-default (LGD). The severity of the loss is measured as a percentage of the amount outstanding when the default occurs.

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

The three components described above – the credit risk on an ongoing basis by applying these measurementsrating, exposure at default and loss given default – are building blocks used in credit analysis across the entire portfolio – both wholesale and retail. It does this by combining the information intoin a variety of applications. One of those is to determine a measure of expected loss called Risk Tendency.Tendency (RT).

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 

(BAR CHART)

Credit Risk Tendency increasedMitigation

Barclays employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced which is common practice. See the discussion of loan-to-value ratios for mortgages on page 40.

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 Management
Barclays 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 Managementmanagement
Analysis of

Loans and Advances
advances



Analysis of Loans and Advances

Throughout the remainder of the risk management section, a regional presentation of data will be found with disclosures by the United Kingdom, other European Union countries, the United States and the rest of the world. In all cases, unless otherwise indicated, the information refers to the location of the office where the loan was booked.

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(BAR CHART)

(See also differ. Typically credit losses in retail portfolios are more stable (though not necessarily lower) than those in wholesale portfolios where the default of an individual large loan can have a significant impact. The table below shows the Group’s retail and wholesale loan exposures.

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 

 

 

 
Table 2 on page 58.)

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(BAR CHART)

(See also Table 3 on loans and advances is provided. A principal segmentation is between exposures to banks and to customers as introduced in the next table.

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 

 
page 58.)

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 Managementmanagement
Analysis of Loans and Advances



Loans and Advances to Banks

Credit exposures to banks for the most part arise in the course of providing services to customers or trading in capital markets for profit. They may be reciprocal in nature.

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 

banking book



LoansGeographical Analysis and Advances to CustomersCountry Risk

Geographical analysis of the banking book
Loans and advances to customers on the banking book amounted to £171bn£193bn at the financial year end. Aend (2003: £171bn, 2002: £160bn). The geographical analysis of these exposures,shown in the chart below is based on the location of the office recording the transaction, istransaction. The UK exposure shown includes some major loans to customers in the chart below.other countries that were booked in London, and thus includes some international risk.

Geographic analysis of(BAR CHART)

(See also Table 6 on page 60.)

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.

(PIE CHART)

Industry analysis
A 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).

(BAR CHART)

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

The chart below shows Barclays wholesale loan profile by internal risk grade (See page 35 for a description of the rating system). It is important because industries are often synchronised globally,to note that Barclays prices loans for risk. Thus higher risk loans will usually have higher interest rates or fees or both. A portfolio of higher risk loans may therefore be as has been apparent over recent years. For example, when oil prices riseprofitable as, or fall, customers sensitive to such changes will be affected regardlessmore profitable than, a portfolio of their location. lower risk loans.

(BAR CHART)

Notes
(a)Excludes non-performing and potential problem loans

Industry Analysis

An industry analysis of customer loans is shown in the chart below. These classifications 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 below under ‘Overseas customers’Customers’ and not by industry.



Global loans39


Risk management
Loans and advances to customers by industry –on the banking book only (% of total)



(HISTOGRAM)

(BAR CHART)

(See also Note 14 on pages 133 to 134.)

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.

(BAR 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

The analysis by contractual maturity, shown in the chart below, and the table on page 36, indicates that 40%a third of loans to customers have a maturity of more than five years, the majority of which are mortgages. The maturity profile remained broadly steady.

Maturity analysis of loans and advances to customers*

(PIE CHART)(BAR CHART)

(See also Table 4 on page 59.)



40


Barclays PLC Annual Report 2003       332004 

Risk management


Other credit risks


Risk Management
Analysis 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 analysis
These 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 Management
Analysis 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 

 
Notes
(a)Overdrafts are included in the ‘on demand’ category.
(b)In the UK, finance lease receivables are included in Other Lending although some leases are to corporate customers.

36 


Risk Management
Loans 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 borrower
The 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 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 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 between
0.75% and 1% of total Group assets

At 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 support
Barclays 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 Management
Other Credit Risks



Other Credit Risks

In addition to drawn loans and advances, Barclays is exposed to other credit risks summarisedas indicated in the table below.chart on page 35 at the beginning of the discussion on credit risk. These exposures comprise loan commitments, contingent liabilities, debt securities and other exposures arising in the course of trading activities. The credit risks shown here are managed in a similar way toas those in Loans and Advances, and are subject to the same or similar approval and governance processes.

Off balance sheet and other credit exposures
as 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 a credit deterioration.

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

Barclays actively manages its credit exposures through the use of credit derivatives, the sale of loan assets and securitisation.

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 derivatives
at 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 Managementmanagement
Potential Credit Risk Lendings


Loan impairment: potential credit risk loans


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(BAR CHART)

(BAR CHART)

(See also Table 17 on page 65 and US practice and US Securities and Exchange Commission guidelines. In conformance with UK practice, accruing loans where interest is being suspended (with or without provisions) and other accruing loans where specific provisions have been raised are shown separately from non-accrual loans. Normal US banking practice would be to place such loansTable 18 on non-accrual status as reflected in the sub-total in the table below.page 65).

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

(HISTOGRAM)

Potential and potential problem loans as a percentage of Loans and Advances (Gross Banking Book)

(HISTOGRAM)(BAR CHART)

(BAR CHART)



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 

 

 

 
42

A geographical analysis of this table appears on the next page.


Barclays PLC Annual Report 2003      392004 


Risk Managementmanagement
Potential 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

The total interest income that would have been recognised under the original contractual terms of the non-performing loans in 2003 was £312m (2002: £275m) of which £247m (2002: £209m) related to loans recorded in the UK and £65m (2002: £66m) related to foreign loans. Interest income of approximately £47m (2002: £22m) from such loans was included in profit, of which £39m (2002: £21m) related to domestic lending and the remainder to foreign lending. The balance was not received or was suspended.

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

The estimation of potential credit losses is inherently uncertain and depends upon many factors, including general economic conditions, loan migration (i.e.possible future deterioration in credit quality),quality, structural changes within industries that alter competitive positions, and other external factors such as legal and regulatory requirements.

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;
monthly.
 Small business accounts with straightforward loans contracts up to about £300,000£15,000 are similarly treated on a product portfolio basis using statistical methods;
methods.
 For the larger business and wholesaleand/or more complex accounts, specific provisioning is done on an individual basis and all relevant considerations that have a bearing on the expected future cash flows are taken into account, for exampleaccount. The considerations include the business prospects of the customer, the realisable value of collateral, the Group’s position relative to other claimants, the reliability and comprehensiveness of customer information and the likely cost and duration of the work-out process. These provisions are formally reviewed quarterly and revised as new information becomes available in the course of each work-out.

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

(HISTOGRAM)

Provisions charge over ten years as a percentage of the banking book

(HISTOGRAM)

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 Management
Provisions 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 

 

 

 
Note
(a)The US charge includes provisions raised against South American Corporate Banking exposures booked in the US.

Bad debt provisions charge ratios (‘Loan loss ratios’)

The Group’s provisions charge ratio improved significantly from 0.85% to 0.73% of average banking loans and advances in 2002 and 2003 respectively.
                     
  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

(HISTOGRAM)

Provision balances

Provisioning decisions result in changes to the provisioning balances, the cumulative effects of which are shown below.

(HISTOGRAM)

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 

 

 

 
Note
(a)The US charge includes provisions raised against South American Corporate Banking exposures booked in the US.

Barclays PLC Annual Report 2003      43


Risk Management
Provisions 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.

(BAR CHART)

(See also Analysis of results by business on page 92.)

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



(BAR CHART)

(BAR CHART)

(See also Table 20 on page 66 and Table 21 on page 66.)

(BAR CHART)

(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 

(BAR CHART)

(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 


(BAR CHART)

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 

 

 

 
Note
(a) An analysisIncludes effects of the movement in general provisions is shown in Note 16 to the accounts.acquisitions and exchange rate movements. (See also Table 24 on page 67.)

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 Management
Provisions 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%.
Provisions coverage of non-performing loansProvisions coverage of potential credit risk lendings (NPLs and PPLs)
(HISTOGRAM)(HISTOGRAM)



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.(BAR CHART)

(BAR CHART)

(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.

(BAR CHART)

(BAR CHART)

(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

Risk Management

Market Risk Managementrisk 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

(FLOWCHART)

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 risk
Trading 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 management
The 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 risks
In 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 control
In 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 measurement
Barclays 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 



 

 

 
Notes
(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 above table.
(b) The year-end totalTotal DVaR for 20032004 was £37.2m (2002: £25.8m)£31.9m (2003: £37.2m).

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.

(LINE GRAPH)(LINE GRAPH)

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)(BAR GRAPH)

(HISTOGRAM)(BAR GRAPH)

Barclays Capital Trading Revenue 2002 (£m)

(HISTOGRAM)

Regulatory DVaR and back-testingBack-testing
Barclays 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 risk
Asset 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

Capital and liquidity 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

See page 99 in the Financial Discussion for information on the Group’s capital position.

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.

(BAR CHART)

Note
(a)Less supervisory deductions.

Liquidity Risk Management

Liquidity 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 consequence of which may be the failure to meet obligations to repay depositors and fulfil commitments to lend.

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 Managementmanagement
Disclosures about Certain Trading Activities including Non-exchange Traded ContractsCapital and liquidity risk management



Liquidity Risk Measurement

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.

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

Management of operational risk and business risk


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

Barclays has a Group Operational Risk Framework, which is consistent with and part of the Group Internal Control and Assurance Framework. 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. The Standards applicable to operational and business risks are: Brand Management, Capital Planning, Corporate Responsibility, Financial Crime, Financial Reporting, Tax and Budgeting, Legal, Operations, People Management, Regulatory Compliance, Change and Strategic Planning.

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

Disclosures about certain trading activities particularly energy trading and commodity trading through including
non-exchange traded contracts.contracts


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

Derivatives



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

The Group buys and sells financial instruments that are traded or cleared on an exchange, including interest rate swaps, futures and options on futures. Holders of exchange traded instruments provide margin daily with cash or other security at the exchange, to which the holders look for ultimate settlement.

Over the counter traded derivativesCounter Traded Derivatives (OTC)

The Group also buys and sells financial instruments that are traded over the counter, rather than on a recognised exchange.

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

The Group’s principal exchange rate related contracts are forward foreign exchange contracts, currency swaps and currency options. Forward foreign exchange contracts are agreements to buy or sell a specified quantity of foreign currency, usually on a specified future date at an agreed rate. A currency swap generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and a commitment to exchange interest periodically until the principal amounts are re-exchanged on a future date.

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

The Group’s principal interest rate related contracts are interest rate swaps, forward rate agreements, basis swaps, caps, floors and swaptions. Included in this product category are transactions that include combinations of these features.

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

The Group’s principal equity related contracts are equity and stock index swaps and options (including warrants, which are equity options listed on an exchange). An equity swap is an agreement between two parties to exchange periodic payments, based upon a notional principal amount, with one side paying fixed or floating interest and the other side paying based on the actual return of the stock or stock index. No principal amounts are exchanged. An equity option provides the buyer with the right, but not the obligation, either to purchase or sell a specified stock, basket of stocks or stock index at a specified price or level on or before a specified date.

Credit derivativesDerivatives

The Group’s principal credit derivative related contracts include credit default swaps and total return swaps. A credit derivative is an arrangement whereby the credit risk of an asset (the reference asset) is transferred from the buyer to the seller of protection.

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

The Group’s principal commodity related derivative contracts are swaps, options, forwards and futures. The main commodities transacted are oil, base metals, precious metals, energy products (covering US and UK natural gas, oil and oil-related products) and European power and gas.UK electricity.

A description of commodity derivatives is provided on page 51.55.



57


Risk management

Statistical information


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 Management
Treasury 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 management
Liquidity 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 management
Interest 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 
 

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Treasury AssetStatistical information



Table 11: Total loans and Liability Managementadvances to customers
                     
 
  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 
 
(Also see chart on page 40.)

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.

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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 
 
(Also see chart on page 42.)

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 
 
(Also see chart on page 42.)

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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 
 
(Also see chart on page 44.)

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 
 
(Also see chart on page 44.)

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 
 
(Also see chart on page 45.)

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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 
 
See Note under table 28.

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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 
 
See Note under table 28.

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 
 
(Also see chart on page 46.)

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 
 
(Also see chart on page 46.)

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 
 
(Also see chart on page 46.)

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 management
Corporate 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 investments
Non-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 management
The 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 Management
Management 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 risks
Barclays 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.

The prime responsibility for the management of non-financial risk and compliance with Board Standards rests with the businesses and functional units where the risk arises. Front-line non-financial 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 the implementation of and compliance with Group policies.
Governance and Control Committees in each business monitor risk management and control effectiveness.
Board Governance Standard owners have Group-wide responsibility for setting policy and providing expert advice to improve the management of non-financial risk by business managers. The standard owners are generally the Group functional units with the relevant expertise. For example, Group Human Resources own the people risk standard, Group Compliance the regulatory compliance standard and Group Finance the financial reporting standard.

In the corporate centre, the Non-Financial Risk Director exercises oversight over the portfolio of non-financial risk across the Group in accordance with the Group Non-Financial Risk Framework.
The Group Internal Audit function provides an assurance process for non-financial risk control across the organisation to the Board and senior management.

Measurement and management of non-financial 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 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 reporting
A 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.

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 (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 capital
As 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 management
Regulatory 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 management
Effective 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:

Barclays businesses may not be conducted in accordance with applicable laws;
contractual arrangements may either not be enforceable as intended or may be enforced against Barclays in an adverse way;
the intellectual property of Barclays (such as its trade names) may not be adequately protected; and
Barclays may be liable for damages to third parties harmed by the conduct of its business.

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 management
This 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

(HISTOGRAM)

Earnings per share

(HISTOGRAM)

Post-tax return on average shareholders’ funds

(HISTOGRAM)

Dividends per share

(HISTOGRAM)



Barclays PLC Annual Report 2003       61

2004 


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 



 

 

Notes
(a) The financial information on pages 6273 and 6374 is extracted from the published accounts for the last five years, restated where appropriate to accord with the current accounting policies of the Group (see page 101)110). This information should be read together with, and is qualified by reference to, the accounts and Notes included in this report.
 
(b) For the purposes of this summary, the retail life-fund assets attributable to policyholders have been excluded from average total assets.
 
  Note 6152 to the accounts provides a reconciliation of net profit and shareholders’ funds between the amounts calculated under UK GAAP and US GAAP.

74


Barclays PLC Annual Report 2003       63


2004 

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:

Personal Financial Services
Barclays Private Clients
Barclaycard
Business Banking
Barclays Africa
Barclays Capital
Barclays Global Investors

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:

Openplan has continued its strong growth and now has some 2.6 million customers. Balances within Openplan from Barclays grew to £17.5bn, comprising £12.9bn savings and £4.6bn mortgage balances. The proportion of customers new to Group choosing Openplan from Barclays was 10% for 2003. 67% of customers choosing Openplan from Woolwich were new to Group.
The number of value-added customer accounts (Additions and Platinum) increased to 2m representing 19% of the current account base.
Online customers increased to 4.5 million, with an increasing proportion of transactions now being undertaken online. Online savings balances, on average, are some 60% larger than balances through other channels.
Income growth was broadly based within PFS across general insurance, consumer finance and mortgages. The market for independent financial advice remained challenging.
Total mortgage balances increased 3% to £59.8bn. Gross new mortgage lending was £18.3bn (2002: £22.2bn) whilst net new mortgage lending was £2.0bn (2002: £6.9bn). Market share of net new lending in mortgages was 2% versus 9% in 2002. The loan to value ratio within the residential mortgage book on a current valuation basis averaged 40%.
PFS has continued to be a market-leading performer in the personal savings market. Total average savings balances increased 9% to £31.8bn, with Barclays branded savings balances increasing 19%.



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:

The retail stockbroking business Charles Schwab Europe was acquired on 31st January 2003. In May 2003, Barclays announced the acquisition of Banco Zaragozano in Spain, which completed in mid-July. The acquisition of Gerrard completed in mid-December 2003.
Barclays Private Clients’ businesses were constrained in 2003 by lower average market levels and lower average interest rates than in 2002.
Globally affluent and high net worth client numbers increased 8% to 1,060,000.
Barclays Spain (excluding Banco Zaragozano) saw income rise 22% and operating profit rise 36%.
Affluent customer numbers in Spain increased by 26% to 81,000. Openplan in Spain attracted 15,000 new customers.
In Spain, the average products per customer was 3.2 increasing to 4.3 for Openplan customers.
Banco Zaragozano operating profit for 2003 increased by 15%. In the period since acquisition, Banco Zaragozano contributed operating profit of £18m.
Barclays Stockbrokers, including Charles Schwab Europe, saw average daily deal volumes increase to 8,350 per day (2002: 6,300), maintaining a leading market share in the UK of client order business.
With the acquisition of Gerrard, Barclays became the UK’s largest private client investment manager by funds under management.
The contribution from the closed long-term assurance funds was a loss of £77m (2002: loss £87m) including redress for customers in respect of sales of endowment policies.

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:

Barclaycard has 11.4 million customers, primarily in the UK and Europe. In the UK alone, around one in every five credit cards is a Barclaycard.
Average extended credit balances amounted to more than 75% of total card outstandings. Average extended credit balances in the UK grew 14% year on year.
UK customer recruitment increased 27% to 1.5 million.
The number of customers registered for Barclaycard online services increased 36% to 1.5m (2002: 1.1m).
Barclaycard International has 1.42 million cards in issue.
Barclaycard International achieved a full year profit of £4m (2002: loss £14m). Income increased by 48% and average extended credit balances rose by 43%.
In April, Barclaycard purchased the global rights (excluding the UK and Singapore) to use the Manchester United credit card brand.
Barclaycard acquired Clydesdale Financial Services, a retailer point of sale of business, in May.
Barclaycard International entered the South African market in August through a strategic alliance with the Standard Bank of South Africa.
Barclaycard, already established in Spain, is working with Banco Zaragozano to accelerate growth from the established Barclaycard presence and the existing Banco Zaragozano cardholder base.



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:

Business Banking has a relationship with over 730,000 customers and a market share of some 21%.
Recent independent research found that customers rate Business Banking first in the market for overall quality of service to Large and Medium Businesses; and second for overall quality of service to Small Businesses.
Business Banking revenues were impacted by the Competition Commission Inquiry transitional pricing remedy for small and medium business customers. Business Banking responded by consulting with qualifying customers and offered them a choice of either interest on current account or reduced money transmission charges.
Medium Business targeted propositions to specific customer segments including a Law Society accredited proposition for solicitors’ firms, a sector where customer recruitment rose 70%.
Over 75% of ailing business customers referred to Barclays Business Support during 2003 were returned to health and normal trading.
Average lending balances increased 11% to £47.0bn and average deposit balances increased 5% to £46.2bn. Lending growth remained concentrated towards better graded business customers and was well diversified by sector.
2003). Through Wealth Solutions, Private Clients delivers investment products to UK Retail Banking. Private Clients also includes the closed life assurance activities.

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:

Continued a programme of reinvestment and restructuring, modernising the business and positioning it for future growth.
Regional Head office functions were relocated from the UK to South Africa.
Increased investment was reflected in further branch refurbishment and upgrading operating systems.
The integration of BNPI Mauritius, acquired in November 2002, was completed and contributed to the growth of the business.



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 Capital continued to improve its ranking in the global all debt league table, to fourth position from fifth position in 2002.
Barclays Capital increased its issuance volume of international bonds and syndicated loans to US$199bn compared to US$162bn in 2002.
Barclays Capital increased its issuance volume of European all debt to US$140bn (2002: US$116bn) and ranked third in 2003 (2002: second).
Barclays Capital remained in first position for issuing sterling denominated bonds with a 19% market share.
Barclays Capital improved its ranking to top ten in US investment grade corporate bonds from 13th position in 2002 with market share more than doubling.
Barclays Capital led 49 dollar denominated deals for US issuers in 2003 versus 24 in 2002 and only one prior to 2001.
E-commerce channels continued to see an increase in the volumes of business processed; half of clients’ foreign exchange tickets were executed electronically. Barclays Capital won several awards for e-commerce initiatives 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:

BGI had over 2,500 institutional clients in 47 countries.
Investment performance continued to be good in our active strategies. 2003 average alpha across active products was 1.36% above benchmark.
Several important milestones were achieved by 31st December 2003: total assets under management exceeded US$1 trillion, of which more than US$200bn were in actively managed assets; and for the first time total revenues exceeded US$1bn.
£67bn net new assets were attracted in 2003. Approximately £25bn of net new assets flowed into index products, £23bn into active products, £14bn into Global iShares, Barclays brand of Exchange Traded Funds (ETFs), and £5bn into cash.
The active business accounted for over 60% of management fees and over 50% of total income.
BGI’s leading position in ETFs was extended with the launch of eight new funds and it became the largest ETF manager in the world. Global iShares, saw assets under management grow to US$69bn, up 97% (2002: US$35bn).
BGI is the largest global institutional asset manager of hedge fund assets.
BGI results were significantly affected by exchange rate translation movements.



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.

Regulation

Barclays PLC Annual Report 2003       69


Financial Review
Overview




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



76


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

Overview


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.



70

78





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 Review
Results 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

(HISTOGRAM)

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 

 

 

 
Notes
(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, international business is transacted in the United Kingdom by Barclays Capital.
The yields, spreads, and 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.
(b)Gross yield is the interest rate earned on average interest earning assets.
(c)Interest spread is the difference between the interest rate earned on average interest earning assets and the interest rate paid on average interest bearing liabilities.
(d)Interest margin is net interest income as a percentage of average interest earning assets.

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

(HISTOGRAM)

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 Review
Results 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 costs
Staff 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 

 

 

 
Notes
(a)Staff numbers are on a full-time equivalent basis UK permanent and contract staff.
(b)Staff numbers decreased since 31st December 2002 by 1,400, as a result of a number of productivity initiatives.
(c)The increase in staff numbers includes 3,500 staff arising from the acquisition of Charles Schwab Europe, Banco Zaragozano and Gerrard partially offset by restructuring initiatives (1,200).
(d)Includes 200 staff arising from the acquisition of Clydesdale Financial Services and the recruitment of an additional 500 staff in Barclaycard, partially offset by restructuring initiatives (100).
(e)Staff numbers decreased since 31st December 2002 by 700 due to various restructuring initiatives.
(f)The decrease in staff numbers is due to restructuring initiatives mainly within the Kenyan, Zambian and Zimbabwean operations.
(g)Staff numbers include staff undertaking certain activities which support the operating business and provide central information technology services, whose costs are predominantly passed on to the businesses.

Staff numbers
(HISTOGRAM)



Barclays PLC Annual Report 2003       75


Financial Review
Results 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 and
associated 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/termination
of 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)

 

 

 

Tax
The 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 Review
Analysis 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 Review
Analysis 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 Review
Analysis 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)

 

 

 
Note
(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 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 Review
Average 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%        

 

 

 
Notes
(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.

Barclays PLC Annual Report 2003       85


Financial Review
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.

                         
  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 Review
Total Assets and Liabilities and Capital Resources


Total Assets and Liabilities

(HISTOGRAM)

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 ratiosStrength
Capital 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 

 

 

 
Notes
(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
(2002: £2m).
(d)Includes £478m (2002: £867m) of shareholders’ interest in the retail life-fund.
(e)Equity defined as total qualifying Tier 1 capital less RCIs and TONs.

(HISTOGRAM)

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

1The 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 Review
Deposits 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 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.

             
  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 deposit
Negotiable 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 Review
Securities

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 

 

 

 
Critical accounting estimates


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.



80


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 inflation2.75%
Pension increases2.75%
Earnings growth4.25%
afterwork Credit Account revaluation rate
3.75%
Return on future investments:
1964 Scheme7.0%
afterwork
6.75%
Discount rate for assessing accrued liabilities:
1964 Scheme6.6%
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


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.

(BAR CHART)

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


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%        
 
Notes
(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


(BAR CHART)

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     
 
Note
(a)  Figures for 2003 have been restated to reflect the adoption of UITF
       Abstract 38 (UITF 38), ‘Accounting for ESOP trusts’.

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


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.

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.



92


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.



94


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 of62m (2003:12m) and goodwill of32m (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 were7.8bn (2003:4.8bn) and savings balances were1.5bn (2003:1bn). Openplan also continued to grow in Portugal, with 8,900 customers at 31st December (2003: 6,200) and total balances up 44% to1.3bn (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.



96


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)
 
Note
(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 and capital resources


Total Assets and Liabilities

(TOTAL ASSETS AND LIABILITIES BAR CHART)

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 of1bn (£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 
 
Notes
(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 and short-term borrowings


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


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.

103


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


Life Assurance business

The Group has life businesses operating in the UK and through its French and Spanish subsidiaries in Spain, Portugal and France. The UK company has ceased to accept new business applications and did not write with profits contracts previously. The French and Spanish subsidiaries offer a diverse range of insurance products. As discussed in the section on Future UK accounting developments on page 115, the Group is expanding its disclosure in respect of the life business, in line with the Memorandum of Understanding entered into by the Accounting Standards Board, together with the Association of British Insurers and major insurers and bancassurers in the banking industry, following the publication of FRS 27 in December 2004.

Options and Guarantees

The Group’s life contracts do not contain options or guarantees that could confer material risk upon the company.

Capital position statement

Available capital resources for life business:£m
Total shareholders’ funds in the life business276
Fund for Future Appropriations (FFA) and other sources of capital
Conversion to regulatory basis8
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 businesses17,133
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 businesses13,178
Total other capital resources
13,178
Total capital resources
30,595

Capital management and constraints on the transfer of capital

Capital resource requirements are assessed at company level in accordance with local laws and regulations. However, the aim is that each life fund should be able to meet its own liabilities. In the event that this should not be the case, shareholders’ funds attributed to businesses other than Life Insurance are available to meet liabilities of life business to the extent that they otherwise cannot be met. Conversely, there are some constraints in moving capital out of the life funds.

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.



105


Financial review

Off balance sheet arrangements


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

In the normal course of business, the Group issues guarantees on behalf of its customers. In the majority of 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 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

The off balance sheet arrangements entered into by the Group typically involve the use of special purpose entities (SPEs).

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

Under UK GAAP the financial statements are required to present a true and fair view, which includes reflecting the substance of the transactions and arrangements and not just the legal form.

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

Under US GAAP, the Group determines whether it has a controlling financial interest in an entity by initially evaluating whether the entity is a voting interest entity, a variable interest entity (VIE), voting interest entity, or a qualifying special purpose entity (QSPE).

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

The Group provides its clients with access to liquidity through the use of asset backed commercial paper programmes. These programmes involve the sale of financial assets by clients to entities which are, in effect, commercial paper conduits that then issue commercial paper to fund the purchases. The financial assets held by the conduits, which totalled £12,650m (2002: £16,090m)£12,404m (2003: £12,650m) at 31st December 2003,2004, normally take the form of consumer or trade receivables. Of the above amount, assets held by the conduits which have been originated by the Group amounted to £192m (2002: £318m)£68m (2003: £192m) and have been reported on the Group’s balance sheet under UK GAAP. The remainder represents client assets in which the Group has no interest and which are not reported on the Group’s balance sheet at 31st December 2003.2004. Certain administrative activities and the provision of liquidity and credit facilities to the programmes are performed by the Group under arm’s-length contracts that it, or the conduit’s independent board of directors, can terminate. Net fees received by the Group for performing these services amounted to £58m (2002: £40m)£53m (2003: £58m). Under the US GAAP rules prior to the adoption of FIN 46, certain of these conduits are consolidated by the Group. This has minimal impact on net income, although assets increase by £2,845m (2002: £2,767m)£12,336m (2003: £2,845m). The commitments to provide liquidity to these vehicles are a maximum of £12,650m,£16,296m, which would be required to be provided in the event of the conduits’ access to funding markets being restricted.

Further details of these transactions are provided in Note 6152 on pages 183202 and 184.



203.

94 


Credit structuring business

The Group structures investments with specific risk profiles which are attractive to investors. This business involves the sale by the Group of credit exposures based on an underlying portfolio of assets into SPEs,



106


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

The Group assists companies with the formation of asset securitisations. These entities have minimal equity and rely on funding in the form of notes to purchase the assets for securitisation. The Group provides financing in the form of senior notes and/or junior notes and may also provide derivatives to the SPE. The Group has also used SPEs to securitise part of its originated and purchased retail and commercial lending portfolioportfolios and credit card receivables. Following the sale of the retailthese assets to the securitisation vehicles, the Group retainsmay retain servicing rights and an interest in the residual income of the SPEs.

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

The Group establishes SPEs to facilitate the recovery of banking facilities in circumstances where the borrower has suffered financial

loss. Under US GAAP, as at 31st December 2004, the Group had recognised assets of £68m (2003: £nil) in respect of the transactions. These entities are not consolidated under UK GAAP.

Client intermediation

The Group is involved in structuring transactions as a financial intermediary to meet investor and client needs,needs. These transactions involve entities structured by either the Group or the client and they 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. In addition, theThe Group also invests in lessor entities specifically to acquire assets for leasing.

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

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 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 
 
Note
(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.

107
































Intentionally left blank.
























108


Barclays PLC Annual Report 2003       95


Other Information
Economic and Monetary Union, International Financial Reporting Standards
and 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

UK
The 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:

1)Maintain market confidence in the UK financial system;
2)Promote public awareness and understanding of the financial system;
3)Secure an appropriate degree of protection for consumers; and
4)Reduce the scope for financial crime.

Whilst carrying out these objectives, the FSA is also required to take into account a number of factors (‘principles of good regulation’) including:

using its resources in the most efficient way;
taking into account the international character of financial services and the desirability of maintaining the UK’s competitive position; and
facilitating and not having an unnecessarily adverse effect on competition.

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 Information
Supervision 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 World
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 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.



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Other Information
Risk 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 economy
The 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 risk
The 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 risks
The 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 risks
The 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.



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Changes in governmental policy and regulation
The 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:

the monetary, interest rate and other policies of central banks and regulatory authorities;
general changes in government or regulatory policy that may significantly influence investor decisions in particular markets in which the Group operates;
general changes in the regulatory requirements, for example, prudential rules relating to the capital adequacy framework;
changes in competition and pricing environments;
changes in the financial reporting environment (see Conversion to International Financial Reporting Standards in 2005 on pages 105 to 106);
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 the Group’s products and services.

Impact of strategic decisions taken by the Group
The 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.

Competition
The 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 group
The 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 have audited the accompanying consolidated financial statements of Barclays PLC and its subsidiary undertakings on pages 101110 to 190209 and Barclays Bank PLC and its subsidiary undertakings on pages 195214 to 202.223. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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.

(PRICEWATERHOUSECOOPERS LLP)
(PRICEWATERHOUSECOOPERS)

PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London, United Kingdom, 11th February 200410th March 2005



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Accounting Policies




Accounting policies


Accounting Policies

Summary of significant accounting policiesSignificant Accounting Policies

(a) Accounting convention

The accounts have been prepared under the historical cost convention, as modified by the revaluation of certain properties, assets held for dealing purposes, assets held in the long-term assurance business and the investment in Barclays Bank PLC in the balance sheet of Barclays PLC. They are prepared in accordance with applicable accounting standards of the UK Accounting Standards Board (ASB) and pronouncements of its Urgent Issues Task Force (UITF) and with the Statements of Recommended Accounting Practice (SORPs) issued by the British Bankers’ Association (BBA) and the Finance and Leasing Association (FLA).

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 have been prepared in compliance with Sections 230, 255, 255A and 255B of, and Schedule 9 to, the Companies Act 1985 (the Act). The profit and loss account and balance sheet of Barclays PLC have been prepared in compliance with Section 226 of, and Schedule 4 to, the Act.

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

Barclays PLC’s investment in Barclays Bank PLC, together with Barclays Bank PLC’s investments in subsidiary undertakings, are stated at the amount of the underlying net asset, including attributable goodwill. Changes in the value of the net assets are accounted for as movements in the revaluation reserve.

(d) Interests in associated undertakings and joint ventures

An associated undertaking generally is one in which the Group’s interest is more than 20% and no more than 50% and where the Group exercises a significant influence over the entity’s operating and financial policies. A joint venture is one where the Group holds an interest on a long-term basis and which is jointly controlled by the Group and one or more other parties. The profit and loss account includes income from interests in associated undertakings and joint ventures based on accounts made up to dates not earlier than three months before the balance sheet date. Interests in associated undertakings and joint ventures are included in the consolidated balance sheet at the Group’s share of the book value of the net assets of the undertakings concerned plus unamortised goodwill arising on the acquisition of the interest.

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

Goodwill may arise on the acquisition of subsidiary and associated undertakings and joint ventures. It represents the excess of cost over fair value of the Group’s share of net assets acquired.

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

Assets and liabilities in foreign currencies are translated into sterling at rates of exchange ruling on the balance sheet date. Overseas profits and losses are translated into sterling at average rates of exchange for the year. Profits arising in areas experiencing hyperinflation are adjusted to recognise its effect on the worth of the working capital employed. Exchange differences arising from the application of closing rates of exchange to the opening net assets held overseas, to the retranslation of the result for the year from the average rate to the closing rate and to related foreign currency borrowings are taken directly to reserves. All other exchange profits and losses, which arise from normal trading activities, are included in the profit and loss account.

(g) Shareholders’ interest in the retail long-term assurance fund

The value of the shareholders’ interest in the Group’s retail long-term assurance business represents an estimate of the net present value of the



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Accounting 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

Interest income is recognised in the profit and loss account as it accrues, with the exception of interest on non-performing loans as set out in accounting policy (l) below.on page 112.

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

Fees and commissions payable to introducers in respect of obtaining certain lending business, where this is the primary form of distribution, are charged to the profit and loss account as fees and commissions payable, over the anticipated life of the loans.

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 carried at original cost or, for certain properties, at subsequent valuation, less related depreciation, calculated on the revalued amount where appropriate. 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.

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%

Note
(a) Where a leasehold has a remaining useful life of less than 10ten years, costs of adaptation and installed equipment are depreciated over the remaining life of the lease.



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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

Tangible fixed assets and goodwill are subject to impairment review in accordance with FRS 11 if there are events or changes in circumstances that indicate that the carrying amount of the fixed asset or goodwill may not be fully recoverable. The impairment review comprises a comparison of the carrying amount of the fixed asset or goodwill with its recoverable amount, which is the higher of net realisable value and value in use. Net realisable value is calculated by reference to the amount at which the asset could be disposed of. Value in use is calculated by discounting the expected future cash flows obtainable as a result of the assetsasset’s continued use, including those resulting from its ultimate disposal, at a market based discount rate on a pre-tax basis. The carrying values of fixed assets and goodwill are written down by the amount of any impairment and this loss is recognised in the profit and loss account in the period in which it occurs. If the occurrence of an external event gives rise to a reversal of an impairment loss, the reversal is recognised in the profit and loss account and by increasing the carrying amount of the fixed asset or goodwill in the period in which it occurs. The carrying amount of the fixed asset or goodwill will only be increased up to the amount that it would have been had the original impairment not occurred. For the purpose of conducting impairment reviews, income generating units are identified as groups of assets, liabilities and associated goodwill that generate income that is largely independent of other income streams. The assets and liabilities include those directly involved in generating the income and an appropriate proportion of those used to generate more than one income stream.

(l) Loans and advancesAdvances

Loans and advances, other than those held in a dealing portfolio, are recorded in the balance sheet at cost, less interest in suspense debited to the customer’s account, specific and general provisions. Advances held in a dealing portfolio for the purpose of trading on a secondary market are valued at the lower of cost and market value.



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Market values are based on independent price quotations.





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.

Gradings are used to rate the credit quality of borrowers. Each grade corresponds to an Expected Default Frequency and is calculated by using manual or computer driven score-sheets validated by an analysis of the Group’s own historical data. This grade can be derived from different sources depending upon the borrower (e.g. internal model, credit rating agency). The general provision also takes into account the economic climate in the market in which the Group operates and the level of security held in relation to each category of counterparty. The general provision includes a specifically identified element to cover country transfer risk calculated on a basis consistent with the overall general provision calculation. General provisions are created with respect to the recoverability of assets arising from off balance sheet exposures in a manner consistent with the general provisioning methodology.

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

Investment securities are debt securities and equity shares intended for use on a continuing basis by the Group and identified as such. Investment securities are stated at cost less any provision for impairment. The cost of dated investment securities is adjusted for the amortisation of premiums or discounts on purchase over the period to redemption. The amortisation of premiums and discounts is included in interest receivable.

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

The Group provides pension plans for employees in most parts of the world. Arrangements for staff retirement benefits in overseas locations 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)UKRF) which comprises fourfive sections. These are a defined benefit scheme (the 1964 Pension Scheme) and a defined contribution scheme (the Retirement Investment Scheme), which are both now closed to new members, a hybrid scheme,afterwork, afterwork, and a defined contribution scheme, the Pension Investment Plan. Details are set out in Note 4. Other UK staff are covered by broadly comparable schemes which are accounted for on a comparable basis. The assets of the UK FundUKRF are held separately from the assets of the Group and are administered by a trustee. The pension cost for the defined benefit scheme 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. The basis of estimation is set out in Note 4 on page 115.126. The Group also provides post-retirement health care to certain staff and pensioners in the UK and US. Where appropriate, provisions for post-retirement benefits are raised on a basis similar to that detailed for defined benefit pension schemes. Where an actuarial basis is not appropriate, provisions are recognised in accordance with the policy on non-credit risk provisions (see (q) below).

(o) Finance leasesLeases

Assets leased to customers under agreements which transfer substantially all the risks and rewards of ownership, other than legal title, are classified as finance leases. Finance lease receivables are included in loans and advances to customers. Gross earnings under finance leases are allocated to accounting periods in such a way as to give a constant periodic rate of return on the net cash investment. Finance lease receivables are stated at the cost of the equipment, including gross earnings to date, less rentals received to date.

(p) Deferred taxTax

Deferred tax is provided in full in respect of timing differences that have originated but not reversed at the balance sheet date. Timing differences are differences between the Group’s taxable profits and its results as stated in the accounts that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. Deferred tax is not provided on permanent differences. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recoverable.



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Accounting 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

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.

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 are used to hedge interest, exchange rate, commodity and equity exposures related to non-trading positions. Instruments used for hedging purposes include swaps, equity derivatives, forward rate agreements, futures, options and combinations of these instruments. In addition, the use of derivatives and their sale to customers as risk management products is an integral part of the Group’s trading activities. Derivatives entered into for trading purposes include swaps, equity derivatives, credit derivatives, commodity derivatives, forward rate agreements, futures, options and combinations of these instruments.

Derivatives used for asset and liability management purposes

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.



113


Consolidated accounts Barclays PLC
Accounting policies



The criteria required for a derivative instrument to be classified as a designated hedge are that:

(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

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, along with interest and dividends arising from long and short positions and funding costs relating to trading activities. Assets and liabilities resulting from gains or 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.

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

The Group enters into master agreements with counterparties whenever possible and, when appropriate, obtains collateral. Master agreements provide that, if an event of default occurs, all outstanding transactions with the counterparty will fall due and all amounts outstanding will be settled on a net basis.

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

The Group treats credit related instruments (other than credit derivatives) as contingent liabilities and these are not shown on the balance sheet unless, and until, the Group is called upon to make a payment under the instrument. Assets arising from payments to a third party where the Group is awaiting reimbursement from the customer, are shown on the balance sheet where reimbursement is considered to be virtually certain. Fees received for providing these instruments are taken to profit over the life of the instrument and reflected in fees and commissions receivable.

(u) Sale and repurchase agreementsRepurchase Agreements (including stock borrowingStock Borrowing and lending)Lending)

The Group enters into sale and repurchase agreements, including stock lending arrangements (repos), and purchase and resale agreements, including stock borrowing arrangements (reverse repos). Under a repo (sale and repurchase agreement) an asset is sold (or lent) to a counterparty with a commitment to repurchase (or return) the assets at a future date at an agreed price. A reverse repo is the same transaction from the opposite viewpoint. The cash legs of these transactions are included within loans and advances to banks, loans and advances to

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

Certain Group undertakings have issued debt securities or have entered into funding arrangements with lenders in order to finance specific loans and advances to customers. In accordance with FRS 5, these balances are either accounted for on the basis of linked presentation or through separate recognition of the gross assets and related funding.

(w) Capital instrumentsInstruments

Debt securities in issue and similar securities are stated at the net issue proceeds adjusted for amortisation of premiums, discounts and expenses related to their issue where the liability is a fixed amount. Where the liability fluctuates, based on, for example, the performance of an index then the debt security reflects the current value of the liability.

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

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.

Changes in Accounting Policy

A change in accounting policy
Following arose from the issueadoption in 2004 of UITF Abstract 37, ‘Purchases and sales of own shares’38 (UITF 38), Group holdings of‘Accounting for ESOP trusts’. UITF 38 requires Barclays PLC shares (excluding shares held in Employee Share Ownership PlanPlans (ESOP) trusts) are accounted for as a deduction in arriving at shareholders’ funds, rather than as assets. Purchases and sales of Barclays PLC shares are shown as changes in shareholders’ funds. No profits or losses are recognised in respect of dealings in Barclays PLC. Comparatives have been restated accordingly. As a result, equity shares and shareholders’ funds have been reduced by £4m at 31st December 2002, and £12m at 31st December 2003. There was no impact on the 2002 or 2003 profit and loss account.

There have been no other significant changes to the accounting policies as described in the 2002 Annual Report.

Future UK accounting developments
The 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

During 2004 the Accounting Standards Board (ASB) issued seven new Financial Reporting Standards, FRS 20 to FRS 26, as part of such shares is based on the intrinsic value of the shares, rather than book value. UITF Abstract 38 will be implemented by the Group in 2004.

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

By Regulation, the EUEuropean Union (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.

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 PLC
Accounting 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



Although many of the uncertainties concerning whether and uncertainties relate tohow the standards thatwill be adopted for use in the EU have been resolved, some questions remain, particularly regarding the endorsement of amendments to standards and to interpretations issued in the second half of 2004. In addition, how IFRS financial statements will be interpreted for tax and regulatory capital purposes remains subject to some uncertainty, with the regulatory capital requirements not yet beenexpected to be finalised before April 2005 and adopted by the EU.tax treatment of the first time adoption adjustments not determined until later. However, the programme is following normal project controls and change management and we are confident that we will be ablethe Group is on track to meet all requirements for financial reporting in 2005.

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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Barclays PLC Annual Report 2004 

Consolidated accounts Barclays PLC

Accounting presentation



Changes in Accounting Presentation

The prior period presentation has, where appropriate, been restated to conform with current year classification, and the change in accounting policy discussed above.

US GAAP

Significant differences exist between accounting principles generally accepted in the UK and those generally accepted in the US. The effect of US GAAP on attributable profit and shareholders’ funds of Barclays PLC is set out in Note 61.

52.

Accounting Presentation

The prior period presentation has, where appropriate, been restated to conform with current year classification.

Nature of business
Barclays 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

The analyses by geographical segment are generally based on the location of the office recording the transaction.

Acquisitions
In 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 April 2002, Barclaycard acquired the UK Providian credit card business.

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.

Disposals
In 2001, the Group disposed of the Greek Branches of the Bank and Banque Woolwich SA.

In 2002 the Group disposed of a share of the Group’s Caribbean operation (see detail under Acquisitions above). The effect of the disposal is reflected in the Statement of recognised gains and losses on page 108.119.

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

For the year ended 31st December 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)



 

 
Operating profit before provisions
     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)



 

 
Operating profit
     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)



 

 
Profit on ordinary activities before tax
     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)



 

 
Profit on ordinary activities after tax
     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)



 

 
Profit for the financial year attributable to the members of Barclays PLC
     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)



 

 
Profit retained for the financial year
     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.

118

 


Barclays PLC Annual Report 2004 

Consolidated Accountsaccounts Barclays PLC
Statement of Total Recognised Gainstotal recognised gains and Losses

losses


Statement of total recognised gains and losses

For the year ended 31st December 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.

119

 


Consolidated Accountsaccounts Barclays PLC
Consolidated Balance Sheetbalance sheet


Consolidated balance sheet

As at 31st December
                     
 
      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

121

 


Consolidated Accountsaccounts Barclays PLC
Consolidated Balance Sheetstatement of changes in reserves


Consolidated balance sheet
As 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 PLC
Consolidated 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

 


Barclays PLC Annual Report 2004 

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

124

 


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

The average number of persons employed by the Group worldwide during the year, excluding agency staff, was 77,000 (2003: 74,400, (2002: 77,200, 2001: 77,100)2002: 77,200). The average number of administration staff whose remuneration is reflected in the valuation of the long-term assurance fund, was 63 (2003: 208, (2002: 370, 2001: 1,600)2002: 370).

114 Post-retirement benefits

Some 11,000 UK and US pensioners are provided with private health care on similar terms to current employees. In addition, 4,000 members of staff and a further 1,000 Barclays Bank PLC pensioners who have retired since 30th June 1999 and have satisfied the qualification criteria may also become eligible for this benefit, which is being progressively withdrawn for these pensioners over the period to 30th June 2008.

Other staff costs

Other staff costs comprise medical health care costs, social welfare taxes, staff transfer costs, redundancy payments and other sundry employee costs.

125


Notes to the accounts
For the year ended 31st December 2004



4 Pensions, post-retirement benefits and other staffPension costs

Pensions

The UK Retirement Fund (UKRF) comprises fourfive sections:

The 1964 Pension Scheme

Most UK employees recruited before July 1997 are members of this non-contributory defined benefit scheme. Pensions are calculated by reference to service and pensionable salary and are normally subject to a deduction from State Pension age.

The Retirement Investment Scheme (RIS)

A defined contribution plan for most new joiners up to 1st October 2003. Between 5.5% and 13.5% of pensionable pay is credited to members’ retirement accounts in addition to contributions paid by the members themselves; precise amounts are dependent upon each member’s age and contribution decision. This was closed to new entrants on 1st October 2003.2003 and the large majority of existing members of the RIS transferred toafterwork in respect of future benefit accrual with effect from 1st January 2004. There are now no longer any active members of the RIS.

The Pension Investment Plan (PIP)

A defined contribution plan created from 1st July 2001 to provide benefits for certain employees of Barclays Capital. 10% of pay is credited to members’ retirement accounts.

afterwork

Combines a contributory cash balance element with a voluntary defined contribution element. New employees since 1st October 2003 are eligible to joinafterwork. In addition, the large majority of active members of the RIS (now closed) were transferred toafterwork in respect of future benefit accrual after 1st January 2004.

Career Average Section (Career Average)

The Career Average Section was established in the UKRF with effect from 1st May 2004 following the transfer of the members from the Woolwich Pension Fund. The Career Average Section is a non-contributory career average scheme and is open to new members who are employees of either the Clacton or FirstPlus call centres.

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)

Under the terms of an agreement between the Bank, the Trustees of the WPF and the Trustees of the UKRF, the liabilities in respect of all pensioners and deferred pensioners, along with consenting active members of the WPF, were transferred into 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. The bulk of the remaining WPF assets (approximately £56m) were transferred to the UKRF on 14th May 2004 and the final transfer was completed on 15th June 2004. As part of this final transfer a further special contribution of £2m was paid to the UKRF.

Actuarial valuation of the UKRF

Formal actuarial valuations of the UKRF are carried out triennially by a professional qualified independent actuary.actuary, with annual reviews carried out in the interim. The most recent formal valuation was conducted as at 30th September 2001 and expresses the assets and liabilities at market values. However, in light of the changing market conditions, an interim actuarial review was conducted as at 30th September 2003.2004. The market value of assets at the interim review date was £10,950m£12,351m and the valuation revealed a surplusshortfall of assets over thecompared to accrued liabilities of £158m or 1%£388m after allowing for expected future salary increases. Whilst thisincreases (2003: surplus of assets compared to accrued liabilities of £158m). The impact of the change in mortality assumptions was estimated to be sufficient to allowincrease accrued liabilities by £750m. Following the initial results of the valuation, the Bank made a contribution of £250m to continue its contribution holiday, which commencedthe pension fund on 29th December 2004 to cover the cost of benefits accrued in January 1998, for all sections until 2004, it was expected that at this point Bank contributions would recommence at the full rate. The Bank decided to accelerate these future contributions through a payment of £500m which was paid in December 2003. As a consequence, further contributions are not expected to be required until at least the start of 2006.2004. The next formal valuation will be conducted as at 30th September 2004,2007, at which point the position will again be reviewed. Protected Rights contributions in respect of RIS and PIP members have been paid during 2004 as required by the contracting-out regulations.

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

It is the Bank’s policy to allow for the results of a new valuation in its pension charge in the year following the valuation date. Therefore, the 20032004 figures shown below reflect the 20022003 interim actuarial valuation, with the pensions charge in the accounts being reduced over the remaining service lives of the members to take account of the surplus.

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

valuation.


Notes to the Accounts
For 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

Some 11,000 UK and US pensioners are provided with private health care on similar terms to current employees. In addition, 5,000 members of staff and a further 1,000 Barclays Bank PLC pensioners who have retired since 30th June 1999 and have satisfied the qualification criteria may also become eligible for this benefit, which is being progressively withdrawn for these pensioners over the period to 30th June 2008.

Other staff costs

Other staff costs comprise medical health care costs, social welfare taxes, staff transfer costs, redundancy payments and other sundry employee 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 Accounts
For 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 Accounts
For 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 Accounts
For the Year Ended 31st December 2003



1514 Loans and advances to customers (continued)

Securitised transactions


Loans and advances to customers include balances which have been securitised. These balances are either accounted for on the basis of linked presentation or separate recognition of the gross assets and related funding.

Linked presentation

Banking business loans
Loans and advances to customers include certain securitised loans, subject to non-recourse finance arrangements, which at 31st December 2003 and 2002 comprised a portfoliomeet the requirements for linked presentation under FRS 5 ‘Reporting the substance of mortgage loans. The principal benefits of these loans were acquired from the Bank by a special purpose securitisation vehicle which was funded primarily through the issue of floating rate notes. Barclays PLC and its subsidiary undertakings are not obliged to support any losses that may be suffered by the floating rate noteholders and do not intend to provide such support. Additionally, the floating rate notes were issued on the basis that noteholders are only entitled to obtain payment, as to both principal and interest, to the extent that the securitisation vehicle’s available resources, including funds due from customers in respect of the securitised loans, are sufficient and that noteholders have no recourse whatsoever to the Group.

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 

 

 

 
Note
(a)Funding provided by the Bank includes £1m (2002: £1m) of subordinated loans.
transactions’.

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 totalled1.6bn 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 totalled1,408m (£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


In 2002, 2003 and 2002,2004, a proportion of the Barclaycard personal credit and charge card receivables portfolio in the UK was securitised. The noteholders in this securitisation have a proportionate interest in each balance in the portfolio and at 31st December 20032004 the value of this interest was £2,508m (2002: £644m)£3,318m (2003: £2,508m). At 31st December 2004, the Group’s net exposure to this securitisation, after taking into account the limited recourse financing, was £40m (2003: £nil). The total portfolio is included within gross loans and advances and in Note 58, and the funding giving rise to the noteholders interest is included within Debt securities in issue (Note 28)25).

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 

15 Provision balances for bad and doubtful debts (continued)
         
 
  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 Accounts
For 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 

 

 
equity securities is based on market value.

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 

 

 

 
Barclays PLC Annual Report 2004 


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 Accounts
For 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 

146


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


None of the undated loan capital of the Bank is secured.
secured or convertible.

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 Accounts
For 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.
 
(h)(i) 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.
(i)The Bank has swapped the proceeds of these Notes for sterling under swaps, the durations of which will match the respective terms of the Notes. The payment obligations of the Bank under these swaps are subordinated so that the claims against the Bank in respect of these swaps rank pari passu with claims against the Bank in respect of its dated loan capital. The sterling values of these Notes in the figures set out above take into account these subordinated swaps.
 
(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$250 million250m of 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.
 
(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 Accounts
For 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 

following headings:
         
 
  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

Percentage
of equity
Country of registrationcapital held
or incorporationCompany nameNature of Business%
EnglandBarclays Bank PLCBanking, holding company100*
EnglandBarclays Private Bank LimitedBanking100*
EnglandBarclays Mercantile Business Finance LimitedCommercial finance, holding company, leasing100
EnglandBarclays Global Investors UK Holdings LimitedHolding company94.8
EnglandBarclays Global Investors LimitedInvestment management94.8*
EnglandBarclays Life Assurance Company LimitedLife and pensions business100
EnglandBarclays Bank Trust Company LimitedBanking, securities industries and trust services100
EnglandBarclays Stockbrokers LimitedStockbroking100
EnglandBarclays Capital Securities LimitedSecurities dealing100
EnglandBarclays Global Investors Pensions
Management Limited
Investment management94.8*
EnglandWoolwich plcBanking, holding company100
EnglandFIRSTPLUS Financial Group PLCConsumer finance100*
EnglandWoolwich Independent Financial
Advisory Services Limited
Financial advisory services100*
JerseyBarclays Private Bank and Trust LimitedBanking, holding company100*
Isle of ManBarclays Private Clients
International Limited
Banking100
SpainBarclays Bank SABanking99.7
BotswanaBarclays Bank of Botswana LimitedBanking74.9
EgyptCairo Barclays Bank SAEBanking60
GhanaBarclays Bank of Ghana LimitedBanking100
KenyaBarclays Bank of Kenya LimitedBanking68.5
ZimbabweBarclays Bank of Zimbabwe LimitedBanking64.6*
USABarclays Capital Inc.Securities dealing100*
USABarclays Global Investors, (N.A.)Investments and securities industry business94.8*
SwitzerlandBarclays Bank (Suisse) SABanking and trust services100*
Cayman IslandsBarclays Capital Japan LimitedSecurities dealing100*
ItalyBanca Woolwich SpABanking100*
154

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 Accounts
For 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

For the Year Endedyear ended 31st December 2003

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

The Daily Value at Risk (DVaR) methodology of estimating potential losses arising from the Group’s exposure to market risk is explained on pages 4847 to 50. The models used in estimating potential losses are based on past movements and may not be indicative of future market conditions. The following table shows an analysis of DVaR for the market risk exposures in Barclays Capital as an average for the year and the high and low during the year.
                        
                         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 



 
NoteNotes
(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. A correspondingConsequently a diversification effect cannotnumber for the high (and low) DVaR figures would not be calculatedmeaningful and it is therefore omitted from the above table.
(b)The year-end Total DVaR at 31st December 2003for 2004 was £37.2m (2002: £25.8m)£31.9m (2003: £37.2m).

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

The tables set out below analyse the notional principal amounts and fair values (which, after netting, are the book values) of trading instruments entered into with third parties.
                    
 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 
 
Foreign exchange derivatives
                
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 
 
Interest rate derivatives
                
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 
 
Credit derivatives
                
Swaps  5,307   136,049   50,052   191,408 
 
Equity and stock index derivatives
                
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 
 
Commodity derivatives
                
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

For the year ended 31st December 2004




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 Accounts
For the Year Ended 31st December 2003




4537 Derivatives and other financial instruments (continued)

Maturity of notional principal amounts as at 31st December 2002
At 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 
Notes
(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:

% AcquiredDate
Barclays Bank Egypt (acquired remaining 40%)40%11/03/04
Juniper Financial Corporation100%1/12/04
Book value
and
Fair value
£m
Net assets acquired
Cash and balances at central banks16
Loans and advances to banks79
Loans and advances to customers753
Other assets111
Deposits by banks(4)
Customer accounts(128)
Other liabilities(809)
Net assets18
Goodwill165
Satisfied by cash183

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:

% AcquiredDate
Charles Schwab Europe100.031st January 2003
Clydesdale Financial Services100.019th May 2003
Banco Zaragozano100.016th July 2003
Gerrard Management Services Limited100.017th December 2003
             
      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

Details of the principal subsidiary undertakings are shown in Note 43.50. In accordance with FRS 8, transactions or balances between Group entities that have been eliminated on consolidation are not reported.

b) Associated undertakings and joint ventures

The Group provides certain banking and financial services for associated undertakings and joint ventures. These are conducted on similar terms to third partythird-party transactions and are not material to the Group’s results. Details of lendings to associated undertakings and joint ventures are set out in Notes 1413 and 15.14. Any loans are made on substantially the same criteria and terms, including interest rates and collateral, as those prevailing at the time for corporate transactions with other persons and did not involve more than the normal risk of collectability or present other unfavourable features.

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

The Group provides a number of normal current and interest bearing cash accounts to the Group pension funds (principally the UK Retirement Fund the 1951 Fund and the Woolwich Pension1951 Fund) in order to facilitate the day to day financial administration of the funds. Group companies, principally Barclays Global Investors, also provide investment management and custodian services. The Group also provides normal banking services for unit trust and investment funds managed by Group companies. These are all conducted on similar terms to third partythird-party transactions and are not individually material. In aggregate, amounts included in the accounts are as follows:
            
             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 Accounts
For the Year Ended 31st December 2003




54 Related party transactions (continued)

d) Directors

Details of Directors’ emoluments are set out in Note 5546 and further information on Directors’ emoluments, shareholdings, options and awards is given in the Barclays report on remuneration on pages 1113 to 22.25.

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

For the provision of these services was £5.2m (2002: £2.2m).year ended 31st December 2004




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)  



 

 

 

 

 

 
Note
(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 Accounts
For 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 
 
Notes
(a) Basis of class of business and geographical analysis – see Accounting Presentation on page 106.117.
(b) Barclays capitalCapital non-interest income includes £63m (2003: £89m, (2002: £87m, 2001: £61m)2002: £87m) in respect of structured capital market activities on behalf of the Group which are charged to Head office functions and other operations.
(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; Personal Financial Services £6m (2002: £3m, 2001: £4m); BarclaysUK Banking £4m (2003: £10m), Private Clients £16m (2002: (£8m)and International £49m (2003: £17m), 2001: £nil); Barclaycard £2m (2002: (£4m)£4m (2003: £2m), 2001: (£4m)); Business Banking £3m (2002: (£2m), 2001: (£11m)); Barclays Capital £1m (2002: £1m, 2001: £nil);£nil (2003: £1m) and Barclays Global Investors (£1m) (2002:2m) (2003: (£1m), 2001: (£1m)); Head office functions and other operations £2m (2002: £1m, 2001: £3m).
(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 7892 to 83.98.

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.



Notes
(a) Other includes £316m (2002: £194m)£375m (2003: £316m) representing the money purchase assets of the UKRF.
 
(b) Present value of scheme liabilities includes £316m (2002: £194m)£375m (2003: £316m) representing money purchase liabilities of the UKRF.
(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 Accounts
For 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 



 

 
Note
(a) Current service cost includes a £55m (2002: £48m)£30m (2003: £55m) relating to the RIS and PIPmoney purchase sections of the UKRF.
             
 
      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 registrationcapital held
or incorporationCompany nameNature of Business%
BotswanaBarclays Bank of Botswana LimitedBanking74.9
Cayman IslandsBarclays Capital Japan LimitedSecurities dealing100*
EgyptBarclays Bank Egypt SAEBanking100
EnglandBarclays Bank PLCBanking, holding company100*
EnglandBarclays Private Bank LimitedBanking100*
EnglandBarclays Mercantile Business Finance LimitedCommercial finance, holding company, leasing100
EnglandBarclays Global Investors UK Holdings LimitedHolding company88.9
EnglandBarclays Global Investors LimitedInvestment management94.8*
EnglandBarclays Life Assurance Company LimitedLife and pensions business100
EnglandBarclays Bank Trust Company LimitedBanking, securities industries and trust services100
EnglandBarclays Stockbrokers LimitedStockbroking100
EnglandBarclays Capital Securities LimitedSecurities dealing100
EnglandBarclays Global Investors Pensions
Management Limited
Investment management94.8*
EnglandFIRSTPLUS Financial Group PLCConsumer finance100*
EnglandGerrard LimitedBanking100
EnglandBarclays Financial Planning LimitedFinancial advisory services100*
GhanaBarclays Bank of Ghana LimitedBanking100
IrelandBarclays Insurance (Dublin) LimitedInsurance100*
IrelandBarclays Assurance (Dublin) LimitedInsurance100*
Isle of ManBarclays Private Clients
International Limited
Banking100
JerseyBarclays Private Bank and Trust LimitedBanking, holding company100*
KenyaBarclays Bank of Kenya LimitedBanking68.5
SpainBarclays Bank SABanking99.8
SwitzerlandBarclays Bank (Suisse) SABanking and trust services100*
USAJuniper Financial CorporationBanking100
USABarclays Capital Inc.Securities dealing100*
USABarclays Global Investors, National AssociationInvestment management94.8*
ZimbabweBarclays Bank of Zimbabwe LimitedBanking65.8*

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
Goodwill
Goodwill arising on acquisitions of subsidiary and associated undertakings and joint ventures is capitalised and amortised through the profit and loss account over its expected useful economic life (with a maximum of 20 years). Capitalised goodwill is written off when judged to be irrecoverable. Prior to December 1998, goodwill was charged directly against reserves in accordance with SSAP 22. In the event of a subsequent disposal, any goodwill previously charged directly against reserves will be written back and reflected in the profit or loss on disposal.

Prior to 1st January 2002, goodwill was capitalised and amortised over its useful economic life under the provisions of APB16.

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. 
Goodwill
Goodwill arising on acquisitions of subsidiary and associated undertakings and joint ventures is capitalised and amortised through the profit and loss account over its expected useful economic life (with a maximum of 20 years). Capitalised goodwill is written off when judged to be irrecoverable for acquisitions prior to 1st January 1998, goodwill was charged directly against reserves in accordance with SSAP 22. In the event of a subsequent disposal, any goodwill previously charged directly against reserves will be written back and reflected in the profit or loss on disposal.

Prior to 1st January 2002, goodwill was capitalised and amortised over its useful economic life under the provisions of APB16.

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 reviewed for impairment at the end of the first full financial year following acquisition and thereafter when events or changes indicate that the carrying values may not be recoverable.

Intangible assets are recognised as an asset apart from goodwill if they arise from contractual or other legal rights regardless of whether these rights are transferable or separable from the acquired entity or from other rights and obligations. If an intangible asset does not arise from contractual or other legal rights it is recognised only if it is capable of being separated.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that its carrying value may not be recoverable.  

Intangible assets are recognised as an asset apart from goodwill if they arise from contractual or other legal rights regardless of whether these rights are transferable or separable from the acquired entity or from other rights and obligations. If an intangible asset does not arise from contractual or other legal rights it is recognised only if it is capable of being separated.

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, pension fund assets are assessed actuarially at the present value of the expected future investment income, which
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 consistent with SSAP 24. Most liabilities are discounted at a long-term interest rate and variations from regular cost are allocated over the expected average remaining service lives of current employees.

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.



For defined contribution schemes the net pension cost recognised in the profit and loss account represents the contributions payable to the scheme, in accordance with SSAP 24.

In respect of defined benefit schemes, the same basic actuarial method is used under SFAS 87 as under UK GAAP, but certain assumptions differ, assets are assessed at fair value and liabilities are assessed at current settlement rates. Certain variations from regular cost are allocated in equal amounts over the average remaining service lives of current employees.

For defined contribution schemes SFAS 87 provides for the same treatment as under UK GAAP. 

Post-retirement benefits
Where appropriate, post-retirement health care liabilities are assessed actuarially on a similar basis to pension liabilities under SSAP 24 and are discounted at a long-term rate. Variations from regular cost are expressed as a percentage of payroll and spread over the average remaining service lives of current eligible employees.

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.

Under SFAS 106, there are certain differences in the actuarial method used and variations in the computation of regular cost as compared with UK GAAP.

Where an actuarial basis is not appropriate the treatment is the same 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
Leasing – lessor
Gross earnings under finance leases are allocated in such a way as to give a constant periodic rate of return on the (post-tax) net cash investment.

Application of SFAS 13 gives rise to a level rate of return on the investment in the lease, but without taking into account tax payments and receipts. This results in income being recognised in different periods than under UK GAAP, the magnitude of the difference depending upon the value and average age of the leasing portfolio at each period end. 

Leasing – lessee
In accordance with FRS 5 and SSAP 21, leases are categorised as finance leases when the substance of the agreement is that of a financing transaction and the lessee assumes substantially all of the risks and benefits relating to the asset. All other leases are categorised as operating leases.

Leases are classified as capital leases when any of certain criteria are met as outlined under SFAS 13. All other leases are classified as operating leases. 
Post-retirement benefits
Where appropriate, post-retirement benefits are assessed actuarially on a similar basis to pension liabilities under SSAP 24 and are discounted at a long-term rate. Variations from regular cost are expressed as a percentage of payroll and spread over the average remaining service lives of current eligible employees.

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.


Under SFAS 106, there are certain differences in the actuarial method used and variations in the computation of regular cost as compared with UK GAAP.

Where an actuarial basis is not appropriate the treatment is the same as under UK GAAP.



Deferred tax
Prior to 1st January 2002 deferred tax was recognised using the liability method on timing differences that have originated but not reversed at the balance sheet date.

Following the introduction of FRS 19, deferred tax is provided in full in respect of timing differences which have not reversed at the balance sheet date.

Under SFAS 109, a liability method is also used, but deferred tax assets and liabilities are calculated for all temporary differences. A valuation allowance is raised against a deferred tax asset where it is more likely than not that some portion of the deferred tax asset will not be realised. 
Leasing – lessor
Gross earnings under finance leases are allocated to accounting periods in such a way as to give a constant periodic rate of return on the (post-tax) net cash investment.

Application of SFAS 13 gives rise to a level rate of return on the investment in the lease, but without taking into account tax payments and receipts. This results in income being recognised in different periods than under UK GAAP, the magnitude of the difference depending upon the value and average age of the leasing portfolio at each period end.


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, 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.  
Leasing – lessee
In accordance with FRS 5 and SSAP 21, leases are categorised as finance leases when the substance of the agreement is that of a financing transaction and the lessee assumes substantially all of the risks and benefits relating to the asset. All other leases are categorised as operating leases.

Leases are classified as capital leases when certain criteria are met as outlined under SFAS 13. All other leases are classified as operating leases.


Shareholders’ interest in the retail long-term assurance fund
The value of the shareholders’ interest in the retail long-term assurance fund represents an estimate of the net present value of the profits inherent in the in-force policies.

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. 
Deferred tax
Prior to 1st January 2002 deferred tax was recognised using the liability method on timing differences that have originated but not reversed at the balance sheet date.

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.


Under SFAS 109, a liability method is used, but deferred tax assets and liabilities are calculated for all temporary differences. A valuation allowance is raised against a deferred tax asset where it is more likely than not that some portion of the deferred tax asset will not be realised.


Disposal of investments
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.


Exchange rate translation differences, which arise in respect of foreign currency denominated investments, are included in the carrying value of the investment and are also accumulated in the reserves in the consolidated accounts. The profit or loss on any disposal is calculated by comparing the net proceeds with the then carrying value of the investment.

SFAS 52 requires similar treatment of exchange rate translation differences, except that, on disposal, cumulative exchange rate translation differences, which have previously been taken to reserves, are reversed and reported as part of the profit or loss on sale of the investment. 

Barclays PLC Annual Report 2003       165


Shareholders’ interest in the retail long-term assurance fund
The value of the shareholders’ interest in the retail long-term assurance fund represents an estimate of the net present value of the profits inherent in the in-force policies.


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 GAAPUS 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
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. 

Fair value of securities
Positions in investment debt securities and investment equity shares are stated at cost less provision for diminution in value. The cost of dated investment securities is adjusted for the amortisation of premiums or discount on purchase. 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; where there is the ability and intent to hold to maturity, such securities are recorded at amortised cost (only debt securities may be held to maturity); and those held for continuing use in the business, but available for sale, which are carried at the fair value with movements in fair value recorded in shareholders’ equity, unless any losses constitute an other-than-temporary impairment difference, in which case the change is 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. 

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.



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. 

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.



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.

Costs associated with loan origination, for example incentives in the form of cashbacks and discounts, are written off as incurred as permitted by the British Bankers Association Statement of Recommended Practice (SORP) on Advances.

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. 

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.



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. 

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. 

Acceptances
Acceptances are bills that the drawee has agreed to pay. They are not recorded within the balance sheet.

Acceptances and the related customer liabilities are recorded within the balance sheet. 

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
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. 

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 de-recognise 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 de-recognition 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. 

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.



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. 

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.



Own shares
Own shares are holdings of Barclays PLC listed shares reacquired on the open market. Shares purchased by employee benefit trusts are shown as assets where Barclays retains the risks and rewards of ownership. They are carried at cost less impairment. Prior to 1st January 2003, shares held as part of the trading equity operations were shown in equity shares at fair value. Following the introduction of UITF 37 in October 2003, they are shown as a deduction in arriving at shareholders’ funds.

ARB 43, as amended by APB 6, requires all shares purchased at balance sheet date to be held at cost and deducted from equity. 

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.



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 cost 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. 

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 Accounts
For the Year Ended 31st December 2003




6152 Differences between UK GAAP and US GAAP accounting principles (continued)

   
UK GAAP

US GAAP
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.

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 de-recognised and, where appropriate, a servicing asset/liability and an interest-only strip asset are recognised. The asset/liability is amortised over the period in which the benefits are expected to be received.

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.



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 that are not hedge accounted are recorded at fair value, with the change recorded in the profit and loss account.

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 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.

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.



Investment contracts

Acceptances
Acceptances are bills that the drawee has agreed to pay. They are not recorded within the balance sheet.


Acceptances and the related customer liabilities are recorded within the balance sheet.


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 consolidated balance sheet.

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.

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
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. Under FRS 5 control may also be evidenced by the party that receives the benefits of the net assets of the entity where financial and operating policies are predetermined.

Under US GAAP, the Group determines whether it has a controlling financial interest in an entity 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 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.

Under FIN 46, 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 for entities established subsequent to 1st February 2003. This requirement will apply to all VIEs established prior to 31st January 2003 from 2004.

In accordance with SFAS 140 and FIN 46, QSPEs are not consolidated. 

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. 

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.



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. 

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 being inclusive of cash equivalents which are short-term highly liquid investments that are both readily convertible into known amounts of cash and that 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. 

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 two statements differ with regard to the classification of items within the cash flow statement and with regard to the definition of cash.


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 Accounts
For 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 Accounts
In 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 activities
The 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 others
In 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 entities
In 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


In December 2003, the FASB issued SFAS No. 132 (revised 2003), ‘Employers’ Disclosures about Pensions and Other Post-retirementPost-Retirement Benefits.’ SFAS No. 132 revises employers’ disclosures about pension plans and other post-retirement benefits by requiring additional disclosures such as descriptions of the types of plan assets, investment strategies, measurement dates, plan obligations, cash flows and components of net periodic benefit costs recognised during interim periods. The statement does not change the measurement or recognition of the plans.

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

In May 2003, the FASB issued SFAS No. 150, ‘Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity’. The statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that these instruments be classified as liabilitiesincluded in the statement of financial position. The statement is effective prospectively for financial instruments entered into or modified after 31st May 2003 and otherwise is effective at the beginning of the first interim period beginning after 15th June 2003.

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 Accounts2004
For 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


During the year, the Group has reviewed the carrying value of its goodwill based on expected future earnings and the value of comparable businesses and considered that there was no impairment to be recognised.
recognised, with the following exceptions. Goodwill recorded by the Group under US GAAP includes amounts related to interests acquired following the restructuring of businesses to which the Group had previously advanced funds. During 2004, the Group identified an excess in the carrying value of the reporting units over their implied fair value and recorded an impairment charge of £56m (2003: £nil). The impairment was based on revised cash flow projections which were lower than forecasted due to going concern issues within these businesses. Further, a partial write-down of £12m (2003: £nil) was recorded in relation to a Group entity acquired prior to 1st January 1998 in respect of which the goodwill has been written off to reserves under UK GAAP. The impairment was due to achieved cash flows being lower than those required to support the carrying value of 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 disclosures below reflect the amendments to the requirements of SFAS 87 and SFAS 106 arising from SFAS 132 (revised 2003) ‘Employers’ Disclosures about Pensions and Other 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 Accounts
For the Year Ended 31st December 2003




61 Differences between UK GAAP and US GAAP accounting principles (continued)

(c) Pensions and post-retirement benefits (continued)

The components of the pension and post-retirements expense (where an actuarial basis is appropriate) which arise under US GAAP are as follows:
                        
                        
 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)



The minimum liability, prior period service cost and other comprehensive income as at the Measurement Date for the pension schemes is shown in the table below:
            
         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 Accounts
Forexpected 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


In accordance with SFAS No. 109 ‘Accounting for Income Taxes’, the components of the net US GAAP deferred tax liability are as follows:
                
 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)



 

 

(i)The main components of the tax charge attributable to continuing operations are shown in Note 9 to the accounts. Included in the tax effect on net income of UK/US GAAP reconciling items for 2003 is a credit amount of £4m relating to deferred tax (2002: £59m, 2001: £61m)The main components of the tax charge attributable to continuing operations are shown in Note 8 to the accounts on pages 129 and 130. Included in the tax effect on net income of UK/US GAAP reconciling items for 2004 is a credit amount of £19m relating to deferred tax (2003: £4m, 2002: £59m).
(ii)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.

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 disclosuresadditional US GAAP charge arising from the application of options outstanding only relate to those granted from 1995 onwards.

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       
 
Notes
(a) Options granted over Barclays PLC sharesshares.
(b) Options granted over BGI UK Holdings Limited sharesshares.
(c)ESAS is a nil cost award.

196


Barclays PLC Annual Report 2003       1772004 


Notes to the Accounts
For the Year Ended 31st December 2003




6152 Differences between UK GAAP and US GAAP accounting principles (continued)

(e) Compensation arrangements (continued)


The range of exercise prices, weighted average fair values at the date of grant and the weighted average remaining contractual life for options outstanding at the balance sheet date are as follows:
                                
                                
 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 
Notes
(a) Options granted over Barclays PLC sharesshares.
(b) Options granted over BGI UK Holdings Limited sharesshares.
(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)


The range, weighted average exercise price and number of options exercisable at the year end are as follows:
        
      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 
Notes
(a) Options granted over Barclays PLC sharesshares.
(b) Options granted over BGI UK Holdings Limited sharesshares.
(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


The adjustment to US GAAP net income in 2003 of2004 is £(146)m (2003: £(6)m, (2002: £109m, 2001: £87m)2002: £109m). The difference primarily reflects the recoveryfavourable persistency, mortality and investment experience recognised in equity markets which was largely offset byUK profits that cannot be recognised in US GAAP net income and the impact of the UK activity being closed to new business.SOP 03-01.

198


Barclays PLC Annual Report 2003        1792004 


Notes to the Accounts

For the Year Ended 31st December 2003


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


Unlisted investment equity securities are outside the scope of SFAS 115 ‘Accounting for Certain Investments in Debt and Equity Securities’. Where the securities are held by an investment company within the Group, the securities are carried at fair value. The unlisted equity securities have a cost of £944m£1,194m at 31st December 2003 (2002: £456m)2004 (2003: £944m), with a fair value of £1,109m (2002: £456m)£1,333m (2003: £1,109m).

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)

The following table shows the gross unrealised losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealised loss position at 31st December 2003.
2004.
                        
                        
 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


In 1990, £449m of property revaluation reserve was capitalised by the issue of bonus shares.

(j) Loan impairment and disclosure


SFAS 114 applies only to impaired loans, the measurement of which is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market value, or the fair value of the collateral if the loan is collateral dependent. Smaller balance homogeneous consumer loans that are collectively evaluated for impairment are outside the scope of SFAS 114, as are debt securities and leases. At 31st December 2003,2004, the element of impaired loans outside the scope of SFAS 114 amounted to £1,777m (2002: £1,922m)£2,599m (2003: £2,605m).

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 2002, Barclays and Canadian Imperial Bank of Commerce completed the combination of their retail, corporate and offshore banking operations and created FirstCaribbean International Bank. Under both UK and US GAAP, Barclays accounts for the resulting interest as an associate. The transaction generated a gain of £206m under both UK and US GAAP, the gain being recorded through the Statement of Total Recognised Gains and Losses for UK GAAP under UITF 31 but in the income statement account under US GAAP (APB 29 and EITF 01-02). The net assets of the business transferred by Barclays to the new entity arewere not materially different under US GAAP.

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


During 2004, 2003 2002 and 2001,2002, the Group has continued its existing programmes to reduce the workforce. Costs under these programmes, in all three years, have primarily been incurred in Personal Financial Services, BarclaysUK Retail Banking, UK Business Banking and Private Clients and Business Banking. In addition, significant costs were also incurred in Other operations (during 2001) and Barclays Capital (2001).International. The restructuring programmes are largely focused on activities within the UK involving a reshaping of the Group’s operations through the centralisation of core processes and the application of new technologies.

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

For the Year Ended 31st December 2003


6152 Differences between UK GAAP and US GAAP accounting principles (continued)

(l) Provisions for restructuring of business (continued)

The US GAAP balance sheet liability at 31st December 2003 was £71m (2002: £68m) of which £37m (2002: £31m) was in respect of staff reduction costs covering an anticipated 1,000 employees (2002: 800), £12m (2002: £29m) in respect of the planned disposition of certain facilities and £22m (2002: £8m) covering other related costs. Costs in the year to 31st December 2003 amounted to £183m (2002: £132m) in respect of a staff reduction of 4,400 employees (2002: 2,600), £45m (2002: £37m) relating to disposition of facilities and £27m (2002: £31m) for other related costs.

(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


Within individual legal entities Barclays holds securities in a number of different currencies which are classified as available for sale. In general, no foreign exchange exposure arises from this because, although the value of the assets changes in sterling terms according to the exchange rate, there is an identical offsetting change in the sterling value of the related funding. Under UK GAAP both the assets and the liabilities are generally translated at closing exchange rates and the differences between historical book value and current value are reflected in the profit and loss account.

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


SFAS 133 requires all derivatives to be recorded at fair value. 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. Barclays has chosen not to update the documentation of derivative hedges to fully comply with the requirements of SFAS 133 and therefore, in general,with a limited number of exceptions, economic hedge relationships do not qualify for treatment as hedges under US GAAP. Accordingly, adjustments in current or past periods to US GAAP net income in respect of derivatives which qualify for hedge accounting under UK GAAP, are not necessarily indicative of the magnitude or direction of such adjustments to US GAAP net income in subsequent periods.

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 



 

 
Note
(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.
(b)The 2001 figures include the adjustment reflecting the transition to SFAS 133 as at 1st January 2001.

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 differences in the consolidation criteria to UK GAAP results in an increase in total assets of £5,829m (2002: £2,738m)£9,672m (2003: £5,829m).

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


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.

Asset realisations
The Group establishes SPEs to facilitate the recovery of banking facilities in circumstances where the borrower has suffered financial loss.

Fund management
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.

202

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:

Total assets
Activity£m
Asset securitisations4,982

Total4,982

         
 
  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

For the Year Ended 31st December 2003



61 Differences between UK GAAP and US GAAP accounting principles (continued)

(p) Consolidation (continued)

The Group also has significant variable interests in certain asset securitisations and client intermediation entities, created or acquired after 31st January 2003the following VIEs, classified by type of activity, where the Group is not the primary beneficiary.
         
      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    



 
Notes
(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.
(b)Currently consolidated under US GAAP as at 31st December 2003 using guidance provided by EITF90-15 and Topic D-14 where the Group holds a majority of the entity’s substantive risks and rewards.
(c)Represents commitments to provide liquidity up to this amount. These would be required to be provided in the event of the conduit’s access to funding markets being restricted. Qualifying Special Purpose Entities (QSPEs)

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


Credit card securitisations

The Group transfers portfolios of credit card receivable assets to Gracechurch Receivables Trustee Limited. Barclaycard Funding PLC, a subsidiary of Barclays Bank, has an equitable interest in the cash flows arising from the securitised assets and has issued Loan Note Certificates to the Gracechurch Card Funding vehicles which are Qualifying Special Purpose Entities (‘QSPEs’). QSPEs sell the Medium Term Notes to investors entitling them to receive specified cash flows during the life of the security. The proceeds of the issuance of Medium Term Notes are then distributed by the QSPEs to the Group as consideration for the Loan Note Certificates transferred. Following a securitisation, the Group receives fees for servicing the receivables and providing cash management services and payment of deferred consideration for the sale of the beneficial interest in the excess income over and above the interest paid to the noteholder. The Group maintains an interest in the pool of receivables that are available for securitisation, referred to as the seller’s interest.

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 transfer of receivables is accounted for as a sale under US GAAP where control of the receivables has been relinquished. A gain or loss is recognised on securitisation of the receivables which is calculated based on the previous carrying amount of the loans involved in the transfer (allocated between the receivables sold and the seller’s interest based on their relative fair values at the date of sale).

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 card
receivables
£m
Value at inception107
Transfer 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:

Year ended
31st December
2003
Credit card
receivables
Fair value of interest only strip£107m


Constant prepayment rate per annum100%
Credit losses per annum(a)
5.3%
Discount rate5.0%


                 
 
  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% 
 
Note
(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

For the Year Ended 31st December 2003



6152 Differences between UK GAAP and US GAAP accounting principles (continued)

(q) Securitisations (continued)


Servicing liabilities

The following table shows the servicing liabilities recognised and amortised during the period:
         
 
  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 
 
Credit card
receivables
£m
Balance at inception31
Amortisation for the year(3)

Balance at 31st December 200328

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:

Credit card
receivables
£m
Proceeds from new securitisations2,508
Proceeds from collection reinvested in receivables4,277
Cash inflow from servicing fees13
Cash inflow on interests retained149

                 
 
  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 ended
31st December
2003
Credit card
receivables
Fair value of interest only strip£97m


Constant prepayment rate per annum100%
   Impact of 33% adverse change£(13)m
   Impact of 50% adverse change£(38)m


Credit losses per annum(a)
5.3%
   Impact of 10% adverse change£(6)m
   Impact of 20% adverse change£(13)m


Discount 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 
 
Credit losses per annum(a)
  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 
 
Note
(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       
 
Notes
(a) Delinquent loans are loans 90 days or more past duedue.
(b) Net of recoveries during the yearyear.
(c) Securitised and derecognised from the balance sheet under US GAAPGAAP.

186  


61 Differences between UK GAAP and US GAAP accounting principles (continued)

(r) Fair value amortisation credit
Fair 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 Accounts
For 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 assets
The 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 Accounts
For 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


2004 

SEC Form 20-F cross reference and other information


SEC Form 20-F Cross Reference and Other Information




SEC Form 20-F Cross Reference and Other Information

     
Form 20-F
item number
 Page reference
Item numberin this document where reference is to a captioned section or note that is contained on more than one page, page numbers refers to the initial page of that section or note.

 
1
 
Identity of Directors, Senior Management
and Advisors
  
and Advisors  
  Not applicable  

 
2
 
Offer Statistics and Expected Timetable
  
  Not applicable  

 
3
3Key Information
 Key Information  
  Risk factors 9828
  Currency of presentation 193212
  Selected financialFinancial data 62/195/20473/224
  Dividends 206227

 
4
4Information on the Company
 Information on the Company  
  Presentation of information 2427
  Glossary 194213
  Business description 6475
  EconomicAcquisitions and monetary uniondisposals 96117
Financial overview78
Recent developments77
  Supervision and regulation 96
 Note 21 Tangible fixed assets127
Note 42 Future rental commitments76 
  under operating leasesNote 20 Tangible fixed assets 139141
  Note 43 Principal subsidiary undertakings36 Contingent liabilities and commitments 139155
  Note 5950 Subsidiary undertakings181
Note 48 Segmental analysis 158174

 
5
 
Operating and Financial Review and Prospects
  
  Financial Review 70
 International Financial Reporting Standards96

6
Directors, Senior Management and Employees78 
  Administrative expenses – staff costsCapital and liquidity risk management 7551

6
Directors, Senior Management and Employees
  Directors and Officers 2
  Directors’ report 5
  Corporate governance report 7
  Barclays report on remuneration 1113
  Audit and Accountability 2326
  Note 3 Administrative expenses – staff costs 114125
  Note 4 Pensions, post-retirement benefits,Pension costs 126 
  and other staff costs115
Note 5445 Related party transactions 155
 Note 55 Directors' and officers' emoluments170 
  Note 46 Directors’ and other benefitsofficers’ emoluments
and interests
156
  Note 56 Directors' and officers' shareholding172 
and options156
Note 57 Contracts with Directors and
connected persons and with managers157

 
7
 
Major Shareholders and Related Party Transactions
  
Transactions  
  Presentation of information 2427
  Directors’ report 5
  Note 5445 Related party transactions 155170
  Trading market for ordinary shares

of Barclays PLC
 207228

 
8
8Financial Information
 Financial Information  
  Note 1110 Dividends – Barclays PLC 119130
  Note 4751 Legal proceedings 152181
  Post balance sheet events  
  Not applicable  

9
The Offer and Listing
Trading market for ordinary shares
of Barclays PLC
228

     
Form 20-F
item number
 Page reference
Item numberin this document where reference is to a captioned section or note that is contained on more than one page, page numbers refers to the initial page of that section or note.

 
10
9Additional Information
 The Offer and Listing
Trading market for ordinary shares
of Barclays PLC207

10
Additional Information  
  Memorandum and Articles of Association 209230
  Taxation 210231
  Exchange controls and other
limitations affecting security holders 212233
  Documents on display 212233

 
11
11Quantitative and qualitative disclosure
about market risk
 Quantitative and qualitative disclosure
about market risk  
  Risk management and control – overview 2530
  Credit risk management 2935
  Analysis of loans and advances 3138
  Provisions for bad and doubtful debts 4143
  Potential credit risk lendingsloans 3942
  Loans and advances in non-local currencies  
63 and to countries receiving IMF support37
  Market risk management 4847
  Derivatives 53
 Treasury asset and liability management54
Note 45 Derivatives and57 
  other financial instrumentsCapital and liquidity risk management 141

12
Description of Securities Other51 
  Note 37 Derivatives and other financial instruments157

12
Description of Securities Other
than Equity Securities
  
  Not applicable  

 
13
13Defaults, Dividends Arrearages
and Delinquencies
 Defaults, Dividends Arrearages
and Delinquencies  
  Not applicable  

 
14
 
Material Modifications to the Rights of Security

Holders and Use of Proceeds
  
  Not applicable  

 
15
15Controls and Procedures
 Controls and Procedures  
  Disclosure controls and procedures 2326

 
16A
16AAudit Committee Financial Expert
 Audit Committee Financial Expert9 9

 
16B
16BCode of Ethics
 Code of Ethics12 9

 
16C
 
Principal Accountant Fees and Services
 117128

 
16E
17Share Repurchases
 151

17
Financial Statements
  
  Not applicable  

 
18
18Financial Statements
 Financial Statements  
  US audit report 100109
  Accounting policies 101110
  Consolidated accounts Barclays PLC 107118
  except page 113124
  Notes to accounts of Barclays PLC 114125
  Consolidated accounts Barclays Bank PLC 195214
  Notes to consolidated accounts
of Barclays Bank PLC
220

19
Exhibits
  
  of Barclays Bank PLCIncluded in documents as filed with the SEC 201

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 Information
Glossary

2004 

Glossary

   
Term used in Annual reportReport US equivalent or brief description

 
Accounts Financial statements

 
Allotted Issued

 
Attributable profit Net income

 
Called-upCalled up share capital 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 Shareholders'Shareholders’ equity

 
Share premium account Additional paid-up capital or paid-in surplus
(not (not distributable)

 
Shares in issue Shares outstanding

 
Tangible fixed assets Property and equipment

 
Write-offs Charge-offs

194

213


Barclays Bank PLC Data

Consolidated Profit and Loss Account

data
Consolidated profit and loss account


Consolidated profit and loss account

For the year ended 31st December 2003
                
 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 Datadata
Statement of Total Recognised Gains and Losses

Statement of total recognised gains and losses


Statement of total recognised gains and losses

For the year ended 31st December 2003
            
 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 Datadata
Consolidated Balance Sheet

Consolidated balance sheet


Consolidated balance sheet

As at 31st December 2003
                    
 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

2004 


Barclays Bank PLC Data
Consolidated Balance Sheet

Consolidated balance sheet

As at 31st December 2003
                    
 2004  2003 
                     Note £m £m £m £m 
 2003
 2002
 Note £m £m £m £m    
Liabilities
               
       
Deposits by banks – banking     57,641    48,751       74,211   57,641  
Deposits by banks – trading
     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  
Customer accounts – trading
     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 



 

 
Total liabilities and shareholders’ funds
     443,373      403,066   522,253  443,373 



 

 
  
 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 


 

 
                     
 
          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

As at 31st December 2003
            
 2004 2003 2002 
             £m £m £m 
 2003 2002 2001 
 £m £m £m    
Share premium account
              
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 



 

 
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  7,285   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 



 

 
Total reserves
  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 Statement
cash 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
  (d)     (2,379)     6,803     3,224 
 Note £m £m £m £m £m £m 
   
Net cash inflow/(outflow) from operating activities
  (e)  6,122   (2,379) 6,803 
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)    
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) 
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)
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  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  
Net cash (outflow)/inflow from acquisitions and disposals
        (930)     (612)     6    (185)  (930)  (612)
Equity dividend paid
        (1,400)     (1,796)     (1,254)   (2,139)  (1,400)  (1,796)



 

 
Net cash outflow before financing
        (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 
Net cash inflow from financing
        4,428      2,611     2,973   5,120  4,428 2,611 



 

 
(Decrease)/Increase in cash
  51     (372)     (1,207)     1,998 
Increase/(decrease) in cash
 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 of100 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 of100 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 of100 each (the ‘4.875% Preference Shares’) were issued on 8th December 2004 for a consideration of993.6m (£688.4m), of which the nominal value was10m 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 at10,000 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 the850m 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 of10,000 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 Data
Notes 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 



 

 
Note
(a) For the basis of the geographical analysis, see Analyses by geographical segments and classes of business on page 106.176.

(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 
 
The Notes refer to those parts of Note 6152 on pages 173191 to 189.208.

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’ fundsaverage 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 receivableInterest receivable  12,427   12,044  13,458  11,788  9,320   13,665  12,427 12,044 13,458 11,788 
Interest payableInterest 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 capitalProfit on redemption/repurchase of loan capital         2  3        2 
Non-interest incomeNon-interest income  5,807   5,122  5,176  4,386  3,769   7,112  5,807 5,122 5,176 4,386 
Operating expensesOperating 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 undertakingsProfit/(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 taxProfit 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 capitalDated 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 collectionDeposits 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 customersLoans 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 assetsTotal assets  443,373   403,066  356,612  316,186  254,830   522,253  443,373 403,066 356,612 316,186 



 

 
Note
(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


2004 

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 



 

 
Notes
(a) The Dollar financial information has been translated for convenience at the rate of US$1.781.92 to £1, the noon buying rate for cable transfers in New York City, payable in pounds Sterling, at 31st December 2003.2004.
 
(b) Net income and shareholders’ equity have been adjusted to reflect significant differences between UK and US GAAP, as shown on pages 172223 and 202224 to the accounts. Total assets have been adjusted to reflect such differences together with adjustments set out in footnotes (t)(s) and (x)(y) to Note 61.52.

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.

226


Barclays PLC Annual Report 2003       205


Shareholder Information


Shareholder Information2004 

Shareholder information


Dividends on the ordinary shares of Barclays PLC

Barclays PLC has paid dividends on its ordinary shares every year without interruption since its incorporation in 1896.

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.

206 

227


Shareholder information



Trading Market for Ordinary Shares of Barclays PLC

The nominal capital of Barclays PLC is divided into 9,996,000,000 ordinary shares of 25p each (ordinary shares) and 1,000,000 staff shares of £1 each (staff shares). At the close of business on 31st December 2003, 6,562,731,3102004, 6,453,561,180 25p ordinary shares and 875,000 staff shares were outstanding.

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.

228


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 



 
Note
(a) These figures include Barclays Sharestore members.

208

229


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%.



230


Barclays PLC Annual Report 2003       209


2004 

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.



210 

231


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 Senior
Management and
Principal Offices


Barclays PLC and Barclays Bank PLC
54 Lombard Street*
London
EC3P 3AH
Tel: +44 (0) 20 7699 5000


Matthew W BarrettChairman
John VarleyGroup Chief Executive

Group Executive Committee
John Varley
Group Chief Executive
Naguib KherajGroup Finance Director
Paul IdzikChief Operating Officer
Roger DavisChief Executive, UK Banking
Robert E Diamond JrChief Executive, Barclays Capital, Chairman, Barclays Global Investors
and Chief Executive, Private Clients
Gary HoffmanChief Executive, Barclaycard
David RobertsChief Executive, International Retail and Commercial Banking


Central Support
54 Lombard Street
London
EC3P 3AH
Tel: 020+44 (0) 20 7699 5000

Sir Peter Middleton GCBChairman
Matthew BarrettGroup Chief Executive
John VarleyGroup Deputy Chief Executive


Group Executive Committee
Matthew BarrettGroup Chief Executive
John VarleyGroup Deputy Chief Executive
Roger DavisChief Executive, UK Banking
Bob DiamondChief Executive, Wholesale & Institutional
Gary DibbGroup Chief Administrative Officer
Gary HoffmanChief Executive, Barclaycard
Naguib KherajG roup Finance Director
Chris LendrumVice-Chairman and Group Executive Director
Robert NimmoGroup Risk Director
David RobertsChief Executive, Private Clients & International
David WeymouthChief Information Officer
Group Central Functions
54 Lombard Street
London
EC3P 3AH
Tel: 020 7699 5000

Allan BarrDirector, Barclays Solutions
Graham BrammerGroup Property Services Director
Toby BroomeDirector, Service and Supplier Management
Leigh BruceGroup Communications Director
Mark CarawanDirector, Group Internal Audit
John ChartersGroup Non-Financial Risk Director
John CottonCanary Wharf Programme Director
Mike DavisDirector of Public Policy Director
Colette Delaney-SmithHeather DevineChief Operating Officer, Group Risk

Gary DibbGroup Chief Administrative OfficerTax Director
Lawrence DickinsonGroupCompany Secretary
John GilbertFinance and Business Risk Director, Group Functions
Peter GoshawkGroup Treasurer
Simon GullifordGroup Marketing Director
Mark HardingGroup General Counsel
Brian HarteGroupHead of Compliance Officer
Naguib KherajGroup Finance Director
Robert Le BlancGroup Financial Risk Director
Kathy LissonDirector of Operational Transformation
Kevin LloydGroup Chief Technology Officer
Ian Menzies-ConacherGroup Taxation DirectorSenior Tax Adviser
Mark MersonGroup Financial Controller
Robert NimmoGroup Risk Director
John OttGroup Director, Strategy and Planning
David PostingsManaging Director, Enable
Valerie ScoularGroup Human Resources Director
Cathy TurnerHead ofDirector, Investor Relations
Colin WalklinDirector Groupof Finance
David WeymouthChief Information OfficerCorporate Responsibility Director


UK Banking
54 Lombard Street
London
EC3P 3AH
Tel: 020+44 (0) 20 7699 5000




Roger DavisChief Executive Officer
Jayne Almond*Managing Director, Home Finance
Wai AuChief Operating Officer
Alistair Camp*CampManaging Director, Medium Business &and Agriculture Customers
Robin Dickie*Managing Director, Personal Customers
Simon GullifordGroup Marketing & Communications Director
Claire 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 Customers
John SandsHuman Resources Director
Andy SimmondsRisk Director
David WeymouthRachael YatesChief Information OfficerHuman Resources Director



Private Clients & International Retail and Commercial Banking
Murray House
1
Royal Mint Court
London
EC3N 4HH
Tel: 020+44 (0) 20 7977 7000




David RobertsChief Executive
John EatonChief Operating Officer
Jon AndersonFinance Director
Bob BashfordRobert EastRisk Director
John EatonChief Operating Officer
Allan FielderHuman Resources Director

Private Clients
Ray Greenshields*Dominic BruynseelsChief Executive, Africa
and Middle East
Jacobo González-RobattoChief Executive, Southern Europe
Pascal RochéManaging Director Investment Managementand
Country Manager, France


Private Clients
Robert E Diamond Jr
Chief Executive
Catherine McDowell*Ray GreenshieldsManaging Director, Wealth Solutions
Mike PedersenManaging Director,
International and Private Banking
Mike Pedersen*Richard RicciManaging Director, Private Banking

InternationalChief Operating Officer
Dominic Bruynseels*Managing Director, Africa
Jacobo Gonzalez-Robatto*Managing Director, Iberia and Country Manager, Spain
Pascal Roché*Managing Director, France
Rui Semedo*Country Manager, Portugal
Colin Vincent*Country Manager, Italy


Barclaycard
1234 Pavilion Drive
Northampton
NN4 7SG
Tel: 01604+44 (0) 1604 234 234




Gary HoffmanChief Executive Officer
Peter Crook*Keith CoulterManaging Director, UK Consumer FinanceCards and Loans
David CurdRichard DaviesDirector, IT and Operations
Mark Evans*Acting Managing Director, Barclaycard CorporatePartnerships
Mark EvansChief Operating Officer,
UK Consumer
Peter Herbert*HerbertManaging Director, Barclaycard International
Alison HutchinsonGerald KitchenMarketingActing Managing Director, Barclaycard Business
Dale RoskomDirector, UK Consumer
Credit Risk
Richard SommersFinance Director
Sue TurnerDirector, Human Resources

Director


Juniper Financial Corporation
100 S. West Street
Wilmington
Delaware 19801
Tel: +1 302 255 8100


Richard VagueChief Executive
Jim StewartPresident


* 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


2004 

Group Senior Management and Principal Offices





Wholesale & Institutional

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 Europe
Paul 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


Barclays Global Investors
45 Fremont Street
San Francisco
CA 94105 USA
Tel: +1 415 597 2000




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




Barclays Bank of Botswana Limited, Botswana
PO Box 478
Gaborone Botswana
Tel: +267 395 341

Thulisizwe JohnsonManaging Director


Cairo Barclays Bank SAE, Egypt
PO Box 110
Maglis EL Shaab
Cairo
Egypt
Tel: +20 2 366 2600

Colin PlowmanManaging Director


Barclays Bank PLC and Barclays Capital, Australia
Suite 1, Level 24
400 George Street
Sydney, NSW 2000
Australia
Tel: +61 2 9220 6000




Nicholas JohnsonChief Executive Officer, Australia


Barclays Bank of Botswana Limited,
Botswana

PO Box 478
Gaborone
Botswana
Tel: +267 395 2041


Thulisizwe JohnsonCountry Managing Director


Barclays Bank Egypt SAE
PO Box 110
Maglis EL Shaab
Cairo
Egypt
Tel: +20 2 366 2600


Colin PlowmanCountry Managing Director

Barclays Bank PLC, France
32 avenue George V
75008
Paris
France
Tel: +33 1 55 78 78 78


Pascal RochéManaging Director and Country Manager, France

Barclays Capital, France
21 Boulevard de la Madeleine
75038 Paris
Cedex 01
France
Tel: +33 1 44 58 32 32




Pascal RochéJean BarbizetManaging Director


Barclays Bank PLC and Barclays Capital, Germany
Bockenheimer Landstrasse 38-40
D-60323,60323, Frankfurt am Main
Germany
Tel: +49 69 71 61 00




Dr Rainer StephanManaging DirectorChairman of the Barclays Capital Board in Germany


Barclays Bank of Ghana Limited, Ghana
PO Box 2949
Accra
Ghana
Tel: +233 21 664 901/665 382

901-4


Kobina QuansahMargaret MwanakatweCountry Managing Director




Barclays Bank PLC, Gibraltar
1st Floor, Regal House
3 Queensway
PO Box 187 Regal House,
Queensway, Gibraltar
Tel: +350 78565




Tim Streatfeild-JamesGibraltarCountry Director



Barclays Bank PLC, Hong Kong and Barclays Capital Asia Limited
42nd Floor, Citibank Tower
3 Garden Road
Hong Kong
Tel: +852 2903 2000




Robert MorriceChairman and Chief Executive, Asia Pacific


Barclays Bank PLC and Barclays Capital Securities Limited, India
21/23 Maker Chambers VI, 2nd Floor
Nariman Point
Mumbai 400 021
India
Tel: +91 22 5638 7100




Mani SubramanianChiefCo-Chief Executive Officer, India
Madan MenonCo-Chief Executive Officer, India


Barclays Bank PLC, Dublin, Ireland
47/48 St. Stephen’s Green
Dublin 2
Republic of Ireland
Tel: +353 1 6611777




Tom McAleeseManaging Director, Ireland and Country Manager


Barclays Private Clients International Limited, Isle of Man
Eagle Court
25 Circular Road
Douglas
Isle of Man
IM99 1RH
Tel: +44 (0) 1624 684444


Tim ParkesManaging Director

Barclays Bank PLC and Barclays Capital, Italy
Via della Moscova 18
20121 Milan
Italy
Tel: +39 02 63 721




Hugh MalimCountry Head, Italy
Colin VincentCountry ManagerManaging Director,
Banca Woolwich




235


Group senior management and principal offices




Barclays Bank PLC and Barclays Capital Limited, Japan
15F Urbannet Otemachi Building
2-2-2 Otemachi
Chiyoda-Ku
Tokyo 100-0004
Japan
Tel: +81 3 3276 1100




Jeffrey DeckCountry Head, Japan and Chief ExecutiveOperating Officer,

Asia Pacific

Barclays Private Bank and Trust Limited, Jersey
39/41 Broad Street

*Strategic Business Unit head

214 


St. Helier
Jersey
JE4 8PU
Tel: +44 (0) 1534 873741


Leslie W CunliffeManaging Director

Barclays Bank of Kenya Limited, Kenya
PO Box 30120
Nairobi
Kenya
Tel: +254 2 332 230

Email: barclays.kenya@barclays.com


Adan MohamedCountry Managing Director


Barclays Bank PLC and Barclays Capital Latin American RegionalSecurities Limited, Korea
Seoul Representative Office
1111 Brickell Avenue23rd Floor, Seoul Finance Center
Miami84 Tapeyungro 1-ga
Florida 33131Chung-gu
USASeoul 100-768
Korea
Tel: +1 305 533 3333+82 2 2126 2600


Jin Sool JooCountry Manager, Korea

Enrique AriasDeputy Chief Executive Officer


Barclays Bank PLC Mauritius, Mauritius
8th Floor, Harbour Front Building
President J Kennedy Street
Port Louis
Mauritius
Tel: +230 208 9070




Jacques de NavacelleKamal TaposeeaCountry Managing Director


Barclays Bank PLC, Portugal
Avenida da Republica
50-3rd Floor
1050-196 Lisbon
Portugal
Tel: +351 21 7911100




Rui SemedoCountry Manager



Barclays Bank (Seychelles) Limited,
Seychelles

PO Box 167
Independence Avenue
Victoria
Mahe
Seychelles
Tel: +248 383 838




Frank HoareauCountry Managing Director


Barclays Bank PLC and Barclays Capital, Singapore
23 Church Street
13-08 Capital Square
Singapore 049 481
Tel: +65 6 395 3000




Quek Suan KiatBranchChief Operating Officer and Country Manager


Barclays Bank PLC and Barclays Capital, South Africa
8 Rivonia Road
Illovo 2196
Johannesburg
South Africa
Tel: +27 11 772 7000




Isaac TakawiraMarcus AndradeCountry Managing Director




Barclays Bank PLC and Barclays Capital Securities Limited, Korea
23rd Floor, Seoul Finance Center
84 Tapeyungro 1-ga
Chung-gu
Seoul 100-768
Korea
Tel: +82 2 2126 2600

Jin Sool JooManaging Director


Barclays Bank SA, Barclays Bank PLC and Barclays Capital, Spain
3rd Floor
Plaza de ColonColón 1
28046 Madrid
Spain
Tel: +34 91 336 1000




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


Barclays Bank and Barclays Capital, (Suisse) S.A.SA
PO Box 3941
CH-1211 Geneva 3
Switzerland
Tel: +41 22 81 95 11 1




Michael MorleyChief Executive Officer


Barclays Bank Tanzania Limited, Tanzania
PO Box 5137, TDFL Building
Ohio Street, Dar es Salaam
Tanzania
Tel: +25 5 22 2129381




Karl StumkeCountry Managing Director



Barclays Bank PLC and Barclays Capital, USAAmericas
200 Park Avenue
New York, NY 10166
USA
Tel: +1 212 412 4000




Thomas L KalarisChief Executive, Americas


Barclays Global Investors, N.A.
45 Fremont Street
San Francisco, CA 94105 USA
Tel: +1 415 597 2000

Blake GrossmanCo-Chief Executive
Andrew SkirtonCo-Chief Executive


Barclays Bank of Uganda Limited, Uganda
PO Box 2971
Kampala
Uganda
Tel: +256 78218110

+(256) (41) 230972-6
Email: barclays.uganda@barclays.com


Frank GriffithsNick MbuviCountry Managing Director


Barclays Bank plc, United Arab Emirates
Enoc House
PO Box 1891
Emaar Business Park
Sheikh Zayed Road
Dubai
UAE
Tel: +971 4335 1555

(0) 4362 6888


Mark PetchellManaging DirectorGroup Country Manager


Barclays Bank of Zambia Limited, Zambia
Kafue House
Cairo Road
Lusaka
Zambia
Tel: +260 1 228 244

224 713


Margaret MwanakatweAndy RiggCountry Managing Director


Barclays Bank of Zimbabwe Limited, Zimbabwe
2nd Floor, Barclays House
Jason Moyo Avenue
Harare
Zimbabwe
Tel: +263 4 758 280/99




Alexander JongweCharity JinyaCountry Managing Director




236


Barclays PLC Annual Report 2003       2152004 

Annual Report 2004 index


Accountability and Audit
26
Accounting
developments115
policies110
Acquisitions and disposals
117
Administrative expenses
other costs128
staff costs125
Annual General Meeting
6
Annual Report and Accounts (approval)
118
Assets
analysis154
by class of business175
by geographical region177
other142
Auditors
report109
Balance sheet
average84
consolidated120
consolidated (Barclays Bank)216
Barclaycard
business analysis96
business description75
senior management234
Barclays Bank PLC
consolidated accounts214
financial data224
notes to the accounts220
Barclays Capital
business analysis97
business description75
senior management235
Barclays Global Investors
business analysis98
business description76
senior management235
Business description
75
Capital adequacy data
capital ratios and weighted risk assets100
capital resources99
Cash flow statement
consolidated123
consolidated (Barclays Bank)219
notes to the accounts168
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 balances102
by banks143
by customer accounts143
Derivatives and other financial instruments
definitions57
notes to the accounts157
Directors’ and officers’
biographies2
emoluments17
interests25
notes to the accounts172
Directors’ report
5
Dividends
130
Earnings per ordinary share
131
Economic capital
34
Economic profit
226
Employees
equality and diversity6
involvement6
Equity shares
138
Fair values of financial instruments
166
Financial data
Barclays Bank PLC224
Barclays PLC73
Financial overview
78
Glossary (UK/US)
213
Goodwill
140
Group senior management and principal offices
234
Head office functions and other operations
business analysis98
business description76
Intangible fixed assets
140
Internal control
26
International
business analysis95
business description75
senior management234
International Financial Reporting Standards
115
Legal proceedings
181
Liabilities
analysis154
other145
Life assurance business
105


237


Annual Report 2004 index



Loans and advances to banks
interest rate sensitivity59
maturity analysis59
notes to the accounts131
Loans and advances to customers
interest rate sensitivity60
maturity analysis62
notes to the accounts133
Loan capital
dated149
undated149
Memorandum and Articles of Association
230
Memorandum items
121
Minority interests
130
Net interest income
83
average balance sheet84
Off balance sheet arrangements
106
Other operating income
125
Parent company accounts (Barclays PLC)
124
Pensions
directors18
pension costs126
Potential credit risk loans
42
Presentation of information
27
Private Clients
business analysis94
business description75
senior management234
Private Clients and International
business analysis94
business description75
Profit and loss
consolidated118
consolidated (Barclays Bank)214
Provision for bad and doubtful debts
net charge to profit and loss account44
notes to the accounts136
risk management43
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 disclosure135
US disclosure203
Segmental analysis
by class of business174
by geographical segments176
Share capital
called up151
Shareholder information
227
Shareholders’ funds
153
Short-term borrowings
102
Statement of total recognised gains and losses
consolidated119
consolidated (Barclays Bank)215
Subsidiary undertakings
181
Supervision and regulation
76
Tangible fixed assets
141
Taxation
deferred tax145
notes to the accounts129
shareholder information231
UK Banking
business analysis92
business description75
senior management234
UK Business Banking
business analysis93
business description75
UK Retail Banking
business analysis92
business description75
US GAAP
Barclays Bank223
differences from UK GAAP accounting principles182
financial data225


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 26, 200422, 2005Barclays PLC
(Registrant)
 Barclays PLC
 By  (Registrant)  /s/  Naguib Kheraj
 
  By/s/  Naguib Kheraj, Group Finance Director 
    
 Naguib Kheraj, Group Finance Director

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 26, 200422, 2005Barclays Bank PLC
(Registrant)
 By  (Registrant)  /s/  Naguib Kheraj
 
  ByNaguib Kheraj, Group Finance Director /s/  Naguib Kheraj
    
 Naguib Kheraj, Group Finance Director


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 (incorporated by reference to the 2000 Form 20-F filed on April 16th, 2001)
2.1Long 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 Plan (incorporated by referencePlans and Appendix relating to Barclays PLC’s Form S-8 File No.333-12818 filed on November 3rd, 2000)eligible employees resident in France
   
4.6 Trust Deed and Supplemental Trust Deed of the Barclays Group Share Incentive Plan (incorporated by reference to the 2001 Form 20-F filed on March 22nd, 2002)
   
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 (incorporated by reference to the 2000 Form 20-F filed on April 16th, 2001). Deed of amendment to service contract attached herewith.
   
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)
4.14Service Contract and Subsequent Amendment to Service Contract – Chris Lendrum
4.15Appointment Letter and Subsequent Amendment to appoint as Senior Independent Director – Sir Richard Broadbent
4.16Appointment Letter – Professor Sandra Dawson
4.17Appointment Letter and Subsequent Amendment to appoint as Deputy Chairman – Sir Nigel Rudd
4.18Appointment Letter – Stephen Russell
4.19Appointment Letter – Dr Jurgen Zech
4.20Appointment Letter – Leigh Clifford
4.21Appointment Letter – Sir Andrew Likierman
4.22Appointment Letter – Sir Brian Jenkins
4.23Appointment 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, and preference share dividends and payments to Reserve Capital Instrument Holders
8.1List 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 furnishedfiled pursuant to 17 CFR 240. 13(a)-14b and 18 U.S.C 1350(a) and 1350(b)
   
14.1 Consent of PricewaterhouseCoopers